The field of Oral Solid Dosage (OSD) outsourcing is filled with opportunities for those contract manufacturers who can avoid getting caught in a commodity trap. Many of the CMOs we spoke to about the state of the OSD market cited an upswing in outsourcing, while all talked about the need to differentiate through niche technologies, capabilities and other value-add propositions.

While pharma’s ongoing network rationalization has been a key driver for increased outsourcing of OSD, it isn’t a foregone conclusion that fewer big pharma sites equals more outsourcing. Michael Valazza, vice president, Global Business Development – Oral Solids and Controlled Release Technologies at Catalent Pharma Solutions, told us, “In the last decade, we’ve seen, for the most part, big pharma continuing to outsource OSD products tactically, not strategically. It can often be a capacity play, but this process definitely goes through cycles. For example, GlaxoSmithKline is in a phase of in-sourcing products to utilize capacity to its internal network.”

One provider said, “The OSD market remains very dynamic. Big pharma is still going through considerable transition. Many groups and departments we worked with are fighting internal battles, due to integrations, new strategies, etc. It’s a huge transition to manage, moving from an internal network to hybrid internal/external, especially with so many older products facing lifecycle management issues. There’s no black-and-white answer to where things are going. We have to serve the business, play it out, and respond appropriately to opportunities.”

Geoff Glass, executive vice president, Global Sales and Marketing at Patheon, said, “Solid dose is still the largest part of our business, both in commercial and development phases. Approximately 60% of our CMO revenue worldwide comes from tablets.” The key trend, he noted, is the shift from conventional to complex solid dosage drugs, including fixed-dose combinations, active coatings, multiple APIs, dissolving formulations, or other novel delivery mechanisms.

Mr. Glass remarked, “Almost 70% of the business in our Pharmaceutical Development Services unit is in complex solids, and that should be a proxy of what the commercial unit will be making in the mid- to long-term.” He commented that complex solids business in development has doubled from the first quarter of 2010 to the last quarter of 2011. “That’s a big, fundamental change,” he said.

He added that Patheon’s strategy of offering multiple formulation technologies and testing them in parallel has helped the company remain flexible and offer numerous options, rather than relying on a premium, proprietary technology to solve all issues. “We’re in a very dynamic space right now, trying to ascertain how to invest in technologies that will lead to higher chances of success,” he commented

Mr. Valazza at Catalent told us that his business has also shown strong growth in the past few years. “We’re focusing on Controlled Release (CR) as a business and how to become more of a solutions provider in that area, not just a commodity-service provider,” he said. “The question is how we determine what types of programs are attractive to Catalent, drive margin growth, but are still economical to the customer base, without getting caught in a commodity track.”

Mr. Valazza noted that it’s important not to get caught up in high-volume, immediate release (IR) products, for the sake of utilizing capacity. He said, “We want to look at products and find ways to improve or differentiate them, be it through different dosage forms, other line extensions or IP protection through Zydis, OptiDose, and other technologies we have. These are ways we can work with clients — big and small — to create additional value for their franchises.”

Catalent and Patheon are the two biggest players in OSD contract manufacturing, but the field allows for many players in a variety of areas and scales. Jeff Basham, vice president, Business Development at Greenville, NC-based Metrics, Inc., told us, “Our strike zone at Metrics is first-in-man, Phase I/II, with the goal of staying with the client on into commercial manufacturing. We’re find more and more companies that like that concept.” Mr. Basham said more large-scale CMOs moving into the development area. “We can probably make a billion or so tablets a year, while the large-scale competition can do a billion a month, but we’re holding our own.” A key strategy, he noted, is working with clients that have smaller quantity products, so that a shift to commercialization won’t devour all of Metrics’ capacity. The big CMOs, he remarked, are looking for high-volume products once commercial scale is reached.

Several providers we spoke with emphasized the importance of potent-handling capabilities for OSD. Mr. Basham noted that potent work is a specialty for Metrics. “Potent product development is a significant portion of our business,” he commented, adding that those products tend to require smaller volumes.

Clive Bennett, chief executive officer of Whippany, NJ-based Halo Pharma, remarked, “High potency capabilities are probably essential if you want to be in the CMO business.” Halo has been developing its capabilities in that area, according to Mr. Bennett, who noted that Halo’s private owners are “extremely willing to invest in new equipment to boost capabilities.”

He noted, “For a CMO, there never seems to be a standard job. There’s always some nuance or new technology or change that requires addition of capital equipment.” He mentioned Halo’s addition of roller compaction as another demand-driven move, remarking, “A number of companies are trying to make that a preferred technology. Some well-known companies are looking for options beyond direct compaction.”

Excella, a German unit of Paris-based Fareva, has been carving out a niche in high-potency/cytotoxic solid dosage and API manufacturing. Dr. Michael Tschoepe, Excella’s general manager and head of Formulation/Drug Product Manufacturing, remarked, “The high potency area is spreading. The majority of products in development is still oncology, but other indications like cardiovascular are increasing in the pipeline. At the same time, screening tools are getting more sophisticated to find molecules for receptor-binding, so we’re going to see more actives that are more target-specific, thus requiring less and less amounts of material, in that sub-100-microgram range. Blend uniformity and yield are challenges at these smaller doses.”

Dr. Tschoepe contended that expertise in standard OSD doesn’t help much making a formulation that only contains a few micrograms. Given the need for highly specific equipment, he cited Excella’s recent collaboration with Bosch to design new generation of capsule fillers that are easily cleanable and offer late-stage technologies. “We provided our input from the user side, and Bosch has done the engineering for this remarkable new series of filling machines,” said Dr. Tschoepe. “They can handle actives of 0.1 micrograms, and have isolators built around the machines, as well as higher pressure in the machine area to keep powder from getting into the machine.” He also noted the clean-in-place setup of these fillers and the new X-Ray PAT system for control of the fill volume weight of capsule.

Excella’s other big advance, according to Dr. Tschoepe, is that its Feucht, Germany site is the only one in the world with Safebridge certification for both high potency API and dosage form. “It allows us to offer a one-stop option for clients, because sometimes, very tight collaboration is needed between API and dosage form. We can resolve problems much easier, being 100 meters away from each other.”

Another solid dosage provider with a one-stop model is Pharma Tech Industries (PTI), which has facilities in Royston, GA and Union, MO for powder blending, solid dose compression, effervescence and contract packaging. The Royston site, acquired from J&J Consumer Health in 2005, was already vertically integrated for blow-mold/injection-mold of bottles and caps for products that were produced there.

Tee Noland, PTI’s senior vice president of marketing, told us, “We’ve been able to work from that setup to reduce our bottle inventories and have rolled out molding capabilities to our non-J&J customers at the site. Having this capability on-site allows them to simplify their supply chain by having us as a turnkey for all items involved in making the product, from manufacturing to packaging to on-site testing. That’s a service that separates us from other CMOs; it’s fairly unique and allows us to collaborate with clients on new designs. With clients, whenever a design gets changed, that’s a good time for us to get involved. If they want to keep an existing design, we want to figure out a way to significantly reduce cost.”

Mr. Noland said that PTI will continue to focus on powders, while looking at other solid dose technologies when opportunities present themselves. “We’re looking at anything with niche appeal or a scarce commodity in manufacturing and packaging,” he commented.

All of the CMOs and CDMOs we spoke to stressed the importance of staying out of the commodity game. Once you’re caught up in making high volumes of products on low margins, it can be very tough to develop a stronger business. One of our providers commented, “Honestly, anyone can get into OSD manufacturing, but it’s a much different game to add value to the process.”

Philip Pratten, vice president, Business Development, Contract Pharma Services at Alkermes, remarked, “The key to not becoming a commodity is in selection. We’re very honest about with our clients. If an inquiry doesn’t fit our business, we’re minded to say no. We’re very honest in the way we index the costs of our operations and what makes sense to our business. We won’t commoditize ourselves by taking on products that would be better suited at a large CMO or a lower-cost region.”

Alkermes acquired Elan Drug Technologies in a deal that closed in September 2011, bringing a services business into a company that has its own development pipeline. Mr. Pratten talked about that transition process: “As Elan formerly, it was clear we had a big technology offering. Going forward, with Alkermes’ proprietary focus, we’re emphasizing our formulation know-how, starting with early-stage formulation work.”

While the other companies we spoke with have operations in the U.S. and Europe, we were intrigued by one CDMO that looks to bring OSD clients to China. Suzhou Pharma Services is a business group of China-based Amerigen Pharmaceuticals, which is developing generics for both the U.S. and Chinese markets. Suzhou Pharma is building an outsourcing operation within Amerigen’s 65,000-sq.-ft. manufacturing site, located in Suzhou Industrial Park, 60 miles outside of Shanghai. Oliver Mueller, president of Suzhou Pharma and industry veteran, told us, “We bring to the table the concept of western quality taking advantage of cost models that exist in China. This site is able to provide quality service through westernized infrastructure, based on U.S. FDA and cGMP standards.”

When we spoke, Mr. Mueller emphasized the R&D expertise of the staff at the facility, assuring that Suzhou is not merely a far east play looking to provide high volume commercial work at low costs. “On the development side, we focus on products that are more difficult to bring to market, that require a degree of skill and expertise, like modified release. China has a vast pool of educated, technical people that we can tap.”

He added, “Everyone wants to tech transfer a project for commercial-scale work that will hit in the next six months. We want to get those products, too, but that’s only one portion of focus. We want to bring projects in through our R&D operation, be they branded, generic or OTC.”

“In the CDMO space, cost and quality are the two drivers,” Mr. Mueller remarked. He contended that Suzhou can bridge those two concepts, while providing drugmakers with potential access to the Chinese market, to boot. The company’s tagline is “Eastern Potential. Western Performance.”

The outsourcing market for oral solid dosage is dynamic, no doubt, but its most experienced practitioners appear optimistic that they can keep pace.  
 

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