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Most CROs are entering China with expectations that a significant local market opportunity will develop as major pharmaceutical companies establish research development operations there...
The pharmaceutical industry was rattled last month when it was reported that several batches of heparin manufactured and marketed by Baxter Healthcare in the US, and Rotexmedica in Germany, may have caused a large number of adverse effects, including several deaths. By press time, a possible source of contamination had been identified but not confirmed, and the root of the problem had yet to be determined. However, speculation regarding the US case was focused on the source of the API — a company called Changzhou SPL in Changzhou (China), partly owned by Scientific Protein Laboratories LLC (Waunakee, WI, USA), which had supplied the heparin to Baxter.
The heparin incidents are an example of what can and will happen as pharmaceutical supply chains become longer and more complex. Pharmaceutical companies are not only geographically farther from their suppliers, they are transactionally farther as well, as they increasingly depend on their primary suppliers to source intermediates and other inputs used to manufacture the ingredients they are ultimately purchasing. This is a far cry from just a few years ago when vertically integrated pharmaceutical companies controlled much more of the supply chain, and manufactured most APIs and late-stage intermediates in-house.
The learning curve for complex sourcing relationships has been a long one in most industries. Companies that have sought to outsource more of the value chain have almost invariably found that their internal systems are not up to the task, and that they must have greater involvement with their suppliers to effectively integrate them into their supply chain. One example is Boeing, which recently had to delay delivery of its new 787 Dreamliner aircraft because it failed to effectively integrate its suppliers into its scheduling and engineering systems, and the suppliers had been unable to deliver their components on time and in sufficient quantities. When the automobile companies began seriously outsourcing more than 10 years ago, they found they had to invest in training their suppliers in continuous improvement and quality control practices before their standards could be met.
Globalization of supply chains is creating new political, logistical and scientific challenges for the pharmaceutical industry. Establishing effective regulatory inspection programmes of foreign manufacturing operations, for example, will require agreements with foreign governments to allow EMEA and FDA to exercise some oversight authority over manufacturers in their countries. This will be especially challenging in countries such as China, where there isn't the history of mutual recognition and cooperation that there is between European governments and the US.
The risks involved in these complex global supply chains will also lead to more analytical testing to ensure ingredient and product quality. This will become a major opportunity for contract analytical labs, particularly the worldwide laboratory networks run by companies such as SGS (Switzerland) and Intertek (UK), which already have extensive consumer testing operations and dozens of facilities around the world.
One of the ways in which CROs and CMOs are helping pharmaceutical companies manage their complex supply chains is by establishing truly global operating networks. These global strategies are being driven by a number of considerations, but two, especially, stand out:
The industry has a growing number of examples of companies that have established these global networks. A prime example is Dishman Pharma and Chemicals (India), which acquired Switzerland-based Carbogen Amcis in 2005. Carbogen Amcis, with three sites in Switzerland and one in the UK, has a strong technology base, with particular capabilities in chromatography, chiral separations and high-potency compounds. The company has a staff of 400, including 150 PhD chemists. According to CEO Mark Griffiths, Carbogen Amcis is completing in excess of 300 developmental projects per year, which sets up a substantial potential commercial pipeline for Dishman. In fact, says Griffiths, the ability to offer a commercial scale-up route via Dishman's operations in India has been a business development windfall for Carbogen Amcis, enabling them to win contracts that they might not otherwise have won without the large commercial capabilities.
Another interesting example is Cambrex Corp. (NJ, USA), which has focused on the API market after selling its biomanufacturing and research products businesses last year. With manufacturing assets in relatively high-cost countries (the US and Sweden), Cambrex has focused on niche high-value APIs, including controlled substances and high-potency compounds. At the same time, Cambrex's management realized that, to remain competitive in the custom manufacturing arena, it had to strengthen its offering of early development services, where long-term commercial relationships are often established these days.
Consequently, in January of this year, it agreed to acquire ProSyntest AS of Tallinn (Estonia), which provides early process development and scale-up services, and has particular expertise in chiral and organometallic chemistries. It was established in 1990 and has 25 chemists. The business will be renamed Cambrex Tallinn after completion of the acquisition and Cambrex will invest to expand its capacity.
This acquisition benefits Cambrex in two key ways: it provides the capability to serve the early development market, and it does so in a low-cost geographical enclave, enabling Cambrex to compete more effectively with CROs in Asia. The deal should enhance Cambrex's ability to engage clients, especially European clients, at early stages and keep them through scale-up to late clinical and commercial-scale manufacturing.
Other prime examples of companies with footprints in the West and Asia include Albany Molecular Research (USA, Eastern Europe, India and Singapore), NPIL Pharmaceuticals (India, Canada and the UK), Lonza (Switzerland, USA and China) and Wuxi Pharmatech (China and USA).
One of the principal areas of new CRO activity in Asia is preclinical toxicology. China currently has a strong infrastructure supporting non-good laboratory practice (GLP)-compliant drug discovery studies, particularly in academic settings. However, the country lacks much of the infrastructure needed to support GLP-compliant preclinical studies, reflecting its limited history of new drug development and relatively recent entry into the global pharmaceutical industry. This is the gap that CROs are looking to fill.
Bridge Laboratories (China) was the first Western CRO to set up a preclinical operation in China. Bridge, a venture capital-backed spin-off of SRI (Menlo Park, CA, USA), opened its Beijing laboratory in 2006 and received certification from the Association for the Assessment and Acreditation of Laboratory Animal Care International (AAALAC) in the same year. The company recently raised $18 million (€11.7 million) in venture new financing, some of which will be used to expand its facility, including the addition of a second vivarium.
Partnering seems to be the method that established Western preclinical CROs are using to enter the Chinese market. In 2007 Charles River Laboratories (Wilmington, MA, USA) announced a joint venture with Shanghai BioExplorer (China) to open a 50000 sq ft facility. Shanghai BioExplorer's sister company Shanghai ChemPartner has a history of successful collaborations with Western companies, notably its ChemExplorer joint venture with Eli Lilly & Co. BioExplorer's parent company, ShangPharma, recently received a $30 million (€19.2 million) investment from a major private equity firm.
The latest preclinical CRO to announce its entry into China is MPI Research (Mattawan, MI, USA), which has formed a joint venture with Chinese CRO Shanghai Medicilon to open a 50000 sq ft facility in Shanghai. Shanghai Medicilon, founded in 2004, offers discovery services, including medicinal chemistry, custom synthesis, and non-GLP animal toxicology and dystrophia myotonica-protein kinase research. The new facility is expected to be operational in 2009.
Most CROs are entering China with expectations that a significant local market opportunity will develop as major pharmaceutical companies establish research development operations there, and as Chinese pharmaceutical companies ramp up their own new drug development efforts. Most agree that cost savings will not be the major attraction as it has been in discovery and process chemistry. Preclinical research is not as labour-intensive as early stage chemistry, and the lack of animal care infrastructure in China, such as certified feed and animal diagnostic services, makes animal care expensive.
Similar to manufacturing, preclinical toxicology faces several compliance challenges, in this case compliance with European and US GLP and animal care standards. Compliance with AAALAC standards of animal care has been rare, but a sign that change is underway is the fact that seven Chinese facilities have received AAALAC accreditation since early 2006. However, China has no board certification for pathologists, and Western requirements for veterinary care are hampered by lower Chinese educational standards. Companies are sending experienced staff from their US operations to help set-up and manage the new operations and train locally recruited employees.
Global sourcing is a learning experience for all parties involved. Suppliers in emerging economies must learn to deal with higher standards of compliance, service and quality, while Western customers and service providers must learn to operate in different cultures, regulatory environments and legal systems. All sides may have underestimated the time and costs of the learning process, but incidents such as the heparin recall are a reminder that the investments must be made.