a history of the api & intermediates contract ... · small molecule global pharmaceutical...
TRANSCRIPT
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016. 1
The manufacturing of active pharmaceutical ingredients (APIs) is a complex, specialized activity,
requiring the expert intertwining of chemistry and engineering. Historically, this was performed
by large pharmaceutical companies, who saw value in taking the drug seamlessly from drug
discovery to large-scale manufacture and keeping the whole process under one roof. In parallel to
this, contract manufacturing organizations (CMOs) arose to support production when additional
capacity was needed or specialized chemistry required.
This webinar aims to present an expert review of the last 40 years of the CMO industry for small
molecules. In addition to in-depth analysis by Cambrex, performed over the period 1975-2015, a
series of primary research interviews with industry experts was undertaken. In total, the views of
10 industry veterans, each of whom had no less than 25 years’ experience in the CMO industry,
have been presented.
This webinar aims to present the audience with an historic overview of how contract
manufacturing has evolved since the early days of being a niche, opportunistic industry, with just
a few suppliers where most manufacturing was still routinely performed in-house within large
pharmaceutical plants, to one that blossomed into a $50-60bn enterprise, where outsourced
pharmaceutical manufacturing has now become the rule rather than the exception.
After looking back over the last 40 years, Cambrex will then offer a forward-looking opinion
on what to expect for the CMO industry in the coming 5 years from 2016 through to 2020. The
webinar will then culminate in an unveiling of the new Cambrex brand – with a focus on Active
Ingredients | Dynamic People – and how the organization is well positioned to become the leading
CMO in small molecule manufacturing by 2020.
Amanda Flanagan Associate Director, QC
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)
A Cambrex webinar overview
2
This webinar will:
• Learn about the last 40 years of the API manufacturing industry with respect to small molecules.
• Understand the opinion of industry experts as they give valuable insights into their own
experiences during 1975-2015
• Explore how the industry has evolved to the booming business it is today and the outlook for the
CMO market over the next 5 years (2016-2020).
• Gain an opportunity to see the unveiling of the new Cambrex brand and learn about its ambition
to become the leading small molecule API manufacturer
Current estimates for the size of the overall API manufacturing market, including both the captive and contract
sectors, are around $50-60 billion per year. There have been a large number of articles and editorials in recent
years covering developments in the small molecule industry, as well as a renewed sense of excitement in API
manufacturing. As a result, this seemed an appropriate time to look back at how the contract manufacturing industry
has evolved over the last 40 years to the large and growing market that operates today.
Contract manufacturing organizations (CMOs) are often asked two questions: when did API manufacturing start
and how did it evolve? Books, documents or reports that serve to give a comprehensive answer to these questions
are difficult to find and Cambrex felt it was an opportunity to author its own. Part of this rationale was philanthropic
but the other part was a fact finding mission as, with many industries, it is possible to learn a lot about the future by
considering the successes and mistakes from the past.
Contributors
Dr. Matthew Moorcroft VP of Global Marketing, Cambrex
Matt is the Vice President of Global Marketing and Communications for Cambrex. Prior
to joining Cambrex, he worked for Lonza and held a number of roles including Head of
Global Marketing, VP Generics and Biosimilars, and Head of Strategy, Pharmaceuticals
and Biologics. After gaining experience in the custom development and manufacturing
business, he developed models for biosimilars and generic drug products. He has 15
years of commercial and scientific experience in the pharmaceutical, biotechnology and
chemical industry covering both innovative and generic medicines. Matt graduated with a
Ph.D. in Chemistry from the University of Oxford.
Alex Maw Director, Marketing and Communications, Cambrex
Alex is the Director of Marketing and Communications for Cambrex with responsibility
for corporate marketing and brand strategy. Prior to joining Cambrex, she held group
marketing and communications responsibilities for Consort Medical plc and its divisions:
Aesica and Bespak and held a range of marketing roles at Aesica prior to the acquisition
of the company by Consort Medical. She has specific experience in driving brand strategy
and growth in the pharmaceutical contract services sector.
Alex graduated with a BA (Hons) in Marketing Management from Newcastle Business
School, Northumbria University and has a Professional Postgraduate Diploma in Marketing
from the Chartered Institute of Marketing. Alex also holds Chartered Marketer status.
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
3
When did the industry start and how has it evolved?
To start this study, Cambrex built a simple model of supply and demand for the API market. The first phase was to
start from existing data. Reviewing the past ten years was relatively simple, but looking for comparable information
over the past 40 years was more difficult due to the absence of data points. However, after a concerted effort a
pertinent collection of data was assembled. Whilst raw data would get this work underway, Cambrex was extremely
cognizant of the fact that to really understand this complex industry, it was ultimately going to be vital to speak with
experts who had been there and seen enough over the past 40 years from first-hand experience.
The industry experts
The experts Cambrex spoke to were hand selected due to their extensive experience in the API industry, with an
average of 30 years’ experience each. These included five experts from CMO or supplier organizations and five
outsourcing/procurement experts from pharmaceutical companies to give a balanced blend of experience.
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)
The CMO and supplier experts:
Simon Edwards, VP, Global Sales & Marketing, Cambrex (27 years’ experience)
Previous companies: Lonza, Great Lakes
Roles held: Sales/BD, Head of BU, Chemicals,
Biologics and Biosimilars
Paolo Russolo, President, Cambrex (45 years’ experience)
Previous companies: Profarmaco
Roles held: Chemical Engineering, Finance, Sales/BD,
Managing Director
Carl Johansson, Global Director, Proprietary Products, Cambrex (34 years’ experience)
Previous companies: Dow Chemicals
Roles held: Sales/BD, Product Management,
Procurement, General Manager
Dr. Jan Ramakers, Consultant, FCCG (35 years’ experience)
Previous companies: DSM, Deutsche Bank, Wood
Mackenzie
Roles held: Business Research, M&A, Due Diligence
Jim Miller, President, PharmSource (37 years’ experience)
Previous companies: St. Anthony Publishing, Williams
and Wilkins, Boston Consulting Group
Roles held: Corporate Development, Consultant
The outsourcing/procurement and pharma company experts:
Ken Kent, VP, Chemical Development & Manufacturing, Gilead (28 years’ experience)
Previous companies: Gilead
Roles held: R&D, Process Development, Manufacturing
Peter Lyford, Commodity Director, GSK (26 years’ experience)
Previous companies: GSK
Roles held: Procurement, R&D to Commercial
Manufacture
Dix Weaver, Consultant, Weavchem LLC (30 years’ experience)
Previous companies: Eli Lilly, Evonik, DCAT (president)
Roles held: Sourcing, Procurement, Supply Chain
Consultant, Toxicology
Rob Miotke, Consultant, Advantage Pharma Solutions LLC (40 years’ experience)
Previous companies: Aerojet Fine Chemicals, Angus
Roles held: Sales/BD, Commercial Director, General
Manager, President
Steven Cray, Director, Supplier Relationship Management, Shire (34 yeas’ experience)
Previous companies: Graham Packaging, Thomas &
Betts, SPS Technologies, Price Waterhouse
Roles held: BD, Finance, Supply Chain, Procurement
In memoriam: Dr. Peter Pollak – sadly he passed away in August 2016. As one of the first champions of the contract
manufacturing industry, this study is dedicated to him in an effort to continue his narrative on the API industry.
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
4
Results: 40 years of the CMO industry
Medicine consumption data
Figure 1 shows the consumption of small molecule drugs (in volume terms) over the past 40 years, outlining the
significant increase in consumption from 1975-76, due to the development of ‘blockbuster’ drugs, with examples
such as Tagamet® and Zantac®. A substantial proportion of the next era of growth was due to the effects of the
Hatch-Waxman Act and the introduction of generics into the USA, which boosted consumption as prices eroded and
patients had increased access to affordable medicine.
The following era of growth was spurred by the rise of BRIC countries (Brazil, Russia, India and China) as important
consumers of medicine. In the final period of growth, covering 1995-2015, consumption was positively affected by
continued patent expiry and the recent uptake in new drug approvals.
Figure 1
Drug approval data
To verify one view of demand against another, Cambrex’s analysis looked at the approval of small molecule new
chemical entities (NCEs) in the US over the same 40-year period. In the period between the 1970s and 1980s, new
product launches fluctuated between 10 and 30 launches per year; a sign that the industry was beginning to emerge
and that making medicines was a sustainable business model. This process really began to speed up during the race
to launch blockbusters heading into the 1990s, a period in which approvals steadily increased.
This growth peaked around 1996-97 but faced a notable decline due to a reduction of new small molecule drug
approvals in the early 2000s as the industry’s focus switched to other modalities such as recombinant proteins and
monoclonal antibodies. However, growth in the NCE sector reignited during the mid-2000s to 2015, with NCE drug
approvals rising once again, fueled in part due to a focus on orphan therapies and utilizing the recently introduced
expedited approval process in the US.
CMO competitor data
Turning the attention to the supply side of the supply/demand equation, figure 2 focuses on the entry of CMO
competitors.
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
300,000,000
Resurgence from R&D due to Oncology, Targeted and Orphan Drugs
2012 Patent Cliff
Introduction and Growth of Pharmerging Countries
‘1st Wave’ Patent Expires and Entry of Generics
Growth of Blockbusters
Hatch-Waxman Act in full swing facilitating generic launches
Consumptiongrowing in Brazil,Russia, India and China (BRIC)
Novel mechanisms,new molecules,e.g. Proteinkinase inhibitors
1
2
3
4
5
0
e.g. GSK’s Tagamet® (cimetidine) and Zantac® (ranitidine)
IMS Data
Data Interpolated from WHO
350,000,000
Sm
all
Mo
lecu
le G
lob
al P
harm
aceu
tical D
em
an
d /
kg Volumes demand for small
molecule prescription pharmaceuticals (API)
Pharmaceuticals Consumption – Data
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)
5
As can be seen, major entrants to the market included companies such as Cambrex, DSM and Lonza in the early
years, followed in later years by Indian companies such as Ranbaxy and Piramal, and later still by Chinese CMOs such
as Porton and Desano.
Figure 3 shows the same data with the CMOs grouped by their geographic locations and provides a more useful
overview of the evolution of the market. In the nascent period between the 1940s to the 1960s, mainly big pharma
manufacturing sites operating through captive manufacturing are visible. In the 1960s and 1970s, we see the first
entry of the early and pioneering CMOs into the industry and the phrase CMO becomes a familiar concept. While
some of these were CMOs from Europe and the US, many were actually based in the UK.
Figure 3
DSM1960
Cambrex 1963
TAPI1971
BASF1977
OmniChem1978
Piramal1989
ZhejiangHisun1990
Hetero2000
ShanghaiDesano2008
Siegfried1964
Lonza1973
EvonikSAFC1979
Ranbaxy1993
Porton1995
Fir
st U
S D
MF
Reg
istr
ati
on
Date
fo
r A
PI M
an
ufa
ctu
rers
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1997
1996
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1213
2014
2015
0
10
20
30
40
50
60
70
80
90
100
110
120
SourceCambrex Newport
First Entrance of API Manufacturers
CMO Entrants – Data
Figure 2
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)
Fir
st U
S D
MF
Reg
istr
ati
on
Date
fo
r A
PI M
an
ufa
ctu
rers
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
80
70
60
50
40
30
20
10
US & Europe
China & India
Other
Mainly captive APIfacilities (Big Pharma)
Early CMO pioneers (UK and EU/US) entering market at risk
Entry of Indian and Chinese CMOs
Gold rush / Later US/EU CMO entrants enticed by success of early CMOs and prosperity of pharma market
1
2
3
4
0
CMO Entrants – Data
Entrance of API Manufacturers –by region
SourceCambrex Newport
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
6
During the period 1980 to 2000, there was a continued influx of CMOs from the US and Europe and the majority
of these companies comprised of generic API manufacturers following the enactment of the Hatch-Waxman Act.
Finally, in the period 2000-2010, as the industry continued to prove a lucrative venture and entice new entrants, the
market saw the entry of Indian and Chinese CMOs.
Results: the four stages of the industry
When the components of the supply and demand model were assembled, Cambrex identified four distinct periods
which stood out as pivotal moments which helped to explain the birth and establishment of the CMO industry. These
formed the basis of the interviews with the panel of experts highlighted earlier.
Stage 1: the early years (pre-1980)
For simplicity, figure 4 shows a combination of the previous graphs of API consumption, NCE approvals and CMO
entrants in an attempt to highlight our four stages of the industry.
Figure 4
The early period up to 1980 is characterized by the growing API consumption due to the introduction of early
blockbusters, as well as the first flurry of NCE approvals from the FDA. This coincides with the entry of a few
pioneering CMOs who saw an opportunity in the market. Many of these companies exposed themselves to great
risk in terms of investing in a business that was seen to be very speculative at the time. Their entrance was due to
the lack of manufacturing capacity in big pharma due to the unexpected successes of early blockbusters, which
far exceeded initial forecasts and ultimately exposed the conservatism in their carefully laid out capacity planning
models. Consequently, pharmaceutical companies began to use chemical technology experts and CMOs to help with
this capacity shortfall.
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)
1975
1976
1976
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
30
40
50
60
70
80
90
100
110
120
0
5
10
15
20
25
30
35
40
45
50
55
60
0
350,000,000
300,000,000
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
CM
O E
ntr
an
tsN
CE
Ap
pro
vals
AP
C C
on
sum
pti
on
1
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
7
The first CMOs were essentially technology specialists, particularly in hazardous chemistries which big pharma
were either unable or unwilling to carry out themselves. At this stage, most manufacturing contracts were either
for single steps in the chemical synthesis or for pharmaceutical intermediates other than APIs, the latter being
still manufactured in-house by the pharmaceutical companies. GSK was one example of an early adopter of
outsourcing, particularly due to the company’s involvement in some of the early blockbusters, which had completely
outperformed expectations.
Due to the high or growing NCE rate and the presence of ‘me-too’ blockbusters, there was growing competition
between pharmaceutical companies that were involved in a foot race to launch as many new drugs as possible. Many
of these products were based on high dosages and were large volume products, which further exacerbated the
shortfall in in-house capacity during this period.
Stage 2: the growth years (1980-1996)
The next period of the industry occurs during 1980 to 1996, defined as the ‘growth years’. By this time, the
blockbuster model was in full swing and manufacturing capacity was being built by both big pharma and CMOs to
accommodate the new drug approvals. The industry was booming, fueled by large R&D budgets in big pharma and
the introduction of new technologies such as biotechnology, high-throughput screening (HTS) and combinatorial
chemistry. This led to many predicting higher and higher approvals of NCEs with some CEOs engaging in a ‘race-to-
the-top’, outbidding their rivals in their claims of ever-bulging pipelines and forecasts of unprecedented new drug
approvals.
Figure 5
The lack of capacity in big pharma (despite its investment and efforts to redress this) resulted in a surge of
entrants into the CMO space. Such was the lure of this ‘new’ industry, it also captured the attention of the large
commodity chemical companies who began to repurpose their existing capacity to accommodate pharmaceutical
API production. At the same time, legacy CMOs were not satisfied with manufacturing intermediates in single-step
processes and began to capture more business from pharmaceutical companies; working on longer, multi-step
1975
1976
1976
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
30
40
50
60
70
80
90
100
110
120
0
5
10
15
20
25
30
35
40
45
50
55
60
0
350,000,000
300,000,000
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
CM
O E
ntr
an
tsN
CE
Ap
pro
vals
AP
C C
on
sum
pti
on
2
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)
8
processes from basic building blocks to advanced intermediates and even to APIs. This led to a number of visionary
CMOs investing bravely and spending millions of dollars on new, multi-product facilities.
Some of the study survey experts commented that, while large profits made the sector extremely lucrative for new
entrants, not everyone was appropriately set up to benefit. Some of the commodity chemical companies found it
difficult to adjust to the increased demands of the pharmaceutical industry and found that manufacturing APIs and
intermediates was a ‘whole new ball game’ to working in the more established chemical industry sector they were
familiar with.
CMOs moving from the manufacture of single-step intermediates to the multi-step synthesis of APIs would build a
business case justified on the concept of serving multiple customers with their technology or their capacity. One
survey expert noted that during this period there were some adventurous and pioneering CMOs that were investing
heavily and taking a leap of faith in the building of new multi-purpose facilities.
Aside from the inflated expectations from pharmaceutical companies and their senior management on the seemingly
unstoppable number of new drug launches, this hysteria was also infectious amongst banks and analysts, with many
predicting high double-digit growth rates for the market. This resulted in an increasingly bullish outlook and big
pharma began making strategic supplier agreements with their CMOs – promising to mutually share in this success,
fill all their capacity and take them to some sort of ‘Promised Land’.
Stage 3: the competitive years (1996-2010)
The period from 1996 to 2010 was termed the ‘competitive years’ in the evolution of the contract manufacturing
industry. From the demand side, a major factor influencing the sector was the patents on several blockbusters began
to expire which would lead to generic competition and the inevitable downward pressure on drug prices. While this
resulted in a period of instability for pharmaceutical innovators, and the wave of cost-cutting measures that unfolded,
the effect of generics was to drive consumption upwards as more patients had access to affordable medicine. This
growth was in addition to the boost in consumption caused by the rapid economic development of the emerging
BRIC countries further bolstering demand.
Figure 6
1975
1976
1976
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
30
40
50
60
70
80
90
100
110
120
0
5
10
15
20
25
30
35
40
45
50
55
60
0
350,000,000
300,000,000
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
CM
O E
ntr
an
tsN
CE
Ap
pro
vals
AP
C C
on
sum
pti
on
3
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)
9
This period was also one of declining NCE approvals. Mergers and acquisitions at big pharma meant there was a
rationalization of companies’ combined portfolios, as well as a growing interest in alternative molecule types, moving
away from small molecules to biologics.
On the supply side, the rapid growth seen in the previous period of the ‘growth years’ was now moving to India and
China, which apparently caught western-based CMOs off guard. At this time, pressure on big pharma to reduce their
costs effectively incentivized their sourcing teams to take (calculated) gambles and begin to risk quality for a lower
price. This resulted in an almost inevitable and regrettable period of a ‘race-to-the-bottom’ on API prices, of which
suppliers from low-cost countries such as India and China-based CMOs were the ultimate beneficiaries.
This was a time when western CMOs first began to recall losing proposals or contracts to Indian or Chinese
competitors and the threat from low-cost CMOs became suddenly very real. Coinciding with this, a shift from
custom synthesis to toll manufacturing meant that using CMOs for their skills in a specialist technology or
developing a process was no longer required. CMOs were beginning to be seen as undifferentiated suppliers from
the pharmaceutical companies’ point of view, with the inevitability that the lowest-bidding CMO would be routinely
awarded the business.
One of the survey experts commented that western CMOs were not prepared for this shift and were repeatedly
asked not to get involved in generic products when working with their innovator pharmaceutical customers. It was
therefore unexpected when pharmaceutical companies started to do business with Indian generic firms for their
CMO needs.
Other experts remarked on the move to toll manufacturing, producing APIs using the customers’ process rather than
developing their own manufacturing route, which meant that differentiation was solely down to price. Some CMOs
found it difficult to compete with low-cost suppliers, which had the advantage of being able to produce generic APIs
and the formulated drug product; which added a base load of capacity utilization, combined with lower labor costs
and lower expectations on return on capital. Although the race-to-the-bottom on price was a compromise on quality,
if it led to a 20 to 30 per cent reduction in CMO pricing, the allure was too great for big pharma which was in full
cost-cutting mode.
Another expert discussed their cynicism around all the rhetoric talk around partnerships or win-win alliances and
exclusive relationships when it became clear that pharmaceutical companies would be quick to bring in new low-cost
CMO suppliers. Interestingly, on the other hand, mid-sized and small pharmaceutical companies actually tended to
stay away from this strategy. They had concerns about quality, were reluctant to work with CMOs based in Asia, and
were more likely to continue to work with their local western suppliers.
Stage 4: the resurgent years (2010-2015)
The fourth and final segment in the history of contract manufacturing history is the period from 2010 to 2015, or the
‘resurgent years’. Again, by comparing the supply and demand curves we can see a steady increase in consumption
and a tightening of the supplier base. (figure 7)
While consumption continues to increase, Cambrex recently reported its research findings that the industry is
experiencing a shift towards lower commercial drug volumes, no longer measured in 100s of MT as seen in the mid-
1990s, but now in the region of 1-10MT seen today.
Additionally, on the demand side, NCE approvals have started to rise once more. Largely fueled by the
pharmaceutical sector’s focus on oncology and targeted medicine, in addition to orphan indications.
From the supply perspective, there has been a notable decrease in the number of new entrants into the CMO market.
When combined with continued divestment or closure of mature API plants by the larger pharmaceutical companies,
this has manifested in the current period of high demand for manufacturing services from US- and EU-based CMOs
with the right capacity.
One survey expert commented that since there had been a concerted effort to move back to western CMOs – it
would be hard for any CMO not to be enjoying a good time in the industry. Another expert was quick to point out
that labor costs in China, compared to those in other countries, have continued to rise and have started to make low-
cost CMOs no longer as attractive as they once were.
There was also a rebuke that during the previous ‘race-to-the-bottom’, sourcing teams were going through the
process of trying to unpick some of these agreements. There was also a suggestion that western CMOs, in particular,
have been quick to react to new trends through the use of more advanced market intelligence. They are looking at
the market from a “what’s next?” perspective and are being more forward-thinking in their outlook.
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)
10
Figure 7
It is also important to monitor the customer base dynamics; smaller pharmaceutical and biotech companies are
actually occupying a bigger share of the pharmaceutical market and the development pipeline with their products.
These products frequently, but not always, have lower volume requirements than classical drugs because of their
higher potency and highly targeted therapy.
Today, the market continues to be heavily fragmented, with no single CMO holding more than 1 to 3 per cent share of
the market. One survey expert remarked that trying to find a good quality CMO is actually difficult at the moment,
as they are all busy and their capacity is full. There was also an observation that some CMOs have accumulated a
lot of debt in the past five years, which now needs to be serviced or paid off, and this should serve as a warning to a
prospective customer in terms of cash flow or the threat of long-term financial security of a CMO.
Another observation was that mid-size pharmaceutical companies, which typically lack internal manufacturing
assets, mitigate the risk of a CMO capacity shortfall by carrying more inventory in the case of a supply chain issue.
Other experts noted the lack of sophisticated forecasting tools and processes and how this led to both under
capacity and over capacity during the 1980s, 1990s and 2000s. Even though launch projections have vastly
improved in recent years, flexibility is seen as a vital offering from a CMO in order to handle changing customer
requirements or to react to new forecasts.
2016-2020: what’s next for the industry?
The interesting question from the study is to really find an answer to “what’s next?”. Contract manufacturing has to
learn as much from its rich history as possible in order to best prepare itself for the future.
From the demand side, the research identifies the trend towards increasing consumption. According to the Cambrex
data, drug consumption continues to increase driven by more patients taking more medicine, more often.
1975
1976
1976
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
30
40
50
60
70
80
90
100
110
120
0
5
10
15
20
25
30
35
40
45
50
55
60
0
350,000,000
300,000,000
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
CM
O E
ntr
an
tsN
CE
Ap
pro
vals
AP
C C
on
sum
pti
on
4
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)
11
The contract manufacturing space will continue to be dynamic and CMOs will continue to evolve. There will still
be shake-ups and M&A activity but technology, customer focus and market intelligence will remain important and
contribute to the continuing success of the sector. One expert warned that despite the renewed optimism in the
sector, pharmaceutical companies could start building captive capacity once more, should CMOs stop investing in
technology and infrastructure to meet their needs. They believe CMOs need to keep their technology edge, and
in some way come full circle back to 1975 and be able to offer a specialism to differentiate themselves from the
‘capacity for hire’ business models of their competitors. One expert warned of the real risk that big pharma could still
use CMOs as a “cheap date”, meaning the pharmaceutical company will use the CMO when it needs a supplier but
drop them just as quickly if additional material or capacity is not needed.
Another interesting finding from the interviews was that chemistry is becoming more complex. One expert
suggested that gone are the days of the ‘easy four-step chemistry’ and there is a move to more complex and longer
syntheses. NCE approval rates are currently the highest for some time, and experts expect that they are likely to
remain steady. There was one remark about the difficulties in making forecasts and their need for CMOs to be more
flexible given the wide variation typically seen in eventual upsides and downsides.
2016-2020: how should CMOs prepare for the future?
Cambrex posed the question, “what do CMOs have to do to keep a leadership position in the future?” and found four
key areas to consider – new technology, new customer focus, new data and new markets.
New technology
CMOs should continue to look at trends and invest in the next ‘big thing’ in order to be able to offer this to their
customers in the future. The survey experts commented that innovation is important and that the best CMOs are
those that have adapted and moved with the industry. While everyone considered it important to be considered an
expert, one respondent offered caution that against the idea of being “everything to everybody”, because in reality,
most CMOs that attempt this fail. CMOs should think carefully before they become too broad; for example, providing
both biologics and small molecule API manufacturing services.
New customer focus
CMOs need to work with customers who require their CMO to be as successful as they are to ensure longevity and
a mutually beneficial relationship. The relative size of the contract manufacturer is also an important consideration
in reaching new customers, and having sufficient size and scale afford the CMO the opportunity to work with
equivalently sized customers. The caveat to this being that the CMO should resist the urge to become too large that
it succumbs to the pitfalls of inflexibility and bureaucracy, and loses the mantle of “being easy to do business with”.
One expert noted that CMOs must be able to handle the dichotomy of working with both “juggernauts and
gymnasts”. They need to be able to handle pharmaceutical customers of varying sizes and cultures without adopting
a one-size-fits-all approach. There was a widespread consensus among the interviewed experts that CMOs still have
a long way to go in this area and they need to be more flexible and easy to work with, with the ultimate goal of being
easy to buy from.
New data
There was a clear view from the experts that investing in market intelligence and being able to spot trends was
a vital tool in a CMO’s armory in order to support key decision making. Understanding which chemistries, which
technologies, what capacity to build, etc. were all important strategic questions. One expert remarked that there
was an “arms race” within CMOs trying to get access to more and more market data and build market and business
intelligence functions in order to process all this information and stay ahead of the competition. Compared to the
early years, the pace of change is now so great in the CMO industry that contract manufacturers need to continually
be looking ahead.
New markets
There has always been a drive to find new markets and new customers, but one new trend that was unearthed
during the study was the growing tendency to get involved in earlier parts of the supply chain, and not just focus on
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)
the final API. CMOs can potentially participate in moving upstream to offer manufacturing intermediates and early
chemical steps; which has the advantage of offering supply chain security to the customer and also giving the CMO
access to the opportunity to add a base load of capacity.
Another expert noted that while a CMO can move backwards into its value chain, there is also the strategic option
to move forward, for example, into formulation development. Many larger CMOs have taken this opportunity and
adopted a ‘one-stop-shop’ or ‘end-to-end’ supplier approach. This particular topic divided some opinion amongst
our interview panel, with some experts suggesting this was a synergistic offering to bolt on to the CMO; while others
were less enthusiastic and questioned whether there was additional value in having both the API and the drug
product contract manufacturing under one roof.
12
www.cambrex.com
Watch the webinar Contact our experts
Cambrex webinar: A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015). November 2016.
A History of the API & Intermediates Contract Manufacturing Industry (1975 – 2015)