Future Pharma Partner Models - Outsourcing Trends in API Development & Manufacturing

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Considering the healthy growth of the pharmaceutical market and the escalation of outsourcing, the concurrent growth of the active pharmaceutical ingredients (API) market comes as no surprise. In response, contract service providers are ramping up their expertise in this area and acquiring API manufacturers to strengthen their capabilities.

As the population increases and the number of regional markets entering the global landscape continues to mount, drug companies are feeling pressure to bring drugs to market more quickly. CDMO outsourcing remains a key strategy for alleviating the pressures of development. In particular, API manufacturing has maintained a firm position as the most outsourced area for drug manufacturers. This has led to robust growth associated with the sector, which is expected to steadily rise, especially over the short term.¹ The API market is expected to grow at a compound annual growth rate (CAGR) of approximately 6.5% through 2020, when it will have a forecasted value of $185.9 billion.²

Chemistry matters

The overwhelming majority of drugs currently on the market are small-molecule compounds.1 In addition, while interest in biopharmaceuticals continues to grow, R&D efforts focused on chemical APIs continue unabated. Highly potent APIs (HPAPIs) in particular — although acutely toxic and challenging to produce — are attracting significant interest, notably those that serve as cytotoxic payloads in antibody-drug conjugates. ³ In fact, an estimated 25% of drugs manufactured worldwide contain HPAPIs.⁴

Interest in Early-Stage Development Leads to Growth and Partnership

Overall, early-phase clinical trial materials are a “booming” segment, according to industry expert Jim Miller.⁵ Miller cites demand for early development processes as a key component in acquisition activities. Specifically, growing demand for API and early-phase clinical trial materials (CTM) services, including manufacturing, formulation and development, have boosted CDMO expansion into innovative areas and provided opportunities for the introduction of new chemistry platforms.⁵ CDMOs achieving the greatest success growing their development services have reported revenue gains of 20% or greater. Catalent, Patheon and Metrics Contract Services have all achieved such growth.⁵ Another example is illustrated through Lonza; the CDMO has carved out a niche in the development services space by adding capacity in formulation development and drug product analytical development. This added capacity will be viable in the fourth quarter of 2016; drug product manufacturing capabilities for preclinical and clinical use (cGMP) are to follow. This added capacity will put the company on track to function as a “One-Stop- Shop” service solution for customers.⁶

Another option to expand capacity is through acquisition. Major CDMOs are acquiring less active, but attractive firms, with certain players making numerous transactions. This strategy of partnership, in which collaborators are acquired, is employed throughout the CDMO space. For instance, AMRI and Capsugel have adopted this method, with special attention on preliminary drug development. With the acquisition of Xcelience, Capsugel has bolstered its abilities in early-stage manufacturing. The company’s Dosage Form Solutions (DFS) arm includes Xcelience, Powdersize, Bend Research and Encap Drug Delivery. With these acquisitions, the firm’s technical capabilities have extended to include clinical trial manufacturing for solid dosage forms, among a host of other capabilities.⁷

This approach to partnership is also a successful way to acquire fully developed capabilities without starting from scratch. Thus, AMRI has actively purchased firms with crucial technical expertise, as demonstrated by the acquisition of analytical testing services supplier Whitehouse Laboratories.⁸ Furthermore, in May 2016 AMRI solidified its position as a leading API manufacturer (custom synthesis and generics) with the purchase of Euticals, a European CDMO positioned as an API specialist.⁹

Outsourcing API Production on a Global Scale

The global nature of this strategy is not without recognition. At DCAT Week 2016, fine-chemicalsindustry veteran Dr. Enrico Polastro stated that 3rd party API outsourcing is at 55%, from 45% in 1995. In addition to this, 30 companies account for two-thirds of the industry. ¹⁰ For European API manufacturers, 200 suppliers produce approximately $12 billion in product, with the focus on custom synthesis and complex APIs. Custom synthesis remains the primary space internationally, including Japan, where nearly 50 producers generate an estimated $3 billion of APIs. China and India have a market share of 60%, with API production valued at $27 billion. In North America, the demand for APIs has reached approximately $13 billion, with $2.5 billion produced by 40 suppliers (primarily large-volume analgesic and niche-type APIs). Although China and India are the leading manufacturers of APIs, nearly two-thirds ($17 billion) of the generated value is exported.¹¹

Regardless of sponsor company location, API and CTM outsourcing is increasingly preferred due to cost issues. The high cost of in-house production and R&D, coupled with the growth of niche and specialized products and overarching pressures to keep finished drug products affordable, has contributed to the rising incidence of outsourcing. Notably, outsourcing to firms in emerging markets is particularly profitable.¹¹ That API development is at the forefront of outsourcing is reflected in the 2016 Nice Insight CDMO Outsourcing Survey. Most companies (72%) acquire or plan to acquire smallmolecule API R&D services (84% of those in Asia, 55% of those in the EU and 70% of those in North America). More than half (56%) of companies outsource smallmolecule API clinical-scale manufacturing, and about one-third outsource small-molecule API commercialscale manufacturing.¹² These results mirror the trend of increased spending, which has persisted and is likely to continue. The majority of companies currently have a $51 million to $100 million and above budget for contract manufacturing, at 71%,¹² whereas in 2015 the majority (62%) spent $10 million to $50 million.¹³

While outsourcing is on the rise, sponsor firms are becoming more selective about which service providers they are willing to partner with. Quality performance, reliability and regulatory compliance are all ranked within the “Top 5” selection factors for participants in the 2016 Nice Insight CDMO Outsourcing Survey.¹² On the other hand, with increased regional and supplier options, the numbers of FDA and European Union warning letters have increased.¹¹ CDMOs that consistently meet various global regulatory standards, customer quality and reliability expectations clearly have a competitive advantage.

References

1. Shanley, Agnes. “Specialty Markets and Services Drive API Growth.” Pharmaceutical Technology. 2 Mar. 2016. Web.
2. Active Pharmaceutical Ingredients (API) Market to Soar at 6.5% CAGR till 2020 Thanks to Rise in Abbreviated New Drug Applications (ANDAs). Rep. Transparency Market Research. 21 Oct. 2015. Web.
3. “Minimizing Risk during HPAPI Manufacture.” Pharmaceutical Technology. 2 Mar. 2015. Web.
4. “Increase In HPAPI Manufacturing Highlights Need For Containment And Isolation Systems.” Pharmaceutical Online. 21 July 2015. Web.
5. Miller, Jim. “CMC Development Is Hot.” BioPharm International. 1 Apr. 2016. Web.
6. Lonza to Build Capabilities for Drug Product Development Services, Enabling One-Stop-Shop Solutions for Customers. Lonza. 2 Feb. 2016. Web.
7. Capsugel Completes Acquisitions of Xcelience and Powdersize. Capsugel. 5 Jan. 2016. Web.
8. ”AMRI Acquires Whitehouse Laboratories.” PR Newswire. 15 Dec. 2015. Web.
9. ”AMRI To Acquire EUTICALS In A Strategic Transaction That Expands Its API Development And Manufacturing Business.” PRNewswire. 5 May 2016. Web.
10. Brooks, Kristin. “DCAT Week ’16 Session Highlights.” Contract Pharma. 24 Mar. 2016. Web.
11. Peters, Rita C. “More Outsourcing? More Monitoring.” Pharmaceutical Technology. 2 Apr. 2016. Web.
12. The 2016 Nice Insight Contract Development & Manufacturing Survey.
13. Nice Insight’s Annual Pharmaceutical and Biotechnology Outsourcing Survey 2015