Investment spreads at US pharma service firms

Recent investments may signal a revitalization for US-based drug service firms. With capacity for active pharmaceutical ingredient (API) supply tightening worldwide and the US government pushing to secure the domestic drug supply chain, US companies are ready to expand, industry watchers say.

Cascade Chemistry, a contract development and manufacturing organization in Eugene, Oregon, is launching a $14 million expansion of its API manufacturing capacity in response to increased demand. Regis Technologies just completed new laboratories at its headquarters in Morton Grove, Illinois, that will double its development services capacity.

And Phlow, a partnership that debuted last year with a $354 million government grant to establish domestic supply of key generic drugs, just closed a $20 million financing round to support its commercial operations.

“It’s all of the above,” says James Bruno, president of the consulting firm Chemical and Pharmaceutical Solutions, in assessing the market trends at play behind the investment. Tight capacity in the global services market, high demand for drugs and vaccines to treat COVID-19, and the US government’s efforts to localize drug supply seem to be combining to trigger the investment.

“I think some of these guys probably had investment plans in place and are now pushing it forward, saying, ‘Let’s get it out there and show the world what we’re doing,’ ” Bruno says.

Wayne Weiner, who heads the consulting firm Pharmatech Solutions, says long-term global trends are also at play. He notes that the shift in outsourcing from Asia back to western service companies is creating the need for new capacity. The small-molecule drug pipeline has been growing for years, he adds, spurring demand for the services that small specialist companies provide.

Cascade is an example of such a firm. It has begun construction at a 2,600 m² facility it acquired, where it will install five suites that offer flow hydrogenation and reactors up to 400 L. The project, expected to come on line early next year, includes 200 m² of new analytical labs, quality control systems, and office space. The company has acquired a second nearby building for future development.

The project to expand laboratory space at Regis was initiated 2 years ago in response to increased demand from the midsize and emerging biotech companies that Regis serves. Like Cascade, Regis stands out as a small, US-based service firm after a wave of acquisitions that saw US companies, including PCI Synthesis, Ash Stevens, and J-Star Research, get acquired by multinational firms based in Europe and Asia.

In the short term, industry watchers expect more action in the US given the current level of opportunity. “There is a lot of pent up frustration to get stuff done,” Bruno says.