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One week before the custom pharmaceutical chemicals industry heads to DCAT Week, its annual conclave at the Waldorf Astoria in New York, the Chemical Pharmaceutical Generic Association (CPA), an Italian trade group, has issued a global market overview that may be of interest.
CPA puts the overall global market for active pharmaceutical ingredients at $113 billion in 2012, up from $91 billion in 2008, the year the global economy began to slide into recession. That comes to an annual average growth rate of 5.6%, compared to 7.2% growth between 2004 and 2008. The economic downturn is an obvious cause for the slowdown. But CPA cites some shifts in services to the pharmaceutical industry as contributing to the slowdown.
The group notes that the captive market (APIs manufactured by pharmaceutical companies for their own use) has risen faster than the merchant market (APIs sold to third parties). The captive market has grown 5.8 % to $69 billion; the merchant market has grown 5.1% to $44 billion. CPA also notes an increased demand for value-added services, specifically finished dosage formulation, on the part of drug companies. The trend toward adding finished dosage services is particularly brisk in India and Israel, according to CPA. Consolidation and contraction in the pharmaceutical industry has spurred the demand for finished dosage services.
There are some interesting geographic market variances as well. The highest growth had been Asia over the last four years—an average annual rate of 13.9%. The lowest growth rates are in the U.S., Japan, and Europe—3.8%, 3.4%, and 2.5%. It is also noted that within the global merchant market, generic APIs are growing much faster than the APIs produced for branded pharmaceuticals. The merchant market for generic APIs has grown 7.3% annually on average since 2008 to $22.5 billion, whereas the merchant market for branded APIs has grown 3.1% to $21.5 billion.
None of these figures is particularly surprising, though it seems strange that captive API production is growing faster than the merchant market, given the closure of plants and claims of increased outsoucing at major drug companies. One senses, however, that there will be a rebound in revenue, if not in sales volume, for API suppliers over the next four years. Some sources of potential growth can be gleaned from the trends analyzed by CPA. We are well out of the recession. And the move toward value-added services—including the broadening of research services at firms such as Albany Molecular Research in the U.S. and formulation services at firms such as Siegfried in Europe—is really only getting started. And drug approvals are picking up as the pharmaceutical industry inches toward personalized medicine. The volume of APIs sold will likely not change as significantly as the value of the API-plus (chemicals and services) offered to the downsized drug companies and advancing biotechs and virtual pharmas.
The general “up” vibe at Informex in Anaheim last month will carry forward to New York this week—how much can change in so short a time? It will be interesting to get some four-years-out projections from folks at the Waldorf.
Coming off stories in C&EN on the rise of the one-stop-shop contract research organization (this week’s cover story) and the fortunes of API producers in Europe that have acquired manufacturing plants from pharmaceutical companies (see next week’s Business section), I have been thinking about how basic chemical manufacturing merges with more specialized chemistry services in the contract fine chemical/active pharmaceutical ingredient (API) sector.
There is a distinct trend these days toward increased chemistry services. I saw it in the CRO story in which companies like Aptuit and Covance, big names in research services, actually compete with API producers such as Cambridge Major and Ash Stevens in the manufacturing stretch of the line from drug discovery to commercialization. Lately, the contract API producers are honing their skills and offering their services in formulation. Siegfried, the Swiss contract firm, is a great example, having expanded to provide finished form tablets and injectables. And Hovione’s spray drying service is a major draw for companies looking for value-added manufacturing support. In fact, most of the companies that will be converging on the CPhI exhibition in Madrid the second week on October will be touting “manufacturing plus”.
Of course, what they are selling is chemistry. And there has always been a service component to the business. Stephen Munk, CEO of Ash Stevens, reminded me in my reporting on CRO trends that API manufacturers have long been adjunct process chemistry departments for their customers. This is especially the case where those customers are emerging pharma or biotech firms. Guy Villax, CEO of Hovione, agrees that the service aspect is essential to custom manufacturing. He says Hovione generates about 20% of its revenue from research services. The difference between a Hovione and and Aptuit, he says, is that Hovione keys its services to a manufacturing contract. Spray drying and chemical synthesis feed the other 80% of the firm’s business.
Albany Molecular Research Inc (AMRI), a CRO pioneer that has been working on variations of the one-stop-shop since the 1990s, began life as a chemistry services firm. It has evolved a manufacturing business that now competes directly with contract API producers. Tom D’Ambra, CEO, speaks of the importance of project management, the shepherding of customers’ molecules from discovery through the manufacturing process. For AMRI, customer relationships often begin with drug discovery chemistry services. Currently, D’Ambra says, the emphasis in contract manufacturing is on late stage, manufacturing-intensive contracts. But a shift back to early stage support is under way with the dropping-off of late stage compounds in big pharma pipelines and the heightened activity in early stage work at emerging pharma companies and biotech firms that are increasingly working in partnership with the big drug companies.
So the chemistry services opportunities are shifting, seemingly in both directions—toward the finished drug product and toward more comprehensive early stage chemistry and process design. And the contract API sector, which has gone through some very tough cycles over the years, seems to be adapting to a rising demand for outsourced pharmaceutical services in such a way that it is shaping up as a more flexible and (dare I say) sustainable chemical enterprise.
There. I said it. But indications are that business is looking up as business models evolve. And the Madrid trip should be especially interesting.
There were good vibrations at the Pharma ChemOutsourcing conference in Long Branch, NJ, this week. Contract producers of active pharmaceutical ingredients (APIs), milling about the bonfire with cocktails on Wednesday night, agreed that business is picking up.
“Our pots and pans are full, especially at the pilot stage,” said Don LeFerle, senior vice president of sales and marketing at PCAS. LeFerle, who is taking over for Joe Tessier at the French company’s U.S. office in Hoboken, N.J., said there is a distinct uptick in requests for proposals.
Roger LaForce, managing director of ZaCh System, a division of Zambon in Italy, said that although new chemical entities are moving very slowly into the system, there is a wave of business coming back to the west from China and India. That wave, which has been rolling for about two years now, is stoked in part by a trend in India away from API production and toward finished dosage formulation, he said.
Manufacturing has been strong for two years now at Albany Molecular Research Inc (AMRI), according to David J. Fairfax, business development manager. Development research is following along, and AMRI’s discovery services business is picking up. “Why? Good question,” he said, speculating that venture funding is coming back to the emerging pharma and biotech sectors.
Recent announcements from contract API manufacturers have also been brimming with optimism. Wisconsin-based Cambridge Major Laboratories announced an expansion of API production at its recently-expanded plant in Germantown. Meanwhile, LaForce’s former employer, Italy’s Fabbirca Italiana Sintetici (FIS), is investing in biotechnology by taking a stake in Areta International, a contract developer and manufacturer of biotech therapeutics. FIS is coming off a major acquisition last year of Delmar Chemicals, an API manufacturer near Montreal, Canada.
Consultant Howard Foote of Meadowbrook Associates attests to the uptick. “Capacity is getting full. Most of the companies I talk to say they are full all the time,” said Foote. “A number of them were running half empty only two years ago.” He said pharma pipelines are moving along, and drug companies are getting out of manufacturing, thus outsourcing more API production. He noted, for example, that Abbott no longer does any manufacturing in the U.S. Meanwhile, funding has increased in the biotech sector, he said. With little hope for IPOs, biotech firms are looking for deals with big pharma, which tends to accelerate compounds through the system.
One of the more interesting expressions of optimism was the participation of Apertus Pharmaceuticals, a brand new controlled substance API manufacturer just getting started in St. Louis. The firm, started by former Millipore and Mallinckrodt employees, hopes to have its first FDA inspection in the early second quarter of 2013.
The up mood in Long Branch may have been fostered by the beach bonfire, casino night, and karaoke. But soirees come fast and furious in this business. Indeed, a new fine chemicals event focusing on the U.S. agricultural market, Specialty & Agro Chemicals America, was launched this week in Wilmington, N.C. Fine Line, alas, can only be on one beach at a time. So any feedback from the Wilmington event would be appreciated in the comments below.
We convene next at CPhI in Madrid, just in time for Columbus Day. Forward!
Today’s announcement that Cambrex has signed an agreement to supply an active pharmaceutical ingredient for an unnamed customer’s Phase III clinical trials ranks as big news in the fine chemicals sector. The deal, which the company claims could contribute over $20 million in revenues next year, has the potential of being the company’s biggest contract ever, according to Steven Klosk, Cambrex’s CEO.
It is the kind of contract that one might naively think of as the bread and butter of an industry that is set up to provide chemical manufacturing services to the drug industry. And, indeed, such contracts were common enough in the late 1990s. Nowadays, however, a chance to make that much money by the end of next year is very big news.
Cambrex, one of a handful of publicly-traded contract API suppliers, went so far as to host a conference call for analysts and press this morning, at which the company’s executives described a $19 million expansion of manufacturing to support this project and others Cambrex hopes to land in a push for deals to supply APIs in late stage development.
The information available about the deal—Cambrex is not naming or even describing the customer—raises some questions. Could it be a major drug company? If so, where in the pipeline are we seeing a project going into Phase III trials with the expectation that it will come out a blockbuster? (Certainly, anything that needs $20 million of API in a year’s time is likely to be a billion-dollar-selling drug.)
“Gotta be an emerging company,” says industry analyst James Bruno, who expresses some skepticism regarding any project delivering what Cambrex expects from this one. “And they are throwing everything behind it. If you tie up so many assets, you need to generate new business down the line,” he told me. “Will they sustain the growth and continue to bring in new products?”
Klosk, during this morning’s conference call, said that the expansion will serve existing business and position the company for growth. Cambrex hopes to find that growth in just the kind of work it has signed on for with the new customer. “We have been encouraged by the quality and number of late stage clinical-phase projects that we are getting the opportunity to bid on,” he said.
If Bruno sees anything encouraging, it is in the fact that the deal is being announced by a U.S. manufacturer. Indeed, Cambrex, like all western contract manufacturers, has gone through some tough years with the shift in manufacturing to Asian. But as big pharma downsizes even further, there are signs that drug makers have a new-found regard for western supply. And there may be something to Cambrex’s enthusiasm over today’s announcement, says Bruno. “They had a great FDA inspection earlier this year,” he says. “They may have turned the proverbial corner.”
Cambrex is the first to acknowledge the risks—not everything that goes into Phase III makes it to the end of Phase III, and the new contract is non-exclusive, giving the customer the option of signing on multiple suppliers. But a contract is a contract, and this one is potentially huge, given that Cambrex could go on to supply commercial quantities.
The question is whether a big contract for Cambrex is an economic indicator for the sector at large. Hard to say given the diversity of the sector and its customer base. The contract API enterprise needs show us two more big deals before we can call it a trend. Let’s say two more by CPhI in Madrid in October.
An economic indicator for the contract API market arrived this week. Make of it what you will:
Growth in the global pharmaceuticals market is poised to rebound from 3-4% in 2012 to 5-7% by 2016, according to a new report from the IMS Institute for Healthcare Informatics. Much of the growth will take place in emerging markets, with small-molecule generics experiencing the most rapid increase in sales, the report says.
IMS estimates that global spending will increase from $956 billion in 2011 to nearly $1.2 trillion in 2016. Patent expiries and cost containment actions by insurers and other payers will crimp spending on branded drugs, which are predicted to grow at less than 3% annually.
Spending on medicines in developed nations will increase by as much as $70 billion overall between 2011 and 2016, following an increase of $104 billion from 2006 to 2011. Despite the wave of patent expiries, expected to peak this year, spending in the U.S. will grow by up to $45 billion over the next five years, IMS says, a 1-4% per year increase, thanks to new drugs targeting unmet medical needs and expanded access through the Affordable Care Act. In Europe, economic austerity programs and healthcare cost-containment initiatives will limit growth at 2% annually over the next five years.
Spending in emerging markets is expected to double over the same period to as much as $375 billion, driven by rising incomes and government-sponsored programs to increase access to drugs.
Branded drug sales, at $596 billion in 2011, could increase to between by as much as 3% annually to between $615- and $645 billion. On the other hand, IMS sees spending on generics increasing from $242 billion in 2011 to $400- to $430 billion by 2016.
The report also sees an uptick ahead in the launch of new molecular entities (NMEs), with 32- to 37 launched annually through 2016. The report sees between 160 and 185 NMEs introduced between 2011 and 2016 compared to 145 between 2007 and 2011.
[Photo courtesy of Accelrys]
Some of the things that people hoped would be turning around by midyear 2012 aren’t really turning around. Take the U.S jobs market, for example. Or the pharmaceutical chemicals market. In both cases, the statistics can be turned to illustrate solid headway being made (especially where isolated segments are viewed from particular angles). The fact is, however, we are still in the long stall before the turnaround in both cases—provided there ever comes a turnaround.
The contract active pharmaceutical ingredient (API) market is nowhere near returning to its pre-2008 level of profitability. Of course the economy has had a lot to do with prolonged struggle in the sector. A sea change in the world of manufacturing and R&D in the drug industry has had an even more profound impact on the market for chemicals. The reshaped pharma sector will create opportunities (where isolated segments are viewed from particular angles), and there are certainly companies that are pleased with business over the last couple of years. But producers agree the sector is dealing with a “new normal,” one in which the number of opportunities is decreasing, requiring contractors to increase their technical specialization or add services, including final dose formulation.
Meanwhile, the agricultural chemical sector keeps chugging right uphill. The market cycles have become a bit more dramatic in recent years, but the trend line running through these cycles is steadily moving higher. I recently spoke with Matthew Phillips, agchem market analyst with crop protection and biotechnology consultancy Phillips McDougal in the U.K. Phillips sees the stars aligned for steady improvement in the market—they have been since 2006, he says, with crop prices rising, demand for meat in China rising (bringing with it a dramatic increase in demand for crops to feed livestock), and markets developing in Brazil, Russia, and India.
The agchem business is vulnerable to weather, of course, as well as to commodity price swings—swings in the price of crops themselves as well as in the price of fuels. These affect each other at times, such as when hedge fund managers shift their bets to crop futures in the face of high oil prices as they did in 2008, notes Phillips. But he and others see a steady rise in crop pricing balancing the vagaries of the market in a continued upward push.
Walking through the exhibition hall at ChemSpec Europe in Barcelona last month, it seemed to me that the optimism over agricultural chemicals had tipped a balance. Firms such as AllessaChemie and Saltigo, major players in agchem and pharma, were putting their green feet forward. Saltigo’s amalgamation of what had been separate business groups for pharma and agchem seems like a step up in prestige for agchem—or a step down for pharma?
Let’s face it. Business in agricultural chemicals has always been eclipsed by the perceived dazzle of doing business with the drug industry—a perception that is partly a hangover from the overheating of the 1990s when most major drug companies tried and failed to get into the fine chemical/API business. But, thinking back, agricultural chemicals remained relatively steady through that bust. And they’ve stayed steady since…unless you count constant gradual improvement as a kind of tilting of the boat. Pesticide and fertilizer chemicals will probably never score as highly as drug chemicals on the glamour scale, but there is no doubt that the agchem section of the market is getting increased attention from the diversified fine chemical players this year.
This week, a $1.7 million annual prize was awarded in the sciences. You will not read about it in Chemical & Engineering News—this, despite the magazine’s once-in-a-lifetime opportunity to put the Dalai Lama on its cover!
That’s right, the Templeton Prize, recognizing high achievement in reconciling science and religion, has once again been awarded amidst a nice little fanfare on National Public Radio and Facebook. And once again it has been treated by many in the science community as a quaint or nonsensical honor given every year to a particularly bright and courageous religious leader, or to a soon-to-be ostracized scientist.
I would argue that the Templeton is the most important award given in the sciences, weighing in somewhere between the science-oriented Nobel Prizes and the Nobel Peace Prize. I argue this not because of any personal religious beliefs (mine are rather arcane and boring and I will spare the reader), but because the award recognizes the importance of the human being as both rational and spiritual in nature. On a perhaps more practical level, it also hinges on success in translating science to the world community on the world community’s terms. It is less specialized than most awards in the sciences, awards that have gone to curers of disease and discoverers of the universe. But in its broad humanistic purview, it communicates a great truth about how science must enter the world.
It should be noted that the Templeton has been described as the most important award in religion.
OK. Where is the fine chemicals angle here? Saffron dyes and incense? Well, I don’t slice it that thin. But I’m quite comfortable banging my pot on the Templeton in a space reserved for any section of the healthcare industry. Asked and answered.
And I tread a different kind of Fine Line here. In essence, I feel the Templeton should be covered somewhere in Chemical & Engineering News. Looking through our online archives, I found two references, one of substance: In 2008 coverage of the Priestley Medal, it was mentioned that Joseph Priestley might have been awarded a retro-Templeton. That is true! I have always greatly admired Priestley. A scientist and theologian who helped found Unitarianism in England, Priestley was essentially exiled for his support of religious dissenters. He was also held in suspicion in the science community on account of his religious views. He set sail for enemy territory at the time, the Colonies, where he hung out (and might have been hanged!) with Benjamin Franklin in Philadelphia. I am almost certain that Priestly would have preferred that the Templeton prize be called the Priestley Prize—not to be confused with the Priestley Medal.
Like most honors in this world, perhaps even more than others, the Templeton has been manipulated by politics—for God’s sake, Mother Theresa won it (1973)! And the great irony of the Dalai Lama, also an exile, is that he is inescapably a political figure. The radical nature of the award—daring to embrace both science and religion—has resulted in it being given to controversial if not radical figures (Freeman Dyson, 2000). This is one reason it doesn’t sit well at a science-only table. But in a world in which we need a $1.7 million award for someone brave enough to work for a reconciliation of reason and faith—the twin pillars of much of the western intellectual tradition—science should be made slightly uncomfortable from time to time. Moreover, the science enterprise should be humbled to the extent that it will communicate respectfully to the world at large. Rather than going the Dale Carnegie route of actively trying to influence public opinion, science might find that it does itself and the world a greater service by simply and fully informing public opinion, trusting the public to see the light. The science enterprise is beginning to get this, it seems. I have noticed improvement in the thirty years I have covered science-based industry as a journalist. Much of it has taken place over the last ten years. There is, on the other hand, still a seemingly indomitable attitude of entitlement on the part of scientists on issues such as global warming, where science has nonetheless managed to make great headway despite plainly ignorant and manipulative political opposition.
And there is a Templeton Prize. And it is good.
One can highlight the Dalai Lama’s involvement in the sciences in telling the story of why he is awarded the Templeton this year. Surely we are all aware of his interest in astrophysics, behavioral science, neurobiology and quantum mechanics. Ditto his “Science for Monks” program in India. But I feel he brings an overriding quality to the fray and rift, a quality that transcends his science credentials and earns him the recognition of this award—humility. And what better examplar of the persuasive power of humility than this Nobel Peace Prize-winning monk.
Congratulations to Tenzin Gyatso, the 14th Dalai Lama, and the recipient of the 2012 Templeton Prize.
Tables sold out many weeks in advance for this year’s Drug, Chemical, and Associated Technology (DCAT) dinner at the Waldorf Astoria. This is not surprising, as the speaker was a former U.S. president. George W. Bush, who will always be divisive figure in world history, found a sympathetic audience among the drug and drug chemical industry executives gathered for the feast. European attendees were particularly impressed with his interview-style presentation, given the ultra-negative picture of Bush painted by the media in Europe—not that the man gets much better treatment outside Fox News in the U.S. DCAT attendees, perhaps not big MSNBC fans as a whole, found W. folksy and earnest, if somewhat revisionist. Observations vary, however, as I was reminded by a small clutch of citizens on the sidewalk in front of the hotel
But certainly much of the enthusiasm and energy evident at the Waldorf had to do with business, which is picking up. Latest- quarter earnings were strong for the publicly-traded firms on hand, and most others say the close of 2011 was quite solid.
I ran into Brian Scanlan, CEO of Cambridge Major, on his way out of the DSM hospitality suite. “The by-word of the day is late-phase,” he said. “Phase II-plus.” The funding for projects further along in development is increasing, he said, and it’s reflected in Cambridge Major’s contracts last year. Accepted project values doubled, said Scanlon, though the number of projects dropped off from 400 to 300 compared to 2010. While the bottom line is a boost in revenues, there is some concern about the sluggish early stage, said Scanlan. “The pre-clinical market is a leading indicator for this industry,” he said. “And it’s not very pretty.” Scanlan notes that Cambridge Major is placing more emphasis on niche generics, which looks to be a growth market.
Pushing further into the DSM suite, I came across Luca Mantovani, president of DSM Pharma Chemicals, beaming in optimism. Business is good. “We are back to growth, which is the most important thing” he said. “We’re growing faster than the market.” And the company’s party was packed. Mantovani agreed with Scanlan that there is some softness in pre-clinical, however.
Mantovani was among the executives expressing real pleasure with doing business at DCAT, which for years has entailed a week of meetings and programs at the big hotel. “Because of the set-up, it’s a very interesting event.” DCAT is “condensed,” said Mantovani. The suites of the Waldorf offer a better environment for business than the dispersed hotel rooms in the sponsor city of any of the many annual exhibitions for fine chemicals—events one of my sources at DCAT referred to as “meat markets.”
Moving on to the Siegfried suite, I scored a trifecta, coming across Saltigo managing director Wolfgang Schmitz, Hovione CEO Guy Villax, and host company CEO, Rudolf Hanko, chatting and sharing in the general exuberance of the evening. “Business is picking up,” said Schmitz. He was also happy to be at an industry event where there were no exhibit booths. He likes the “confidentiality” of DCAT, he said, and enjoys coming to New York, which is easier to reach than, say, Anaheim, where next year’s Informex is scheduled to take place. I would agree that, despite what has happened to 42nd Street in recent years, New York still distinguishes itself culturally from Disney World.
Hanko, whose firm has also finished a strong year, agreed, noting that DCAT has doubled in size since he first started attending—he did not say when that was.
Leaving Siegfried, I was button-holed by (or perhaps I button-holed) Allen H. Salerno, senior director of sales and marketing for contract research services firm Aptuit, where there was a rise in customer inquiries of late. There has been an uptick since September, says Salerno. “People are making decisions,” he said. “The key performance indicators are up and money is flowing to the smaller companies.” The firm’s integrated discovery and development services strategy is also starting to strike a chord with customers, he said. “We were a little bit ahead of ourselves.”
Toward the end of the evening, I made my way to the end of the fourth floor of suites to where a live DJ provided a musical backdrop to schmoozing in Lonza’s rooms. The scene was hot. In fact, Joseph R. Colleluori, senior vice president for corporate development, was throwing open the sashes, creating a wind tunnel in the foyer as I entered. Untangling himself from the curtains, he gave me the good word on DCAT and Lonza. “The general mood of the industry is optimistic,” he said. “New York brings a sense of optimism with it.” He, like others, prefers DCAT to the any of the expos on the long and growing list of fine chemicals gatherings. Indeed, many in the pharmaceutical industry view the meetings in the Waldorf suites as the key window for doing business with—some would say taking orders from—their chemical suppliers.
Colleluori commented on Lonza’s recent acquisition of specialties firm Arch Chemicals, calling it “completely on track.” Arch is performing as expected as a currency buffer, a geographic expansion of operations, and a portfolio-balancing play. “All the key drivers have materialized.”
In search of my driver, I passed Roger LaForce by the famous big clock in the lobby. We chatted about the synchrotrone solid state analyzer he has been working with at Zach System, the Swiss API-maker where LaForce recently signed on as board member and general manager. Watch this space and/or space in C&EN.
The big clock chimed as I made it to the door. The rank of protesters had already dispersed. Next stop on the Fine Chemical social calendar is, arguably, Chem Outsourcing in Long Branch, NJ, in September—a newish event that has risen swiftly in importance on the sector’s event roster.
There may be some even newer events between now and then. There probably are.
Photos: Veterans for Peace by Rick Mullin. Luca Mantovani by Andreas Wagner for C&EN