The session entitled “Pharmaceutical Outsourcing: The Markets and Supply Strategies for fine Chemicals, APIs, and Drug Products,” addressed API sourcing trends, overall market size, and small-molecule contract manufacturing in key segments, as well as analysis of the contract manufacturing market for solid dose and sterile drug products, and capacity utilization, highlighting challenges and strategies for suppliers.
Speakers included: Dr. Enrico Polastro, vice president and senior industry specialist, Global Pharmaceutical and Fine Chemicals Practice at Arthur D. Little; Jim Miller, president of Pharmsource; and panel members Dr. Peter Comes, corporate vice president, supply Network & Process Management at Boehringer Ingelheim, and Michael Boyson, senior director, head of oncology and Biologics Supply, Global Manufacturing and Supply, at Takeda Pharmaceuticals.
According to Dr. Polastro the fine chemicals market is experiencing a shift, with sourcing heading back to the West. Several factors are at play here; the strength of the U.S. dollar, questions about reliability of India and China as a supply source, the rapid pace of labor investments, and the realization that “pennywise may be dollar stupid,” adding risk of supply, production and quality.
Additional factors influencing the market include a decline in the number of vendors in India and China, the supply structure in Europe has substantially dropped, along with M&A activity and exit of players and comparable players in other countries. These changes are weeding out the fly by night players. Whether or not these trends will continue depends on how well China and India handle quality and service issues, according to Dr. Polastro. The competition will not remain idle. Additionally, if regulatory changes in U.S. make the field more even, the best companies will emerge.
Dr. Polastro provided the following market share estimates and Supply - Demand patterns by region:
Demand: $13 billion
Production: $2.5 billion
Number of merchant producers: 40
Focus: Large volume analgesic API
Niche type API
Demand: $13 billion
Production: $12 billion
Number of merchant producers: 200
Focus: Custom synthesis
China & India
Demand: $10 billion
Production: $27 billion
Number of merchant producers:
Focus: Catalogue products
Demand: $2.5 billion
Production: $3.0 billion
Number of merchant producers: 50
Focus: Custom synthesis
Dr. Polastro also addressed the fine chemicals general market size, growth and outsourcing trends. The industry is increasingly moving towards strategic sourcing with more extensive outsourcing to 3rd party API market. It’s at 55% today versus 45% in 1995.
About 25% of the fine chemicals market is for custom products, which represents approximately $13 billion, whereas standard catalogue items make up 75% and $32 billion. The supply structure of merchant pharmaceutical fine chemicals is very fragmented, with the top 10 providers (i.e. Lonza, Teva, Sanofi, Siegfried, Evonik) holding a 12% market share representing $5.5 billion.
Additionally, Jim Miller provided an overview and analysis of the dose CMO industry, current challenges and new services models. He estimates the current market size at $16.8 billion, up 6% in 2015, on par with the past several years with growth averaging 7%. Recent growth in the CMO industry has been fueled by facility acquisitions accounting for 25%, and 75% organic growth.
Some 35 companies are global players competing in this market: 30 represent 60% of industry revenues, accounting for two-thirds of the industry. The dose CMO product type segments include: solid, $7.1 billion, Injectable, $4.6 billion, Special, $3.4 billion (this includes softgel, inhalation, transdermal, blow-fill-seal), and semi-liq, $1.8 billion. Mr. Miller provided a breakdown of the geographic distribution of dose CMOs: Regional EU, 120, Regional North America, 51, Global, 34, Regional Japan, 12, and Regional ROW, 2.
The challenge for the industry, according to Mr. Miller, is if outsourcing is going to continue to grow, how do you keep the numbers up? There has been a decline in Pharma outsourcing of new Molecular Entities (NMEs). This is attributed to substantial investment by Pharma to build biologics capabilities and capacity in-house. Recent analysis shows that of 400 NDA approvals, 10 were outsourced to CMOs. In turn, CMOs have responded by creating a one-stop-shop model. Mr. Miller says it is still too early to determine if this strategy will be successful.
As a result of this environment, more complex outsourcing strategies continue to emerge. Namely, flexible, more adaptive service providers prepared to offer solutions and tailored services. For example, sharing overhead with sponsors paying for equipment, and creative financing deals. It’s these companies that will succeed, according to Mr. Miller.
Recent examples include Vertex and Hovione’s continuous manufacturing pact, in which Hovione will operate a commercial-scale, continuous manufacturing facility at its NJ location to support manufacturing of Vertex's approved medicines; and Patheon’s arrangement with Flexion to establish a dedicated manufacturing suite in Swindon for the manufacture of Flexion's lead program, FX006. According to Mr. Miller, we’re going to see more of these approaches aimed at reducing operating costs and increasing capabilities.
In closing, Mr. Miller noted that while the number of drug products is expected to continue to increase, the percent outsourced may decline a bit due to capacity/capability expansion by pharma. Also, units per product are smaller, with personalized medicines and a record number of orphan drugs approved in 2015. Finally, legacy products will continue to see greater competition and only a few companies are in a position to succeed in this environment (5% account for NMEs outsourced), according to Mr. Miller.