A popular definition of insanity defines it as repeating the same task over and over again while expecting a different result. Using that definition, it would appear that a lot of people in the contract-services industry think that the major global biopharmaceutical and pharmaceutial companies are insane. That's because they expect the major companies to continue to seek new drugs the way they have in the past—that is, by throwing a lot of money at a lot of new drug-development candidates in hopes that a few of them will make it to commercial approval.  

Are the major drug companies really that crazy? 

The dismal track record of the biopharmaceutical and pharmaceutical industry for new drug development is well known. Since 1996, the number of drugs in development has doubled, and company spending on research and development (R&D) has tripled, but the number of new molecular entities (NMEs) approved by the US Food and Drug Administration has dropped by half. The cost of developing a new drug has soared to more than $1 billion, and the phrase "R&D productivity" has become an oxymoron. 

Until recently, the failure of R&D at the major biopharmaceutical and pharmaceutical companies has largely been a failure of strategy. Their pursuit of the next blockbuster led them to undervalue a candidate with a mere $500-million market opportunity. They maintained their historical focus on technologies that were reaching their limits of efficacy and safety, like nonsteroidal anti-inflammatory drugs, while ignoring the promise of monoclonal antibodies and other large molecules. They pursued economies of scale in R&D operations but wound up building unwieldy and unproductive bureaucracies.  

In recent years, however, global pharmaceutical companies have made dramatic moves to reduce their dependence on the new product pipeline. Through mergers, acquisitions, and licensing deals, they have diversified their business portfolios into new business opportunities not dependent on new products. These portfolios now include emerging markets and generic drugs, and they address technology gaps, especially with regard to biologics. 

At the same time, the large biopharmaceutical and pharmaceutical companies have hacked away at their traditional R&D model, closing R&D facilities, terminating large numbers of development candidates, and exiting entire therapeutic areas. They are experimenting with new organizational structures such as Eli Lilly's (Indianapolis) Chorus initiative, that are aimed at finding ways to spend less on drug discovery and early development, where a high percentage of candidates fail. Identifying unpromising candidates sooner, and killing them quicker, is now a major objective of the drug-development process.  

Recent developments in the commercial environment will drive biopharmaceutical and pharmaceutical companies to reduce their spending on new products even further. Regulatory bodies are making commercial approval of new products ever more difficult out of concern for patient safety and to encourage drug companies to develop products that are better than what is already on the market.  

In the meantime, pressure on drug prices is intensifying, making it increasingly difficult to make a financial return on new drugs.  The insurance companies and governments that pay most of the tab for new drugs are refusing to reimburse payments for some new drugs, demanding use of generic products, stiffening price controls, and in some countries, paying for certain drugs only if the patient shows progress. 

Although the major drug companies are looking to reduce their drug-development spending, another major source of R&D spending is also likely to decline. Venture capital has fed the growth of the early development pipeline for the past 10 years, pumping more than $1 billion per quarter into US biopharmaceutical and pharmaceutical start-ups.  

The global financial crisis has changed the outlook for venture capital dramatically, however. It has made the major investors in venture capital funds, pension funds, and university endowments much more risk averse—and contributions to those funds are declining. The economic downturn has also highlighted the fact that returns on venture capital during the past 10 years have not been significantly better than returns on less risky investments, including stocks and bonds. This is a direct reflection of the fact that far too much venture capital has chased too few worthwhile opportunities. 

The contract-services industry needs to come to terms with the fact that the new-product gravy train is coming to an end. The number of candidates in development is shrinking, and the amount spent on them is falling. R&D spending by small bio/pharma companies dropped 20% in the first half of 2009, and the large and mid-size companies slowed their spending. We may get a bounce up in the second half of the year as some delayed programs are accelerated, but the trend seems pretty clear. 

A decline in R&D spending will hurt smaller contract research and manufacturing organizations (CROs and CMOs) the most, because it will be concentrated in the discovery, preclinical, and Phase I segments of the pipeline. Those are the segments that will feel the greatest effects of the venture capital pullback, and the venture-backed biopharmaceutical and pharmaceutical companies are the most dependent on contractors.  

The large public CROs and CMOs will also feel the heat, however. Their stock prices were driven up to record levels during mid-decade, as high double-digit revenue and profit growth rates became the norm. Those growth rates have slowed dramatically, and aren't likely to reach their pre-2008 levels. Phase II and Phase III research programs have been well-supported thus far, but efforts to kill likely failures more quickly will ultimately shrink the late-stage pipeline. 

CROs and CMOs benefit from the increased willingness of the major biopharmaceutical and pharmaceutical companies to outsource more of their development activities. However, much of that benefit will accrue to large CROs and CMOs, and to service providers with operations in the emerging markets.  

Owners and investors of contract-service providers must come to terms with this new reality. The venture capitalists and executives of the major companies are not insane, and they have already turned away from the practices that fueled the great pipeline explosion of this decade. CROs and CMOs will need to find other ways to fuel their growth. 

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

Articles

Outsourcing

Contract organizations waiting for the pipeline to come roaring back are kidding themselves.

Facing Reality


An important consideration for the pharmaceutical industry collectively and as individual companies is to evaluate and implement ways for building supply-chain integrity in emerging markets. The industry’s strategic interest in working with suppliers outside the traditional supply lines in North America and Western Europe is well-established, but there are challenges in building those relationships, including fostering an understanding of pharmaceutical quality systems. Patricia Van Arnum, senior editor of 

, discusses efforts by the industry and Pfizer in managing the supply-chain in emerging markets with Gerry Migliaccio, senior vice-president of network performance for Pfizer Global Manufacturing. 



 As the level of outsourcing increases into emerging, lower-cost regions, the pharmaceutical industry as a whole faces certain challenges in securing the supply chain in those regions. What would you identify as the most critical areas of concern?  



 There are quite a few areas that we are focused on. From my perspective, one of the most critical is the control of suppliers to our suppliers.  Assuring that this part of the supply chain is secure is of great importance.



 You have said that part of the task of the pharmaceutical industry is to help companies in emerging markets build effective pharmaceutical quality systems through a combination of education, evaluation, and enforcement. In looking at the education component first, can you outline how the pharmaceutical industry as whole, through trade associations and regulatory authorities, is pursuing these educational goals in building understanding of international standards such as ICH Q7 

Good Manufacturing Practice Guide for Active Pharmaceutical Ingredients

 Multinational companies, including Pfizer, have been actively providing educational opportunities on GMP [good manufacturing practices], quality systems, and supply chains to emerging markets through trade organizations and in collaboration with regulatory authorities.  Examples include:

The International Society for Pharmaceutical Engineering (ISPE)/China State Food and Drug Administration (SFDA) GMP Conference, Beijing, China, November 2008

Pharmaceutical Research and Manufacturers of America (PhRMA)/The R&D-based Pharmaceutical Association Committee (RDPAC)/SFDA/International Conference on Harmonization (ICH) Global Cooperation Group (GCG) Working on ICH Q8/Q9/Q10 Implementation, Beijing, China, December 2008 (Note: The ICH guidelines referenced are Q8 

Training of 100 SFDA GMP inspectors in China 2007–2008: A12-day course, followed by four days of onsite training at 10 multinational corporation’s facilities in China, organized by a contractor for SFDA

Drug Information Association (DIA) India CMC Compliance and Supply Chain Management Conference, Goa, India, April 2009 (Note: CMC refers to chemistry, manufacturing, and controls)

Parenteral Drug Association (PDA)/FDA Asia-Pacific Pharmaceutical Ingredient Supply Chain Conference, Shanghai, China, June 2009

Chemical Drug Process Development & Validation Workshop, organized by the Center for Drug Evaluation, SFDA, Beijing, China, December 2007

ICH Quality Guidelines—The International Technical Requirements for Drug Registration Workshop, organized by SFDA Training Center, Beijing, China, September 2008 

Chemical Drug Product Manufacturing Process Development, Optimization, and In-Process Control Workshop, organized by SFDA Training Center, Shanghai, China, December 2008 

ISPE offered two annual meetings and workshops on quality related topics such as water system, sterile products, GAMP 5 [good automated manufacturing practice], cleaning, and cleaning validation

Partnership and support in the Joint Commission of Commerce and Trade meetings,  which occur between the US government and China, supporting these meetings since 2007, which focus on science- and risk-based approaches to excipients.

 Can you outline any projects that Pfizer may be working on individually and/or in tandem with these industry groups? 



 Pfizer is working with other PhRMA companies to bring 20 SFDA inspectors to the US for three weeks to provide them insight into our application of GMPs.  The plan is to cover all quality systems at manufacturing sites of the companies involved. We are hoping to schedule this in 2010.  In addition, in partnership with IPEC [International Pharmaceutical Excipients Council] Federation, we have been working closely with the SFDA regarding excipient GMPs.  Pfizer was one of the founding members of IPEC–China.



 Is the outreach specific to individual companies and related working relationships or are there other collective areas of educational support?



 Both. The efforts above are collective in nature. We also conduct specific onsite training for companies supplying Pfizer.



 In addition to working with individual companies in emerging markets to build their understanding and implementation of pharmaceutical quality systems, how is the pharmaceutical industry or individual drug companies building that level of understanding through educational organizations, universities, or other groups in emerging markets? Can you offer any specific examples of projects? 



 In addition to participation in the educational programs listed above, Pfizer has been a strong supporter of Peking University’s master’s degree program of international pharmaceutical engineering management. We hosted the master’s degree students at a Pfizer site and supported a Peking University quality-by-design workshop.



 What would you identify as the critical component in the evaluation phase of potential suppliers? What specialized or additional requirements may exist when working with suppliers from emerging markets?  



 Again, there are many critical components of an evaluation from business, manufacturing capability, quality systems, and environment, health and safety [EHS] perspectives. Once the basic viability of a potential supplier has been established, we focus on their quality and EHS  management systems.  Companies in emerging markets that have been supplying multinational companies frequently have reasonably well-established management systems.  With others, we find a wide diversity in management systems.



 What would you identify as the key elements of enforcement in a strategy for supply-chain security? 



 I will oversimplify this response, but in essence: do not enter into supply agreements with companies that do not meet acceptable standards and terminate agreements with companies that do not maintain acceptable standards.



 The industry as a whole is evaluating tools such as shared supplier audits as a possible way to manage the costs and logistics in increasing the scope or extent of supplier audits. Do you think this is a viable option, and what are the advantages or disadvantages of such an approach?



 I strongly support collaborations to enhance supply-chain security. Other industries do it without violating antitrust regulations, so I see no reason why the pharmaceutical industry cannot do it. The sharing of information must be fact-based. The sharing of information will help us better understand the state of management systems at a given supplier. However, we cannot rely on shared audits to assess the functionality of a material for a specific product. That assessment must be done on a product-by-product basis.  



 Looking ahead 5 to 10 years from now, how do you see the pharmaceutical supply chain evolving in terms of the number of suppliers, location of suppliers, and the relationship between suppliers and customers (such as realizing more collaborative planning, i.e., demand forecasting). Are there models now used in other industries that may have future application in the pharmaceutical industry?



 In our industry, looking beyond three years is truly ‘blue sky.’ Consolidation has been ongoing in the pharmaceutical industry, and I would expect that consolidation to continue to occur throughout all elements pharmaceutical supply chain. Clearly, it is our desire to work with a limited number of highly reliable suppliers. Ideally, we will reach a point where the overall planning processes for the external elements of our supply chain are the same as those for our internal supply chain.

Global Feature

Gerry Migliaccio, senior vice-president of network performance for Pfizer Global Manufacturing, offers perspectives on building supply-chain integrity in emerging markets.

Executive Insight: Pfizer on the Supply Chain in Emerging Markets

SAFC (St. Louis, MO), part of the life-sciences chemical company Sigma-Aldrich (St. Louis), is leveraging its slate of technology-based capabilities as part of its growth strategy. The company has recently completed and is proceeding with several major expansions in high-potency manufacturing, antibody drug conjugation, viral-product manufacturing, and solid-state chemistry. 



Antibody drug conjugation and high-potency manufacturing


Manufacturing high-potency active pharmaceutical ingredients (HPAPIs) and antibody drug conjugates (ADCs) is an area of strong strategic focus for the company. Humanized antibodies may be used either alone in unlabeled or naked form or conjugated with radioactive isotopes, chemotherapeutics, or toxins to create highly targeted agents. ADCs as monoclonal antibodies linked to a cytotoxic small molecules are an important area in drug development. “ADCs have the potential to be a game-changer in oncology drugs,” says Gilles Cottier, president of SAFC. The targeted mechanism of the antibody allows the cytotoxic agent to be delivered to a tumor site more directly and efficiently, thereby offering the possibility of reducing the dosage of the cytotoxic agent.

ADCs are an emerging drug class, with still limited commercialized examples, but they offer much potential. An example of a commercialized ADC is Mylotarg, which was approved by the US Food and Drug Administration in 2000. The drug was developed by Wyeth, now part of Pfizer (New York).  Mylotarg consists of a recombinant humanized IgG4 kappa antibody conjugated with a cytotoxic antitumor antibiotic, calicheamicin, isolated from fermentation of a bacterium, 

. The antibody portion of Mylotarg binds specifically to the CD33 antigen, a sialic acid-dependent adhesion protein found on the surface of leukemic blasts and immature normal cells of myelomonocytic lineage, but not on normal hematopoietic stem cells. 

SAFC is dually positioned in antibody drug conjugation by offering the capability to conjugate the small-molecule onto the monoclonal antibody as well by being able to produce the cytotoxic or high-potency compound, two areas of recent expansion for the company. 

The company has invested more than $65 million to expand its HPAPI capacity during the past two years. Those investments include: a $4.5-million project to add a CGMP pilot plant and kilo-laboratory capacity at its facility in Madison, Wisconsin, completed in early 2008; a $29-million investment to expand bacterial and fungal fermentation-derived HPAPI capacity at Jerusalem, Israel, due to come on line in the second quarter of 2010; a $30-million investment to build a new commercial-scale HPAPI facility at Madison, due to be completed by year-end 2009; and the commissioning of an 600-ft


Viral-product manufacturing is another technology base of importance to the company. In October 2009, SAFCit had completed a $12-million addition to its viral-product manufacturing facility in Carlsbad, California. The expansion involves the addition of two fully segregated viral-product suites for manufacturing biologics, viral vaccines, and gene therapy. The expansion further includes dedicated cell expansion, bioreactor production, purification and cleanroom suites. It adds 8000 ft

 of manufacturing space to the existing 44,000-ft

 site, thus enabling 100-L batch production in stirred-tank and bioreactors and 1000-L batch manufacturing in disposable bioreactors. The facility is also Biosafety Level 2 compliant, which allows for the manipulation of human pathogens.The facility is underway, with an expected start of current good manufacturing practice (CGMP) operations by the end of December 2009. SAFC gained the facility from its 2007 acquisition of Molecular Medicines BioServices. 



A marriage of viral-product manufacturing and biosciences


SAFC and its parent company, Sigma-Aldrich, are leveraging their capabilities in a new area, gene-editing. In October, Sigma Aldrich and Sangamo BioSciences (Richmond, CA) expanded their existing license agreement to include the exclusive rights to develop and distribute zinc finger DNA-binding protein (ZFP)-modified cell lines for commercial production of protein pharmaceuticals. Additionally, Sigma-Aldrich licensed rights to certain ZFP-engineered transgenic animals for commercial applications.

Zinc finger nucleases (ZFNs) are a class of engineered DNA-binding proteins that facilitate targeted editing of the genome by creating double-strand breaks in DNA at user-specified locations, according to information from Sigma-Aldrich. Double-strand breaks are important for site-specific mutagenesis in that they stimulate the cell’s natural DNA-repair processes, namely homologous recombination and non-homologous end joining (NHEJ). These processes can be harnessed to generate precisely targeted genomic edits, resulting in cell lines with precise and heritable gene deletions, integrations, or modifications. A key benefit of the technology is its   ability to generate knockout or knock-in cell lines within several months as opposed to several years. 

In July 2009, scientists from The Medical College of Wisconsin in Milwaukee, Sangamo Biosciences,  Sigma-Aldrich, the biotechnology company Open Monoclonal Technology (OMT, Palo Alto, CA),  and the French biomedical research institute, the National Institute of Health and Medical Research (INSERM), reported on the creation of what the researchers classified as the first genetically modified mammals developed using ZFN technology. The researchers reported on the application of ZFNs to generate rats with permanent, heritable gene mutations, offering a path for developing genetically modified animal models of human disease faster and in species other than mice. 

“Until now, rat geneticists lacked a viable technique for knocking out or mutating, specific genes to understand their function,” said Howard Jacob, PhD, director of the Human and Molecular Genetics Center at the Medical College of Wisconsin, in a July 24, 2009 press release. “This study demonstrates that ZFN technology bypasses the current need to conduct cumbersome experiments involving nuclear transfer (cloning) or embryonic stem cells and allows rapid creation of new animal models.”

Previously, ZFNs were used to knock out specific genes in fruit flies, worms, cultured human cells, and zebrafish embryos and are now in human clinical trials for the treatment of HIV/AIDS. The researchers said that this was first example of successful gene editing in mammalian embryos using this technology. The point to the potential of the technology in becoming a method of choice for genome engineering in cells, plants, and transgenic animals, 

In July 2009, the researchers announced that the first commercial application of ZNF technology was applied by OMT to develop a new rat-based human antibody platform by using Sangamo’s ZFNs to knock out the gene-encoding rat immunoglobulin M (IgM), an important gene for rat antibody production. Inactivation of rat IgM expression is the first step in generating rats that exclusively express human antibodies encoded by transgenic human immunoglobulin genes.

Sangamo is partnered with the Michael J. Fox Foundation to apply its ZFP technology for developing engineered zinc finger protein transcriptional activators of the glial cell line-derived neurotrophic factor gene as a potential therapy for Parkinson's disease.

Sigma-Aldrich’s relationship with Sangamo Biosciences in ZFN technology creates further synergies for SAFC, explains Cottier. These include the use of the technology to develop cell lines in the company’s viral-product manufacturing business and the development of media from SAFC Biosciences, which supplies cell-culture reagents and services. Cottier concludes that the relationship is illustrative of SAFC’s interest in building its capabilities in value-added technology-based positions. 

Reference
1.  A. Geurts et al., 

Pharma Partner Focus

The custom manufacturer and fine-chemicals company adds further capabilities in high-potency and viral-product manufacturing and targets synergies in gene editing with its parent company, Sigma-Aldrich.

PTSM: Pharmaceutical Technology Sourcing and Management-12-02-2009

Facing Reality

Executive Insight: Pfizer on the Supply Chain in Emerging Markets

SAFC Proceeds with Technology-Based Growth