“The time to repair the roof is when the sun is shining,” said President John F. Kennedy in his 1962 State of the Union address. The metaphor rang true during the Cold War as an admonition to guard against complacency in times of prosperity. More broadly, it registered as the kind of sensible advice that people during all times frequently ignore.
The pharmaceutical sector emerged as a hero of the pandemic, thanks to the rapid development and deployment of vaccines and therapies. The companies making headlines, however, succeeded on the backs of contract development and manufacturing organizations (CDMOs)—the service firms that for the past 20 years have taken over much of the production and supply chain management for large drug companies and all of it for many smaller biotech firms. Read on to learn about how CDMOs’ preparedness for increased demand allowed them to withstand an early shock to the supply chain in 2020 and an extraordinary year and a half.
At its outset, COVID-19 proved a case in point, as a containable outbreak spread relentlessly despite years of warning from public health authorities of an imminent pandemic. Yet the crisis also went on to showcase instances of preparedness, foremost of which was the rapid development and deployment of effective vaccines. The pharmaceutical industry emerged as a hero of the pandemic.
Less obvious but just as important was the rapid response of the pharmaceutical services industry, which does much of the heavy lifting for drug companies, working behind the scenes to coordinate the shipment of raw materials, produce active pharmaceutical ingredients (APIs), and formulate finished products within a complex international supply chain.
The sector had been on a 10-year profitability streak before 2020 and has done even better during the pandemic. It navigated challenges posed by COVID-19 on the strength of previous improvements to supply chain management and a yearslong campaign of diversifying services and expanding manufacturing capacity. Those proactive measures put the industry in a strong position when the storm hit early last year.
Indeed, industry watchers say the drug services sector displayed enviable resilience over the past 18 months. “There were issues—I don’t think there were any questions about that. But I think we knew how to deal with it,” says James Bruno, president of the consulting firm Chemical and Pharmaceutical Solutions.
Unforeseen transportation holdups caused problems early on, as did rattled production schedules when companies found they suddenly needed to produce large volumes of APIs such as remdesivir and dexamethasone on a very short timeline. But companies were able to work out the supply chain snags, Bruno says.
Roger Laforce, an industry consultant based in Switzerland, notes that as vaccines advanced toward emergency approval last year, several service companies, often called contract development and manufacturing organizations (CDMOs), were in a position to make vaccines happen. The big Swiss firm Lonza, for example, relied on a 2018 investment in prebuilt manufacturing shells at its facility in Visp, Switzerland, to meet a tight deadline for bringing production of the active messenger RNA ingredient in Moderna’s vaccine on line.
“People who’ve invested in operational excellence—having good supply chain operations and good management practices around their inventory—have actually been able to do pretty well,” says Wayne Weiner, who heads the consulting firm PharmaTech Solutions. “The other thing CDMOs have done a good job at is managing protection for their workers—keeping them safe so they could actually come in and run the plants.”
The pandemic also served to illustrate a dilemma that CDMOs have been bringing to the attention of governments in the US and Europe to little avail—heavy dependence on China for antibiotics and other generic drugs. The global drug supply chain emerged as front-page news when the Donald J. Trump administration considered a “buy American” executive order for pharmaceuticals, and the US government allocated funds to support domestic production of critical drugs. The European Commission also turned its attention to domesticating drug supply. And even as the Joe Biden administration attempts to undo much of the legacy of the Trump administration, the focus on the drug supply chain remains.
Many contract development and manufacturing organizations (CDMOs) experienced strong sales growth in 2020.
Thermo Fisher Scientific’s laboratory product and services division
WuXi AppTec’s CDMO division
Sources: Companies that disclose sales figures.
“The CDMO is the shock absorber for the pharmaceutical industry,” says Guy Villax, CEO of Hovione, a Portuguese CDMO with facilities also in China, the US, and Ireland. “Whenever there is a problem, they ask us to fix it.” When an unforeseen requirement for large-scale vaccine manufacturing emerged last year, for example, “the CDMOs got their act together,” Villax says.
And they did so under duress. Villax says that 150 workers at Hovione facilities have tested positive for COVID-19 since the pandemic began. “Every single person has recovered,” he says. There were transportation snags, especially in China, when the pandemic hit, but those were sorted out before long.
And business is “very good,” Villax says. “I remember in April and May of last year, I had a torrent of calls from journalists really keen that I could give them evidence so they could write stories to show that the supply chain was a catastrophe and all the pharmacies would be empty in a short time,” he says. “In fact, none of that happened. I think the supply chain is somehow really resilient.”
One reason for the industry’s preparedness was its ongoing investment in new production capacity well before the pandemic hit. Hovione came into 2020 with a new research center in Lisbon, Portugal, and plans to open a manufacturing building in Loures, Portugal, with new reactor capacity, Villax says. And the firm plans further capacity increases.
The Swiss CDMO Siegfried is among the firms that landed contracts serving vaccine makers. Marianne Späne, chief business officer, says Siegfried had to build a new production line from scratch at its site in Hameln, Germany, to fill and finish vials of Pfizer and BioNTech’s vaccine.
While the company had fill-and-finish capacity, “we had never done vaccines, and in record time we were able to build it up, to validate the process,” she says. Bringing production on line was a matter of close collaboration with Pfizer and BioNTech, Späne says, adding that Siegfried also has a contract to provide Novavax with fill-and-finish services for the vaccine it is developing.
And as it did before the pandemic, Späne says, Siegfried is continually expanding capacity for small-molecule drug manufacturing at all its sites—in Switzerland, Germany, France, Spain, the US, and China—often by debottlenecking or streamlining processes to increase output.
“Our supply chain is pretty stable at the moment,” Späne says. “But that is because we had already been working on stability of the supply chain for 2 years” before the pandemic. The firm’s approach has been to establish multiple sources of starting materials to reduce dependence on Asia.
Markus Blocher, CEO of Dottikon Exclusive Synthesis, another Swiss CDMO, says the sector was well prepared for shocks to the supply chain before the pandemic. “We started 5 years ago,” he says, detailing capacity expansion in response to the influx of new business from biotechnology companies and a steady migration of drug company contracts from Chinese manufacturers to European ones.
“Environmental policy became more strict in China, and a shutdown of producers started 7 years ago,” Blocher recalls. CDMOs in Europe responded to a loss of supply of intermediates from China by diversifying sources. “With COVID-19 coming in, the industry was prepared,” he says. “There was already a plan B.”
Unlike Siegfried’s approach, Dottikon’s strategy is to operate entirely at one location—in Dottikon, Switzerland, where the company is at the beginning of a 7-year, $700 million expansion project. Dottikon’s sales increased 25% in the fiscal year that ended in March and Blocher says the expansion could triple the company’s revenue by the time it’s done.
Dottikon’s one-site philosophy may be reflected in Blocher’s preference for keeping full staff on-site throughout the pandemic. The efficiency of virtual interaction is illusory, Blocher argues. “If you are in an airplane and flying above the clouds, the weather is always nice,” he says. “In the next 1 to 2 years, companies that have had their employees scattered at home and in different places will realize their strategy and their plans are not on the right track.”
Aslam Malik, CEO of SK Pharmteco, says business was “outstanding” last year, with 25% sales growth. And 2021 is looking even better. The company’s efforts to establish a global service operation proved crucial to its performance during the pandemic, he says.
“Things don’t happen overnight,” says Malik, former CEO of Ampac Fine Chemicals, which the South Korean firm SK Holdings acquired in 2018 and then made part of SK Pharmteco. Through a series of acquisitions by Ampac and SK Holdings in recent years, Pharmteco has amassed assets in the US (in Virginia, Texas, California), Ireland, and South Korea. Most recently, SK acquired a cell and gene therapy company in France and folded it into Pharmteco.
Pharmteco is also expanding across its facilities, building a plant in South Korea, a cell and gene therapy facility in France, and two API production lines in California. The company is adding a kilogram-scale lab at its plant in Petersburg, Virginia. The plant will also produce APIs in a partnership called Phlow that launched last year with $354 million in US government funding to manufacture medicines at risk of shortages.
“The sector was prepared to take on this stuff,” Malik says. “The pharmaceutical industry showed who we are.”
Almac Sciences had modest growth in the fiscal year ending this month, says Denis Geffroy, vice president of business development for APIs and analytical services, but he sees improvement ahead. “We expect double-digit growth next year,” he says. “We’re very busy so far—our biggest limitation is capacity, as it has been for the last 2 or 3 years.”
The company is about to open an expansion at its headquarters in Craigavon, Northern Ireland, and it is building another plant next door—a $30 million investment that will increase capacity threefold, Geffroy says.
Almac Sciences and its sister division, Almac Clinical Services, have over the past year picked up business with customers working on COVID-19-related therapies. “At one point we had 50 different projects in one shape or another,” Geffroy says. “Some very small, lab-scale research; some bigger in clinical supply. I think most of the CDMOs have had to play a role to support all these pharma companies looking for extremely fast solutions.”
Mark Griffiths, CEO of the Swiss firm Carbogen Amcis, says the biggest supply chain challenges occurred in the company’s business of producing finished drugs because of a COVID-19-related spike in demand for materials. “Go try to buy 2R glass vials. You have to purchase them 2 years in advance,” he says. The chemical manufacturing side of the business, though, has weathered the storm.
“I think the pandemic has taught us one thing,” Griffiths says, “which is to put the same amount of effort into ensuring you have some basic commodities that you would put into making sure you have a drug intermediate. Attention to detail is, I think, what it’s taught us.”
Andreas Meudt, vice president of exclusive synthesis at Evonik Industries, says his company managed to get through the disruption to the supply chain in 2020 only with a great deal of effort and heightened coordination of production schedules with customers.
“From one day to the next we had severe issues with getting raw materials from qualified suppliers, and then there is the significant impact of being able to deliver the final API on time,” Meudt says. “That is something we had to spend a lot of time and effort on because in some cases there was only a very short list of raw material suppliers.”
The pressure was even higher when Evonik was the only qualified API supplier for a customer. “We had to qualify completely new suppliers in record time to be able to deliver,” Meudt says. Evonik managed to solve problems and make deliveries, Meudt says, and the company ended up with a more stable supplier base as it qualified new sources of raw materials.
Conditions have improved, Meudt says. And the past year and a half has brought a welcome increase in customer flexibility and willingness to plan ahead. “People have learned their lesson and are willing to commit contractually earlier,” he says. “In the old days, you had 9 months for production. Now you have 12 to 15.”
Citing increased demand for local production, Evonik announced last year that it would spend $27 million to increase its capacity to make APIs and advanced intermediates at its sites in Dossenheim and Hanau, Germany. The company also increased lipid production in Germany to supply raw materials needed for the lipid nanoparticles that deliver the Pfizer and BioNTech vaccine. “This was done in a record time, only months after getting the order,” Meudt says.
Michael Stanek, head of commercial operations for small-molecule APIs at Thermo Fisher Scientific, agrees that the pandemic brought increased collaboration with customers. “The most important things we learned are that the global ecosystem is much more resilient and clients more flexible than we’d thought,” Stanek says. “Clients are willing to do their part to contribute to the global scale-up for COVID-19.”
Stanek says Thermo Fisher’s capacity expansions and establishment of second sources of supply for chemicals made in Asia predated the pandemic but were the keys to getting through the past 18 months. “You have to look to the future,” he says. “You have to plan for the worst case before it happens.”
At the Italian CDMO Flamma, Kenneth Drew, vice president of North American business development, says the company is operating at peak capacity and requires long lead times. Capacity is generally tight in the sector, and many drug companies are learning the hard way about the plant scheduling concerns of their contractors and the need for flexibility.
CDMOs have been taking a close look at their sources of supply and at their customers’ requirements over the past 18 months, Drew says. And they have been reacting quickly. Last year, when Gilead Sciences asked Flamma to supply two intermediates for the antiviral remdesivir that it had manufactured in 2015 during the Ebola outbreak, capacity was tight, Drew says. But Flamma was able to reschedule other contracts and begin work on the intermediates in a matter of weeks.
Asian CDMOs say they have managed well during the pandemic, despite efforts in Europe and the US to domesticate supply. Recognizing the trend, though, they have been working to globalize operations to better serve Western markets.
Porton Pharma Solutions, based in Chongqing, China, began establishing itself as an international service supplier with the 2017 purchase of J-Star Research, a contract research firm in South Plainfield, New Jersey. Porton has since invested $20 million in the site, adding a kilo lab and crystallization services and doubling the staff to about 110, CEO Oliver Ju says. Porton plans to spend another $50 million on a pilot-scale plant at a site it opened in Cranbury, New Jersey, shortly after purchasing J-Star.
Porton is also scouting for opportunities to build or acquire assets in Europe, Ju says.
WuXi STA, the CDMO division of the big Chinese drug services firm WuXi AppTec, continued its international expansion program with the acquisition of a finished-drug production site in Couvet, Switzerland, earlier this year and the recent announcement that it would build an API manufacturing facility in Middletown, Delaware. That plant is scheduled to open in 2024 and expected to create about 1,000 jobs. Despite the pandemic, the company managed to complete projects and start new work on drugs under development for COVID-19, says Minzhang Chen, co-CEO of WuXi AppTec.
And the Chinese market remains strong, Chen says. The company recently broke ground on a project to expand API production in Taixing, China, and opened a finished-drug formulation R&D center in Wuxi, China. Large-scale peptide plants are planned for Changzhou and Taixing over the next 2 years.
The Indian firm Sai Life Sciences is in the middle of a $150 million investment cycle that includes a new research center in Hyderabad, India. The company achieved sales growth of about 30% last year, according to CEO Krishna Kanumuri.
Sai has picked up work related to COVID-19 therapies and vaccines, including adjuvant and lipid production, Kanumuri says. And the company plans to increase capacity to keep up with a steady growth in customers. Sai added twice as may customers in 2020 as it did the year before, he says.
Drug companies’ efforts to move production out of China or establish alternate sources of supply work in India’s favor, given capacity constraints outside China, says Kanumuri. “You go where the capacity is,” he says. “If Europe is full, you go to India.”
Hikal, another Indian CDMO, achieved 19% revenue growth last year, according to Manoj Mehrotra, president of the company’s pharmaceutical business. Hikal is investing $50 million in an expansion that by 2024 should increase the company’s capacity by about 40% over 2020 levels.
The company is experiencing a lag in supply of raw materials from China, Mehrotra acknowledges. Shipping lines are still disrupted because of COVID-19-related port shutdowns, and typical 25-day delivery times have been extended to 6 weeks, Mehrotra says. “But we have dual sourcing for most of our intermediates,” he says.
Numerous contract development and manufacturing organizations have signed COVID-19-related supply contracts.
▸ Catalent: Vial filling and packaging for Moderna’s vaccine
▸ CordenPharma: Lipid supply for Moderna’s vaccine
▸ Curia: Sterile fill and finish for AstraZeneca’s vaccine
▸ Evonik Industries: Lipid production for Pfizer and BioNTech’s vaccine
▸ Laboratorios Farmacéuticos Rovi: Vial filling and packaging for Moderna’s vaccine
▸ Lonza: Manufacture of Moderna’s vaccine
▸ Merck KGaA: Lipid production for Pfizer and BioNTech’s vaccine
▸ PolyPeptide Laboratories: Production of two saponin-based intermediates for Novavax’s vaccine candidate
▸ Siegfried: Sterile fill and finish for Pfizer and BioNTech’s vaccine and for Novavax’s vaccine candidate
▸ Thermo Fisher Scientific: Manufacture of Inovio’s DNA vaccine candidate and sterile fill and finish for Moderna’s vaccine
Managers across the CDMO sector note that the pandemic is not over yet and that the postpandemic “new normal” is still not in focus. Questions remain about the legacy of a year and a half of virtual business communication. And government efforts to secure local supply chains for critical drugs will continue.
The Biden administration outlined actions it will take to secure supplies to key sectors of the economy, including the pharmaceutical and API sectors, in a review released earlier this year. Echoing themes from the previous administration, the review notes that China and India control a substantial swath of the US drug supply chain.
The administration announced that the US Department of Health and Human Services will establish a public-private consortium for manufacturing essential medicines. The consortium will begin by selecting 50–100 drugs from the US Food and Drug Administration’s essential medicines list as priorities for reshoring.
Despite lingering uncertainties, CDMO managers agree that the current situation is familiar enough to be characterized as business as usual—with a number of improvements, especially in the arenas of supply chain management and customer engagement.
Dottikon’s Blocher says the pandemic heightened public and government understanding of the drug supply chain and the geopolitical balance between China and US and its allies.
Hovione’s Villax concurs that the world has become much more aware of how the pharmaceutical industry is structured and operates. As 2020 and early 2021 played out, he says, the sector’s pandemic response provided a reputational boost. “For years we were worse than oil and gas and the lawyers,” Villax says. “I think maybe we’ve got a better reputation now.”
Weiner, the consultant, agrees. “People came through. In an emergency situation, every part of the pharmaceutical industry performed as they’ve been trained to do,” he says. “I wouldn’t say I was surprised, but it was an illustration of the professionalism and the training and the raw power of the pharmaceutical service segment of the industry.”