Adapting To New Pressures And The Emerging Markets

May 1, 2011

Source: Pharmaceutical Technology Europe

Issue 5,Volume 23

A large CMO explains its strategies for expanding into the emerging markets.

You have opted to drop the sub brands of Pharma, Supply Solutions and Biosciences and are rebranding as SAFC. What is the rationale behind this decision?

We found that our customers wanted to interact with one SAFC. Although our brand segments helped us to build awareness in the different markets we are active in, they were also somewhat confusing to our audience. We wanted to build clarity around our business model under a single umbrella.

In light of the changing landscape, how have pharma/biopharma companies’ changing strategies affected your business?

Bio/pharma companies are continuing to reduce costs and there is increasing pressure for their respective supply chains to comply. As a consequence, we have seen more outsourcing of manufacturing and minimised investment in fixed costs, such as plant costs. Pharma is also looking for greater supply chain flexibility, and is seeking to reduce working capital while still being able to respond to demand fluctuation, so outsourcing is becoming more and more relevant. Of course, quality levels at outsourcing companies need to be at the same level that a pharma company would have at their captive facility. Currently, many plants can also only manufacture a limited number of products, but both the pharma and biopharma industries are demanding contract manufacturing partners who have the ability and resources to switch between a diverse range of products every few months.

Gilles Cottier. President of SAFC.

Another trend we are witnessing from major pharma is a move towards ‘preferred vendor’ strategies to consolidate outsourcing requirements from a single supplier. As such, we have built up SAFC’s image as a solution provider for early-stage drug discovery through to bulk API manufacture, where clients and partners come to us with an issue and we then work alongside them to determine the best course of action. We then help to implement it from the ground up.

As an industry, contract manufacturers need to move away from the old ways of doing business and improve the entire value chain, rather than just a few convenient elements. This means being proactive in anticipating client needs before they arise. At our company, for instance, we anticipated that there would be increased interest from clients for high potency API (HPAPI) manufacture. We invested in this area so that these capabilities were already online when the demand arose, rather than waiting until clients requested these facilities.

What investments has SAFC made in HPAPI manufacturing technology and facilities?

In 2010, we added a second HPAPI facility in Wisconsin (USA) to complement our kilo and pilot labs already in place. This second facility has two large commercial trains, as well as an additional pilot plant, and enabled us to increase our manufacturing capacity by 24000 L.

While our facilities in Wisconsin are capable of supporting complex small molecules, we also recognised that there are some high potent compounds that are manufactured either completely through fermentation or in a semi-synthetic fashion. In 2010, we opened our new cGMP fermentation facility in Israel, which has a number of reactors (up to a 4000 L scale) and further expands our HPAPI offering.

Finally, a number of these high potency products are conjugated to other biologic products, such as monoclonal antibodies and these antibody drug conjugates (ADCs) complete our high potent franchise. Collectively, these capabilities give us an extensive capability toolbox to support diverse needs in the field of HPAPIs.

Do the absence of guidelines for the safe handling and control of HPAPIs present significant obstacles for suppliers of HPAPI equipment and the pharma/biopharma industry?

It doesn’t necessarily present obstacles so much as potential for confusion due to the different classifications. The industry has effectively created its own standards and there are several companies who can help provide guidance in this area. Because the application and use of equipment can vary, it is imperative that companies handling HPAPIs define requirements and specifications when designing and purchasing equipment.

In the absence of guidelines, we will continue to categorise each compound before it enters our facilities as a part of our safety and quality systems.

What are your predictions for the demands for HPAPI services in the near future?

A quarter of all drug candidates — from early phase to late phase — are in oncology. This is a main focus area for HPAPIs and is driving the need to identify new highly potent molecules that may be beneficial in the treatment of cancer. Of course, oncology isn’t the only use for these types of compounds, but it is a major constituent.

Some HPAPIs are used as a final API, but there has been much interest in combining these compounds with other therapeutics. Antibody drug conjugates, for instance, offer the potential for targeting through antibodies, enabling dissociation only inside the targeted cell.

How have you adapted to rising pressures to compete with less costly service providers?

While there is enormous pressure on cost, there is greater pressure in terms of quality and risk mitigation throughout the supply chain, including in the components that constitute an API. Regulatory bodies are demanding increased GMP compliance and there is also increased pressure from consumers, triggered by various industry scandals over the past few years.

Interestingly, at SAFC, we have witnessed an increasing number of late phase projects returning to the West, where the previous supplier had been located in the emerging markets. The reasons behind this shift can be attributed to quality, reliability and communication. Although cost remains important to our customers, it is more apt to focus on ‘total cost’, which factors in the cost of potential “non-quality” products.

As with any market, we must remain competitive so we’ve been working to optimise our cost structure through process improvements.

As the emerging markets continue to experience high growth rates, what is SAFC’s strategy with regards to these markets?

We are currently building sales and marketing forces in China and India to sell into the emerging markets, and are actively increasing our presence in terms of sales visibility throughout Asia. We are also expanding our capabilities at facilities in Wuxi (China) and Bangalore (India), which will be completed by Q3 2011. Longer term, we will look to increase manufacturing capacity at both these locations, but while we want to be cost competitive to ensure that we are not priced out of the market, our chief differentiator will be quality.

The other main benefit of being active in these markets is the low-cost material sourcing opportunities provided by suppliers in the region. Over the past 5 years, we have developed teams dedicated to sourcing services and products in Asia.

What are your predictions for the future of Western contract manufacturers?

Rising industry pressures, such as the expirations of patents, the decrease in the numbers of approvals and negative pricing pressures are all having an effect on Western contract manufacturers. I believe that the outsourcing trend will continue as pharma divests both fixed cost and research and development assets, and exits non-core activities.

CMOs, operating with an increasing proportion of their business concentrated on niche, specialised capabilities have performed well relative to the general market. While such niche markets offer opportunities for CMOs, however, it’s also important to increase focus and resources on bringing in, or creating, experts for each technology.

CMOs will also need to differentiate themselves through quality, security and supply chain transparency.

With increasing pressure to reduce costs, increase efficiency and reduce the environmental impact of manufacturing processes, how has SAFC adapted?

We will continue to improve profitability through plant process efficiency improvements, facility rationalisation and the development of our global manufacturing ‘centres of excellence,’ in which we bundle our technologies in selected locations. For example, we have a risk mitigation plan in place for both dry and liquid media capabilities in North America and Europe, and we’re also reducing our number of global facilities from five to three. We will increase our capabilities significantly at each of the remaining sites. These centres of excellence are more than just physical structures; rather, they are a coordination of intellectual resources to improve knowledge sharing, innovation management, quality and systems integration.

Additionally, we have sought to differentiate ourselves in the market by focusing on niche areas, such as high potency, viral vaccines and fermentation, to enable us to support increasingly complex technology platforms. We have also developed our gene-editing ZFN technology for cell design and liquid and powder media. This technology has the ability to make targeted, heritable changes to genes, and will enable us and our customers to create knock-in and knock-out cell lines for drug discovery programmes, as well as more productive cell lines for manufacturing.

What are SAFC’s key areas for future growth? Where are you currently investing and why?

As outlined previously, we’re investing in differentiating technologies where customers are searching for high quality solutions. Specialised capabilities such as high potency, oral vaccines and ADCs have performed well relative to the general market in recent years because these capabilities pertain to drug candidates and drug platforms that have the potential to be game changers in the treatment of important diseases, such as cancer.

We are also continuing to branch out into other practice areas to diversify our offerings. Some of the application areas in which we are growing are oncology, vaccines, RNAi, biologics and molecular diagnostics — all of which we see becoming increasingly important in the coming years.