Shifting Patterns in Sourcing

March 2, 2007
Patricia Van Arnum
Pharmaceutical Technology

Volume 31, Issue 3

The pharmaceutical supply chain lengthens as generic drug manufacturers build production platforms offshore and CMOs position in India and China to meet demand for lower-cost production.

Faced with pressure to reduce costs in the supply chain, pharmaceutical companies and contract manufacturing organizations (CMOs) are building production platforms in lower-cost regions outside of the United States and Western Europe. This pressure is particularly strong among major generic drug manufacturers. CMOs that provide active pharmaceutical ingredients (APIs) and dosage forms also are strengthening their positions in Asia.

Generic drug companies build global manufacturing

While generic drug manufacturers regularly source offshore, the major players are increasing their manufacturing presence in Asia, Eastern Europe, and elsewhere as part of an overall strategy to reduce costs. These moves come in the wake of recent consolidation.

As part of a global rationalization strategy following its acquisition of Ivax Corporation (Miami, FL) in 2006, Teva Pharmaceutical Industries, Ltd. (Petach Tikva, Israel) announced plans to cease production at the former Ivax manufacturing facility in Cidra, Puerto Rico during the fourth quarter of 2006. Teva expects to achieve cost savings of $45 million in 2007 from the closing of this facility. In addition, Teva closed several plants in the United States and Canada in 2006. Teva is bringing on line a new plant in Jerusalem, Israel for solid-dosage manufacturing. The plant is designed to have initial annual capacity of 4 billion tablets and, by 2008, capacity of 8 billion tablets.

Last month, Actavis (Hafnarfjordur, Iceland) acquired the API division of Sanmar Specialty Chemicals Ltd. (SSCL, Chennai, India), which includes an API manufacturing facility. SSCL also will provide API research and development services to Actavis.

In late December, Actavis acquired a solid-dosage manufacturing plant from Grandix Pharmaceuticals, Ltd. (Chennai, India), a pharmaceutical manufacturing and marketing company. Actavis says the facility gives it low-cost manufacturing capability in India, where it plans to develop and manufacture products for the US and European markets and relaunch older products that need a lower cost base to compete in international markets. Actavis plans to increase the manufacturing capacity of the Indian facility to roughly 4 billion tablets over the next 18 months and strengthen the development and regulatory-affairs units.

In 2005, Actavis acquired Lotus Laboratories (Bangalore, India), a contract research organization specializing in clinical and bioavailability studies of pharmaceuticals.

Company Web sites

Actavis also opened a new 1000-m2 API development facility in India, with the aim of introducing 10–15 products per year. In total, Activas has 30 API projects under development in India.

As it builds its own manufacturing base in India, Actavis continues to outsource to Indian CMOs. In February 2007, Actavis signed a pact with Orchid Chemicals & Pharmaceuticals (Chennai, India), a producer of cephalosporin antibiotics. Orchid agreed to develop and manufacture nine cephalosporin formulations in sterile dosage forms for licensing to and marketing by Actavis in Europe. Orchid already has a development, manufacturing, and distribution agreement with Actavis for 10 noncephalosporin generic products in the United States.

In 2006, Actavis formed manufacturing pacts with the Indian pharmaceutical companies Emcure Pharmaceuticals Ltd. (Pune, India) and Shasun Chemicals & Drugs Ltd. (Chennai, India).

Emcure Pharmaceuticals is a vertically integrated pharmaceutical company that provides contract manufacturing services for formulations and API manufacturing. In July 2006, the private investment group the Blackstone Group (New York, NY) invested $50 million in Emcure. Blackstone is also the buyer of Cardinal Health's (Dublin, Ohio) contract-services unit, Pharmaceutical Technologies and Services (PTS), in a pending deal valued at roughly $3.3 billion.

Shasun is one of several India-based CMOs gaining Western manufacturing assets. In early 2006, it acquired Rhodia's (Paris, France) pharmaceutical custom-synthesis business.

Watson Pharmaceuticals, Inc. (Corona, CA), which acquired Andrx Corporation (Fort Lauderale, FL) in 2006, announced several cost-reduction initiatives to take place in early 2007, including the closure of its Puerto Rico manufacturing facility and the planned divestiture of its Phoenix, Arizona injectable facility.

At the same time, Watson has been building its position in Asia. In 2006, it acquired Sekhsaria Chemicals Ltd. (Mumbai, India) for $29.5 million. Sekhsaria provides process research and development and contract manufacturing services, including the development and manufacture of APIs and related intermediates. Earlier in 2005, Watson acquired a manufacturing facility in Goa, India from Dr. Reddy's Laboratories (Hyderabad, India).

Last year, Watson invested $12 million to increase its equity interest in the CMO ScinoPharm Taiwan, Ltd. (Shan-Hua, Taiwan), according to its recent financial reports. ScinoPharm provides contract process research and development and API manufacturing. Watson has the option to acquire an additional 44% interest in Scinopharm for $80 million by October 2007.

Following its $2.5-billion acquisition of Pliva, dd (Zagreb, Croatia), Barr Laboratories, Inc.(Woodcliff Lake, NJ) plans to move production of select products to Pliva's manufacturing facilities in Croatia. Barr outbid Actavis, which also sought to acquire Pliva.

In late December, Mylan Laboratories, Inc. (Pittsburgh, PA) completed its deal for a controlling interest in Matrix Laboratories (Hyderabad, India), a manufacturer of APIs and solid oral-dosage forms in India.

The efforts by generic drug manufacturers to increase their internal manufacturing capacity offshore comes as India and China continue to raise their share of global API production in comparison with the strongholds of Italy and Spain. China and India supplied roughly 57% of generic APIs to Western Europe and 15–16% of generic APIs to the United States in 2005, according to the Chemical Pharmaceutical Generic Association (CPA, Milan, Italy). By 2010, India and China are expected to serve 66% of the Western European market for generic APIs and 24% of the US market. In 2005, Indian companies sold $130 million of generic APIs to the US market and $434 million to Western Europe. In 2005, Chinese API manufacturers sold $980 million of generic APIs to Western Europe and $365 million to the United States (1).

CMOs expand in Asia

In an effort to meet their customers' demand for lower-cost production, Western CMOs are positioning in China and India as Asian CMOs build their own manufacturing positions in Western markets.

SAFC, the custom-manufacturing and fine-chemicals unit of Sigma-Aldrich Corporation (St. Louis, MO), is seeking to establish a footprint in Asia. The company is eying possible acquisitions in India and China, said Frank Wicks, president of SAFC, at a press briefing in January. The company is looking to gain a CGMP manufacturing facility for API synthesis in India and a large-scale, flexible organics manufacturing facility in China, which could provide raw materials for SAFC businesses.

"For China, we are open to an acquisition or establishing a joint venture, depending on what opportunities become available," said Wicks. "For India, we are seeking commercial-scale CGMP capacity as a means to offer lower-cost production capabilities in our custom-synthesis business."

SAFC's plans in Asia come after a $12-million investment for a new 139,000-ft2 medicinal-chemistry facility in Bangalore, India. SAFC Bangalore has 60,000 ft2 of production and research and development laboratory space, including manufacturing suites for chemical development and production to the 50-L scale, and an onsite warehouse.

The Bangalore operation offers preclinical, process-development and scale-up services and is designed to work in alignment with SAFC's medicinal-chemistry operations in Manchester, United Kingdom.

"The Indian facility works in partnership with our Manchester facility," said Wicks. "It provides our customers with Western communication and business practices with access to Asian economics."

Lonza (Basel, Switzerland) is investing $200 million over the next several years to build a multipurpose API and intermediates plant complex with large- and pilot-scale production capabilities in Nansha, Guangzhou, China. It also opened a new research and development center for intermediates and APIs in Nansha.

NPIL Pharmaceuticals, part of Nicholas Piramal India. Ltd. (Mumbai, India), is on track with a goal to increase the revenues of its custom-synthesis business. In 2006, it acquired the Morpeth, Northumberland, United Kingdom manufacturing facility of Pfizer, Inc. (New York, NY). The site has production and supply-chain capabilities for APIs, finished dosages, packaging, and distribution. With the Morpeth acquisition, NPIL Pharma secured a supply agreement with Pfizer through November 2011.

The Morpeth transaction was NPIL's third acquisition of European-based manufacturing assets. It acquired Rhodia's inhalation anesthetics business in 2004 and Avecia's custom-manufacturing business in December 2005.

To further build its custom-synthesis business, in 2006, NPIL formed a new dedicated unit, NPIL Innovations or NPIL(i), to focus on developing and applying new technologies used in the process development and production of APIs. NPIL(i) will have bases at NPIL's facilities in the United Kingdom and at its new research center in Mumbai. The company plans to expand its scientific and technical staff to 50 people. The unit focuses on biocatalysis, chemocatalysis, catalyst-based racemization technology, "SCRAM," and flow processing.

Like other Indian companies, NPIL is backward-integrated in China. It opened an office in Shanghai in August 2006 to coordinate sourcing activities from China.

NPIL Pharma has invested roughly $50 million over the past three years as part of its early-phase (development) and late-phase (manufacturing) formulation services in the United Kingdom and India, and plans a similar investment over 2007–2009. The investment includes a new sterile supplies pilot plant, which is scheduled to come on stream in Mumbai, India in the fourth quarter of 2007.

Degussa AG (Düsseldorf, Germany), formed a custom-manufacturing joint venture with Lynchem Co., Ltd. (Dalian, Liaoning Province, China). Lynchem, with 2005 sales of roughly $45 million, has 800 m3 of reactor capacity at a 50-hectare facility in Dalian.

The joint venture is part of a strategy of what Degussa terms "horizontal integration" for leveraging manufacturing assets in Asia for cost-competitive manufacturing of on-patent intermediates, steps in API synthesis, and off-patent APIs. Degussa will focus its existing European custom-manufacturing sites on producing high-value regulated intermediates and on-patent APIs. Consistent with that approach, Degussa agreed to sell Raylo Chemicals, a custom manufacturer of APIs and advanced pharmaceutical intermediates, to Gilead Sciences (Foster, City, CA).

Degussa also has a long-term, nonexclusive agreement with the Indian custom manufacturer Hikal, Ltd. (Mumbai, India), under which Hikal will manufacture advanced intermediates and APIs for Degussa.

Last year, Hikal commissioned a new pilot Plant at Taloja, a new API manufacturing unit at Bangalore, and a CGMP kilo laboratory at Jigani. The new pilot plant at Taloja is manufacturing an agrochemical product. A full-scale multipurpose agrochemical plant is expected to be commissioned by 2008. The Bangalore manufacturing unit will produce a new veterinary drug; the multiproduct API plant is expected to start full-scale production by the end of 2007.

The pharmaceutical supply chain: DCAT Week

The pharmaceutical supply chain will be the focus later this month at a series of educational sessions held Mar. 19–22 during the Drug, Chemical, and Associated Technologies Association's (DCAT, Robbinsville, NJ, www.dcat.org) annual program in New York City.

DCAT is a 365-member company association that consists of firms that manufacture, distribute, or provide services to the pharmaceutical, chemical, nutritional, and related industries. Its members include professionals engaged in sourcing, procurement, and supply-chain management from large- and medium-sized innovator pharmaceutical companies, generic drug companies, and consumer healthcare companies. On the supply side, DCAT's membership consists of manufacturers and distributors of active pharmaceutical ingredients, intermediates, other pharmaceutical ingredients, formulation services, pharmaceutical packaging, and related services.

On Monday Mar. 19, DCAT will hold its Fifth Annual International Business Forum: Pharmaceutical Manufacturing: The Next Wave of Transformation, which will examine the latest changes in the pharmaceutical supply chain, including input from Charles M. Shafran, vice-president, strategic planning from Pfizer Global Manufacturing, who will discuss divestiture of pharmaceutical manufacturing assets.

On Tuesday Mar. 20, DCAT will hold its Business Perspective Program, which will explain how the pharmaceutical industry is working with the Business for Social Responsibility (San Francisco, CA, www.bsr.org), a nonprofit business membership and advisory organization, to develop the Pharmaceutical Industry Principles for Responsible Supply Chain Management.

Also on Mar. 20, DCAT will hold a session addressing the evolving regulatory environment for chemical registration in China and its impact on the supply chain.

Other programs designed for DCAT member companies include sessions on over-the-counter drug packaging and human resource development for the pharmaceutical chemical industry.

On Mar. 21, DCAT will present the IMS Health (Fairfield, CT, www.imshealth.com) annual pharmaceutical outlook. The DCAT Annual Dinner will be held Thursday, Mar. 22. This annual black-tie event this year will feature Sir Richard Branson, founder and chairman of the Virgin Group as the guest speaker.

Full details about the programs may be found at www.dcat.org/2007_DCAT_Week/schedule.php.

References

1. P. Van Arnum, "The Changing Fortunes of APIs," Pharm. Technol. 31 (1), 52–58 (2006).