A future look at outsourcing

PharmTech » Looking ahead five years, how do you think pharmaceutical outsourcing will have evolved as it compares today in terms of the number of suppliers, the type of suppliers and capabilities offered, and growth in specific geographic markets? Also, taking a visionary look, what other factors will affect the paradigm for pharmaceutical outsourcing and what do you see as the impact on suppliers and sponsor companies?

» Andrews (Dishman): Certainly the breadth of services offered from Asian API producers is expanding at present into areas such as biopharmaceuticals, formulation, and clinical research with ever improving levels of service and quality, and this trend will continue over the next five years. Asian providers will increasingly develop their business from life-cycle management to production of new chemical entities for launch. Increasingly, large pharmaceutical companies are working with generic API providers, and some consolidation will occur between suppliers. [We] believe the number of suppliers will probably not grow significantly.

» Novak (Patheon): I think the number of suppliers will shrink as consolidation takes place in the face of continued mergers and acquisitions at the client level and as suppliers continue to expand their capabilities by adding development and specialty manufacturing services as well as expanding their geographical footprint.

Tyson (Aptuit): Pharmaceutical outsourcing, like the larger pharmaceutical industry, is constantly evolving, and we'll continue to see sponsor companies and outsourcing partners working to develop efficiencies to bring critical drugs to market. Rather than a sponsor company outsourcing projects to a variety of different vendors, it will be increasingly important from a cost, scientific, and strategic perspective to work with outsourcing partners across multiple facets of a project to capitalize on integration of project management and services.

The steep decline in the number of drugs reaching the market, particularly due to the difficulty in translating promising laboratory candidates into products suitable for Phase I studies, will continue to be an important issue for drug developers to tackle. Drug-development companies should choose partners that can help them overcome obstacles in the traditional drug-development model that are curbing the progression of new medicines.

» Santhanam (Piramal): The downturn in the last year is resulting in significant long-term paradigm shifts in drug development and outsourcing. Drug development will have stricter gates of efficacy, innovation, and market size for funding, and there will be a constriction in the pipeline when the industry revives.

Large Pharma is looking at consolidating sites, retaining only a few key sites for product launch, finishing, or for tax advantages. Along with this, alot of excess capacity in the West in API and formulations will need to be taken out (closed versus sold) in the next five years. Pharma companies currently outsourcing intermediates only will also look at finished APIs, and the need for capacity in Asia for late life-cycle formulations (i.e., solids, solutions, steriles) will increase at a faster rate.

Large Pharma is also currently buying small pharma/biotechs or forging relationships via small equity stakes. The small pharma/biotechs are also consolidating/aggregating to be larger and stronger and have a mix of both early and late pipelines to be able to attract funding. The landscape of biotechs, therefore, will change significantly. The barrier for small pharma/biotechs to source from Asia has been the management bandwidth to assure proper vendor selection and monitoring. Intermediaries that will help with this process will emerge in the next two to three years and help the small companies work with Asia in early-phase work as well. Large Pharma with equity stakes in these companies will also drive more Asia-based sourcing as almost all of Large Pharma now have an office in Singapore/ Hong Kong/India, and [they] are setting up API and formulations development centers in these geographies.

The industry, particularly the venture-capital firms and PE [private equity] firms, will also try to hedge risk (as will be the case with Large Pharma) by having exposure to small molecules, large molecules, consumer health, and medical devices versus being focused on one category only. The pipeline in large molecules will increase more, but there is a fair bit of excess capacity in the West in this sector, and large-scale outsourcing of this category is not expected in the next three to five years. The imperative on CMOs in Asia will be to provide reliability and scalability in the next years and gradually add technological edge to move up the value chain of activities as the market matures from tying up the exigent needs for low-cost commercial sourcing to long-term life-cycle sourcing.

»Hagen (AMRI): Within the industry, there will continue to be an effort to drive improved efficiency. The challenge to success in regions such as India and China will be the ability to balance required standards for quality, safety, and reliability with the need for lower costs. Companies in Asia will come under increasing pressure to upgrade their businesses and accept the inevitability of more frequent and thorough regulatory auditing. The pressure to conform to a Western standard to meet regulatory requirements is already beginning to claim casualties.

The influence of the FDA on companies in India and China is beginning to make an impact. US facilities are accustomed to being audited annually. Companies that cut corners or do not comply with regulatory requirements will be culled out. There has not been a level playing field between companies operating in Asia and the US, and once the playing field is level, there will be fewer companies than there are today.

Another more significant development would be the acknowledgment by the industry that development and manufacturing of APIs and drug products are not a core competency. Pharmaceutical companies could outsource 100% of the development and manufacture of APIs immediately, which would lead to increased productivity, improved cost structure, and greater efficiency. In the short term, CMOs continue to invest in technology and development both in the US and in Asia in anticipation of the day when the dam breaks and the CMO industry experiences a period of unprecedented growth. [We] will be waiting.