A future look at outsourcing
» 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?
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.
The pharmaceutical industry faces a patent cliff in the next four to five years, and there will certainly be a marked shakeup
in the industry. The traditional dependence on blockbuster drugs will be replaced by niche therapies, with necessarily reduced
volumes. The pharma industry is increasingly dependent on the emerging pharma industry for its pipeline of new drugs, and
these companies are generally conservative in their outsourcing.
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.
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.
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.