CPhI Promises a High-tech Comeback

With signs of life returning to the contract synthesis sector, exhibitors at the annual CPhI pharmaceutical ingredients exposition in Madrid earlier this month were once again embracing the O word.

Outsourcing is back, they say, but its practitioners will need to offer more than production capacity, which is still in oversupply. Contract manufacturers will have to offer unique technology and process development services. The drug industry, with its heightened emphasis on cost containment and sustainability, will not simply be looking for contractors to make active pharmaceutical ingredients (APIs). They will be looking for contractors to make APIs better.

Some of the firms aligning themselves to serve this market are newcomers with roots in biotechnology. Others are longtime suppliers to the drug sector.

“Big pharma will always be interested in outsourcing, but they are interested in one thing—technology,” says Alan Shaw, chief executive officer of Codexis. “If all they want is capacity, they will go to China.”

Codexis, which employs its gene-shuffling technology to improve manufacturing processes, typifies the kind of small, high-tech company staking out a business in custom research and manufacturing. The firm, which was spun off from Maxygen in 2002, has done proprietary process design for Pfizer and other drug companies and recently signed on to develop API processes for Bristol-Myers Squibb, Shaw says.

Codexis has launched a generic API business as well, contracting with three Indian firms—Matrix Laboratories, Shasun Chemicals & Drugs, and Arch Pharmalabs—to manufacture generics using novel Codexis processes. And earlier this year, the company acquired Jülich Fine Chemicals, a supplier of enzymes and chiral intermediates.

Shaw says drugmakers are shopping for process efficiency and are receptive to top-to-bottom synthetic redesign incorporating biotech-derived processes that eliminate superfluous chemistry and manufacturing waste. “All we need is to find the chemical pathway in nature,” Shaw says, suggesting that the drug industry has strayed from that path. “Mother Nature did not envision the modern pharmaceutical industry.”

With its 2004 acquisition of Great Lakes Chemicals’ fine chemicals operation, Excelsyn—another firm promoting radical process redesign—has added chemistry to its engineering and management consulting services for pharmaceutical, biotech, and fine chemicals clients, according to CEO Ian Shott.

Shott, who launched the firm a year ago, says he wants to provide a “menu” of services to improve supply-chain efficiency. A longtime industry figure like Shaw, Shott says his firm’s engineering arm has a biotech backbone that emphasizes technologies such as cell culture. The Great Lakes assets, including NutraSweet amino acid technology, key in on biotransformation processes. Shott adds that he is “committed” to making an investment in a biotech firm in the near future.

Gareth Jenkins, Excelsyn’s business development manager for molecular development, says the firm is working with the likes of GlaxoSmithKline and Pfizer, but also targeting the biopharma sector. Of special interest, he says, is the translation of laboratory processes into commercial-scale production. According to Jenkins, Excelsyn is shooting for $20 million in revenues next year.

Novasep, the separation technology firm that merged last year with Dynamic Synthesis, a group of three fine chemicals suppliers formerly owned by MG Technologies, is also pursuing a “menu” strategy, covering a range from early- to late-stage API production, according to Jean Bléhaut, president of Novasep SAS, the firm’s separation technology division. The menu includes a combination of systems and services that are heavy on process development.

Roger-Marc Nicoud, CEO of Novasep, says he is convinced that offering both process development services and separation equipment makes sense. He claims that Novasep’s business model can equally accommodate emerging pharmaceutical companies that need to scale up laboratory processes and large drug manufacturers in the market for new process technology.

Traditional players in pharmaceutical chemical manufacturing are also highlighting process development skills and niche expertise. Lonza, for example, is pursuing a “life-cycle management” strategy, whereby the company aims to work with customers from preclinical testing through to generics production, according to Lukas Utiger, head of exclusive synthesis. “You need good technologies and lots of process capabilities in order to have low-cost synthesis in the later stages,” he says.

As pressure on profit margins grows, large drug companies are becoming more open to the notion of revamping synthesis routes to increase efficiency, Utiger says. “Research and development are becoming more process-driven,” he notes, adding that Lonza is expanding its process R&D labs in Guangzhou, China.

Lonza has a long-standing partnership with another Swiss company, Solvias, a process development firm with expertise in developing asymmetric synthesis reactions and transferring them to industrial scale. Solvias works with several other companies in the sector, including Helsinn, that seek to offer innovative chemistry.

In Madrid, Clariant announced a round of investments and a commitment to exclusive pharmaceutical chemical synthesis (C&EN, Nov. 7, page 8). Norbert Dieterich, the firm’s head of fine chemicals, says competitiveness requires that contract firms offer drug and biotech firms “a glovelike fit—not only products and capacity but services in development and the commercial area.”

Dieterich emphasizes the importance of developing niche strength in technologies, pointing to the company’s tech-heavy heritage, which combines assets acquired over the past decade from Archimica, Bristol-Myers, Roche, and Hoechst. One strength is catalytic hydrogenation, an area where Clariant is also partnering with Solvias. Phosgene chemistry is another important expertise, Dieterich says, as are organometallic chemistry and Suzuki couplings of aliphatic boronic acids.

Isochem, another phosgene chemistry specialist, is also focused on offering “breakthrough chemistry” and innovative process development, according to David Simonnet, executive vice president. One recent success, outside the pharma arena, is a contract with Fuji Photo Film to produce a novel coupling agent for the Japanese firm’s Dutch film division.

He says 2006 should be a good year for the company, which is the pharmaceutical and fine chemicals unit of French state-owned SNPE. He cites two positive trends for the year ahead: advances in pharmaceutical pipelines and a return of business that had been lost to low-cost producers. “It is an interesting trend,” Simonnet says. “We got back products in the past two years that we had lost to price competition. Customers are coming back because of quality and supply-chain concerns.”

One sign of optimism in the sector is the growing role played by BASF, which recently purchased Orgamol, a Swiss exclusive synthesis company (C&EN, June 20, page 15). While BASF would not comment on speculation that it is still on the acquisitions trail, industry sources say BASF will likely make further moves in a sector that is still ripe for consolidation.

BASF’s interest in fine chemicals can be seen as part of solid regeneration of enthusiasm in a sector that, by all accounts, overheated not too long ago. “BASF is right to be bullish,” says Scott Martin, vice president for fine chemicals services at Albemarle. “This is going to be a big area.”

Albemarle, which has developed a niche in high-energy and low-temperature reactions, has converted spare capacity at its large-volume naproxen plant in Orangeburg, S.C., to more flexible production. The $7 million project will enable the plant to accommodate contracts advancing from the firm’s pilot-scale operations in Dayton, Ohio. Martin claims that things are progressing nicely: Albemarle customers had two commercial drug launches this year, and he expects to be involved in as many as four next year. In 2004, he says, there were none.

According to Martin, these results confirm that success in contract manufacturing requires more than just good technology and process development prowess. The near-term winners in custom synthesis will likely be the longtime players. “There is no quick fix in this business,” Martin says. “I’m living off successful stuff that I started in 1998 and 1999.”