The drug industry’s desire to tap emerging opportunities, combined with its focus on innovative therapies, is reshaping the contract manufacturing sector.

Contract development and manufacturing organizations (CDMOs) are investing in new technologies, adding capacity and building in new markets according to Jean-Francois Hilaire, executive vice president and head of strategy and global integration at Recipharm, and Yu Lu, executive director, corporate development and communications, STA Pharmaceutical, a WuXi AppTec company, who shared their thoughts on the changing industry dynamics with Contract Pharma.

Contract Pharma: How is the pharmaceutical market changing and how is this impacting drug companies?

Jean-Francois Hilaire, Recipharm: Three key dynamics are driving the growth of the pharmaceutical market. Firstly, regulatory support for ‘breakthrough therapies,’ which are drugs granted priority review because they address actual medical needs. Developers recognize the value of making such medicines available to patients as quickly as possible, and therefore focus their R&D efforts on innovative, high value therapies.

The second major growth driver is the ageing global population. The increasing elderly population is prompting drug companies to hike production volumes to cater for growing demand.

Thirdly, new markets are emerging as healthcare standards improve around the world. This is another real opportunity for pharmaceutical companies to supply growing volumes of mature treatments.

However, while there are these opportunities, taking advantage of them is technically challenging and requires significant R&D investment, capacity and market reach. In addition, there is growing price pressure in the marketplace.

Yu Lu, STA Pharmaceutical, a Wuxi AppTec company: The major change we see in the market is within the discovery pipeline itself and the resultant effects this is having on the supply chain. New drug development timelines, in particular drugs targeting oncology, have been shortened than ever before. Molecules coming into development are more complex and more newer modalities beyond traditional small molecules and biologics emerge such as Antibody Drug Conjugates (ADCs), peptides, oligonucleotides, and various combination of conjugates. The other major change we observed is that five years ago most of STA’s business would come from the U.S. and Europe. But increasingly we are seeing more and more companies from other regions such as China, Japan and Canada developing new drugs for global markets. In particular in China this trend is now being accelerated by various recent regulatory reforms, which is not only fostering the growth of domestic biotechs in the country, but is also encouraging more foreign drug license holders to enter too.

CP: And how is this impacting the contract services sector?
Jean-Francois Hilaire: It depends on the type of product. For drugs that are technically challenging to develop and manufacture like biologics, some companies are starting to outsource production to access external expertise, technology or capacity unavailable in-house. This is a positive trend for CDMOs with the capabilities to take on such projects.

For generics, it is all about volume production at controlled cost which is also positive for CMOs that can offer such capacity. In addition, the ability to cater for growing demand for mature products in so called ‘pharmerging’ markets also provides CMOs with the opportunity to win contracts.

Yu Lu: Overall, contract service providers now need to have a far wider scope of development capabilities and larger capacity to deal with the shortened development timeline as well as increased variety and complexity of products entering development. But it is also meaning they have to be increasingly global with customers now coming from a wider spread of geographic regions—and as such they need to be regulated by a greater number of global bodies and familiar with a wide array of regulatory requirements.

CP: What are the major areas of opportunity for the CDMO sector?
Jean-Francois Hilaire: It is important to recognize that customer expectations are changing. The question is no longer does a CDMO have capacity to make solids or sterile liquids. Instead, customers want CDMOs to form long term strategic partnerships, share expertise and help support product development.

Customers also want a contractor which can help it reach the market earlier than competitors, which is creating a demand for a full service offering to help manage the complexity of the drug development process. In addition, drug companies seek CDMOs that are reliable during technical transfer and those that can secure process performance improvements along the life cycle of the product.

Yu Lu: We are now increasing the depth and scope of our collaborations with our customers. Similarly, for the biotechs we work with there is a tremendous assurance in being able to offer such a broad spectrum of capabilities as they rely upon CDMO partners to take their products from inception right through to commercialisation—and the speed at which we can achieve milestones plays a big part in being able to achieve next stage funding.

CP: What is driving demand for full service CDMOs?
Jean-Francois Hilaire: CDMOs that offer a wide range of services and a global footprint are in demand as they help to simplify the supply chain while also fulfilling the quality level expectations of multiple markets. Increasingly, drug firms aim to reduce their networks to a few suppliers that provide a range of services for a range of product types.

Likewise, specialty pharma, virtual companies and generic firms, want a range of services, from development and production, through to supply chain support. Melding development services with commercial supply is highly valued due to its ability to ultimately reduce costs and timelines.

Yu Lu: Undoubtedly, pharma will continue to outsource more of its development and manufacturing capabilities. With this mind, and the growth of biotechs that are in need of outsourcing specialists, the CDMO sector looks well set for continued growth. There is now a real advantage to scale, simply in terms of the number of process R&D scientists and production equipment needed to advance compounds quickly. Speed to clinic has always been a driver for pharmaceuticals, a streamlined full service provider is able to save time by retaining knowledge from early stage to late stage development to commercialization. The lengthy and costly technology transfer process between different CDMOs can also be avoided.

CP: Why isn’t every CDMO a full-service contractor? Why are there still specialists?
Jean-Francois Hilaire: Production and development of breakthrough therapies and standard products can require significant technical expertise, as well as costly investment in technology. Also, customers are paying greater attention to detail and demanding quality that exceeds the requirements of regulatory agencies.

As a result, some CDMOs remain as ‘specialists’, focusing on a defined field of competences, such as the development and production of high potency APIs, large molecule production or downstream sterile liquid fill & finish.

Yu Lu: The most successful contract providers now fall into two broad types of CDMO; ones that offer full service capabilities and a second group of niche providers offering specialist capabilities in certain areas. Only a handful of CDMOs currently have wide enough capabilities to be truly described as full service. But what we anticipate, is that the future will be defined by CDMOs with both full services capabilities and specialist technologies that enable them to develop a full spectrum of complex products coming through the pipeline.

CP: Finally, the CDMO sector has often been described as ripe for consolidation. Is this still the case?
Jean-Francois Hilaire: Yes. The largest CDMOs hold just 2-4% of the market and the top ten CMOs represent less than 30%. There are many consolidation opportunities still available, and buying expertise remains an attractive prospect for a CDMO with sufficient financial resources. Recipharm’s approach is a good example. Recipharm is recognised as the ‘top consolidator’ with a total of ten acquisitions in markets including Europe, the US and Asia (Consolidation of the CDMO industry—Ernst & Young—September 2017).

Our merger and acquisition (M&A) strategy is focused on gaining new technical capabilities as well as expanding geographic reach. A good example is our recent acquisition of Kemwell’s pharmaceutical branch in India. This deal gave our customers access to a wider range of services, cost effective development and manufacturing capabilities as well as extended technical expertise.

Yu Lu: As an industry, the contract services space is still very active in terms of merges and acquisitions—certainly the medium sized CDMOs are seeking scale to compete and the larger players are looking for new technologies that bring a capability advantage. In terms of WuXi STA we are also looking for new opportunities, in particular focusing on special capabilities that fits with our broad platforms in both the USA and China. It’s in part why we have chosen to invest so heavily in our own new commercial and development facilities—so that we can be equipped with the best available technologies rather than relying upon legacy sites and old technologies as many others have done in the past.