 has pledged $30 million over five years to fight the rising burden on noncommunicable diseases (NCDs) in developing nations through the launch of the Lilly NCD Partnership. The partnership will combine the resources of the company and global health organizations to identify new models of patient care that increase treatment access and improve outcomes for underserved people. The new program will initially focus on diabetes. It is based on the concept of shared value, which is designed to identify comprehensive and sustainable approaches to patient care, which depending on local needs, may involve patient education, provider training, and increased access to treatment. 

 has launched a new open innovation platform that is designed to build the company’s pipeline and from a philanthropic perspective, identify molecules that may have applications for multidrug-resistant tuberculosis (MDR-TB). The new platform, Open Innovation Drug Discovery, builds on Lilly’s Phenotypic Drug Discovery Initiative that was launched in 2009 to facilitate research. The new platform consists of three components: TD

, or target drug discovery, a new component that screens submitted molecules for their potential to interact with known disease targets; PD

, which continues to screen submitted molecules in complex cellular assays with the goal of identifying potential new medicines acting by novel mechanisms or pathways; and an additional new component that screens molecules for their potential against MDR-TB. 

 reported on its progress in participating in the 

 program, which is part of the United Nations’ (UN) Global Strategy for Women’s and Children’s Health for reducing mortality in women and children by 2015. The company’s efforts include: the Mobil Alliance for Maternal Action, an initiative to expand health information for mothers using mobile phones; Helping Babies Breathe, a safe-births initiative; doubling donations of treatments for intestinal worms in children; helping to ensure that no child is born with HIV; and furthering R&D of new medicines for HIV and tuberculosis. 

The company also announced initiatives to support antismoking and smoking cessations programs to address the problem of noncommunicable diseases.The initiatives include QuitNowTXT, an interactive text-based intervention for adult smokers that offers motiviation, encouragement, and smoking facts, and participation in a Clinton Global Initiative to encourage employers to expand the availability of smoke-free workplaces 

 released its 2010 global corporate responsibility report, which covers the company’s corporate responsibility activities, progress, goals, and performance in four areas that the company has identified as critical to its business goals. These areas include access to health, environmental sustainability, employees, and ethics and transparency. The report includes metrics and a new set of key performance indicators that will be used to measure progress in each area. The company will continue to use several external reporting guidelines, including the Global Reporting Initiative, the UN Millennium Development Goals, the Access to Medicines Index, and the UN Global Compact Communication on Progress. 

 launched a 10-year, $500-million initiative, “Merck for Mothers,” which applies the company’s scientific and business expertise for improving public awareness, policy efforts, and private-sector engagement for reducing maternal mortality. Merck for Mothers will focus on two leading causes of maternal mortality, excessive and uncontrolled bleeding after childbirth and high-blood pressure during pregnancy, as well as family planning. The initiative will be guided by input from an internal steering committee and an external advisory board. 

 are jointly establishing an integrated food-energy business in Mozambique that will replace charcoal-burning cook stoves with cleaner ethanol stoves. Throughout Africa, more than 80% of urban families buy charcoal to cook their food, which is a source of mass deforestation across Africa. By 2014, CleanStar Mozambique intends to supply 20% of local households in Mozambique’s capital city Maputo with the ethanol alternative to charcoal, which it hopes will improve family health due to reduced pollution and protect 9000 acres of forest. 

 a vaccine strain for polio eradication. The material is original viral seed used to produce large quantities of oral polio vaccines (OPV) against the Type 3 polio virus. With this donation from Sanofi, WHO will be in full control of the storage of the vaccine strain and its distribution to vaccine producers worldwide. 

Articles

CSR and Sustainability Forum

A roundup of developments in corporate social responsibility and sustainability from the bio/pharmaceutical industry, its suppliers, and other public and private organizations.

CSR and Sustainability in the News

To coincide with the United Nations High-Level Meeting on Noncommunicable Diseases (NCDs), the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) issued a report of independent policy research, conducted by RAND Health, which identified the most significant obstacles to stemming the rise of NCDs in developing countries. The key finding of the research shows that effective treatments for NCDs exist and are likely to be available in generic form, but in many instances, these drugs fail to reach many people in the developing world. The study identified four key areas in improving access to NCD treatments: innovative ways to improve NCD medicine adherence; overcoming barriers to availability in poor and remote areas, where markups, taxes, and duties along the supply chain and counterfeit drugs are a problem; improving access to primary care; and removing regulatory restrictions that hamper medicine availability in developing countries. 

“Fifity percent of NCDs are avoidable, therefore, prevention measures, including lifestyle modifications, doing more physical exercise, stopping smoking and a healthy diet, are some of the most cost-effective and efficient ways to tackle the magnitude of NCDs across the developing world,” said IFPMA Director General Eduardo Pisani, in a Sept. 19, 2011, IFPMA press release. “But we know that while prevention is imperative and cost-effective, its impact can only be felt over the longer term. We also need to know how best to improve access to treatments that patients in developing countries need more urgently. The launch of the first in the series of IFPMA reports illustrates how the research-based pharmaceutical industry is committed to this challenge and how we want to understand what areas require particular focus,” he said. 

As in many global health initiatives, a multistakeholder approach, including participation from industry, the public sector, public and private partnerships, and nongovernmental organizations (NGOs) is considered a crucial way to address the problem of NCDs in the developing world. “The increasing burden of NCDs in low- and middle-income countries poses an economic, social, and moral stumbling block to global health and prosperity,” said IFPMA President and AstraZeneca CEO David Brennan, in the IFPMA press release. “This underscores the importance of partnership to understand what the most significant problems are and to work together to solve them.”

According to data from IFPMA, research-based pharmaceutical companies are engaged in 213 health partnerships, of which approximately 25% deal directly with NCDs or help strengthen the primary care to deliver treatments. A recent partnership for NCDs was announced in September 2011, when the World Health Professions Alliance (WHPA) announced an NCD Health Improvement Card and toolkit, sponsored by IFPMA. WHPA is an international organization representing healthcare professionals, such as dentists, nurses, pharmacists, physical therapists, and physicians. WHPA represents more than 26 million healthcare professionals in 130 countries, and the NCD toolkit will be shared with them to help encourage patients to identify and prevent risky behaviors. 

The RAND report identifies four key areas in which the pharmaceutical industry can be participate in addressing the problem of NCDs in the developing world: realizing product improvement beyond the chemical compound, enhancing supply-chain efficiency and integrity, achieving gains from regulatory harmonization, and improving access to primary care. 

The RAND research showed that a large array of drugs for NCD treatment has been developed and are likely to exist in generic form, so that the most immediate gains in health can be achieved by improving access to existing medicines as opposed to developing new compounds. The four major NCDs are cardiovascular disease, chronic respiratory disease, diabetes, and cancer. In reviewing the availability of noncancer NCD drugs on the World Health Organization’s (WHO) Essential Medicines List, the report concluded that first-line treatments for noncancer NCDs and palliative care are likely to be available in generic form in developing counties. Development needs still exist for second- and  third-line medicines for refractory cases, to reduce side effects in the treatment of noncancer NCDs, for palliative care, and for the first-line treatments for many cancers. Given the availability of NCD treatments, however, the report points to the importance of strategies to improve access and adherence to treatments, such as through packaging (e.g., blister packaging to facilitate patient compliance and administration), pricing, and patient education. The viability of fixed-dose combination products for NCD treatments is another area that can be further explored as a means to reduce dosing and consolidate treatment although the report points to certain challenges in developing fixed-dose combinations for NCDs, such as development, manufacturing, and regulatory challenges. 

Supply-chain efficiency and integrity are two major concerns in tackling the problem of NCDs in the developing world. The availability of medical treatment and drugs in poor and remote areas is limited and made more difficult through large markups in the supply chain and further compromised through counterfeit drugs. Although consumer goods, such as beverages, shampoos, and mobile-phone cards, often are available in remote areas, drugs are not available due to segmentation for the supply chains for medicines. Particularly in low-income countries that depend on donor assistance, supply chains are commonly segmented horizontally and vertically. Horizontal segmentation refers to instances where international donors coordinate the delivery of medicines to the point of entry and leave the distribution to local organizations, which can result in variable and unpredictable distribution of supplies. Vertical segmentation refers to separate supply chains that are maintained by different donor organizations or by different disease states, which can create highly fragmented and inefficient supply chains. Other problems in the supply chain include problems for distribution to rural or remote areas and weak supply-chain management. Problems in supply-chain management are caused by a lack of standardized information systems, inefficient inventory accounting and management practices, a lack of trained supply-chain managers, limited tracking and tracing mechanisms, poor storage facilities and conditions, and stock theft. These problems contribute to increased transportation and inventory costs, a lack of reliable data to forecast future demand, significant imbalances between local demand and supply, increased waste and vulnerability to breaches of supply-chain integrity. Counterfeit drugs are part of those breaches in supply-chain integrity, and according to WHO estimates, 25% of drugs are counterfeited in developing countries.

The RAND research points to the importance of improving supply-chain integrity and recommends the evaluation of public-sector solutions with a private-sector approach for supply-chain security and verification of product authenticity. For example, the adoption of efficient purchasing and supply-chain management practices from private industry has the promise of improving NCD drug distribution. Public-private partnership models are another possibility. The report points to Tanzania’s accredited drug-dispensing outlets as an example. These are privately operated outlets that are organized to dispense a limited set of prescription drugs to underserved communities, and which operate with very little capital and by which the government provides incentives and training to outlet owners. The adoption of radio frequency identification (RFID) and bar coding for tracking and tracing drugs is another tool, but would require international or at least regionally accepted standards for implementing the technology. 

The report also points to regulatory obstacles in developing countries that impede access to NCD treatments. The report points to uncertain timelines and variable requirements for product registration, GMP inspections, labeling, and product identification codes, which can increase cost, sometimes to the point to which it makes product registration prohibitively difficult in a given country. For example, a recent analysis by WHO found that none of the 26 assessed sub-Saharan countries had adequate and sustained funding for operation of their national medical regulatory authorities. These authorities lacked qualified staff, especially with respect to marketing authorization and inspections, and the capacity to assess the application for an innovator medicine was highly limited. 

The report points to the benefit in greater harmonization of regulatory requirements as a means to increase product availability. The report suggested quantifying the benefits of regulatory harmonization to promote a data-driven dialogue with national authorities and to promote the use of existing activities, such as the WHO Certificate of Pharmaceutical Product (CPP) scheme, the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme (PIC/S), and the International Conference on Harmonization (ICH) Global Cooperation Group (GCG) scheme. The WHO CPP scheme allows countries to rely on the registration by another recognized competent regulatory authority in evaluating the quality, safety, and efficacy of a drug product. This process is advantageous for developing countries, where national drug authorities may not have the capacity to do their own evaluations. PIC/S consists of the national regulatory authorities of nearly 40 countries and seeks to develop and promote harmonized GMP standards by providing guidance documents, training, assessing inspectorates, and facilitating cooperation. 

Improving access to primary care is an important way to tackle the problem of NCDs. The RAND report highlighted that in the absence of a primary-care system, NCDs go unnoticed until complications arise, adequate treatment is not initiated, treatment effect is not consistently monitored, and terminally ill patients do not receive palliative care. A recent World Health Survey conducted by WHO in 70 countries showed that only 50.6% of respondents with a chronic condition in high-income countries reported having access to treatment, and these percentages are even lower for people in less economically strong countries, with only 32% of respondents having access to treatments in low-income countries and 37.5% in lower-middle-income countries. According to World Bank data, low-income countries have on average 0.18 physicians and 0.53 nurses for every 1000 people compared with one physician and 1.69 nurses per 1000 people in lower-middle income countries. In terms of affordability, according to WHO’s 2010 NCD country-capacity survey, only 25% to 35% of low-income and lower-middle income countries have insurance schemes, be they public or private, that cover NCD-related services and treatments, compared with 85% of high-income countries. At the same time, improving access to primary care is a complex challenge, which requires fundamental issues, such as resourcing, governance, and capacity building. As initial steps, the report proposes a survey of innovative approaches for delivering effective and efficient primary care in developing countries and an assessment of those approaches that can be scaled up in a given country or area. 

“We are confident that further research into these priority areas can yield actionable guidance on how to improve access to NCD medicines in the developing world and that the research-based pharmaceutical industry is committed to executing this program,” concludes the report. The report is part of the process of a multistakeholder approach to participate in the problem of NCDs in the developing world. 

The International Federation of Pharmaceutical Manufacturers and Associations offers an action plan and research for addressing noncommunicable diseases.

Pharmaceutical Industry Prioritizes Its Action Plan for Tackling Noncommunicable Diseases

Although the global biotechnology industry delivered top- and bottom-line growth in 2010 and achieved aggregate profitability in 2010 for the second year in a row, funding for R&D and early-stage companies and related activities was down. These are some of the major findings from a recent analysis by Ernst & Young in its report, 

Beyond Borders: Global Biotechnology Report. 

Although aggregate performance improved in 2010, there is a widening gap between large, established companies and those at earlier stages for whom access to capital continues to be difficult. “Biotech firms will need to adapt creatively to this environment by doing more with the funding that is available and by working from the earliest stages of development to demonstrate the potential value of their products to investors, payers and regulators,” said Glen Giovannetti, Ernst & Young's global biotechnology leader, in a June 14, 2011, press release.

On the plus side, companies in the established biotechnology centers of Australia, Canada, Europe and the United States had a record-breaking aggregate net profit of $4.7 billion in 2010, a 30% increase from the previous year, according to the Ernst & Young analysis. Also, companies in Canada, Europe, and the US raised $25 billion in 2010, which equaled the average for the four years before the global financial crisis. 

However, the distribution of that funding was oriented toward established, mature companies. In the US, large-debt financings by mature, profitable companies grew by 150% compared with levels in 2009. Conversely, there was a 20% decline in the amount of “innovation capital” for the sector, defined as total funding minus large-debt financings. Also, 82.6% of funding went to just 20% of US companies, up from 78.5% in 2009. The bottom 20% of companies raised 0.4% of the funds, down from 0.6% in 2009. The total potential value of strategic alliances remained strong, totaling more than $40 billion, according to the Ernst & Young analysis, but up-front payments from partners to biotechnology companies dropped 37% to $3.1 billion. In addition, deal-making slowed in 2010. Merger and acquisitions (M&A)  involving European or US biotechnology firms dropped from 58 deals in 2009 to 45 deals in 2010 while the aggregate value of these transactions remained relatively flat (after normalizing the 2009 numbers to exclude the mega-acquisition of Genentech by Roche). 

Looking at the US, revenues of publicly traded biotechnology companies increased to $61.6 billion in 2010, a 10% increase and equal to the growth rate of 2009 when adjusting for the acquisition of Genentech by Roche. Net income increased from approximately $3.7 billion in 2009 to $4.9 billion in 2010. M&A transactions involving US-based biotechnology companies turned in the lowest aggregate value in the last five years, totaling $12.6 billion. Total US industry funding reached $20.7 billion in 2010, up from $18 billion the previous year but driven largely by dept raised by profitable companies to refinance existing debt and for stock buybacks and acquisitions, according to the Ernst & Young analysis. Venture capital raised in the US totaled $4.4 billion in 2010, down slightly from the $4.6 billion reached in 2009. 

In Europe, revenues of European public biotechnology companies increased 12% to EUR 13 billion ($17 billion), a significant increase from the 2% growth seen in 2009.The combined net loss for biotechnology companies in the region improved slightly, from EUR 467 million ($622 million) in 2009 to EUR 459 million ($611 million) in 2010. The value of M&A activity in Europe increased from EUR 1.8 billion ($2.4 billion) in 2009 to EUR 3.5 billion ($4.7 billion) in 2010. Total funding for the European industry in 2010 was essentially unchanged from the previous year, with EUR 2.9 billion ($3.9 billion) raised. Venture capital raised in Europe totaled EUR 1 billion ($1.3 billion), an increase from the EUR 790 million ($1.1 billion) raised in the previous year. 

In looking at other regions, the Canadian biotechnology industry raised more than $482 million in 2010, a decrease of $251 million compared to 2009. However, when removing the financing of $325 million from one company, the sector raised 18% more in 2010. Australian publicly traded biotechnology companies raised $129 million in 2010, less than half the amount raised in 2009. 

The overall volatility in the stock market, caused by the fight of the raising of the debt ceiling in the US and the debt crisis in Europe, has had an effect on financing in the US biotechnology sector. Public financing in the third quarter of 2011 fell to just under $3.1 billion compared to $9.1 billion in the second quarter of 2011, according to data from Burrill & Company, a life-sciences financial services firm. The amount raised through initial public offerings  fell 72% to $151 million in the third quarter of 2011 compared with $540 million in the second quarter of 2011. Follow-on offerings declined 79.8% from $2.2 billion in the second quarter of 2011 to $453 million in the third quarter. Private investment in public equity declined 53% from $450 million in the second quarter to $211 million in the third quarter. Venture-capital funding also declined for the US biotechnology industry from nearly $1.3 billion in the second quarter of 2011 to $832 million in the third quarter. Partnering financing also declined from nearly $3.7 billion in the second quarter of 2011 to nearly $2.9 billion in the third quarter of 2011, according to Burrill & Company. 

Biologics

The biotechnology industry achieved aggregate profitability in 2010 and funding improved, but levels of innovation capital still lag.

A Mixed Review for Biotechnology Financing

External development and manufacturing is an important part of pharmaceutical companies’ strategies and directly affects the business models adopted by contract service providers in meeting those needs.The role of pharmaceutical outsourcing, particularly pharmaceutical chemical development and manufacturing, was addressed at the Pharma ChemOutsourcing conference, which was held last month, in Long Branch, New Jersey, and which brought together pharmaceutical companies, CROs, and CMOs to discuss industry trends and perspectives. The central question at the heart of many of the discussions was a fundamental but important one, namely where is the opportunity in pharmaceutical outsourcing, specifically in pharmaceutical chemical development and manufacturing? 

The answer to that question as it was discussed reflected many of the larger and well-chronicled trends affecting the pharmaceutical industry, such as generic-drug incursion, declining R&D productivity, and the ongoing need for cost reduction in development and manufacturing. At one level, these pressures make outsourcing an attractive alternative to internal development and manufacturing as a means to reduce fixed cost structures and achieve greater flexibility, which is a plus for CROs and CMOs. On the downside, however, CROs and CMOs face greater competition as pharmaceutical companies, particularly large pharmaceutical companies, seek to reduce their supplier base and partner with strategic, if not preferred, providers as the choices for these potential CROs and CMOs broaden globally. 

Part of the dialogue at the conference focused on the strategies that contract service providers should take based on this increased level of competition. Some suggestions offered by pharmaceutical companies were integrated service offerings, higher levels of project management, specialized technical offerings, and other approaches that meet the evolving needs of pharmaceutical companies in realizing their goals for greater flexibility while maintaining reliability and quality of supply. The choices for CROs and CMOs relate to how to adapt their business models either through increased service offerings, partnering with other contract service organizations to achieve a fuller slate of capabilities, and finding opportunity in the globalization of the pharmaceutical contract service industry. 

An additional challenge for pharmaceutical companies is how to align their supply chains to meet the changing direction of the industry. According to a recent analysis by the management-consulting firm PwC, many companies have asset bases that are not equipped for more complex manufacturing and distribution processes, different supply chains for a range of products, and shorter product life cycles. The growing importance of emerging markets, new modes of healthcare delivery, live licensing developments, and environmental concerns, are placing pressure on current pharmaceutical supply chain models. Over the next 10 years, PwC asserts that pharmaceutical companies will increasingly have to manage a vast network of service providers in addition to manufacturing and distributing their own products. By 2020, the PwC study concludes that the management of information transfer between the pharmaceutical company, the patient and healthcare provider will be as important as the movement of products. Supply chains must therefore evolve so as to direct and manage this shift, and companies will need to acquire a much deeper understanding of patients and their healthcare needs. 

“In a world where outcomes now count for everything, the ability to integrate data, products and services in a coherent business offering that delivers increased value and better understands the needs of the patient is vital,” said  Simon Friend, global pharmaceutical and life sciences leader, PwC, in a Feb. 21, 2011, press release. “Companies must now work hard to get closer to their patients as by 2020, there is little doubt that the data behind a product will as  valuable as the product itself.” 

The global pharmaceutical industry will therefore, need to develop different supply chain models for different product types and patient segments, learn to use their supply chains as a means of market differentiation, all while recognizing the importance of information over product. “The most successful pharma companies will be those that now recognize the underlying value locked in their supply chain and can leverage it as a value and brand differentiator rather than just a cost,” said Steve Arlington, global advisory pharmaceutical and life sciences leader, PwC. Those that recognize information is the currency of the future will be those that go the final mile and stand out by 2020.”

On a quantitative basis, the market research firm Business Communications Company (BCC) recently offered an analysis of the market for contract pharmaceutical manufacturing, research and packaging. In 2011, global pharmaceutical contracting revenues total nearly $218 billion and are expected to reach nearly $361 billion in 2016, increasing at a compound annual growth rate (CAGR) of 10.6%. BCC breaks pharmaceutical contracting into four segments:– contract manufacture of over-the-counter (OTC) drugs and nutraceuticals, contract manufacture of bulk and dosage form drugs, contract research, and contract packaging.

The OTC drug and nutraceutical segment accounted for nearly $128 billion in 2011 and is expected to grow at a CAGR of 10.9% to reach nearly $215 billion in 2016, according to BCC. The bulk and dosage form drug segment held a value of $53.4 billion in 2011 and is expected to increase at a CAGR of 10.1% to reach $86.3 billion in 2016. The research segment was worth $30.2 billion in 2011 and should be worth $50.5 billion in 2016, a CAGR of 10.8%. The packaging segment, worth $6.4 billion in 2011, should be worth $9.3 billion in 2016, a CAGR of 7.8%.

APIs

Industry experts share perspectives on the changing fundamentals and business models for outsourcing pharmaceutical chemical development and manufacturing

A Changing Paradigm for Pharmaceutical Chemical Outsourcing

The United Nations (UN) held a High-Level General Assembly meeting in New York last month on Sept. 19 and 20 to address the problem of the rising prevalence of noncommunicable diseases (NCDs) in the developing world. The meeting was attended by more than 30 heads of state and government and by at least 100 other senior ministers and experts. The delegates adopted a declaration that calls for a multipronged approach by governments, industry, and civil society to set up by 2013 the plans needed to curb the risk factors behind four of the leading NCDs: cardiovascular disease, chronic respiratory disease, diabetes, and cancer. 

“This will be a massive effort, but I am convinced we can succeed,” said UN Secretary-General Ban Ki-moon, in the opening session of the meeting held Sept. 19. The General Assembly meeting was only the second meeting by the General Assembly to deal with a health-related issue; the first and only other time was on HIV/AIDS. The overall annual death toll from NCDs is estimated at 36 million worldwide, accounting for more than 60% of annual global deaths of 57 million, according to a Sept. 20, 2011, UN press release. By 2030, the number of deaths attributable to NCDs is expected to reach 52 million. Approximately 9 million of the deaths attributable to NCDs occur before the age of 60, with nearly 80% of those deaths occurring in the developing world. 

“Our collaboration is more than a public health necessity,” said Secretary-General Ban. “Noncommunicable diseases are a threat to development. NCDs hit the poor and vulnerable particularly hard and drive them deeper into poverty,” he said, pointing to the problem of families being pushed into poverty when a member becomes too weak to work or when the cost of medical care and treatments overburden the family. “The prognosis is grim,” he said. According to the World Health Organization (WHO), deaths from NCDs will increase by 17% in the next decade. In Africa, that number will jump to 24%. 

The High-Level meeting, which heard from nearly 90 speakers, also featured two roundtable discussions. The first discussion was on the rising incidence of NCDs,  developmental challenges and the social and economic impact of NCDs and their risk factors. The second discussion was on strengthening national capacities, including appropriate policies, for prevention and control of NCDs. 

Secretary-General Ban outlined five recommendations to further progress in tackling the problem of NCDS.  First, implement a complete government approach to adopting population-wide interventions that address risk factors. Second, undertake sustained primary health-care measures, including prioritized packages of essential interventions, along with palliative and long-term care, for those who already have NCDs or who are at high risk of contracting them.  Third, strengthen the capacity of member states to monitor such diseases and their risk factors and determinants, especially in lower-income countries; social data disaggregated by, for example, by gender, was also encouraged.  Fourth, harness lessons learned from national HIV/AIDS, tuberculosis, and malaria programs in low- and middle-income countries for effective integration of communicable diseases and NCD initiatives.  Finally, prioritize the prevention and control of NCDs through commitments governments, the private sector, civil society, the UN, and other international organizations. 

 The declaration adopted by the delegates calls for greater measures at global, regional, and national levels to prevent and control NCDs. Steps range from price and tax measures to reduce tobacco consumption to curbing extensive marketing to children, particularly on television, of foods and beverages that are high in saturated fats, trans-fatty acids, sugars, or salt. Other measures seek to cut the harmful consumption of alcohol, promote overall healthy diets, and increase physical activity. The UN has directed WHO to set up a comprehensive global monitoring framework and prepare recommendations for voluntary global targets before the end of 2012. The member states also requested Secretary-General Ban to prepare two reports, in collaboration with the Director-General of WHO and other stakeholders; one to be presented to the General Assembly’s sixty-seventh session on strengthening multisectoral preventive actions, and the other, to be presented at the assembly’s sixty-eighth session, on progress to that end and towards achievement of the UN Millennium Development Goals.  That report would set the stage for a comprehensive 2014 review of the status of the declaration’s implementation. 

The United Nations calls for a multistakeholder plan by 2013 to curb the rise of noncommunicable diseases.

UN General Assembly Addresses Issue of Noncommunicable Diseases in the Developing World

Could the European debt crisis be the event that consolidates the dose CMO industry? That thought might seem like a stretch, but the financial turmoil roiling Europe could definitely have a big impact on the CMO industry. 

Much of the media coverage of Europe's debt crisis has focused on the ability of governments in the so-called PIIGS countries—Portugal, Ireland, Italy, Greece, and Spain—to repay or refinance their national debt. It is much more than that, however. 

The European debt crisis is potentially a banking crisis as well because the banks hold much of the sovereign debt. If the PIIGS were to default, the banks would be forced to write down the value of their bond holdings, and the resulting losses would reduce their equity and the capital ratios that they must maintain under international and national regulations. That scenario would force the banks to raise more capital and/or reduce their lending to bring assets back in line with their capital. The reduced lending would be felt throughout Europe because the affected institutions, especially the big trans-European banks, such as Deutsche Bank, are major lenders throughout the Euro zone. 

Another concern is that government austerity programs, combined with reduced bank lending, will severely weaken the already fragile economies of the PIIGS countries. Those economies are already a mess, plagued with low demand, high unemployment, and low tax revenues. Lower government spending, tighter private-sector credit, and higher interest rates will further suppress overall economic activity and household incomes in the coming years. 

In fact, the bank pullback already is under way. Recent reports in the financial press (as of the writing of this article in early August) indicate that the European banks are reducing their private-sector lending in the PIIGS countries in an effort to reduce their exposure to the weakening economies.  

The deteriorating European financial situation will play out to the detriment of European CMOs in two principal ways: undermining their operating performance and affecting the availability and cost of debt needed to finance their businesses.  

 The deterioration of the operating performance already is occurring because expenditures on drugs are falling sharply through reduced volumes and lower prices. These lower volumes and prices are especially apparent in countries where the national healthcare systems are primary buyers  and distributor of drugs and therefore affected more by reduced government revenues and spending. The deteriorating economies also will impact privately financed spending on drugs. 

CMOs are feeling the affect of reduced spending on drugs through lower production and demand from clients for lower prices. Furthermore, many European CMOs also are generic-drug manufacturers that use their excess capacity for contract manufacturing. The reduced spending also is taking a toll on their generic-drug business.  

Even before the financial crisis, many European CMOs and generic-drug companies were plagued by low utilization and narrow profit margins. Further deterioration of operating profitability has a range of deleterious implications for the CMOs, ranging from deferred maintenance and capital investment, all the way to receivership. Any sustained deterioration in operating profitability will reduce the credit worthiness of CMOs and threaten their access to bank credit. 

 The availability and cost of bank credit could impact a number of CMOs, including those that are owned by private-equity companies. Private-equity firms typically use the debt capacity of the companies they own to reduce the amount of equity they have invested in the companies and even as a means of generating cash that they pay to themselves as a dividend. In the case of European CMOs, even though the owners in most cases didn't pay much or anything for their facilities, the owners could have borrowed against their assets and they could be highly leveraged. Even where companies don't depend on debt for financing assets, any deterioration of operating performance could affect CMOs' ability to get lines of credit for basic operating needs. 

The financial crisis will hurt the CMO industry by making it more difficult for their clients to get external financing. Financial crises always make investors more risk averse, and investing in new drug development is inherently risky. Europe has always been a difficult place for early-stage companies to raise venture capital, and the deteriorating economic situation is likely to make it worse. 

The financial crisis is hitting the European CMO sector at a time when it is already weak. According to the PharmSource ADVANTAGE database, Europe has nearly twice as many contract dose manufacturers as North America, including 100 solid dose CMOs and 70 injectables CMOs. Only about one-third of these CMOs are FDA-registered, meaning most of them are limited to competing for business to supply European or emerging markets. As a result, competition for the available business already is intense, thereby pushing pricing and operating margins to barely sustainable levels. 

The overcapacity problem has come about because it is so difficult to close redundant manufacturing facilities in Europe. Faced with huge severance costs and negative publicity if they close a facility, global bio/pharmaceutical companies have preferred to give away facilities to management teams and private-equity firms that are willing to run them as CMOs. That approach gets rid of the headache for the pharmaceutical company, but it has created an unsustainable situation for the CMO industry. 

Under these dire circumstances, we believe that a number of CMOs face significant risk of insolvency in the near term. While most of them are privately  held companies that don't publish their financial statements, the situations where we can see the financial results show very poor operating margins and minimal debt capacity. The precarious state of the European financial system and the implications of that weakness may be enough to push some of those companies over the edge.  

Bio/pharmaceutical companies that depend on European CMOs face a major due-diligence challenge. They need to monitor their European CMOs closely, gain a thorough understanding of their balance sheets and cash flows, and be  aware of their exposure to negative developments in the credit environment. For CMOs owned by larger entities, the oversight should extend to the corporate parents as well. There are some major CMOs whose corporate parents have extensive interests in sectors outside pharmaceuticals that are heavily exposed to the financial crisis, such as retailing and property development. Bio/pharmaceutical companies also will need to have alternate sourcing plans in place in the event that financial developments interrupt product supply. 

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

Outsourcing

The EU debt crisis portends of possible negative repercussions for the dose CMO industry.

PTSM: Pharmaceutical Technology Sourcing and Management-10-05-2011

CSR and Sustainability in the News

Pharmaceutical Industry Prioritizes Its Action Plan for Tackling Noncommunicable Diseases

A Mixed Review for Biotechnology Financing

A Changing Paradigm for Pharmaceutical Chemical Outsourcing

UN General Assembly Addresses Issue of Noncommunicable Diseases in the Developing World

The EU Debt Crisis and CMOs