Catalent Pharma Solutions’ $410 million purchase of Aptuit LLC’s clinical trial supply business in late August was the key event in a recent spate of maneuvers by, and continued development from, contract service providers in this important sector. Contract Pharma talked to several companies working in the outsourcing of clinical trial supplies and services to take the temperature of the business as it’s currently constituted, and to unearth developing trends for the immediate and long term.
With Catalent claiming to have become the number two provider of clinical trial solutions worldwide after its purchase of Aptuit’s Resources and personnel, the question for a lot of industry observers becomes, will the move trigger a wave of consolidation? Several respondents acknowledged this as a definite possibility. An adamant few, however, saw the move in terms of the market’s overall development: a continuation of existing trends rather than a trigger for new ones.
“I think there is definitely saturation in the marketplace, as we are finding that existing commercially focused CMOs are now trending to offer clinical supplies solutions in addition to their commercial services. To what extent of the whole clinical pipeline they are offering is unknown, but they are trying to get something in the development stage in addition to their existing business,” Vlad Spehar, associate director of Business Development at Wellspring Pharmaceutical, told Contract Pharma. “I think the major players hold 80% of the global clinical supplies business. However, they’re moving to earlier phase formulation and development work to try and get some of the CRO work.”
Catalent sees the acquisition as a way of accelerating an already-aggressive program of organic development. According to Scott Houlton, Catalent’s president of Development & Clinical Services, the Aptuit acquisition was part of a plan more than two years old to increase the company’s general footprint in that space. “We think there will be increased outsourcing in the workload from the industry to the provider network that’s out there,” Mr. Houlton told Contract Pharma. “We had good assets embedded within Catalent already, so we pulled them out as a dedicated unit. As a result, for the last two years we’ve been growing faster than the marketplace.” According to Mr. Houlton, continuing to grow organically would have taken Catalent more time than the growth opportunities demanded. “We feel that scale and geography and the overall size of the offering — just adding capacity — is an important part of that business for our present clients.” He describes the acquisition as “a perfect fit,” and one that even falls well within the company’s broader, existing synergies. Reports place the Aptuit clinical unit as a $175 million annual business.
In contrast to the shift in timelines represented by Catalent’s acquisition strategy, Xcelience’s recent expansion of its GMP manufacturing and packaging services represents a more traditional growth strategy of developing resources within a company over a long planning period. However, the company’s director of Pharmaceutical Development Services, Dr. Paul F. Skultety, described the advantages of this growth in familiar terms: new offerings to new clients, and increased value to existing ones. “Our recent expansion in GMP manufacturing and packaging provides a way to both deliver in-creased value to a client segment that we already serve very well, and also attract new clients who could benefit from access to our expanded technologies and proven service excellence. Building on our existing expertise in matrix tablet delivery systems, the simple addition of four new pieces of manufacturing equipment enabled us to improve production times, increase overall capacity, and expand our existing capabilities for encapsulation projects.
Similarly, our new bottle packaging line enhances the speed at which clinical supplies are packaged, shortens project timelines, and enhances our ability to handle packaging for larger clinical trials.”
Whether companies prefer an acquisition or an incremental business development strategy, or simply jump at the former when the opportunity arises, everyone we spoke to recognized the growing issue of scale in the sector, particularly when it comes to serving a variety of client needs. Catalent’s Mr. Houlton suggested that the industry’s recent attention to scale should have a significant impact on just what type of work will be available for all businesses in the space. “I would say the separation between the biggest three companies in the clinical supply business from a packaging and logistics standpoint has become pretty large. But when you look at formulation and analytical, I think there’s still a fragmented market there. You’ll see consolidation continue, with companies focusing on specific drug delivery technologies, and more strategic relationships with partners. We see that as a driver — our customers are looking to rationalize their vendor base, and we think will continue to do so.”
Martin Lamb, the vice president of Business Development at Almac Group, largely agreed, noting the companies with which Almac is working should continue to seek fewer vendors. “As they’re using fewer vendors to support more work, scale will continue to be crucial,” he commented.
For some companies, scale simply means the ability to conduct one’s chosen business without placing pressure on the client. Myoderm’s director of Client Services, Lorann Morse, noted that every provider, no matter its size, requires resources to provide stability to its clients throughout the clinical trials process — without, for instance, requiring a smaller or mid-sized client to pay more up front than it has the resources to do at an earlier stage of the testing process. “You have to have financial well-being for the sake of your clients,” she told Contract Pharma. Several companies were also quick to point out that inorganic strategies to boost scale have their limits.
“I think flexibility in scale is more important than scale of itself. Responsiveness, flexibility and short lead times appear to critical client needs,” said Dr. Dianne Sharp of SCM Pharma.
“Scale certainly is important but it’s not everything,” said Mr. Spehar of Wellspring. “Since clinical supplies is a very specialized function of pharmaceutical development, it’s important to have the right personnel, the right technology, full service and international capabilities, and — most of all — customer care.”
Networking and strategic alliances were also cited as an alternative to growth. “As a privately-held organization, Myoderm’s strategy has been to grow internally and to leverage key relationships,” noted Ms. Morse. “I think what’s made us successful over the last two years has been the strategic alliances — our facility in Europe is a strategic alliance with a company. It’s using local expertise rather than trying to do it ourselves everywhere.” Those relationships, she believes, will be key to the company’s future as more clients seek supplies outsourcing.
There are also costs ascribed to scale, specifically sudden growth. Almac’s Mr. Lamb noted that his company went through an acquisition phase about 10 years ago. “I know the work that’s involved in acquiring companies with different cultures and potentially different service offerings, accustomed to working independently, bringing them into an organization and getting everyone singing from the same hymn sheet can be very challenging,” he commented.
Scale also doesn’t guarantee clients in a sector reliant on referral business. Jeff Basham, vice president of Business Development at Metrics, pointed out that opportunities for his company derive from their ability to meet special needs, as opposed to providing a wide array of services. “Our strike zone for oral dosage forms is from first time in man all the way through Phase II. Getting a formula all the way ready to go into Phase III — which we also do. There are providers that offer much broader capabilities than we do, but we still find that clients come to us for this specific area, even though they have the opportunity for more of a one-stop shop,” he remarked. It’s clearly a sign that clients aren’t always looking for the widest selection, but also the deepest expertise.
North America and Europe are expected to continue as the two most important markets for the immediate future. The attractiveness of Asia in becoming a strong third region for the clinical trial supplies business depends largely on the individual clients’ success in the region to date. Most people we spoke to — including those that are already servicing trials in that part of the world — agree that Asia remains a key growth area but hasn’t quite developed into an active, thriving market on the scale of more traditional regions. “It’s a hot area right now,” Catalent’s Mr. Houlton said, “but even though it’s growing in importance it’s still a case of the tail wagging the dog. Most of the packaging decisions still come out of the western market — the U.S. or Europe.”
Xcelience was the only respondent to specifically cite North America as an area in which they’re seeing significant growth, even though the majority of the companies were quick to cite the U.S. and Canada as a major or even the dominant area in their overall global footprint. Ms. Morse at Myoderm noted the potential advantages for the North American market in terms of the ability of suppliers to provide trial materials with a quicker overall turnaround in the U.S. or Canada than they might be able to in Europe or Asia. She also said that shortages of the drugs themselves, particularly in oncology, may determine in which markets certain trials are to be held, no matter the logistical or strategic issues in play. “There’s been some pretty big restraints that have been put on certain materials, which may force a company to go to a market simply from a supply and demand standpoint,” she told Contract Pharma.
No one we spoke to expressed significant enthusiasm for future business in Central and South America beyond acknowledging a general possibility for an increase and a continuation of a few, existing trial opportunities already in place. Mr. Basham noted there have been a few opportunities for companies like Metrics in supplying the domestic North American trials for Central and South American companies. As a general rule, respondents seemed to believe more opportunities to supply trials in South America and in Africa should develop as those markets become a more significant target market for pharma companies generally, and if their regulatory schemes develop in a direction that could potentially require testing within those markets, as opposed to global trials in Europe, North America or Asia. For now, the primary focus remains on the U.S., Canada, Europe, and parts of Asia.
Providing an example of a company finding specific business in a single market, Mr. Lamb noted that Almac expects to see more work from its biggest growth area of the last three to five years: Russia. In general, he sees more clients from the west doing business in Asia, as opposed to trials originating from that region’s indigenous companies. He remarked, “I know of one Chinese company that is in early phrase development right now. The companies that are in China, Russia, and Latin America — we’re not seeing a lot from them yet.”
One area in which several companies see potential future business is from CROs. One vendor explained, “The only change we would predict is that more clinical trial CROs may become clients if pharma companies turn over the clinical supply chain to them.”
A spokesperson at PAREXEL International passed along that company’s vision of work in the sector: “Specialized knowledge and significant resources are required to effectively manage global clinical logistics. In this regard, companies can avoid developing their own internal systems and having to manage multiple vendors by outsourcing clinical logistics to a provider like PAREXEL, taking advantage of our global team of experts and our distribution infrastructure to reduce costs, improve compliance, and increase efficiencies.”
Two of the companies we spoke to said they are currently working with CROs that were taking over the administration of drug trials from their client companies. Working with CROs may present a challenge to Clinical Trial Supply providers, as CROs generally lack the institutional expertise that has long been an ingrained aspect of many pharmaceutical companies. “In one particular case I can think of we used to work with a pharma company,” said one respondent.
“That company is now working with a CRO and we’re now working with that CRO on behalf of the client. To be honest, I don’t think it’s an ideal model, but I see why companies are going down that road: they’re cutting back on the number of people they have to manage.” That respondent compared the difference in working with CROs as opposed to previous relationships with larger pharmaceutical companies as “learning to walk again,” and that a learning curve exists when it comes to educating those CROs to some of the requirements involved with clinical trial supplies.
Challenges/opportunities should continue to mount in the specialty services required of clinical trial supply vendors. The increased regulatory attention given to cold chain management — such as requirements for temperature information for any and all trial-related offerings during transit — is expected to continue in the near future. “We certainly see increased interest and demand for cold chain, particularly for early phase clients who are conservative with shipment and storage conditions,” said Mr. Skultety of Xcelience. Skultety also cited an increased interest in MUDF and the need to re-package existing drug product for blinded trials.
Mr. Spehar at Wellspring added, “The increased demand for sterile products and mAbs development has refocused the need for ensuring photostability, humidity and temperature of the API and finished product during all phases of the product lifecycle including maintain the labeled storage conditions during distribution.”
Dr. Sharp at SCM Pharma said her company expects to see a continued demand for “services such as the cGMP filling of c14 radiolabeled products and cytotoxic compounds in aseptic conditions.”
Each company with which we spoke expressed the opinion that regulatory pressures, whether viewed as hard regulation or simply as the increased general attention of governments as to clinical trials, was a growing concern. This was particularly true in non-North American markets. “Certainly in Russia there is increased attention,” said Almac’s Mr. Lamb. “This is all quite new to China, so there are regulatory issues. They haven’t typically had a clinical supply industry there, so a lot of the regulatory requirements applied to trial are coming from other areas.” He also noted some resulting confusion on the part of clients as to how to even enter certain markets, citing a nine- to 12-month waiting period in China for even getting a certificate to perform a trial. Something may have to give, because the population encourages rapid enrollment in trials.
Mr. Spehar commented that increased regulatory pressure in one market can prepare a company for when those regulations are adopted by another market, citing Canada’s temperature and labeling regulations for supplies being shipped — whether sterile cold chain products or solid dosage forms — as a precursor to the greater demands for similar integrity in other countries they’re beginning to see now. Mr. Lamb noted that the FDA has more stringent requirements on temperature data for shipping clinical supplies, and that this has led his company to develop a system for archiving that data.
A potential wave of consolidation, projected growth across the board, the crucial nature of scale, emerging markets, shifting clients and a growth in specialty services: they all indicate heady times ahead for CTS providers. Mr. Basham at Metrics pointed out that the field getting tighter rather than bigger in the months ahead. “I think we will see consolidation, but people will be looking for growth into areas that fit their company’s comfort zone,” he said, noting that, with every acquisition a company like Catalent makes, a company like Aptuit is leaving the sector to focus on other priorities. “Catalent’s acquisition wouldn’t make sense for us,” he continued. “A finished dosage site that had high level potent containment? We might look really hard for something like that. That’s what I see happening — buying and selling.”
Mr. Lamb at Almac told Contract Pharma that a more fundamental change that should shape the market will come from downsizing pharmaceutical companies. Faced with increased time pressures, they will leave greater decision-making authority with their vendors. The resulting opportunity for companies to further differentiate themselves, based on expertise and process as opposed to the creation of basic supply commodities, comes with a greater degree of excitement. “As a vendor,” Lamb said, “It’s fantastic.”
Tom Spurgeon is a contributing editor to Contract Pharma. He can be reached at email@example.com.