Recent analyst surveys place the market for parenteral dose contract manufacturing services around $1.2-1.5 billion, including vials, ampoules, syringes, bags and bottles. They also project an annual growth rate of 5-10%. Current parenteral facilities will be inadequate to handle the needs of the large influx of biopharmaceuticals predicted to take place during the next few years (and beyond). As a result, providers are making sizeable investments in new parenteral capacity.

“What we’re seeing now are the after-effects of poor planning,” said Peter Hansbury, Ben Venue’s general manager, contract manufacturing services. “After the biopharma bust in the early 1990s, a lot of companies were left holding the bag. No one wanted to get burned again, so companies held back on committing to manufacturing facilities.”

It’s a familiar refrain, and we all know the poster child for this dilemma: Immunex and its under-produced rheumatoid arthritis drug Enbrel. No company wants to get caught unable to satisfy market demands, but the decision to commit to investment years in advance for a drug that may fail in Phase III can be too risky for some firms. It’s possible that if Immunex had enough supply of Enbrel for the marketplace, the company’s stock price would have been high enough for it to remain independent, preventing its acquisition by Amgen this year.

Many providers (and pharma companies) have concluded that the sheer volume of biodrugs currently advancing through trials, nearly all of which need parenteral dose manufacturing, warrants investment in manufacturing sites. In addition, these new drugs can be more complex and require more difficult and costly processing than existing products, raising the premium for parenteral manufacturing.

Boom or Bust?
Mr. Hansbury’s employer, Bedford, OH-based Ben Venue, is in the midst of an $81 million expansion plan that will add 160,000 sq. ft. of high speed tunnel filling lines and lyophilization capacity. The facility will begin validating new plant batches next July, and will file for approval in the third or fourth quarter of 2004.

“The industry is in a position where demand for parenteral services exceeds capacity, and I see that condition holding up for the next five to 10 years, at least. The prevalence of smaller biotech companies will definitely keep demand high for the foreseeable future,” said Mr. Hansbury.

Not everyone agrees with this long-term perspective. Thomas Handel, vice president of sales for Meridian Medical Technologies, commented, “I think we’re heading into a glut of commercial lyophilization capacity. It looks like everybody invested in a hurry in response to the potential drought. And these are big lyo-chambers they’re building. Once they’re all online, we might find ourselves with excess capacity. However, you still have to move the products from the early stage to the commercial. These small- to mid-size companies need to find a supplier that is willing to take on the development work. But this requires a different mindset. In this scenario the supplier must view the development work as its own business, not necessarily a feeder to commercial work. A supplier must accept the law of averages for this industry. Most early phase development products just will not pass the stringent clinical and economic requirements and will never make it to commercial production.”

Even if the supply pendulum swings too far in the years ahead, executives at parenteral CMOs are in agreement that capacity is stretched thin at present, and will only get thinner before the new sites are approved by the FDA. However, there are conflicting opinions about the long-term outlook for the market. One industry source at a major parenteral CMO commented, “I don’t feel comfortable matching these 5-10% growth estimates. There are a number of issues in our industry, particularly regulatory affairs, that make it hard to predict where everyone will be in the next decade.”

At the end of September, the FDA circulated a concept paper on “Sterile Drug Products Produced by Aseptic Processing,” discussing cGMP issues relating to the sterilization of components, containers and closures. The Parenteral Drug Association (PDA) recently released comments on the paper, expressing concern about ambiguities and inaccuracies, but stressed that the paper provides “a good platform for a final draft guidance meeting the needs of FDA, ORA [Office of Regulatory Affairs], and the regulated industry.”

In addition, compliance with 21CFR11 (see Electronic Records &Electronic Signatures) will present a hurdle for parenteral CMOs, just as it has ramifications for all other processes in drug manufacturing.

A longer-term threat to parenteral CMOs is the possibility of breakthroughs in gene therapy. If biopharma companies were able to introduce some protein-building genes through viral vectors, the need for large-scale parenteral manufacturing would decrease. Given that gene therapy is still in its infancy (with progress slowing to a crawl after the 1999 death of a patient in a gene therapy clinical trial), parenteral CMOs aren’t too worried about the prospect. Even if gene therapy becomes safe for trials, it would take more than a decade for products to gain FDA approval and reach the market. A more realistic fear is that biologic manufacturing capacity will be unable to meet the volume demands of new drug approvals, limiting the usage of parenteral CMO facilities.

Vertical or Horizontal?
Companies are dealing with this changing market in different ways. Consolidation has led to several players offering services throughout the drug development chain, while other companies make their way providing niche services.

In recent years, Cardinal Health and Baxter Healthcare have both made moves to build their parenteral offerings. In the summer of 2001, Cardinal acquired Albuquerque, NM-based SP Pharmaceuticals, which operated a 215,000-sq.-ft. drug development and contract manufacturing center specializing in sterile, injectable drugs and biopharmaceuticals in liquid and lyophilized formulations for glass vials and ampoules.

At the time, George L. Fotiades, president and chief operating officer of Cardinal Health’s Pharmaceutical Technologies and Services group, remarked, “Over the last 18 months, Cardinal has significantly expanded its capabilities in this area. We are now supporting scores of drug companies in the development, manufacturing and packaging of proprietary pharmaceuticals in a wide range of unique oral, topical and inhaled formulations.”

Around the same time, Baxter Healthcare bought Cook Pharmaceutical Solutions, a small-volume parenterals provider, from the Cook Group. Baxter bought the CPS property in Bloomington, IN, which included six buildings and a recently expanded 120,000-sq.-ft. manufacturing facility. David F. Drohan, a senior vice president at Baxter and president of the company’s Medication Delivery business, commented, “The acquisition of Cook Pharmaceutical Solutions will broaden the range of delivery options Baxter is able to offer our pharmaceutical partners around the world.”

In June of this year, Baxter negotiated to acquire ESI Lederle, a division of Wyeth, for $305 million. ESI Lederle manufactures and distributes injectable drugs in the hospital market. The acquisition included sterile injectable manufacturing capabilities, with a 330,000-sq.-ft. facility for small-volume drugs located in Cherry Hill, NJ. “The vertical integration of ESI Lederle’s manufacturing capabilities provide a reliable, cost-effective, quality manufacturing source of small volume parenterals, vials and ampules not currently available elsewhere within Baxter,” said Mr. Drohan.

Other parenteral CMOs are skeptical about this concept. “Vertical integration only goes so far,” said one industry source. “What you gain in manufacturing scale, you might lose in customer relationships. All I can say is, after these acquisitions were announced, my company’s gained a lot more clients.”

Early or Late?
There are other barriers involved in trying to become a one-stop parenteral manufacturer. Inaccuracy in forecasting product failures is a major stumbling block for large scale commercial manufacturers who seek to move earlier in the development chain. One executive at a late-stage manufacturer remarked, “With early pipeline business, it’s tough to schedule two years down the road, while my commercial business is planned out to five years right now. Commercial manufacture is an inherently more stable business, and I’m not sure companies that are used to that will have the patience to deal with the problems in early phase work.”

One company that has built a strong position in the early phase market is Mr. Handel’s employer, Columbia, MD-based Meridian Medical Technologies. “There are two philosophies on business development for pre-commercial parenteral work,” said Mr. Handel. “One concept is to bring in early phase work by offering a low bid and recouping your money when the drug gets to commercial level. The other is to assume that the drug won’t reach the commercial market, and price accordingly. We work on the latter principle. I don’t mean to sound negative, but you just can’t price every early phase assignment as a loss leader, in the hopes that you’ll be producing the drug later on in commercial quantities. If you price the work artificially low to attract commercial business, you end up with a low-margin development business and only a few products that go commercial.”

The company has a GMP pilot facility that produces small volume, early stage work affordably, according to Mr. Handel. “There are universities which offer high quality pre-IND work in this field, but they’re only GLP. The benefit you gain by getting into development quickly can be lost when the product moves into GMP phase and you then have to transfer the production to a GMP site. Our approach is to recognize that development products inherently require flexibility. We offer that with the pilot facility. However, we also keep our eye on the goal of commercial production. Each process is designed with scale-up in mind so if a product is successful we have minimized the transition into our commercial facility,” he said.

Meridian’s success has attracted attention. The company is being acquired by King Pharmaceuticals, largely on the strength of Meridian’s Nerve Agent Antidote and EpiPen auto-injector device (see Top of the News, p. 14). A King spokesman said the company plans to consolidate Meridian’s manufacturing processes into its existing production facilities, which refers to numerous inspection and packaging facilities, but gave no indication about the future of the contract manufacturing business.

Commodity or Value?
Despite the shortage of parenteral capacity, CMOs continue to face some pricing pressure, particularly from large sponsors. “One of the ways it shakes out,” said one industry source, “is that bigger companies tend to press you more on price. Since the bigger firms all have in-house capabilities, they can find out how much the process costs. Then they expect us to work basically at cost, or for very little over cost. Of course, this begs the question: If your in-house capabilities are so great, why are you coming to us for this job?”

The source added, “Smaller firms, especially the biopharma companies, are willing to pay because they value what we offer. They don’t treat what we do as a commodity. On the big pharma side, their purchasing personnel are the ones who perceive it as a commodity. Once their technical staff gets involved, it helps to bridge the gap and demonstrate the complexities of what we’re providing.”

Mr. Handel agreed that smaller biopharma companies offer a different set of requirements than some larger firms. “Sophisticated customer service is absolutely critical for smaller sponsors. We don’t have a consultancy business, but we do offer these companies options for many of the other steps they’ll need, not just in manufacturing,” he commented.

Mr. Handel remarked that more than 80% of Meridian’s inquiries come from biopharma companies, and that more than half of Meridian’s contract work comes from them, particularly ones that have no products on the market. These firms, typically funded by venture capital, must focus on getting to the next milestone payment as quickly as possible. Achieving the next tranche is dependent upon success. Therefore, the funds will be spent most efficiently and with the least risk. Early phase companies must avoid the large capital and time expenditures of building manufacturing facilities for a product that may never reach the next clinical stage.

Some misgivings aside, the parenterals market seems to be geared for future growth, benefiting big and small sponsors alike.