Dr. Andreas Stolle is head of business line pharma at Saltigo GmbH.

Andreas Stolle

On an industry level, how would you characterise the overall market for fine chemical supply?

The increased trend of outsourcing coupled with a relatively strong economy has seen the fine chemicals market grow at a very high level when compared to historical data. However, many companies and economy experts have already announced that, whilst continued growth in outsourcing is widely anticipated, this growth may not be at the same high levels observed in more recent years. In addition, the distribution in growth will be different, so companies must decide how best to position themselves to maximize future growth opportunities.

The same holds true in the pharmaceutical fine chemicals market; the overall demand in the market has increased. However, the implications of the patent cliff and changes in the funding of health care provision could mean that the highest compound annual growth rate potential is more likely to come from emerging rather than established markets. Despite continued forecasted increases in total product demand, not all companies are well placed to maintain or grow their level of business. This reflects how increasingly fragmented the market has become and the presence of more and more competition, in particular from Asia. Thus, industry experts predict that a consolidation of some of the suppliers may occur in the near future with the landscape of pharmaceutical fine chemical companies changing and evolving further. 

What would you identify as other key trends influencing the market for contract pharmaceutical development and manufacturing?

One of the key trends that we have identified is the development of true partnerships between sellers and buyers. This goes together with the desire to simplify and consolidate the supply chain in the pharma sector. 

Innovation is a key to success. The Drug, Chemical and Associated Technologies Association even devoted the whole Sourcing Summit “Innovation in Sourcing” to that topic. New and creative solutions are needed in this changing market; trends are towards shorter timelines, fewer new molecular entities, continuous price pressure due to health care reforms and blockbusters going off patent.

The pharmaceutical majors have articulated their strategic interest in building their positions in emerging markets. On a supply level, what are the implications for contract manufacturers?

For pharmaceutical companies, emerging markets are a key driver for continued growth; there is definitely an opportunity for fine chemical companies providing generic active pharmaceutical ingredients. Another trend that we’ve picked up on is that, even for new molecular entities and patent protected drugs, pharma companies now want to launch in emerging markets much earlier than in the past. This puts more and more pressure on pharmaceutical organisations because of the necessary procurement and operations to meet cost of goods targets, as well as marketing and sales requirements to successfully launch new chemical entities. As a consequence, they need to work more closely together with their suppliers to come up with innovative solutions much earlier in the drug life cycle to meet the challenging price points, and optimise the rather complex supply chains.

In looking at the outsourced relationship itself, do you think there is increased interest by pharmaceutical companies to work with fewer suppliers and form preferred provider relationships?

There is a clear trend to work with fewer preferred suppliers. Also, pharma companies are starting to focus more on their core business and seek increasing amounts of input and solutions from their suppliers. Thus, they may work with an external expert to access what specialised activities they can best provide best, as these activities may not be in a field of expertise for the pharmaceutical company.

As closer relationships with preferred suppliers evolve, more frequent and open communication is a necessity. A Joint effort, with common goals and shared risk and reward, is today’s widely accepted business model. Some pharmaceutical companies have even created “true external manufacturing departments” where they manage the suppliers as if they are part of the internal organisation.

Looking ahead five years for now, how do you see the market for contract pharmaceutical development and manufacturing evolving?

Going down the line of consolidation, future pharmaceutical fine chemicals companies may look different to those of today:

A critical size may be required to stay competitive, optimise and balance their portfolio, and benefit from other synergies.

A more global presence will be essential (i.e., marketing and production assets in different parts of the world to balance currency risks whilst also having more flexibility to stay close to local developing markets).

Diversification may also be revisited; for example, pharmaceutical fine chemical companies could expand into agro fine chemicals or other business segments. These pharmaceutical fine chemicals may become part of a larger conglomerate or add a 2nd or 3rd market offering to their portfolio that has different business cycles.

All of these changes need to be made whilst maintaining a very flexible, lean, creative and responsive organisation. 

Articles

The increased trend of outsourcing coupled with a relatively strong economy has seen the fine chemicals market grow at a very high level when compared to historical data.