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FDA approvals renew the threat of competition from India and China.
Whether contract dose manufacturers in the United States and Europe face serious competition from manufacturers in India, China, and other low-cost countries is an ongoing debate within the contract manufacturing organization (CMO) industry. Some recent supply-base developments are likely to add fuel to the debate.
In India, Strides Arcolab (Bangalore) announced approval by the US Food and Drug Administration (Rockville, MD) for its sterile manufacturing facility in Bangalore. The facility has capabilities for liquid and lyophilized vials, prefilled syringes, and sterile powders. Shasun Chemicalsand Drugs (Chennai) received FDA approval for its solid- dose manufacturing facility in Puducherry; the facility had previously received approval by the United Kingdom's Medicines and Healthcare products Regulatory Agency (MHRA). In addition, Shantha Biotech (Hyderabad), a manufacturer and marketer of vaccines, completed a $6 million investment in new vial-filling capacity. The expansion includes three lines with combined capacity of 250,000 vials per day. That facility is not yet FDA approved.
Strides, Shasun, and Shantha intend to use their facilities to manufacture proprietary products. However, like most Indian generics companies, all have active contract manufacturing businesses, including active pharmaceutical ingredients (APIs) and dose manufacturing. So the three sites potentially represent additional capacity for the CMO market.
Generally speaking, pharmaceutical manufacturers in India and China that have received approval by FDA or a European Union regulatory agency have used that entrée to export generics to those countries rather than pursue manufacturing contracts. Proprietary generic APIs and finished-dose products provide better margins, especially given the current cost advantages of Indian and Chinese manufacturers, and offer greater predictability and control. In fact, companies like Strides, which a few years ago was thought of primarily as a contract manufacturer, have transitioned themselves to generics companies through acquisitions and internal development of abbreviated new drug applications.
For the most part, Indian companies that have wanted to become major players in contract manufacturing and packaging in the United States and Europe have pursued that strategy by acquiring assets there, rather than depending on facilities at home. A recent example is the acquisition of contract injectables manufacturer HollisterStier Laboratories (Spokane, WA) by Jubilant Organosys (Noida, India). Previous examples include Shasun's acquisition of the Rhodia Pharma Solutions business from fine chemical company Rhodia (Paris); the acquisition of pharmaceutical chemical manufacturer Carbogen Amcis (Bubendorf, Switzerland) by Dishman Pharmaceuticals &Chemicals Limited (Ahmedabad, India); and Nicholas Piramal's (Mumbai) acquisitions of Avecia's fine chemical assets and Pfizer's Morpeth site, both in the UK. Those acquisitions reflect an understanding that, given the pharmaceutical industry's relatively recent exploration of offshore sourcing opportunities, proximity to the customer and operating in an environment in which the customer is comfortable are more critical considerations than price alone.
European CMOs look east
While Indian and Chinese manufacturers are using their home country manufacturing assets primarily for generic exports, some European CMOs are looking to establish contract manufacturing operations in low-cost countries. Custom Pharmaceuticals (Hove, UK) announced plans to build its solid-dose manufacturing facility in the export zone of Jinan, Shandong province. Custom hopes to export vitamin tablets to Europe from the site by the end of 2007 and to receive approval for regulated products from the MHRA by mid-2008 and from the FDA by mid-2009. Processing capabilities in the 100,000-ft2 facility include fluid-bed drying, granulation and high-shear granulation. A planned expansion will create capacity for 4.5 billion tablets as well as capabilities for hard-shell capsules and packing into shelf-ready packaging.
NextPharma (Surrey, UK) is leveraging India's cost advantage by establishing a joint venture with Centaur Pharmaceuticals (Mumbai). The joint venture has built a solid-dose manufacturing facility in Pune, India, that will process tablets and capsules and will have capabilities for fluid-bed and wet granulation, as well as bottle and blister packaging. NextPharma is actively involved in developing, implementing, and maintaining the plant's quality systems and will handle sales and marketing to customers in Europe and the US. The company's strategy is to use its Pune facility to service clients requiring standard-dose products for which cost is a major consideration, while using its European sites for higher-value manufacturing such as high potency solid-dose and injectable products.
Custom's and NextPharma's initiatives do not yet represent an industry trend. In APIs, only a few companies—notably Lonza (Basel, Switzerland) and Albany Molecular Research (New York)—have moved to set up owned GMP operations in India and China.
Most pharmaceutical chemical manufacturers have preferred to leverage the low-cost country opportunity by sourcing non-GMP starting materials and intermediates or establishing joint ventures. Dose manufacturers are still studying the market and considering their options; larger CMOs are trying to sort out issues with their current plant networks before deciding to invest in further capacity offshore.
NextPharma lands in America
Regarding NextPharma, the company recently announced its acquisition of BioServ (San Diego, CA), a provider of development and manufacturing services for injectable products. BioServ's capabilities are limited to clinical scale but include aseptic filling and lyophilization as well as sterile powder filling. The company said the BioServ operation will complement its development capabilities in Braine L'Alleud, Belgium, where it has commercial-scale injectable manufacturing facilities and is about to open a development center for injectable products. Financial terms were not disclosed.
The acquisition is an important step in NextPharma's efforts to penetrate the North American market. Its business has largely been confined to manufacturing facilities in Germany, Belgium, and France, most of which have not yet gained FDA approval (an FDA inspection is expected soon at one of its facilities). The company added a US-based sales representative two years ago and has begun exhibiting at US trade shows. The BioServ acquisition will provide better access to North American clients, but the company may need commercial-scale capabilities there to fully exploit the market opportunity.
NextPharma was established 10 years ago as a private-equity-backed CMO. In a strategy similar to that of Patheon (Ontario, Canada), it has grown through acquisition of redundant facilities from major pharmaceutical companies as well as by acquiring other CMOs. Its network of sites in Europe are targeted at specialty dosage forms such as high-potency solid-dose products and specialty packaging configurations. The company's entry into the US market, combined with its solid dose joint venture in India, is transforming it into one of the few global players in contract dose manufacturing.
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905, firstname.lastname@example.org, www.pharmsource.com.