Shifting Patterns in Sourcing

The pharmaceutical supply chain lengthens as generic drug manufacturers build production platforms offshore and CMOs position in India and China to meet demand for lower-cost production.
Mar 02, 2007
Volume 31, Issue 3

Faced with pressure to reduce costs in the supply chain, pharmaceutical companies and contract manufacturing organizations (CMOs) are building production platforms in lower-cost regions outside of the United States and Western Europe. This pressure is particularly strong among major generic drug manufacturers. CMOs that provide active pharmaceutical ingredients (APIs) and dosage forms also are strengthening their positions in Asia.

Generic drug companies build global manufacturing

While generic drug manufacturers regularly source offshore, the major players are increasing their manufacturing presence in Asia, Eastern Europe, and elsewhere as part of an overall strategy to reduce costs. These moves come in the wake of recent consolidation.

As part of a global rationalization strategy following its acquisition of Ivax Corporation (Miami, FL) in 2006, Teva Pharmaceutical Industries, Ltd. (Petach Tikva, Israel) announced plans to cease production at the former Ivax manufacturing facility in Cidra, Puerto Rico during the fourth quarter of 2006. Teva expects to achieve cost savings of $45 million in 2007 from the closing of this facility. In addition, Teva closed several plants in the United States and Canada in 2006. Teva is bringing on line a new plant in Jerusalem, Israel for solid-dosage manufacturing. The plant is designed to have initial annual capacity of 4 billion tablets and, by 2008, capacity of 8 billion tablets.

Last month, Actavis (Hafnarfjordur, Iceland) acquired the API division of Sanmar Specialty Chemicals Ltd. (SSCL, Chennai, India), which includes an API manufacturing facility. SSCL also will provide API research and development services to Actavis.

In late December, Actavis acquired a solid-dosage manufacturing plant from Grandix Pharmaceuticals, Ltd. (Chennai, India), a pharmaceutical manufacturing and marketing company. Actavis says the facility gives it low-cost manufacturing capability in India, where it plans to develop and manufacture products for the US and European markets and relaunch older products that need a lower cost base to compete in international markets. Actavis plans to increase the manufacturing capacity of the Indian facility to roughly 4 billion tablets over the next 18 months and strengthen the development and regulatory-affairs units.

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In 2005, Actavis acquired Lotus Laboratories (Bangalore, India), a contract research organization specializing in clinical and bioavailability studies of pharmaceuticals.

Actavis also opened a new 1000-m2 API development facility in India, with the aim of introducing 10–15 products per year. In total, Activas has 30 API projects under development in India.

As it builds its own manufacturing base in India, Actavis continues to outsource to Indian CMOs. In February 2007, Actavis signed a pact with Orchid Chemicals & Pharmaceuticals (Chennai, India), a producer of cephalosporin antibiotics. Orchid agreed to develop and manufacture nine cephalosporin formulations in sterile dosage forms for licensing to and marketing by Actavis in Europe. Orchid already has a development, manufacturing, and distribution agreement with Actavis for 10 noncephalosporin generic products in the United States.

In 2006, Actavis formed manufacturing pacts with the Indian pharmaceutical companies Emcure Pharmaceuticals Ltd. (Pune, India) and Shasun Chemicals & Drugs Ltd. (Chennai, India).

Emcure Pharmaceuticals is a vertically integrated pharmaceutical company that provides contract manufacturing services for formulations and API manufacturing. In July 2006, the private investment group the Blackstone Group (New York, NY) invested $50 million in Emcure. Blackstone is also the buyer of Cardinal Health's (Dublin, Ohio) contract-services unit, Pharmaceutical Technologies and Services (PTS), in a pending deal valued at roughly $3.3 billion.

Shasun is one of several India-based CMOs gaining Western manufacturing assets. In early 2006, it acquired Rhodia's (Paris, France) pharmaceutical custom-synthesis business.

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