The world of pharmaceutical contract manufacturing has been rocked by a number of jarring deals of late. Thermo Fisher Scientific’s acquisition of Patheon, valued at $7.2 billion, was a shock to many industry watchers earlier this year. Lonza’s $5.5 billion purchase of Capsugel also made a stir, as did the merger of Cambridge Major Laboratories and AAIPharma Services to form Alcami. Even smaller acquisitions, including Catalent’s recent purchase of cell culture specialist Cook Pharmica for $950 million, made waves.
In all cases, the deals brought to light evolving business models in an industry that is consolidating as its players diversify. Firms are adding new service and manufacturing offerings to core businesses by combining final-dosage manufacturing with active pharmaceutical ingredient (API) production, say, or adding biologics to a small-molecule services business.
Cambrex’s acquisition of High Point, N.C.-based PharmaCore last October was worth noting for a different reason. The $25 million deal gave Cambrex manufacturing assets for small-molecule APIs that are in the early phases of human clinical trials. The plan is for the new facility to feed the firm’s larger-scale API plant in Charles City, Iowa.
The news, followed by announcements in the ensuing months regarding expansions at Charles City and elsewhere, signaled that the small-molecule stalwart is sticking to its guns as many of its competitors veer toward diversified services or a one-stop-shop approach combining API and final-dosage manufacturing.
But Cambrex’s latest investments are not a matter of simply doubling down on small molecules.
In addition to adding preclinical and Phase I clinical trial capacity with the North Carolina plant, Cambrex embarked on an expansion in Charles City that includes a scale-up of high-potency API production capacity from 150 L to 4,000 L—a $24 million investment. The combined effect is a stronger pitch to prospective drug industry customers that have molecules in the early stages of development and are concerned about their downstream production options.
According to Chief Executive Officer Steven M. Klosk, Cambrex is stretching out a bit after focusing narrowly on late-stage, small-molecule pharmaceutical chemicals for the past decade. The company had a biologics business but sold it to Lonza in 2007.
And Cambrex, one of the few publicly traded companies in the contract pharmaceutical chemicals field, expects to invest $70 million to $75 million in 2017 and is still on the lookout for acquisitions to increase capacity and perhaps broaden its offerings—even as far as bringing back biologics.
Yet Klosk, who became CEO in 2008 and previously ran the company’s biopharma business, says he’s primarily interested in further expanding Cambrex’s small-molecule production.
“Biopharmaceuticals are growing faster than small molecules—it’s a smaller market, but it’s growing faster,” Klosk acknowledges. Still, he is unmoved by estimates that the share of large-molecule biologic compounds in the current drug development pipeline is approaching 50%. “There is still a very large small-molecule market with a whole lot of potential growth,” he says.
Klosk adds that the general shift of contract API production from Asia to Europe and the U.S. also puts Cambrex in a good position. The company, which had sales of $492 million in 2016, has facilities in Karlskoga, Sweden, where it produces intermediates and APIs, and in Paullo, Italy, where it makes intermediates and APIs for brand-name and generic drugs. The firm has research sites in Tallinn, Estonia, and Wiesbaden, Germany.
“The Cambrex brand stands for something in terms of regulatory and quality excellence,” Klosk says. “Managing in some of the areas outside the U.S. and Europe, where we have a lot of experience, comes with risk.”
And there are enough risks operating in the West, he says. Growth in small molecules is such that the firm is having a hard time keeping up with demand, even after investing about $200 million over the past five years.
“You never quite get it right,” Klosk says, noting that it is just as easy to overinvest as it is to underinvest in contract manufacturing capacity. One contract can heavily impact a firm’s availability of manufacturing assets, and the lack of ready capacity could kill a major new contract. “Even with all the investment we’ve been doing, there have been capacity constraints at times,” he acknowledges.
This dilemma is hardly unique to Cambrex, Klosk adds; the industry as a whole is suffering from capacity constraint. “There are cycles, and we have been on a very positive cycle. No doubt there will be a dip.”
While many of the firm’s competitors claim that 2017 is a critical year for making investments, Klosk contends that getting it right is a matter of the kind of steady investment Cambrex has made. Beyond the current project in Charles City, the company recently launched a large-scale API plant in Karlskoga.
The acquisition of PharmaCore and the expansion project under way significantly recalibrate the Charles City site, according to Joe Nettleton, Cambrex’s vice president of U.S. operations, who is based at the plant. “Purchasing PharmaCore allows us to go back to preclinical and increases our analytical bandwidth. There are 30 chemists down there,” he says, referring to the North Carolina plant. “So we have a lot more chemists available to do the analytical and chemical development work.”
The new high-potency technology coming to the Charles City plant will expand Cambrex’s production capabilities to what Nettleton calls the medium range in terms of scale. High-potency capacity is a key to growth in small molecules, he says, given the number of potential customers, including start-ups, with oncology drugs in development. “Folks expect it. It kind of gets you a ticket to the dance,” he says.
James Bruno, president of the consulting firm Chemical & Pharmaceutical Solutions, says Cambrex’s small-molecule focus is a savvy approach to the pharmaceutical services market. It’s a strategy that is paying off, especially given the company’s recent moves, he says.
“The good thing is that they have focused,” says Bruno, who is skeptical of the one-stop-shop approach. “They have not diluted their efforts with things such as working on particle size or engineering of salts. They’re not looking at 50 different things.” While the industry trend has been toward diversifying, Cambrex is locking in on the original pharmaceutical service market and one that is still growing: small-molecule APIs.
“There are a ton of small molecules out there, and Cambrex is starting to capitalize on that, on their ability to do smaller quantities, and on their being a Western manufacturer,” Bruno says. “It points to them being in the right place at the right time.”
He adds that while pipelines are filling with large-molecule drug candidates, oncology drugs are a major drug-industry focus, and many of them are based on high-potency small molecules.
Cambrex has a number of large contracts, Bruno notes, notably with Gilead Sciences, that have allowed it to expand. He speculates that the firm may fall in line with the competition and find an opportunity outside its small-molecule box.
“If they were to buy a stand-alone facility, even in biologics, I wouldn’t be in the least surprised,” he says. Biologics are APIs and would be an extension of Cambrex’s core business of API production. “If they bought a dosage facility,” Bruno adds, “I’d be shocked.” The technology and business of final-dose manufacturing is fundamentally different from producing the drug active, he says.
Klosk avows that Cambrex is open to adding either biologics or dosage services in a near-future acquisition, with a greater likelihood that it would be a dosage facility. Large pharmaceutical companies are investing in their own biologics capacity, he says, adding that Cambrex is no longer involved in manufacturing technologies that are wholly different from chemical production.
“It would be a very significant investment, and we don’t have the knowledge anymore since we sold the biologics business,” he says.
Still, it is most likely that Cambrex will continue to invest in small-molecule API production, Klosk acknowledges. “I don’t feel an obligation or a need to do an acquisition in what I’m calling tangential services,” he says, “meaning we feel good about the small-molecule API business. We need more capacity, and the market is strong. It makes sense for us to look to grow in small-molecule APIs.”