Staying in the Lead

Booths proclaiming reactions, equipment, and other capabilities are a common sight at custom-manufacturing trade shows such as Informex and CPhI. What's emphasized on these walls reflects areas surrounded by the loudest buzz. For a time, cGMP (current Good Manufacturing Practices) was the must-have capability. Then it was chiral chemistry. Now it is biotechnology and capability for high-potency active ingredients.

Manufacturers of active pharmaceutical ingredients (APIs) differ in their views about how much technology counts. What were differentiators in the past--such as cGMP or chiral chemistry--are now simply qualifiers. As a critical technology becomes available, it is only a matter of time before it spreads through the industry.

The strategies of most players increasingly are converging, notes Enrico T. Polastro, vice president and senior industry specialist for pharmaceuticals and fine chemicals at Arthur D. Little Benelux. Almost at the same time, most players have broadened their technology toolboxes, he says. The result is a marketplace where technology is no longer a "unique selling proposition."

That is, unless the technology is available only to a few. For small-molecule drugs, capability for highly potent APIs and genetic engineering applied to biocatalysis are technologies that still may be considered niche and truly differentiating. C&EN turned to Tetrionics and Codexis to gauge the staying power of these niches.

Tetrionics, based in Madison, Wis., is a custom chemicals manufacturer that specializes in highly potent APIs. It is the exclusive supplier of paricalcitol, the vitamin D derivative that is the active ingredient of Zemplar, the Abbott Laboratories drug for prevention and treatment of high parathyroid hormone levels in patients with chronic kidney failure.

The high-potency business is very different from that of regular APIs, says Michael R. Czarny, vice president for business development at Tetrionics. Commercial volumes can be less than 100 kg per year, compared with tons per year for regular APIs. Production usually requires only large laboratory reactors. Scale-up is less demanding from an engineering perspective. And generally, the chemistries are very complex.

"You're working for quality in the handling of small quantities rather than time efficiencies for producing large quantities," Czarny says. "You have to focus on the chemistry and the product. And you have to be extremely attentive to employee safety and cross-contamination issues. In some cases, the bioactive quantities of what we have to deal with, we can't see."

UNLIKE IN THE general pharmaceutical custom-manufacturing market, overcapacity is not a problem with high-potency APIs. In fact, Czarny says, production at Tetrionics has moved to two shifts to increase capacity. He expects business to continue to grow, on the basis of industry studies forecasting that within five years the proportion of highly potent compounds among all APIs will reach 25%. According to the same studies, he adds, highly potent compounds made up only 10% of total APIs in 2001.

Czarny also believes that the niche is not as vulnerable to Asian competition as the manufacturing of regular APIs. "But you're never immune to competition," he adds. "I've been to India and China, and they have very astute people there. This niche is not impossible to get into, but it takes more than just buying some reactors. Manufacturing highly potent APIs is a mind-set that takes time, effort, and commitment to develop. You're weaving a tapestry of highly skilled people, the chemistry, the regulatory compliance. And then it requires another layer of expertise in handling exceptionally small quantities of material."

Handling materials is the biggest hurdle, Czarny says. Tetrionics has adopted guidelines for the safe handling and manufacture of potent compounds drawn up by SafeBridge Consultants of Mountain View, Calif. Tetrionics has been audited and certified by SafeBridge as having met criteria for management, evaluation, containment and control, and communication related to handling of potent compounds, he explains. The certification is a stamp of approval that everyone in the industry understands, he claims.

Nevertheless, other companies have installed or are planning to install capability for highly potent APIs. The equipment is off the shelf. The mind-set can be developed. Competition could intensify, and the niche may be no more.

Codexis presents a different case. Codexis has exclusive access to intellectual property for a particular way of genetic engineering--called MolecularBreeding--for application in small-molecule production by biocatalysis or microbial fermentation. "The technology is tremendously enabling, especially in pharmaceutical life-cycle management, and it is exclusive to us," says Alan Shaw, president and chief executive officer. Because of the intellectual property position, he adds, Codexis has tremendous leverage.

Biocatalysis and microbial fermentation already are part of the offerings of many pharmaceutical custom manufacturers. What Codexis offers--as do other companies in the field of genetic engineering for small-molecule production, such as Diversa--is the ability to rapidly evolve the most efficient enzyme or microbial strain for any biocatalytic or fermentation process. Particularly when a drug product is nearing the end of its patent protection, a new enzyme or microbial strain that gets more product out of an existing facility "is worth a lot of money," Shaw says.

Shaw cites a recent agreement between Codexis and Sandoz--the new name of Novartis' generics operations--to collaborate on improving Sandoz' manufacture of a blockbuster drug. Shaw will not disclose which drug, but on the basis of Sandoz' current product list, it is likely an antibiotic that requires at least one fermentation step to produce.

The drug's composition-of-matter patent expired last year, and Sandoz was the first to file an application to bring a generic version to market, Shaw says. That means Sandoz can bring an equivalent product to market as long as it does not infringe other patents still in effect, such as process patents.

"Because our technology produces intellectual property in every case, whatever strain we develop for Sandoz is new," Shaw says. "Sandoz will get back from us a more efficient strain, and it will be new intellectual property for them. They will run no risk of infringing the innovator's process. We're offering serious value."

AS OF JUNE 2003, Sandoz (formerly called Geneva Pharmaceuticals) ranked third among generic drug companies, with 12-month sales of $1.43 billion, according to IMS Health. It comes after Teva and Mylan Laboratories, with sales of $1.78 billion and $1.46 billion, respectively. Shaw says Codexis is talking to other generic drug companies and expects to complete similar deals by spring.

With Sandoz, the Codexis technology works as an offensive strategy, giving Sandoz a means to work around the still-existing patents protecting the innovator's drug. Shaw points out that the technology can work equally well for the innovator company as a defensive strategy. In fact, before talking to Sandoz, Codexis approached the innovator company, he says. "But for whatever reason, they did not react quickly enough."

Where in all this is the custom chemicals manufacturer?

"We deal directly with the pharma companies," Shaw says. "And then if we need manufacturing capacity, we use the pharma company as the leverage and go back to the fine chemicals companies. They have a role to play because someone has to make the product. But without technology, they don't have negotiating power.

"Fine chemicals companies claim to have differentiating technologies, but you'll have to look at each one and decide if it is truly differentiating. For example, many companies tout biocatalysis. But if they have developed biocatalysts, they can be using only conventional technologies, which already are obsolete."

Technology puts Codexis in a strong position going forward, Shaw maintains. How long that lasts depends on when the next breakthrough in genetic engineering for small-molecule production occurs.

Bernhard Küenburg, senior vice president and head of business development at Siegfried, a Swiss service provider to pharmaceutical companies, has a different view of technology specialization. "Some people say it is extremely important. We think it is not so important," he tells C&EN. "We think being a universalist, being able to offer the whole synthesis of an API is a higher value than being a specialist" in any particular activity. That is not to say that Siegfried does not have excellent technical expertise, he adds: "Siegfried has in-depth knowledge in catalytic hydrogenations and asymmetric synthesis. Siegfried also has unique pharmaceutical expertise in formulation, solid-dosage manufacturing, and registration of dossiers."

"One thing is clear," says Hans-Rudolf Marti, Siegfried's vice president for chemical development. "If we lack a technology that a project needs, then we will fetch it."

"At the end, what counts is your relationship with your customers," Küenburg says. "If you have flexibility to react quickly to customer needs and always deliver in terms of time and quality at a fair price, you will win exclusive projects. I have to admit, it involves a little bit of luck, too."