As it turns out, the biopharmaceutical and pharmaceutical industries aren't immune to changing business cycles. The third quarter financial reports from the publicly held contract research and manufacturing companies (CROs and CMOs) indicate that demand for contract services is softening at a rapid rate. CROs and CMOs are experiencing a higher rate of project delays and cancellations than  before, and new orders are slowing, despite an increase in requests for proposals (RFPs). 

So far, the problems appear to be greatest in early-development services. CMOs that manufacture active pharmaceutical ingredients (APIs) for clinical trial materials—both large and small molecule—reported a significant drop in orders. Most CROs providing preclinical toxicology services had a gloomy outlook as well and expect single-digit growth rates at best, after several years of growth in the 15–20% range. There are also warnings of price competition in the preclinical market for the first time in several years. 

Late-stage development (i.e., services to support Phase II and Phase III clinical trials) seems to be holding up. Clinical research CROs reported a slight increase in study cancellations, but overall RFP volume and contract awards were strong and consistent with previous quarters. The biggest problem for clinical CROs is that, with the recent appreciation of the US dollar relative to the Euro and other currencies, revenues and profits earned outside of the United States are translating into fewer dollars than they did last year when the dollar was weaker. 

The principal reason for the slowdown in early development appears to be that pharmaceutical companies are reprioritizing their pipelines in the face of the difficult financial environment. Overall venture capital funding to these companies has remained steady, averaging about $1 billion per quarter in the US, but its distribution has changed significantly. That's because the liquidity crisis roiling the world economy has created tremendous uncertainty about when and where venture-backed companies can get funding. 

As a result, venture capitalists are holding back on new investments to make sure that companies in which they've invested have enough cash to advance their most promising candidates. Biopharmaceutical and pharmaceutical companies are being forced to put aside their early-stage candidates to focus available funds on candidates closest to commercialization or out-licensing. 

CROs and CMOs are also experiencing delays and cancellations on projects from the major pharmaceutical companies. Part of this appears to be efforts to dress up financial results: by pushing projects into 2009, companies reduce research and development (R&D) spending for 2008 and improve profitability for the year. Part of the change, however, is structural, as major companies such as Wyeth (Madison, NJ) and Pfizer (New York) refocus their R&D efforts and exit some therapeutic areas. 

The downturn has come on suddenly and has surprised many CRO and CMO executives. As we reported in August, 70% of CRO and CMO respondents to the 2008 PharmSource–PharmTech Outsourcing Survey expected 2009 to be better than 2008. Most respondents expected their budgets to go up next year.  

We don't think the market should get unduly pessimistic. Big Pharma's R&D spending is up for the year, and their cash holdings are up as well, meaning they have plenty of money for acquisitions and in-licensing.  

So long as Big Pharma is buying, venture capital will keep funding. However, we can expect consolidation of the CRO and CMO market as weaker players are forced out of the market. 

 is president of PharmSource Information Services, Inc., and publisher of 

Articles

Outsourcing

Early development spending has decreased sharply as industry responds to the financial crisis.

Economy Hits R&D Hardest


 Biopharmaceuticals are an increasingly important part of the pharmaceutical industry’s pipeline. Biopharmaceuticals account for roughly 10% of the global pharmaceutical market, and 25% of the pipeline, according to industry estimates. As biotech-based products become more prevalent, managing the life cycles of these products is a critical consideration. Strategies in reformulation, common in solid-dosage product forms, also play and will continue to be part of the life-cycle management of parenteral drugs. 
 
 Injection systems are a common delivery method for a parenteral drug, where syringes, vials, or cartridges may be used. “Increasingly complex substances are making more and more demands on the composition of injection systems,” says Herman Piana, key account manager with Vetter Pharma-Fertigung GmbH (Ravensburg, Germany). “Regulatory authorities keep making safety laws more stringent, and drug manufacturers and users are calling for more patient-friendly application systems.” 
 
Prefilled syringes, cartridges, or vials illustrate that trend. The market for prefilled syringes is projected to exceed 1 billion units and achieve annual revenue growth of more than 10% (1). The container-closure system used in prefilled syringes offers several benefits such as simplified drug delivery, greater accuracy in filling, and lower incidience of  misidentification, improper dosing, and contamination (1). Given these benefits, prefilled systems can be used in extending product life cycles. A parenteral drug, for example, may be initially packaged in a traditional vial system and later the product form can be changed to a prefilled syringe.

The initial selection or change in the delivery system of a parenteral drug is critical. “Biopharmaceutically manufactured drugs are extremely sensitive to their environment,” says Piana. “All materials that are used such as the type of glass, the various components such as the stoppers and other parts, and the degree of siliconization must be optimally matched with the respective active substance to ensure effectiveness.”

Examples of potential interactions that could lead to unacceptable changes in product quality include:

•	Loss of drug-product potency owing to absorption and/or adsorption of the active drug substance or formulation excipient by the syringe  

•	Accelerated or modified degradation of the drug substance or formulation excipient induced by a chemical leached from the syringe  

•	Change in drug-product properties (e.g., pH, biological activity)  

•	Discoloration of either the dosage form or packaging system (1). 
 
 

The extension of the life cycle of drug through a change in delivery system is one side of the spectrum in drug development. Supporting early-stage development through the supply of clinical trial material supply is the other side. Serving all aspects of the value chain is an important consideration in the business model of contract manufacturers.   “The ability to service the entire value chain is particularly important for small biotechnology companies,” says Piana. “A smaller biotech company, for example, may have less experience with commercial manufacture or regulatory filings at that stage as they are working on early-stage drug candidates.” Although the initial relationship of the biopharmaceutical company and a contract manufacturer may focus on the supply of clinical trial materials, that relationship may be expanded to include commercial manufacture depending on the progress of drug development. 
 
 In developing a business model, contract sterile manufacturers, must consider how they plan to service the various aspects of the value chain. As an example, Vetter is positioning itself as a service provider throughout the value chain. For early-stage development, Vetter Development Service (VDS) provides services and proprietary expertise in the preclinical phase in process development and in clinical production. Support services include pharmaceutical analysis, regulatory affairs, and the development of primary packaging supplies.  
 
As an another example, for lyophilized drug substances, dual-chamber syringes may be an option for originators that traditionally market their product in a lyo-vial. A switch to a dual-chamber solution before patent expiry may offer an opportunity to differentiate the product from biosimilars. Vetter is positioned in this area through its “LycoJect” dual-chamber syringe. 

 For commercial manufacturing, the company recently completed several expansions. Vetter added a new 19,000-m

 facility for visual inspection and secondary packaging close to Ravensburg Vetter South, its existing facility, at an investment of approximately EUR 20 million ($29 million). Secondary packaging involves the final packaging of the application system in blister packages and cardboard boxes. The new facility is designed to meet homecare applications, including dual-chamber syringes and cartridges for pen- and autoinjectors and to meet new international requirements, such as the adoption of safety systems for anticounterfeiting. The construction of the new production facilities was completed in August 2008. In September, the first of seven packaging lines started operating. The other six lines will start producing step by step by the spring of 2009.  
 
 The expansion is in addition to a $100-million investment for a new 16,000-m

 facility near Vetter's headquarters in Ravensburg, Germany, which began full production in early 2007. The facility increased Vetter's production capacity for prefilled injection systems by roughly 30% to 400 million units per year. The facility has a capacity of approximately 90 million units per year. The new facility supports dosage-form studies in the early phases of product development, material for clinical studies, and full commercial manufacturing. The facility has two filling lines for liquid and lyophilized injectable drugs in dual-chamber syringes, single- and dual-chamber cartridges, and vials. 
 
 

  
 
 1. D. Jenke, “Suitability  For Use Considerations for Prefilled Syringes,” 

Contract Manufacturing

Outsourcing sterile manufacturing involves an integrated approach in product life-cycle management.

Life-Cycle Management for Sterile Drugs


Biotechnology-based active pharmaceutical ingredients (APIs) account for a smaller portion of the global market for APIs compared with chemically synthesized APIs, but their growth prospects are much stronger. Double-digit growth is projected for the global market for biotech APIs, including APIs from innovator companies. And growth for biogeneric APIs or biosimilars is even more robust, particularly for Asia-Pacific markets.



The global market for biotech APIs was $9.15 billion in 2007 and is expected to reach $16.07 billion by 2011, according to a recent analysis by the 

Chemical Pharmaceutical Generic Association

 (CPA, Milan, Italy) (1). These projections represent average annual growth for biotech APIs of 15.1%, nearly triple the projected average annual growth rate of 5–6% for chemically synthesized APIs.
 
 Recombinant proteins account for the largest share of the global biotech API market at $6.18 billion, or 68% of the global market, followed by monoclonal antibodies at nearly $2.04 billion or 22% of the market, and vaccines at $935 million, or 10.2%, according to CPA (1). The leading recombinant proteins are erythropoietin, which accounts for $1.3 billion, or 14.2% of the global market for biotech APIs, recombinant human insulin at $900 million, or 9.8% of the market, and granulocyte colony-stimulating factors at $550 million, or 6% of the market. 
 
 Strong growth is projected for both therapeutic proteins and monoclonal antibodies, with projected average annual growth of 15.9% for therapeutic proteins and 14.6% for monoclonal antibodies (1). This double-digit growth is compatible with recent growth in the global market for biotech APIs, which had average annual growth of 18.8% through 1999–2007. Similar growth is projected through 2011 as the market is expected to increase at an average annual rate of 15.1% through 2011 and reach $16.07 billion, according to CPA (1). 
 
 Approximately 84% of the global market for biotechnology-based APIs is based in the developed economies in North America, Western Europe, and Japan. The United States accounts for $5.14 billion, or 56.2% of the global market, Western Europe $1.42 billion, or 15.5%, and Japan $780 million, or 8.5%. Among Western European countries, the United Kingdom is the largest producer of biotechnology-based APIs, accounting for roughly 35% of total biotech output in Western Europe. 
 
 Growth in these geographic markets will be robust through 2011. Average annual growth of biotech APIs from 2007 through 2011 is projected at 14.0% in North America, 10.6% in Western Europe, and 21.7% in Asia Pacific, which is led by growth of 33.2% in China and 30.1% in India, according to CPA (1). 
 
 

Increased attention to post-translational modification (PTM), or the chemical modification of a protein, is an important trend in biotech-based API production, according to CPA. Typical PTMs may involve the following:

 • Acylation, or the addition of an acyl group to the protein  

• Pegylation, or the attachment of polyethylene glycol polymer chains to the protein  

• Glycosylation, or the addition of polysaccharides to proteins. Glycosylation is the most prevalent PTM used, accounting for more than one-third of all approved biotech-based APIs (1). 
 
 PTM not only enlarges a protein’s function, but also can offer other benefits such as improving product stability, obtaining a slower or a faster action of the product, increasing the biological half-life of a protein, creating new fusion products such as alefaept or etanercept, or influencing immunogenicity. 
 
 

Unlike the market for chemical-based generic APIs, the current and potential market for biosimilars is less defined. The major reason for this is unlike chemically synthesized APIs, it is more difficult and complex to establish bioequivalence for a biotech-based API. In general, a biosimilar must be identical to the master cell bank of the originator reference product and have the same safety and effectiveness as the originator reference product. The purity of the biosimilar must also not vary outside the limits displayed by the reference product (1). The complex nature of establishing bioequivalence, has in turn, created an uncertain regulatory framework for approving biosimilars, particularly in the US. 
 
 Compared with generic drugs using chemically synthesized APIs, the cost of developing a biosimilar product may be more expensive because of the cost and time for additional analytical and clinical testing. Estimates for developing a biosimilar product may be between $10 million and $50 million compared with between $1 million and $2 million for developing a generic drug using chemically synthesized APIs, according to CPA (1). 
 
 Despite these challenges, biosimilars are projected to enjoy strong market growth. The biogeneric API market was valued at $1.16 billion in 2007, and $1.28 billion in 2008. The market is expected to reach $3.36 billion by 2011, representing average annual growth of 30.3% (1). This rate of growth, albeit from a much smaller base, is more than double the rate of growth for innovator’s biotech-based APIs. The market for innovative biotech APIs was nearly $8.00 billion in 2007 and $8.84 billion in 2008. The market for innovative biotech APIs is expected to increase at an annual average growth rate of 12.3% to reach $12.71 billion by 2011 (1). 
 
 On a geographic basis, China dominates the global market for biogeneric APIs with a projected value of $685 million or 58.8% of the global market in 2007, according to CPA (1). India accounts for $95 million or 8.1%, and other Asia-Pacific countries, $80 million or 6.9%. The dominance of Asian countries, particularly China, for generic biotech-based APIs is expected to continue. The market in China is expected to increase at an average annual growth rate of nearly 30% to reach $1.95 billion and by nearly 27% in India to reach $245 million by 2011 (1). In total, China, India, and other Asia-Pacific countries are expected to account for nearly 71% of the global market for generic biotech-based APIs by 2011. In contrast, the regulated markets in North America and Western Europe, where the regulatory framework for biosimilars is still unfolding, are projected to count for only 10% of the global market for generic biotech APIs by 2011. Western Europe is projected to account for $235 million, or 7.0%, and North America only $90 million or 3.1%  (1). 
 
 Erthyopoietin is expected to be the leading biogeneric API by 2011, accounting for $1.35 billion of 40.2% of the global market, followed by granulocyte colony-stimulating factors at $800 million or 23.8%. Human growth hormone and interferon alpha are projected to account for 7.4% and 8.6%, respectively (1). 
 
 References 
 
 1. “World Biotech APIs Market,” Chemical Pharmaceutical Generic Association (Milan, Italy, 2008). 

APIs

Achieving double-digit growth through 2011, biotech-based active pharmaceutical ingredients (APIs) are expected to far surpass growth rates for chemically synthesized APIs.

PTSM: Pharmaceutical Technology Sourcing and Management-01-07-2009

Economy Hits R&D Hardest

Life-Cycle Management for Sterile Drugs

Promising Outlook for Biotech APIs