Expansion & Investment

In the post-crash era, which CSPs are expanding and why?

By Gil Y. Roth
Contract Pharma

The financial crash in 2008 has wreaked havoc on business and consumer spending across the globe. Publicly held industrials report flat our falling revenues, but have started posting net income growth — a sign that they’re cutting expenses to the bone. Economists question whether such a model is viable in the long term. Within our field, that question certainly applies to large pharma shrinking its R&D structure; sure, costs are reduced, but how will it affect future productivity?

For contract service providers, the past two years haven’t been a joyride. Some have pared away at their operations, shuttered facilities or gone out of business altogether. But earlier this year, I noticed a number of announcements of new facilities or massive investments by contract service providers. In addition, it seemed that a month would rarely go by without my receiving an invitation to visit a new facility either under construction or just completed.

While some of these moves were started pre-2008 and are now coming to fruition, others were initiated during our long financial malaise of the past two-plus years. To find out which sectors are turning around, I spoke to several contract service providers who have made significant capital investments or expansions recently.

Next issue, I’ll focus on asset-transfer agreements and how the mega-merger trend is causing waves among CMOs, CROs, CDMOs and every other acronym under the sun.

Sterile Growth

“Sterile dosage forms have caught fire, so the majority of the new facilities and expansions we’re seeing are in the steriles field,” said Ed Tannebaum, AIA, of Strategic Planning Initiatives. “While big pharma isn’t investing capital in new facilities, we’re seeing steriles activity among both contract manufacturers and generics players like Teva and Mylan.” In contrast, traditional oral solid dosage operations continue to migrate overseas, he noted.

Dave Goswami, president and chief operating officer of IPS, a design and engineering company, concurred that steriles are driving the market. He noted, “Not all of the work we’re doing is in building or expanding sterile facilities. A lot of CMOs are also involved in renovating their existing sites to stay in compliance with new regulations and standards, like the EU’s Annex 1.” He added that sterile facilities can have a five-plus-year cycle from commitment to qualification, so we’re not seeing as much of a trend related to the financial crunch of 2008 yet.

One of the largest new expansions is indeed in steriles: 
Ben Venue has completed a 225,000-sq-.ft. expansion in Bedford, OH dedicated to sterile finished dosage forms of cytotoxic/genotoxic products. Expected to be online by the middle of next year, the new site will be able to accommodate clinical and commercial scales, and is equipped to handle some difficult formulation tasks, including flammable solvent and co-solvent formulations. All told, it’s one of the largest facilities of its kind in the world.

That expansion doesn’t qualify as a “post-recession” decision, since it’s part of a decade-long renovation and expansion plan by Ben Venue, which is owned by Boehringer-Ingelheim. BV added an 8,000-sq.-ft. pilot plant in 2009 and a 90,000-sq.-ft. quality and development center in 2008, but this new facility is the clearest sign of the company’s faith in the growth prospects for sterile high potency products.

Further upstream, Sigma-Aldrich Fine Chemicals (SAFC) completed a $30 million high potency API (HPAPI) facility in Verona, WI in April of this year. The 51,000-sq.-ft. facility is intended to complement SAFC’s 63,000-sq.-ft. HPAPI site in Madison, WI. The Verona facility has commercial-scale reactors that can produce as much as 10 times the capacity of Madison, and is geared for Phase III and commercial demands.

“With the High Potency market continuing to experience double-digit growth and ongoing significant advances in clinical pharmacology and oncology, there is a significant need for the large-scale production of HPAPIs,” said Gilles Cottier, SAFC’s president.

Rebuild the Center

As Mr. Goswami said, not every big investment is in a new building. DPT, for example, is spending nearly $50 million to realign its operations and build a trio of Centers of Excellence. Said J.J. Feik, DPT’s senior director of Business Development, “Our goal was to focus our sites to become better in their areas of expertise. To that end, we committed more than $45 million to set up our Lakewood, NJ site as a steriles and specialty products CoE, our San Antonio, TX facility as the semi-solid and liquid CoE, and a separate San Antonio site as the R&D facility to support them both.”

Mr. Feik said the investment in this strategy began in 2008, shortly before the downturn began, and increased as the meltdown proceeded. The initial investment plan, he told me, had been smaller, but just like the fortune cookie says, every crisis is an opportunity.

“We decided that we need to be the best we can be for our clients, despite the economy,” said Mr. Feik. “As the downturn progressed, we believed there would be some market shakeout, and we took the opportunity to position ourselves for the recovery. When clients came back to make outsourced manufacturing and development decisions, we wanted to show that we hadn’t been waiting on the sidelines.”

Privacy and Publicity

Given how few of the companies in our industry are publicy held, it’s not always easy to get facts and figures about major initiatives. Patheon, one of the few publicly-held players in the CDMO arena, has undertaken a number of strategic expansions since the financial meltdown, in addition to spending millions to improve its infrastructure.

Geoffrey Glass, executive vice president of Global Strategy, Sales, and Marketing at Patheon, told me that the company’s post-2008 investments in its Pharmaceutical Development Services segment have enabled it to fill gaps in several locations and bring PDS into line with commercial operations. The company spent several million Euros boosting sterile clinical manufacturing at its Ferentino, Italy site, while investments in Bourgoin, France have helped integrate the company’s solid dosage strategy in Europe. In addition, Patheon is in the process of adding softgel capsule capacity to its Cincinnati, OH site, beginning with clinical and R&D services. Mr. Glass noted the market demand for the service.

Jenifer Wheat, vice president of Business Development at CMC biologics, told me that providers need to weigh customer interest with practicality. Her company recently finished one phase of a bio-manufacturing expansion in Seattle, WA (for details, see the list on page 68). “You really need to keep customers’ needs in mind when you commit to an expansion,” she remarked. “Sometimes, clients will tell you that they’d really love [service x] if you had it, but that doesn’t always mean you have to build for that.”

All Over the Map

Extending geographic reach is one of the thee major drivers for expansion (“new capabilities” and “expanding capacity” are the others). Earlier this year, I interviewed Peter Soelkner of Vetter Pharma International, about his company’s new $15 million development center in the U.S. Mr. Soelkner explained how the new center’s location near Chicago was pivotal to the goal of bringing in more North American clients.

On a 10-times-larger scale, Belfast-based Almac Group recently finished a massive North American HQ in Souderton, PA. The $120 million, 243,000-sq.-ft. site will absorb most of the company’s offices in Audubon and Yardley, PA, and give the company’s Clinical Technologies and Clinical Services businesses a large footprint on this continent. Almac will also use the new site to mark the North American launch of its analytical services business.

“Pharmaceutical and biotech clients will enjoy the benefits of a single site from day one, when they are able to approve multiple vendor — i.e. packaging/distribution, analytical and IVRS — all in one site visit,” said David Setley, head of Business Development at Almac Clinical Services, describing the benefits of the new site.

Unlike Almac and Vetter, Cook Pharmica is keeping everything at home. The company spent north of $80 milion adding parenteral manufacturing capabilities to its Bloomington, IN base. The expansion was planned pre-recession, but Cory Lewis, director of Business Development at Cook Pharmica, told me that the company never wavered from its commitment to complete the 118,000-sq.-ft. expansion. “Being privately held,” he said, “it was an easy decision for us.” He pointed out that the original concept was to build a “one source” location, meshing biologics manufacturing with process development and parenteral dosage forms. The expansion concluded in late 2009 and was qualified in August of this year.

Brian Arnold, Cook Pharmica’s Brand and Marketing manager, noted that the company is also doing build-to-suit improvements for specific client projects, and that Cook’s existing buildings have room to add four to six new lines, in fill/finish or cell culture.

This article just scratches the surface of the new expansion and major investment activity of contract service providers. There are plenty more stories to tell, and the upside is that providers would not be making major capital commitments (above and beyond maintenance) if they didn’t see a light at the end of the tunnel.

On the next page, you’ll find an abbreviated —that is, not comprehensive — list of recent expansions among contract service providers.

Gil Y. Roth has been the editor of Contract Pharma since its debut in 1999. He can be reached at gil@rodpub.com