The Convention on Pharmaceutical Ingredients (CPhI) is without doubt the largest pharma manufacturing event in the world. This year’s 25th anniversary event in the outskirts of Paris attracted approximately 35,000 attendees and 2,500 exhibitors from over 140 countries. During four days of intense activity, exhibitors covering the entire pharma supply chain, ranging from fine chemicals, intermediates and active pharmaceutical ingredients (API) suppliers to dedicated contract manufacturing organizations (CMOs), finished formulation and packaging providers, came together to network, collaborate and partner in order to support pharma’s quest for innovation. Our multiple interactions with industry participants once again confirmed that the changes impacting the global pharma industry continue to force manufacturers to adapt their businesses to meet pharma’s changing needs.

Pharma companies globally are suffering from declining revenues in Western markets, mainly due to patent expiries of blockbuster drugs, but also price erosion as governments seek to contain rapidly rising healthcare spending. This has put pressure on margins, forcing companies to shift fixed to variable costs to lower the overall cost base and increase flexibility. At the same time, there is a pressing need to launch new, innovative drugs, to counter shrinking top lines. That is easier said than done, as developing and launching innovative drugs is becoming harder and more costly.

As pharma reinvents its business model, so is the supply chain. Suppliers currently have to deal with multiple challenges, including the rising complexity of both, large and small molecules, increasingly narrow indications—in other words, a move from the blockbuster to the “nichebuster”—tighter regulatory requirements, and the need for shorter development timelines, since even small delays can materially impact a drug’s overall value. On top of that is the pressure to use green chemistry and implement quality by design (QbD). In a nutshell, suppliers have to produce smaller amounts of increasingly complex molecules at higher quality standards. It is not unheard of for suppliers to be required to deliver regulatory starting material (RSM) at the quality standards that usually apply for APIs. Another example for higher regulatory hurdles is the expectation of more cGMP stages.

To achieve this, companies have to trade in capacity and scale for technological excellence and diversity, coupled with a high degree of flexibility. This can translate to retrofitting existing facilities to avoid declining capacity utilization owing to obsolete equipment and processes. In other cases, the solution is M&A, sometimes a faster and more cost-effective way to add the capacity and technology needed.

Another important trend emerging at CPhI is the quest for greater collaboration and knowledge sharing among companies in the pharma supply chain, again reflecting a change that has already taken hold in the pharma industry. The pressure to rapidly backfill meager pipelines has forced pharma to partner and collaborate not just among themselves, but also with biotechs and academia. The next step is for pharma to collaborate more closely with their suppliers so these better understand their clients’ challenges, and hence, are better equipped to provide the right type of support. This is in stark contrast to the traditional relationship where supply chain companies were seen as little more than low-cost service providers.

In fact, although cost remains an important driver for pharma to outsource many elements of their supply chain, there is a strong focus on high quality and expertise. This is particularly relevant for smaller companies who often only have “one shot at the goal,” and simply cannot afford to compromise quality in exchange for lower cost.

Another trend in this respect is a shift of many manufacturing activities back to the West. While in the past substantially lower costs led pharma to outsource manufacturing activities to companies located in Asia, the gradual narrowing of the cost differential between East and West over the last few years, owing to high wage inflation coupled with safety and quality concerns, has led to a reversal of this trend. Generics manufacturers in particular have been finding fertile ground in the U.S., with many local companies repatriating generic production to the U.S. and foreign companies looking to acquire local players.

CPhI would have been perfect had it not been for the long queues at the taxi stands and the entrance to the train station, where tens of thousands of delegates struggled to make their way back to Paris or nearby hotels. Nevertheless, we look forward to our next rendezvous in Paris in 2017.

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Brigitte de Lima
Results Healthcare

Brigitte de Lima, manager, Results Healthcare, joined the company in April 2013 from a long/short start-up investment fund focused on healthcare. She has nine years of experience in the healthcare sector, with particular expertise in biotechnology. Brigitte started her career as a healthcare analyst at Datamonitor. She then worked as an equity research analyst at Merrill Lynch and then Bank of America Merrill Lynch.