Contract manufacturing organizations (CMOs), including many fine chemical makers, are among the big beneficiaries from changes at big pharmaceutical companies, say attendees at Informex 2015, held this week in New Orleans. While big pharma has recently undergone a period of cost cuts – largely due to blockbuster drugs coming off-patent – CMOs and other companies have gained business formerly done in-house at pharmaceutical majors. Meanwhile, the rise of “virtual pharma” companies, small drug-development firms which own few assets aside from intellectual property, is also contributing to increased outsourcing.
Most companies in both fine and specialty chemicals were optimistic about their business prospects for the coming year. “It’s a stable-to-growing industry,” says Greg Hughes, v.p./strategic alliance and product development at Codexis (Redwood City, CA), a biocatalysis firm. Other companies echoed that tempered optimism. “Things are picking up,” says John Michnick, associate sales director at Cambrex (East Rutherford, NJ). Venture-capital money is flowing into biotech, and the sector’s initial public offering (IPO) market, has been healthy, Michnik adds.
Global drug consumption is on the rise, as well, attendees say. “The demand for Western medicines is growing globally,” says Gerald Whelan, head of sales and business development/North America at Dr. Reddy’s (Hyderabad, India). “A big driver for this is generics.” Generics consumption is growing mostly because of their lower cost, which puts them in reach of the emerging-market middle class and makes them attractive to insurers in the West, Whelan adds.
The growth of generics can be an issue for big pharma, which often relies on patent-protected blockbuster drugs for hefty revenue streams. Prices for generics are lower, profit margins are thinner, and competition is fierce. But CMOs are eager to get in on generic drug manufacturing. Cambrex has a portfolio of over 100 generic active pharmaceutical ingredients (APIs), and is constantly hunting for new ones by keeping an eye on patent literature. “A lot of companies are investing in generics,” says Jeremie Trochu, heard of marketing and strategy at Catalent Pharma Solutions (Somerset, NJ). “At that extended life cycle [of a drug], the product marketing department is more important than research and development.”
Big pharma is still investing in research, of course – but many of those dollars are going to small, asset-light, “virtual pharma” companies. Such companies’ main asset is typically intellectual property related to a molecule, and big pharma will partner with them, and often buy them out if the drug proves successful and marketable. Until that point, virtual pharma companies rely on outsourcing to provide manufacturing, services related to clinical trials, and other critical functions. While big pharma outsourcing is on the rise, small innovators often outsource even more, Trochu says. Increased outsourcing is coming from both big companies, who cut costs, and these smaller companies whose business models rely on it, and its growth is likely to continue. “There’s a long runway [for growth in outsourcing],” Trochu says. “Small companies…are just going to focus on research. Big pharma is selling assets, but they still need incremental capacity.” Perhaps ironically, many of these companies are staffed by scientists laid off from big pharma, some attendees say.
Meanwhile, attendees say fine chemical and pharma manufacturing is growing in North America, as companies are willing to pay a premium for quality and reliability and costs rise in India and China. However, many add that Chinese and Indian manufacturers are starting to take quality and reliability more seriously. “We are seeing some emerging markets influenced by negative news about their environmental records,” Hughes says. Cambrex and Catalent both say India and China are moving to improve product quality in pharma, and in other manufacturing sectors, as well. Dr. Reddy’s notes that the company’s home market of India is still growing, and still has a cost advantage, even if that advantage has narrowed.
Attendance at Informex was, on balance, steady this year. The number of exhibitors has declined from last year, but the number of pre-registration attendees increased, says Robyn Duda, brand director/Informex at UBM Americas (New York), the show’s parent.
By Vincent Valk