Leveraging Strengths in Competitive API Markets

A provider’s perspective on Asian partnership

By Doris S. Symonds and Jeffery W. Frazier

The emergence of lower-cost API manufacturers in Asia has wrought changes on the industry’s competitive landscape, leaving Western pharmaceutical companies with a dilemma. While the appeal of Asian pricing is certainly attractive, other aspects of “value” from an API supplier may either be insufficient or lacking entirely.

Photo courtesy of Pfizer, Inc.

Take the case of steroids, for example. For years, steroid quality in Asia has been on the rise, and major steroid manufacturers there have started to create extensive distribution networks to compete on a broader geographic level. But the business dynamics in Asia give pause to many Western pharmaceutical companies. Asian governments, for instance, often don’t require the same level of GMP, EHS, and Quality standards that have long been considered routine requirements in the U.S. and Europe.

The market dynamics of the steroid products niche provide an interesting case study for both Western API producers and pharmaceutical companies seeking a balance of values that goes beyond simple cost concerns.

Identifying the Business Options

Pfizer CentreSource (PCS), a provider of API and dosage form manufacturing, faces many of the same challenges as other steroid manufacturers with Western-based operations. Acknowledging the challenges now confronting other sectors of the API industry, the company took a blunt assessment of the strengths and weaknesses of its own steroids production business, in a proactive attempt to manage its competitive position.

We saw clearly that Asian manufacturers had certain cost advantages in selected areas of the manufacturing process and we decided to focus on a ‘total value model’ — that is, identifying our customers’ interests in the total package provided by a manufacturer. This meant focusing on cost but also on non-cost issues such as consistency, Quality standards, strong GMP compliance, rapid access to customer service and regulatory support, and other elements. These, we decided, were key strengths for Pfizer.

Strategy for Leveraging Proprietary Know-How

Another strength was our technical expertise in early-stage bioconversion operations at our steroid manufacturing plant in Kalamazoo, MI. Pfizer’s unique process utilizes soybean-derived sterols and proprietary fermentation processes to create a broad intermediate platform. This approach allows the economical production of four basic steroid intermediates, each at extremely large scale in one process step, something that would take Asian steroid manufacturers numerous chemical steps to achieve from a different basic starting material. This is where PCS saw a very clear advantage that others in the global market could not match. We then had to address how to leverage this fact.

Where we could achieve better economics for our customers, we decided, was further down the steroid manufacturing chain, during the later-stage, labor-intensive chemical processing. These later steps, we concluded, might benefit from the synthetic processing cost advantages found in Asia. Outsourcing only these steps would allow us to maximize value to customers through Pfizer’s unique process for manufacturing a full range of steroid intermediates — letting us retain in-house the value-added customer and regulatory support services that Western customers expect. Our strategy for developing selective Asian sourcing partnerships began to emerge as a logical option.

Beginning in 2003, we conducted an extensive survey of the steroids landscape, with the goal of identifying potential Asian suppliers capable of fitting into our strategy for outsourcing only selected steps in the manufacture of some of our steroid products. We engaged outside consultants during a six-month period to assemble studies on a dozen API manufacturers in China and Taiwan, so chosen because of the depth and breadth of steroid knowledge there, as compared with that found in other emerging Asian nations.

In February 2004, a team led by Pete Stevenson, our organization’s president at the time, toured a handful of facilities in the Beijing, Tianjin and Shanghai areas. We identified potential partners in Taiwan as well, evaluating companies that might fit with both our capabilities and our corporate culture.

A series of trips to Asia, and an exhaustive series of meetings with potential partners, allowed us to narrow the list down to eight, then four, and finally just two suppliers.

One of the two was ScinoPharm Taiwan, Ltd., of Taiwan, founded in 1994 by a team with extensive experience in the U.S. pharmaceutical industry. The other was a company with which PCS had had a limited business relationship, Shanghai Pharmaceutical Group Co., Ltd., the largest pharmaceutical manufacturer in China.

Both suppliers offer their own advantages and we structured the relationships in a way that would maximize efficiencies and capitalize on the benefits derived from each. We knew that ScinoPharm would provide us with some technical advantages that allow them to align well with Western-style requirements. A chief benefit of working with Shanghai Pharma, meanwhile, was economics. We made it clear from the outset that we would be working with both partners, sourcing on a product-by-product basis depending on the best fit for each type of steroid.

Building a Framework for Success

Identifying sourcing partners was only one step among many in a process that took about three years to complete. With full support and guidance from the Pfizer Global Manufacturing (PGM) Leadership Team, we took our Asian sourcing strategy forward, drawing talent, resources and support from many areas within Pfizer.

A key element that would determine the success or failure of our approach was the global regulatory impact on our customers. The process transfers are designed to minimize change allowing us to work within the CEP process in Europe. In the U.S., PCS and Pfizer proposed a filing approach that worked efficiently for both FDA and us. FDA worked with Pfizer to develop the concept of using a Comparability Protocol (CP) to move a product from one manufacturing site to another. If Pfizer meets the predefined protocol, the path to drug product approval is well defined.

Sometimes the key driver in a process is simply perspective. We feel that we could bring to bear on this challenge the unique viewpoint Pfizer’s position would afford our customers. As a major pharmaceutical manufacturer, Pfizer truly understands the implications of change and change control. By thinking like the customer, working carefully with the FDA, and zeroing in on equivalency of product during the site transfer process, we were able to apply the CP regulatory mechanism appropriately and effectively.

Following identification of sourcing partners and a framework for minimizing regulatory impact, we worked to broadly communicate our plans to PCS customers. Our presentations to customers, delivering the reasoning for our new approach and the ultimate benefits to them, began in earnest in June 2005. We candidly covered all the basics: manufacturing, outsourcing criteria, operational and regulatory issues, and key benefits. Our vision of creating a paradigm that would literally offer the best of both worlds was unveiled – the confidence derived from international quality standards, customer service, and regulatory support, combined with the cost advantages of partnering with highly qualified Asian suppliers. From the outset, customer response was encouraging and favorable.

Throughout, the extensive and continuous support provided by our parent company proved indispensable in helping us achieve a successful steroid sourcing strategy. With a truly global presence, Pfizer is able to draw on some of the world’s best practices in the areas of manufacturing, QA, EHS, and regulatory compliance. PCS is able to utilize this broad and deep knowledge base to fashion a strategy that will work for us, for our Asian partners, and most importantly, for our customers.

Endorsement by the PGM Leadership Team brought with it a strong commitment to cross-functional resources to accomplish the challenge of technology transfer, including manufacturing and site leadership teams in Kalamazoo with extensive knowledge of steroid processes, as well as technical, analytical, logistics, customer service, quality assurance, EHS, regulatory and customer qualification teams in both New York and Kalamazoo.

These “sub-teams” meet weekly or bi-weekly, as needed, reporting up through an operations team under the guidance of Jeffery Frazier, senior business development manager. The overseeing operations team assembles monthly to tackle project-wide issues and keep the entire initiative moving forward. Higher-level management meetings are convened to review project milestones and resource needs, and develop solutions to strategic issues. On-the-ground liaison support at a Pfizer location in Singapore allows us to coordinate technical elements with the partners in China and Taiwan.

To say this is a large, highly complex project would be an understatement. So many elements had to be coordinated, before, during, and after product transfers. For example, at one point, we were selling 75 different grades and varieties of steroid products. We had to prune this list to a more manageable number of products that represented either high volume steroids or high value-added steroids. Once finalized, we had to manage the scope and timeliness of transfers, splitting our list of steroids into three distinct phases, grouped by the level of technical sophistication required, and beginning with the least sophisticated product group.

A Customer-Focused Outcome

As we move through the different stages of this massive project, we keep our sights firmly fixed on the outcome: the ability to offer our customers an improved total value proposition based on Pfizer’s strengths and our Asian partners’ cost advantages. The outcome, according to our strategy, will offer customers a superior proposition compared with a Western-only or an Asia-only sourcing approach.

Global distribution available through this PCS model also proves appealing for our customers. With warehousing capacity around the world and a globally organized business, Pfizer is well positioned to add post-manufacturing value to the equation. In addition, we guarantee our customers a high level of support with distribution-related concerns such as Customs issues, providing a valuable hassle-free distribution benefit they may not be able to get with an Asia-only sourcing path.

While our Asian sourcing project is not yet complete, the results so far are impressive. One supplier is currently building a production facility for our first product transfer to them. With the other supplier, we have conducted one plant trial of a product and are working on transferring a second product. Our work continues in the areas of transferring technical know-how and documentation, taking products through to scale up, and validating key processes.

This is a learning process — for PCS and for its partners — in terms of how to work together on such a large undertaking. Cultural behaviors, language barriers, differences in operating environments, and even varying familiarity with project management methodologies – these are a few of the obstacles we all worked hard to overcome, and continue to address.

Because of the CP mechanism involved, there is an inherent complexity that has to be managed; we need our partners to take a given starting material, process technology, use all of our analytical methods, follow our registration, and end up with an equivalent product to what we make in the U.S. — all while minimizing any potential problems.

Ironically, what began as a sourcing strategy to remain competitive has evolved into an ongoing process of self-assessment about where the value really resides in our business, and a vision for helping customers meet their long-term quality and cost objectives. Having completed much of our “homework” already, and our product transfer process now underway, Pfizer CentreSource has benefited tremendously from this initiative, and we are now preparing to pass on the benefits to our customers as well.

Doris S. Symonds is vice president, Fine Chemicals, Pfizer CentreSource. She can be reached at doris.s.symonds@pfizer.com.  Jeffery W. Frazier is senior manager, Business Development, Pfizer CentreSource; he can be reached at jeffery.w.frazier@pfizer.com.