The Future of Contract Services

CMO executives share their opinions on where outsourcing is going and what is driving market change.
Feb 01, 2015
Volume 2015 Supplement, Issue 1

 

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The past few years have brought drastic changes to the pharmaceutical outsourcing services market.  As more in-house positions have been eliminated, pharmaceutical companies are looking for strategic partners and, where, possible, “one-stop” solutions.  

The rise of the contract development and manufacturing organization (CDMO) has continued, and CMOs are making strategic investments to improve the services that they can offer clients, especially earlier in the value chain.

For the past few years, contract companies have been acquiring companies, either partners with complementary strengths, or specialties in relevant niche services, to augment the array of services they can offer clients, and to expand upstream services. Just a few examples of these acquisitions include:

  • The merger of Patheon and DSM, combining oral solid dosage forms with biopharma expertise
  • Capsugel’s acquisition of Bend Research, a specialist in drug delivery and bioavailability research
  • Catalent’s buying Aptuit’s Clinical Trials Supplies Division
  • The formation of PCI, from acquisitions including Catalent’s Packaging, and the addition of Anderson Brecon in 2013, and Penn Pharma, and Biotec Services International in 2014, adding cold-chain expertise and a European presence.

Pharmaceutical Technology asked thought leaders at some pharmaceutical contract services companies to share their views on where the business is going, and what can be expected to drive future changes in the services market.  They singled out such factors as more challenging clinical trials, financial pressures from the patent cliff, more difficult pharmacokinetics and manufacturing, and the shift to orphan drugs.

Experts from Capsugel, Cardinal Health, Catalent Pharma Solutions, PCI, Pharma Tech Industries, and Vetter answer our roundtable question about the future of the contract services industry in the following pages.

Stephen Brown
Managing Director, Encap Drug Delivery Capsugel Dosage Form Solutions

Q: Where do you see pharma contract services heading in the near future?  What are the top issues driving change today?

A: Over the last decade, the pharmaceutical industry has seen:

  • Changes to the drug discovery process, including an increasing reliance on biotech companies for new drugs and product innovation.
  • Large pharma exiting non-core activities and focusing on their target therapeutic areas, and relying more on outsourcing, from development through manufacturing. There is increased need for technologies that can address such industry challenges as bioavailability enhancement, targeted delivery, and abuse deterrent formulations.
  • An increasing number of compounds that require special handling (e.g., OEB4 and 5).  This growth is expected to continue within the contract manufacturing sector for the foreseeable future. The high capital cost of establishing appropriate facilities for the manufacture of such products and the need to maintain high quality facilities and personnel means that many companies will elect to use the outsource route.
  • Increased interest and investment in orphan drugs, and the FDA NDA 505b2 pathway, to achieve faster approval and return with existing active ingredients. The ability to reference existing safety data and studies for this approval pathway decreases overall development time for existing actives being repurposed for new indications, improved bioavailability, altered dissolution profiles for targeted or controlled release, alternate delivery (injectable to oral), etc.
  • The need for development partners that also have scale-up and commercial manufacturing capabilities, i.e. an integrated offering so that one partner can be utilized, instead of multiple service providers, thereby minimizing the cost and complexity of overall product development and increased speed to clinic/market.
  • Continued demand for enabling technologies such as solubility enhancement. It is estimated that more than 70% of the drugs in the development pipeline today have solubility challenges that must be altered to achieve acceptable bioavailability.

Customers take quality and regulatory compliance as a given.  Given all the changes affecting the industry, pharmaceutical companies are increasingly looking for end-to-end services. These include good development capability (not only in formulation, but in analytical services and project management) and demonstrated scale-up and commercial manufacturing capability.

Peter Soelkner
Managing Director Vetter Pharma-Fertigung GmbH & Co.

Q: Where do you see pharma contract services heading in the near future?  What are the top issues driving change today?

A: In examining the changing contract services market, it is best to look at it from two perspectives: that of the large pharma or bio company, and that of the small biopharma company.

Increasingly, large pharmaceutical and biotech companies are focusing their efforts on their core competencies: late-phase drug development and their marketing. The latter begins immediately upon receiving regulatory approval and entry into the market. Due to this sharpened focus, larger companies need to be concerned with finding the right partners to help fulfill their drug manufacturing needs.

Thus, larger companies are looking to create long-term working relationships.  Instead of working with a long list of contractors, many prefer to identify and work with only a few strategic partners to handle all aspects of their drug manufacturing. Often, these long-term strategic partnerships are created with a contract development and manufacturing organization (CDMO). Such organizations are well equipped to deal with the often complex nature of their customers’ manufacturing needs. A CDMO can also provide the long-term supply of their high-quality drugs.

Meanwhile, smaller biotech companies are seeing an ever-increasing role and importance in the R&D of new drugs, and, thus, are helping to fill the dwindling pipelines of large pharmaceutical and biotech companies.

Due to lack of internal resources, they need partners to help guide them through the development process. This is especially true in the early development phases. Once these phases are completed, they will very often out-license their drug and re-focus their efforts on the R&D of new drugs.

CDMOs are well-equipped to help maximize the value of the complete drug package, which consists of the compound itself, the drug-delivery system, and the experience and trust that the CDMO partner brings to the early stages of development.

We believe that this trend will continue, as larger companies increasingly rely on drugs that were discovered by smaller companies in order to fill their dwindling pipelines. Of course, their interest will only be to in-license promising and ‘well-developed’ drugs so that they can be successfully developed to the next phases and brought to market.

First, recent forecasts suggest further growth in the injectables sector, with biologics driving this growth. This scenario offers opportunities with high promise for companies operating in the contract services sector that support pharmaceutical and biotech companies.

Second, we continue to see the erosion of the blockbuster model, which means that large companies have come to rely more and more on small biotech companies for promising new drugs. This has led to significant opportunities for CDMOs to provide guidance to these smaller companies, and help support them in the early drug development process.

Third, the globalization process has had an effect on the contract services industry today. With drug products increasingly being sold on a global scale, companies have to provide solutions that meet the needs of the differing markets efficiently and reliably.

Consider the Asia Pacific (APAC) region, for example. Only 10 years or so ago, all medicines produced within this region were primarily used by the APAC countries themselves. Today, there is an ever-increasing amount of activity designed to enlarge the customer base for medicines manufactured within APAC by also distributing to countries outside of the APAC region. We expect this activity to increase in the future.

As a result, there is greater competition for pharmaceutical companies and their contract manufacturers within the region. Now they also face external competition; requiring manufacturing companies to adapt to differing criteria of the recipient countries such as enabling distinct quality requirements are met for countries located inside, as well as outside, the APAC region.

Fourth, we are seeing an increase in the global growth of such chronic diseases as diabetes and multiple sclerosis.  As a result, there has been a growth in demand for self-administration drug delivery solutions such as pens and auto-injectors. We have seen a steady growth in the home care sector, which requires an increased need to provide patients convenient and safe self-administration products such as those I just mentioned.

Finally, we are seeing ever-increasing regulatory scrutiny of the contract services industry, the goal being safe drug manufacturing. Any company operating in this sector must pay special attention to compliance, and work hard to enable its quality systems to stay ahead of regulator demands.

Tee Noland
Chairman and CEO PTI - Pharma Tech Industries

Q: Where do you see pharma contract services heading in the near future? What are the top issues driving change today?

A: We see our customer base for pharmaceutical contract manufacturing services continuing to expand in the near future, particularly as the industry experiences ongoing consolidation, mergers, and acquisitions. One of the major factors for this is the relatively slow growth of branded pharmaceutical products due to increased regulatory requirements and generic competition.

Another reason for the uptick in business opportunities is ‘customer customization.’ More small-to-medium-size pharmaceutical manufacturers are entering brand ownership, which is creating more niche-oriented prospective business opportunities. In fact, this trend was among a variety of factors in the company’s own recent rebranding process, one which intends to make a lasting impression on these emerging, increasingly targeted potential customers.

Not only is the customer base becoming more tailored. These brand owners also are becoming increasingly focusing on sales and marketing, leaving an expanded percentage of actual product production in the hands of contract manufacturers. To capitalize on this trend, PTI has placed high priority on compiling new and expanded capabilities that extend established reputation as a trusted, turnkey CMO.

PTI is also adding manufacturing capacity and production space by expanding its production facility in Union, MO, which will add approximately 55,000 square feet of manufacturing space, bringing the facility’s total area to 155,000 square feet. The new space will include a high-speed bottling line for the production of ingestible powders, as well as a production room built to International Organization for Standardization Class 8 ISO8/100,000 clean room standards. Another addition is a 20,000-sq2 building housing additional warehousing space and a new analytical and microbial lab.

Each of these initiatives reflects the fact that pharmaceutical manufacturers are consolidating their total number of CMOs, with a plan to reduce their supplier bases and simplify their supply chains.

In this environment, there is a need for contract manufacturers to be as turnkey as possible when servicing pharmaceutical brand owners. CMOs are now competing with each other, not merely on how well they produce product but on the overall value of their relationship, which encompasses the secondary and tertiary factors involved in holistically managing the entire supply chain from initial technology transfer to finished, packaged, market-ready product.

Elliot Berger
VP, Global Marketing and Strategy Catalent Pharma Solutions

Q: Where do you see pharma contract services heading in the near future?  What are the top issues driving change today?

A: The role of pharmaceutical service and technology partners is rapidly changing. The following are driving this change:

  • Increasingly, drug discovery and development are happening in smaller firms, which account for nearly half of the active development pipeline.
  • Large pharma is increasingly refocusing resources on specific areas of core expertise.
  • Molecules in the pipeline are becoming increasingly more challenging in their pharmacokinetics (e.g., bioavailability) and delivery profile needs.
  • Manufacturing requirements are becoming more and more challenging as well--due to more challenging molecules, but also to increasing regulations and globalization needs.

These factors require deeper partnerships between innovators and companies offering specialized drug development and supply expertise. Contract services companies, including Catalent, have invested in new technologies, capabilities and R&D expertise to help innovators meet these challenges.

Increasingly, we are also engaging in more strategic partnerships with both large biotech and pharma companies, as well as smaller innovators. These partnerships start earlier, sometimes in late discovery, to help optimize the API and formulations of new drugs. In addition, they encompass deeper engagement, including analytical and clinical support, and last longer, through late-stage clinical, scale up and global commercial manufacturing.

These partnerships often require new business models, changing the traditional ‘fee for service’ approach. These arrangements have included collaborative development, success-based financial arrangements like revenue sharing, hybrid ‘development-sharing’ models, faster collaborative approaches combining joint development contributions with licensing fees, and even joint investment in new capability creation.

We have also collaborated with customers to apply technologies developed in-house to help develop better treatments across the industry. Examples include our OptiForm API optimization technology, originally developed by GSK, and OSDRC OptiDose advanced tableting technology for combination and controlled-released therapies developed by Sanwa in Japan.

We believe that all these approaches can help solve the major industry challenge right now: the need to develop more products that are successful.

By bringing together the best expertise in discovery, development, formulation and analytical methods with best of innovative advanced drug delivery technologies, more molecules have a shot at successfully meeting clinical end points.

Justin Schroeder
Executive Director, Marketing, Business Development and Design PCI, Packaging Coordinators, Inc.

Q: Where do you see pharma contract services heading in the near future?  What are the top issues driving change today?

A: As we ushered in a new year, there was much media coverage of both the number of new drug approvals in 2014, as well as the success rate for the industry in new drug application (NDA)/biologics license application (BLA) filings translating into approvals. In 2014, FDA approved 41 novel medicines. This is 14 more than the year prior and second most for any year, trailing only the 53 approved in 1996 (1).

This was clearly encouraging news for an industry that is often criticized for weak pipelines and poor success rates for bringing products to successful commercialization. FDA notes that 32 of the 41 approvals were first-cycle approvals (2).

Also noteworthy in evaluating 2014 approvals was the continuation of the industry trend of developing specialized medicines and products for narrow therapeutic classes. FDA’s designations for Orphan Drugs and Priority Review for drugs of unmet need helped expedite the development and approval process for products. Seventeen approvals, or 41% of the total, were for rare diseases that affect 200,000 or fewer Americans. Seventeen approvals were regarded as “first in class” therapies or 41%. Nineteen NDAs were approved utilizing the Fast Track or Breakthrough status (2).

Three examples of priority review therapies garnered significant acclaim due to their importance:

  • Pharmacyclics’ Imbruvica for chronic lymphocytic (CLL) leukemia and mantle cell lymphoma (MCL)
  • Roche’s Gazyva for chronic lymphocytic leukemia (CLL)
  • Gilead’s Soldalvi for treatment of Hepatitis C.

It is noteworthy that oncology treatments alone garnered 8 approvals in 2014, or 18% (3).

With more success in development and commercialization of lifesaving medicines with narrow therapeutic indices and modest patient populations, the economic model for the industry is challenged. The development costs for these therapies is every bit that of traditional medicines and often more challenging for identifying patient populations for these disease states and administration of clinical trials.

Similarly, the supply chain requirements can be disproportionately burdensome, with economies of scale and specialized requirements, as well as increased cost for the API. This can also be true of specialized medicines such as those for oncology or autoimmune therapies, where manufacturing and handling may be very specialized due to the potent nature of the API, in-process or final drug product.

The growth in biologics has similarly changed the industry supply chain with demands on its manufacturing, packaging, and logistics components.

As a leading outsourced services provider for drug development and commercialization, we have experienced this changing dynamic first-hand. The industry shift from small molecule delivery forms to large molecule parenteral delivery forms has required us to adapt our technologies as well as our infrastructure for the expanding Cold Chain requirements of these products, typically requiring storage at 2–8 °C.

For example, many of these products have allowable excursions for secondary packaging, so that they may be executed in a controlled ambient condition environment. However, they may vary substantially in the duration from as long as 24 hours to as little as a half hour in some instances. This creates the need for very tightly controlled procedures and work practices to ensure the integrity of the operation. In other situations, products may need to be processed completely in a Cold Chain environment, which creates its own unique challenges for logistics, equipment and personnel.

Biologic products and drugs with parenteral delivery forms are seeing a shift in how medicine is administered to patients. Syringe and vial delivery forms traditional administered at a clinic or hospital are now shifting to a patient convenience model whereby through patient education and better drug delivery, patients can self-administer at home or on the go. The net effect on the industry and its supply chain is the evolution to novel delivery forms such as autoinjector devices, transdermal patches, and infusion therapies by means of personal delivery devices. These may require very complex and precise assemblies to enable patient safety and convenience. Often this translates to precision robotic automation for manufacturers and packagers. At PCI we have actively made these investments as the industry model rapidly evolves.

In addition, more and more of the products that are being brought to market are regarded as potent, both in oral and parenteral delivery forms, with Occupational Exposure Limits (OELs) that create a need for very specialized handling and infrastructure to protect workers supporting the manufacturing, packaging, and supply chain logistics.

PCI and Penn Pharma have invested substantially in state-of-the-art contained manufacturing, recognized by ISPE in 2013 as a Facility of the Year for our site in the United Kingdom. Having both the expertise in handling potent compounds as well as the appropriate technologies to isolate these therapies allows pharmaceutical firms to bring novel therapies to commercialization more safely and effectively, thereby benefiting patient populations around the globe by virtue of reduced time for pipeline development, lowered cost, and effective delivery.

It is an exciting time to be in the pharmaceutical industry. Therapies are being brought to market that were once thought of as a pipedream. Now we are starting to see them graduate from the pipeline and giving hope to patients around the world. As the industry evolves, we are grateful for our role in helping develop and commercialize the therapies of the future.

References
1. B. Hirschler, “Pharma and biotech on a roll as drug approvals hit 18-year high,” (Jan. 1, 2015), accessed Jan. 28, 2015.
2. J. Jenkins, “CDER Approved Many Innovative Drugs in 2014,” FDA Voice (Jan 14, 2015), accessed Jan. 28, 2015.
3. B. Munos, 2014 New Drug Approvals Hit 18-Year High, Forbes (Jan. 2, 2015), accessed Jan. 28, 2015.

Tiffany Olson, President
Mindy Stobart, Chief of Staff Cardinal Health, Nuclear Pharmacy Services

Q: Where do you see pharma contract services heading in the near future?  What are the top issues driving change today?

A: Historically, large pharmaceutical companies performed all the major functions within the value chain and aligned with the product lifecycle of their drugs--from research and discovery to product development through manufacturing, sales, and marketing. Over the past several years, pharmaceutical companies have increasingly begun outsourcing functions in order to bring new products to market in a more cost effective manner, or to leverage a distinct capability not within their core.

The rise in drug development costs has generated an increase in the use of contract research organizations (CROs), while the loss of patent exclusivity and shift to orphan drug development are driving the use of contract manufacturing organizations (CMOs).
Here are what we see as five of the key issues driving change in the contract pharma industry today.

Rise in drug development costs
A major source of economic pressure on pharmaceutical companies is the high expense associated with research and development (R&D). It’s no secret that the productivity of pharmaceutical R&D departments has declined in recent years. Many believe this is due to the increased scrutiny and new regulations by FDA.

The Tufts Center for the Study of Drug Development estimates the cost of bringing a new drug to approval is $2.6 billion, this is in comparison to their published estimate of $802 million to bring a drug to market in 2003 (1). The rising expense to manage clinical trials due to the required size and complexity has made it more difficult for R&D departments to achieve the same level of productivity that they achieved in years past. Products also fail more often in development under the more stringent requirements, therefore burdening the successful products to carry the expense of those that failed.

Increased use of contract research organizations
As pharmaceutical companies are challenged to reduce financial risk, R&D teams are under increasing pressure to reduce the cost of managing clinical trials. As a result, many companies have begun outsourcing their management of clinical trials to CROs in order to shift R&D fixed costs to variable.

The total market for CROs has grown to an estimated $16 billion, including medical devices, with the biopharmaceutical space representing nearly $13 billion. This indicates an annual growth rate of 10.9% from 2009-2014, and IBISWorld is projecting an 8.7% annualized growth rate through 2019 (2).

CROs come in all shapes and sizes, and the market is fairly fragmented. These firms offer efficiency, access to patients, and cost management paramount to expediting the drug approval process. According to Tufts Center for the Study of Drug Development, CROs are able to complete clinical trials four to five months faster than in-house R&D teams, savings that can translate to over $100 million in revenue potential.

Patent expiration and contract manufacturing organizations
Another contributing pressure to pharmaceutical companies is the patent cliff. Among the blockbuster drugs that have lost patent exclusivity recently are Pfizer’s Lipitor in 2011, Eli Lilly’s Cymbalta and AstraZeneca’s Nexium last year. Several others such as Novartis’ Gleevec and AstraZeneca’s Crestor will lose exclusivity within the next several years (3).

As branded blockbuster drugs lose patent exclusivity, the conversion to generics creates a steep decline in pharmaceutical company revenues. This evolution will likely increase the pressure for pharmaceutical companies to consider outsourcing their manufacturing operations to a lower cost CMO.

Other factors impacting growth of CMO use
The rise in orphan drug development also encourages pharmaceutical companies to analyze their manufacturing capabilities and consider using a CMO. Many pharmaceutical companies have shifted to orphan drug development in the wake of difficulty in significantly improving approved drug effectiveness.

By their nature, drugs approved for orphan indications will be marketed to patient populations of fewer than 200,000 US people. This translates to smaller manufacturing batches, which pharmaceutical companies may identify as best suited to outsource to a CMO, who can operate more cost effectively at the required smaller scale.

Additionally, as drugs convert from prescription to over-the-counter medications, pharmaceutical companies will need to re-evaluate keeping production in-house. Companies may also determine that specialized pharmaceuticals, such as radiopharmaceuticals, may be best suited for outsourcing due to the process complexity and regulations. In all of these cases, pharmaceutical companies will need to assess required production volumes, cost effectiveness of their operations, and their ability to manage regulatory complexity—all balanced with the tradeoff of shifting their internal resources to other functions.

Pressure from healthcare industry
Lastly, other major factors placing pressure on pharmaceutical companies to innovate their business models are those healthcare and payer industries are facing. The healthcare industry has faced a myriad of forces including consolidation of hospital systems and the industry is beginning the transition from ‘fee-for-service’ to an ‘outcomes-based’ payment structure. As consolidation in healthcare systems continues, health systems will have increased bargaining power, putting price pressure on the pharmaceutical industry. Additionally, cost management pressure from government programs have also placed increased price pressure on pharmaceutical companies.

Pharmaceutical companies are facing a perfect storm of increased regulations, increased cost of R&D, loss of patent exclusivity of key blockbuster drug, a rise in orphan drug development, and pressures from healthcare industry stakeholders to reduce prices. Overall, each pharmaceutical organization will have to evaluate their core competencies and develop a strategic plan to transition through the many changes facing the pharmaceutical industry. As organizations evolve into their new models, they can re-deploy their talent to other high value functions of their organization in order to continue bringing innovative and effective products to market.

References
1. J.A. DiMasi, H.G. Grabowski, R.W. Hansen, Tufts CSDD 2014 Cost Study (Boston, Nov. 18, 2014).
2. IBIS World Industry Report 0D5708, Contract Research Organizations in the U.S. (April 2014).
3. A. Rizwan, The Patent Cliff: Implications for the Pharmaceutical Industry, http://triplehelixblog.com, accessed Jan. 28, 2015.

Article Details
 

Article Details
Partnership Strategies in Outsourcing
Supplement to Pharmaceutical Technology
Vol. 39, (2) Supplement
Pages: s14–s24
Citation: When referring to this article, please cite it as A. Shanley, “The Future of Contract Services,” supplement to Pharmaceutical Technology 39 (2) 2015.
 

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