Pharma Suppliers Brace For Downturn

WITH THE GLOBAL financial infrastructure collapsing around them, executives at CPhI, the annual European fine chemicals conference, were watching out for damage to their pharmaceutical industry customers. Of particular concern in Frankfurt at last week's meeting was the stability of cash-hungry biotech companies.

Companies serving the drug industry typically consider their business to be recession-proof. Yet attendees at CPhI noted that this particular crisis (see page 7) is coinciding with a challenging time for big pharma firms. Their discovery engines have stalled, and several key drugs will lose patent protection in the next two years.

Some CPhI attendees said their pharma customers are becoming more frugal with research dollars. Although these customers are also outsourcing more of their manufacturing, the overall drug pipeline is drying up. News that Pfizer has cut research programs and GlaxoSmithKline is slashing research jobs only added to the uncertain mood at the trade show (see page 9).

"Over the past six months, it seems customers have been more cautious," said Rhona McIntyre, European sales manager at pharmaceutical chemical maker Carbogen Amcis. McIntyre sees big pharma firms abandoning potential therapies earlier in the development process and focusing their resources on fewer projects.

Meanwhile, small or emerging drug companies, which are more reliant on the financial markets for funding, could feel the current crisis more sharply. "Business had been good until two weeks ago," said Dave Ager, principal scientist at DSM. "The guys in emerging pharma are already running into a brick wall. They say, 'Yes, we want to do this, but there is no money.' "

Dennis Bauer, senior vice president of sales and marketing at Siegfried, said such customers "seem to have the funds, but they are very judicious about how they are spending them." Some attendees already see pipeline cutbacks and warn that biotech companies without a few years of cash on hand may disappear altogether.

With potentially fewer projects to go around, custom manufacturers are focusing on how to stand out from the pack. Traditionally, big pharma has been concerned about speed and quality when it came to sourcing pharmaceutical chemicals for clinical trials, noted Peter Seufer-Wasserthal, general manager of pharma services at Codexis. Now, equal emphasis is being put on the most cost-efficient manufacturing route.

Other companies are also looking for creative ways to diversify their business. BioVectra Chief Operating Officer Dale Zajicek said his firm has made a foray into drug development with a partner and with financing from the Canadian government. BioVectra expects to contribute manufacturing expertise to the project and, eventually, generate revenue from finished drug sales.

Although no one was willing to predict the outcome of the financial crisis, many custom manufacturers seem prepared for a protracted downturn. Companies are still smarting from the lengthy trough the industry endured starting in 2001. "As a business, we are still really aware of what it was like and are making the right kinds of decisions about investments," Carbogen's McIntyre said.