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Outsourcing

The surge continues in pharmaceutical services

Another year of profitability and growth investment marked the sector’s annual CPhI convention

by Rick Mullin
November 24, 2019 | APPEARED IN VOLUME 97, ISSUE 46

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Credit: Valerie Schmidt/C&EN
The international pharmaceutical services sector converged upon and nearly filled the many-halled Messe Frankfurt earlier this month.

Pharmaceutical services firms convening in Frankfurt for the annual CPhI Worldwide trade show earlier this month seemed no less buoyant than they did last year—or any of the 9 years since the sector recovered from the financial collapse of 2008. The halls in the famously sprawling Messe Frankfurt conference center were filled with business managers and executives touting sustained double-digit growth and yet more investment in technology and capacity.

A decade of steady growth might become monotonous for an industry less dynamic than one serving a market as diverse as pharmaceuticals. In recent years, contract firms offering basic manufacturing and process development have made transformative investments, adding a range of services, such as particle design, formulation, and finished-dose drug production. As a result, debate over the market’s interest in the so-called one-stop-shop approach of offering comprehensive services continues and could be heard in the halls in Frankfurt.

China and India remain topics of interest as well. China is gradually stepping away from manufacturing certain chemical intermediates as regulators in the country crack down on environmental performance and top officials promote higher-tech industries. In India, several firms are growing as they pick up work that China is leaving behind.

“A number of products are becoming available to Indian manufacturers because China has decided to stop the manufacturing of many of the basic chemicals due to pollution-related issues and also because China is moving up the value chain,” said Sudhir Nambiar, president of research and technology at Mumbai, India–based Hikal.

Hikal, which manufactures active pharmaceutical ingredients (APIs) and intermediates at three sites in India, is investing $50 million across its pharmaceutical operations. Investments will include expansions in chemo- and biocatalysis, energetic technologies, and continuous processing.

“We are expanding our business development efforts,” said Sameer Hiremath, Hikal’s CEO. “And we are looking at potential assets in the US and Europe. Maybe a small pilot plant.”

Another Indian company, Hyderabad-based Sai Life Sciences, is experiencing a growth surge with a near doubling of capacity this year and plans to boost it another 35% by mid-2021, according to CEO Krishna Kanumuri. The majority-family-owned firm also wants to double discovery services capacity in the next 12 months.

Investments are planned at labs in Manchester, England, and Cambridge, Massachusetts, and the firm is building a new research facility at its headquarters that will house 1,500 scientists when complete. Sai will invest $150 million between 2019 and 2023, Kanumuri said.

Behind the surge: “It’s just that our customers have grown,” he said. “We have helped along several companies that have launched molecules commercially over the last 5 years. You start slow, but once you establish yourself, the rate of growth goes up, and that’s where we are at this point.”

Piramal Pharma Solutions, another Indian firm making growth investments, produces both APIs (drug substance, in industry parlance) and finished drugs (drug product) in India, Europe, and the US. It recently completed a $10 million investment to expand quality control and analytical laboratories, add two kilo labs, and double its office space at a facility in Riverview, Michigan, that it acquired in 2016.

The Riverview site has pushed the company’s technical capabilities forward in areas of growing interest to drug companies, said Peter DeYoung, CEO of Piramal Global Pharma, which includes the pharma solutions division. “It’s allowed us to improve the handling of potent materials, including particles as low as 20 ng/m2.”

The firm is studying a $15 million–$20 million expansion of its plant in Aurora, Ontario. And an expansion is on the radar screen for its antibody-drug conjugate (ADC) facility in Grangemouth, Scotland.

Piramal is among the drug contract manufacturing sector’s larger companies, offering a broad range of services and often moving molecules from one continent to another. Business development, DeYoung said, has followed customer demand. “We do drug product and substance, which we find is the sweet spot particularly for small biopharma looking for one provider to do everything.”

Some industry players question whether small drug companies, especially those entering their first service agreements, are as comfortable with large, diversified, and geographically dispersed partners as they would be with firms more their size. A frequently cited example is Thermo Fisher Scientific, which became one of the largest players in the sector with its 2017 acquisition of Patheon.

“In drug substance, 80% of our projects are with small companies,” said Patrick Glaser, president of Thermo Fisher’s drug substance division. Small companies can be concerned about the responsiveness to be expected from a huge contractor, Glaser acknowledged. “But so far we have been able to convince them that we are going to listen to them just as we have in the Patheon days,” he said.

And Thermo Fisher continues to grow, recently opening a $50 million expansion in Saint Louis that made its plant there the world’s second-largest facility to produce biologics in single-use, disposable reactors, the firm says.

We used to say, ‘Leave it to Lonza.’ This is a bit of an arrogant statement.
Maurits Janssen, head of commercial development for API business, Lonza

Perhaps not number 2 for long. “We built a shell twice as large as we need,” Glaser said, describing the expansion. “We filled the downstairs and have another space just as large that we can build out in the future. As a matter of fact, we are going ahead with engineering.”

Meanwhile, Thermo Fisher is incorporating a small-molecule manufacturing site it acquired from GlaxoSmithKline in Cork, Ireland, earlier this year.

Lonza is another big company offering a mix of small- and large-molecule production of APIs and finished drugs at sites around the world. And it likewise faces a challenge gaining the confidence of small drug companies.

Maurits Janssen, head of commercial development for Lonza’s API business, said Lonza manages relationships through a single business development contact. “The key question,” he added, “is how to keep those contacts for customers as constant as possible.”

With larger customers, Lonza works to match project management to its customers’ organizational hierarchy.

“We used to say, ‘Leave it to Lonza,’ ” Janssen said, referring to the company’s advertising slogan in the 1990s and early 2000s. “This is a bit of an arrogant statement. Nowadays we are much more into collaborative models, also looking toward making some investments with customers.” Lonza business cards are now backed with a new, arguably less snappy slogan: “the next step . . . Let’s take it together.”

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Credit: Rick Mullin/C&EN
IMCD, a Dutch firm that combines distribution with formulation services, prepares for a video shoot at its stand at CPhI.

In keeping with that motto, the firm is building two highly potent API manufacturing lines in Visp, Switzerland, to support a long-term supply contract with the drugmaker AstraZeneca. Lonza built ADC production sites under similar agreements with customers last year.

Cambrex, which long stayed focused on small-molecule chemical manufacturing, entered the finished-drug business in 2018 through the acquisitions of Avista Pharma Solutions and Halo Pharma. More recently, Cambrex agreed to be acquired by the private equity firm Permira in a transaction worth about $2.4 billion.

“It’s been a crazy year,” acknowledged Matthew Moorcroft, vice president of global marketing and intelligence for Cambrex. But “now, when people talk about Thermo Fisher and Lonza, they talk about Cambrex as well.”

Moorcroft is aware of the long-running debate over the merits of focus versus diversity. “The holy grail is to have an integrated organization,” he said, acknowledging skepticism about the ability of one-stop-shop companies to do it all. “I’m a little bit cynical about that model too,” he said. “It’s really about offering more to customers who need it but not promising everything.”

Cambrex will continue to invest in small-molecule production, keeping an eye on likely demand, Moorcroft said. He noted that the industry rush to install capacity for highly potent compounds, a key feature of Cambrex’s plant in Charles City, Iowa, may be overblown. Data emerging on compounds purported to be highly potent often indicate that they can be less expensively manufactured in standard reactors and equipment.

“I think there has been the switch from underinvestment to overinvestment in large-scale high-potent capacity,” he said.

Generally, investment surges forward, driven by demand from a drug industry that is keen to outsource production. Almac Sciences, for example, is in the midst of a $26 million project to build a second API plant, with six reactors, at its headquarters in Craigavon, Northern Ireland, set to come on line at the end of 2021.

“You would think that is not too far away, but that’s ages when it comes to this business,” said Denis Geffroy, Almac’s vice president of business development for APIs. “We can’t wait that long, so we have decided to make an interim investment of a couple million euros.” The firm will add four reactors by next June.

Almac, owned by a foundation established by its founder, Allen McClay, has steadily plowed its profits back into the company, Geffroy said. “We have spent a lot of money on biocatalysis, and our new project now is flow chemistry. We are injecting a lot of money into flow chemistry.”

Meanwhile, Almac is preparing for an uncertain future given the likely changes at the border between Northern Ireland and Ireland under Brexit. Almac is investing $37 million across all its business units at a leased campus in Dundalk, Ireland, just over the border, though Geffroy said the firm’s focus remains on Craigavon.

“I was saying to one of my colleagues: ‘Nobody has mentioned the B word in the last few days,’ ” Geffroy said. “I think people are starting to get bored with it.”

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