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Fine chemicals: Pharmaceutical industry outlook is optimistic

September 25, 2018
Chemical Value Chain

Market trends in the pharmaceutical industry are favorable despite the pressure on drug prices, experts say.

“In our field of drug substance development, outsourcing to contract research and manufacturing organizations is on the rise at 9%/year,” says Ross Burn, CEO, CatSci (Cardiff, Wales, United Kingdom).

Other producers agree. “We have seen contract manufacturing organizations (CMOs) experiencing increased demand for their services, brought about by a combination of a healthy development pipeline of small molecule drugs and FDA approvals,” says Matthew Moorcroft, VP, global marketing & intelligence at Cambrex (East Rutherford, New Jersey). “From a small molecule perspective, the market is positive. We can be even more bullish and say that we are witnessing the fastest growing small molecule clinical pipeline reported in the last 20 years, with more small molecules in phases I, II, and III than ever before,” he adds.

Other positive factors that are supporting the optimistic mood include more frequent FDA approvals, growing demand for orphan drugs for rare-to-treat diseases, an aging population, and increased levels of healthcare spending, according to CatSci. In addition, high levels of investment through venture capital and IPOs in the biotechnology sector will ensure that there are sufficient funds to develop new drugs by small- and medium-sized enterprises, according to Burn.

Reshoring with emphasis on quality rather than price
In addition, the market is also experiencing tailwinds that include the reshoring from low-cost countries with customers seeking quality and security of supply over price, Moorcroft says. The onshoring trend “is being driven by a number of factors, of which quality is the most significant,” says Robert MacLeod, CEO, Johnson Matthey (JM).

JM also expects to see growing demand for its custom pharma solutions, which is providing contract development and manufacturing solutions to pharma companies. “This demand is being driven by the continued trend towards outsourcing, especially to service providers based in Europe and the United States,” MacLeod says.

The trend towards niche products is expected to continue with much of the early innovation remaining with the biotech industry, according to JM. Demand for early and mid-phase clinical services will remain strong, as these companies develop therapies targeted toward niche applications. “We will then see a lot of these assets licensed or sold to large pharma,” says MacLeod. “Having capabilities to support early innovation is essential, but having the breadth of capability and global reach to support the eventual owners of these developing products is also necessary,” he says.

JM says that it expects to see continued focus on particle engineering and solid-form services. The boundary between primary and secondary manufacture is becoming blurred, and producing actives in the right physical form for the required pharmacokinetic profile and dose form is becoming essential, according to JM. Cambrex expanded its offering to include formulation development and finished dosage manufacturing with the acquisition of Halo Pharma in July. “Once the acquisition has closed, we will integrate the new business into the existing Cambrex network to create a leading small molecule CDMO [contract development and manufacturing organization], with both API [active pharmaceutical ingredients] and finished dosage capabilities,” says Moorcroft.

Therapies are becoming increasingly more targeted and effective, but along with this they are inevitably more potent, according to JM. “Consequently we see significant demand for high-containment manufacturing,” says MacLeod. JM has an extensive background in controlled substances, many of which are highly potent, so the company believes it is well placed to use its expertise in high-containment manufacturing. Cambrex paints a similar picture. Driven by new drug approvals, there has been a growth of chemistry involving highly potent molecules, the company says. Cambrex has invested $24 million in a facility for the manufacture of highly-potent APIs at Charles City, Iowa.

For Cambrex and other manufacturers looking to capitalize on this opportunity, the challenge is having the right capacity and expertise available to meet the demands of the market. Cambrex has invested more than $260 million in its facilities since 2012 to meet demand. “The need for specialists and experts is as important now as ever,” Moorcroft says. Merely being a company with idle “capacity for hire” is not an option, and it is crucial to invest in the right type of facilities and technologies, he says. “Recruitment and retention of excellent people, are the lifeblood of the company,” says Burn, is a continuing challenge for companies like CatSci.

“Being able to expand capacity whilst ensuring technical quality and customer service are maintained or improved, in order to deal with the increased demand from customers,” are challenges being faced by CatSci. “Convincing prospective customers that it is essential to invest earlier in appropriate manufacturing process development to ensure that future supply is de-risked, efficient, and supplied on time to the desired quality targets [is also a challenge],” says Burn.

Many industry observers have pondered where the next “blockbuster” drug, with annual sales in excess of $1 billion, will come from. “There is a significant unmet need in many patient populations,” Burn says. “Pharmaceuticals in general are expected to deliver effective treatments that are truly innovative or disease-modifying that affect the underlying pathophysiology of the disease.” Big pharma is collaborating and acquiring in order to both share risk and to enhance its pipeline, according to CatSci. “But their expectations will be to have significant peak annual sales above $1 billion for the majority of their products,” Burn says. There will likely be only a few emerging pharma companies that will develop such products alone. “Most will inevitably co-develop to a greater or lesser extent, [given] the total estimated cost of developing a new drug [and bringing it] to market of approximately $800 million,” says Burn.

While many will debate whether or not big pharma has lost the ability to develop blockbusters, the solutions always seem to be about increasing collaboration, and sharing risk and knowledge as ways increase their chances of success, according to Cambrex. “I also think the term blockbuster needs to be reinvented for today’s vernacular,” says Moorcroft. “The phrase is largely a throwback to the 1990s referring to drugs intended for larger patient populations. Some even go further to say that they could also be described [as] over-prescribed drugs that didn’t really work well for the majority of patients who took them. Today, blockbusters can be created in smaller and smaller patient populations. Drugs approved in orphan indications that are breakthrough therapies or that fulfil an unmet need have as much chance of earning multi-billion dollar revenues as their 1990 counterparts,” he says.

But whatever the terminology, suppliers note it would be foolish to write-off big pharmaceutical companies. “They are staffed with the best scientists with the most resources at their disposal, so innovation is [almost] inevitable,” says Moorcroft. They will always be at the forefront of developing new types of treatment, identifying and exploiting new targets, and innovating new ways to deliver treatment to patients, he says.

It should also be noted that there has been a large increase in the number of novel therapeutics being developed at smaller and virtual pharma. “This has been fascinating to watch, and casting your eye over the last few years, they are actually outpacing their big pharma counterparts in terms of new drug approvals,” he adds.

Cambrex anticipates seeing more clinical trials and drug approvals being conducted outside of big pharma. “Interestingly, despite the repatriation of the API supply business to the west, we see an increasing trend for very early stage pre-clinical development going on in Asia, specifically China, as big pharma outsources more of its discovery R&D,” Moorcroft says. “From the commercial and distribution side of things, we have heard about the potential shake-up to the wholesaler model, with established suppliers such as CVS, AmerisourceBergen, and McKesson, with new entrants such as Amazon, that will further put downward pressures on drug pricing,” he adds.

FDA is limiting step in approval of generics
The US FDA has been encouraging the development and application of viable generics, particularly as a way of curbing the price of certain products. The FDA has long had the arduous task of dealing with the surge in generic approvals, and has ultimately become the rate-limiting-step, according to Moorcroft. Since the introduction of the Generic Drug User Fee Amendments, progress has been made with new abbreviated new drug applications (ANDAs) and increasing the rates of approval in a more timely fashion, but despite these efforts, the backlog of applications remains, according to Cambrex.

“Generally speaking, when drugs lose patent protection and generic competition ensues, whether that is four or seven competitors, there is usually enough competition to drive down price. All the FDA and other agencies can do is approve products. They don’t set price,” says Moorcroft. What the FDA may increasingly need to focus on is approving generics where there are no existing ANDAs or where there is a shortage of product. “That said the question remains: is it willing to shorten the approval time and what documentation is needed?” Moorcroft asks. From a CatSci perspective, the trend towards generics creates opportunity. “Generic drugs require even more focus on drug substance cost of goods, so development and exploitation of cost-effective, environmentally sustainable manufacturing processes will be vital, says Burn.

The drug development process is being streamlined in an attempt to reduce development cost, Burn says. Large, mid-sized, and emerging pharma companies are seeking to minimize internal R&D headcount and costs. One way in which they are addressing this is by outsourcing. “Increased outsourcing of high-quality process R&D, in order to meet the demands of both capacity and capability, [is a result of] pressure on internal headcount [and other] resources,” Burn says. “We see a significant strengthening in demand for outsourcing pharmaceutical development,” says Burn. There is also an increased need for high quality process R&D at contract research organizations, along with a lack of development capability at CDMOs, he says. More collaboration is also being undertaken in an effort to share risk, to improve pipelines, and to reduce cost, according to CatSci. Many emerging pharmaceutical companies, which account for up approximately 70% of the potential candidate drugs in development, have a dearth of internal resources to be able to do drug development, according to CatSci. “We partner with them to provide access to our big pharma knowledge, expertise, experience, and resources to help them create cutting-edge therapeutics,” says Burn.

In addition to its assets in the United States and Europe, JM also has pharmaceutical assets in Yantai, China and catalyst manufacturing in Shanghai, China and Taloja, India. “It is important to be able to service local markets,” says MacLeod. “Our pharmaceutical customers expect us to be competitive with our processes, so we use our Yantai facility to prepare starting materials for our US and European good manufacturing practise assets. Our customers expect JM to operate with a global asset base that can provide the most effective solutions to their specific geographic and economic requirements,” he says.

The outlook for the pharmaceutical industry is also positive. “Whilst historians of the fine chemical business will remind us about industry cycles and how a fall-off in the number of new chemical entities approved or related investment in clinical development could alter this outsourcing dynamic, the more forward-looking CMOs will be planning ahead,” says Moorcroft.

JM says it remains positive about prospects in pharma. “There are a number of emerging trends, such as the development of companion diagnostics, and personalization of medication that will over time radically change the demands for how products are developed and manufactured,” says MacLeod. “The time frames required will continue to shorten and the technology and assets required may be quite different in the future, if areas such as continuous manufacturing come of age,” he says.

Cambrex says that it has invested in continuous flow technology across its facilities so that reactions that might be difficult to perform for safety or economic reasons can be handled efficiently at a variety of scales. CatSci says that it expects to see lots of acquisitions of commercial pharma with emerging pharma to boost pipelines and increase the probability of getting drugs to patients in need. Companies will continue to strike a balance between diversity of product pipeline and focus on specific expertise. These needs will see companies making acquisitions or hiving off business units or therapy areas.

By Michael Ravenscroft

Source: Chemical Week

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