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Day Four of CPhI, the third day of the exhibition, is always clean-up day. If you find someone who is still around, he or she will likely have time to chat. I finally caught up with Xavier Jeanjean, vice president of sales and business development at Isochem, the French pharmaceutical chemicals firm.
Like others, Jeanjean is guardedly optimistic about the drawn-out recovery in contract services for active pharmaceutical ingredients (APIs). He likes the complex molecule/service package angle that is shaping up for the CPhI Review article on Nov. 11. Like many others, including Markus Blocher, CEO of Dottikon, he sees the call for high tech manufacturing and services as a vindication of a long-standing strategy of marketing chemicals as part of a comprehensive technology/regulatory/quality package. It was interesting to hear that Isochem is making an effort to concentrate primarily on the pharma market next year, given that other players, notably Saltigo, have shifted their emphasis to specialties and agricultural chemicals of late.
But Jeanjean gives one very good reason to lean into APIs just now: “Innovation is back.” The complex molecules I have alluded to all week are real. They are currently coming forward with momentum and their owners are in need of a lot of specialized support.
Review to come.
Cultural Note I: C&EN got beat on tweets! Congratulations to our good friend in the Press Room, Brandi Schuster, editor-in-chief of ChemManager. No “I-prizes” are given for blogging, unfortunately.
Cultural Note II: I noticed that Josh Fischman tweeted about my Day 3 post—The tweets were rolling on big video screens around the Messe all week. A regular birdhouse, it was! Thanks Josh and Ann Thayer for twittering about Fine Line at CPhI.
Wow! What a morning. The usual stops really paid off. Take, for example, my visit to the Weylchem/Corden Pharma booth, housing two groups of companies owned by the voraciously acquisitive International Chemical Investors Group (ICIG) based here in Frankfort. I came by at the invitation of Andrea Missio, business development director for WeylChem International. We had a great talk, but while I was there I also caught Laura Coppi, managing director of Farchemia, a Milan area company in the Corden group. Then, I ran into the Achim Riemann, the managing director of ICIG!
Laura, you will recall, is late of Fabbrica Italiana Sintetici (FIS), where she came in as commercial director with the departure of Roger LaForce two years ago. She explained that she is now leading a profit center that operates rather autonomously within a conglomerate. One of her first tasks is to prepare a “strategic growth plan.” I asked for more details on the plan: “Hey! I’ve only been here two weeks!” she said. “Come on!”
Missio and Coppi discussed how companies within ICIG and its two chemical subdivisions synergize and autonomize. Missio begged off questions about a recent ICIG acquisition, that of Allessa, the German fine and specialties chemicals group. Both WeylChem and Allessa are composed of former Hoechst chemical businesses and have assets in the Frankfurt area. The operational synergies for these sites are obvious. Not so the synergies between WeylChem’s and Allessa’s operations elsewhere in Europe and the U.S.
ICIG’s press release highlighted the reuniting of the Hoescht businesses.
I asked Reimann if ICIG, which most recently purchased DNF, a former Clariant detergents business, is attempting to build a large German chemicals conglomerate. No, he said, the firm is looking to create two integrated global businesses—one, Corden Pharma, focused on APIs, and the other, WeylChem, focused on non-cGMP fine chemicals. He concedes that operations are still centered in Europe with some U.S. sites and none in Asia. The company continues to look at China, but finds the cost of setting up operations prohibitive, says Reimann.
Sources with other companies are skeptical of ICIG’s approach, viewing the deals as largely financial in nature. David Simmonet, president of Axyntis, says his firm recently purchased a French API plant in Calais, France, which had gone into bankruptcy—it was originally part of Tessenderlo, another company acquired by ICIG. Simmonet says Axyntis, which already has a plant with R&D assets in Calais, hopes to integrate and revive the Calais facility.
Day three ended with the European Fine Chemicals Group’s annual dinner, at which keynote speaker, Utz-Hellmuth Felcht, showed a slide (yes, another PowerPoint presentation at the EFCG dinner!) illustrating all the pieces spun off in the break-up of Hoechst. Felcht, whose long resume includes a run on the management board at Hoechst, noted that this slide looks like an explosion in a pharmacy. It does. I don’t think anyone could put that back together.
Reimann shrugs off any contention that ICIG is implementing a sink-or-swim culture among it’s holdings. The firm has been at it for some time, and certainly WeylChem and Corden Pharma are going ventures. Is the autonomous business portfolio approach working for ICIG and its holdings? Or is Calaire a casualty (one that may be revived) of rampant acquisition? Everyone is still watching to see.
At Allessa, folks are also waiting. One executive I asked about the future there said he could not comment. “It gets political,” he said.
Cultural Note: I resume illustrating Fine Line this week with some of my favorite paintings from The Städel, Frankfurt’s great art museum. No editorial tie-in intended.
Cultural Note II:
I combed the disperse and multi-tiered halls of the Frankfurt Messe today, immediately picking up on one of the themes put forth at Monday’s conference. Ashland and Dow announced new drug dispersion polymer product line extensions. Both companies are addressing the need to improve the dispersion and delivery of complex molecules that are beginning move forward in the pipeline.
Christophe Massip, global marketing director for Dow Pharma & Food Solutions notes that 70 percent of the drugs across current industry pipelines are now rated Class 2 (poorly soluble), or Class 4 (poorly bioavailable). In essence, all the low hanging fruit of easy soluble molecules has been picked in drug R&D, he says.
Massip’s division, by the way, is one of five at Dow, including Dow Polyglycols, Surfactants and Fluids and Dow Water & Process Solutions, contributing to a new Dow Healthcare division that will focus on drug delivery, process purification and separation, and active pharmaceutical ingredients.
Several companies, including the French firm Novasep, report new FDA inspections for high potency APIs, antibody drug conjugates, and other advanced technologies, responding to an increase need for high tech products and services. Some, like Fabbrica Italiana Sintetici (FIS) in Vicenza, Italy, are making big investments in R&D, upping high potency capacity and experimenting with flow chemistry.
The “new complexity” in API supply “does not come only from the molecule and the chemistry, but also from an increased uncertainty about what our customers will request,” says Franco Moro, general manager of FIS. “Outsourcing is not just outsourcing the product. It is outsourcing of services, including R&D, analytical and regulatory services, and quality”
In broadening its offering, FIS, in fact, has done some sub-outsourcing, forming several manufacturing and service partnerships. The company has been working with Enantia, a Spanish firm specializing in chemical R&D, and with a partner in the U.K. on crystallization research. FIS also has a Chinese partner manufacturing APIs.
Andreas Weiler, head of strategic marketing at SAFC, closed the day with a talk in the Messe Forum entitled, “Is There a Future for Western CMOs,” referring to contract manufacturing organizations serving the drug industry. His answer boiled down to “yes,” as long as they are ready to deal with the kind of drugs that have been introduced in the last two years—drugs that will require low volume, high potency APIs.
More on all this and a gloss of announcements at the press conferences tomorrow.
Cultural Note: I plan to revert to images from the Städel collection tomorrow, unless another excellent choice of images from the show presents itself.
The fine chemicals world has funneled en masse to Frankfurt this week, as it needs to be somewhere in Europe at this time of year for CPhI, one of the major events on the “pharmachem” calendar. Frankfurt is a favored venue for the event—this is the third time since 2008 that CPhI has convened here.
Day One consisted of a series of conference sessions that nicely cued up the major themes in the industry in 2013: The impact on contract chemical suppliers of the high tech/complex molecules characterizing new drugs, and the changing regulatory and business landscapes in India and China. Perennial themes, yes, but they are not alone! Emerging markets were also on the docket, with one event titled “Generics and Super Generics in Emerging Markets.” I shared the moderator’s view, given during his introduction, that there is no such thing as a super generic, and left immediately to attend a session called “Drug Delivery Systems.” That seemed a bit more cut and dried.
Speakers from BASF, Hovione, and Boehringer Ingelheim Pharma outlined the challenges of achieving the necessary standards of safety and bioavailability at a cost that insures profits when tackling problems of getting new drugs into the patient. Each firm, as a supplier of active pharmaceutical ingredients (APIs), has launched a drug delivery technology service associated with finished-form APIs. While each can claim to have pioneered advances in areas such as spray drying or polymer micronization, I found it interesting that some of the real pioneers have come from other, perhaps not-so-unexpected, industries.
Take the plastics industry, where we find the architects of melt extrusion, a variant of which has been deployed by BASF for API production, according to Nigel Langley, head of marketing for pharma ingredients and services. Meanwhile, at Hovione, where spray drying is a specialty, efforts to mask the bitter taste of drugs has led the company to take a page from the book of the chocolatier, according to Conrad Winters, director of drug product development.
In an after-lunch event titled “API Sourcing in Emerging Markets,” panelists discussed the new regulatory pressures in China under president Xi Jinping. There has been a bit on that in Fine Line recently as well as in the magazine. On India, discussion centered around recent depreciation of the rupee and growth that is slowing at such a rate that it will soon break back into the single digits. Both countries still claim cost advantages over the West, and panelist point to the growth of cGMP and high tech manufacturing and research services.
There were ome interesting bits on how companies in the two countries are working to keep talent from moving to the U.S. and Europe. Panelist Ian Lennon, senior vice president of global business development at Chrial Quest, a Chinese API supplier, says the firm guarantees workers in some positions that if they leave the company, they can have their jobs back if new positions don’t work out. Reva Pharma, an Indian generics firm, pays for workers’ marriages in a bid to keep them local, according to CEO Gurpreet Sandhu, another panelist.
There was another panel on biosimilars that my colleague Ann Thayer attended. Here is her recent cover story on that topic.
This should serve as a quick overview of the discussions ahead in Frankfurt. Ann and I will be in touch—Ann on Twitter, I at Fine Line.
Cultural note 1: When in Frankfurt, visit the Städelsches Kunstinstitut und Städtische Galerie, better known as the Städel. It is Frankfurt’s Prado (OK, I wish we were back in Madrid) and has some fantastic Modern and Old Masters paintings. No photograph I take at CPhI could compete with what I will use to illustrate my posts this week, paintings from the Städel, starting with the amazing Blinding of Samson (or Simson, as he is called in Frankfurt) by Rembrandt. I swung by the museum yesterday and will return after the expo on Thursday evening for a special exhibit of the work of Albrecht Dürer, which opens later this week.
Cultural note 2: To follow Ann’s tweets from CPhI, reference: @annmthayer
Dateline: Long Branch, New Jersey
The day kicked off with a panel discussion on Quality by Design (QBD), a somewhat self-explanatory method of efficient process design associated with the quality management movement of the previous century. It has been revived with the FDA’s recent establishment of an enhanced submissions regimen based on QBD for drug companies filing new drug applications.
QBD comes with other quality sub-practices, including Design of Experiment (DOE), which was featured in an article in C&EN earlier this year. It also comes with additional costs in process design and R&D. As so often happens when something like a quality standard is established as a way to achieve regulatory approval, the industry has tended to focus efforts more on gaining that approval at the lowest cost rather than on designing the most efficient process.
Panelists agreed that cost concerns can lead to a lot of confusion on QBD, especially when dealing with a contract manufacturing organization. Emerging pharma companies that have little experience in advanced stages of process engineering are unlikely to employ QBD effectively.
According to panelist Kevin Siebert, senior research adviser at Eli Lilly & Company, Lilly has put together four enhanced submissions using QBD. “One was withdrawn, but FDA gave us feedback on it,” he says. “We’ve embraced the initiative. It’s an effort that we use in the early stages when we are looking at process robustness. But it is intended to deliver not only material but also information to support the advanced submissions.”
Panelists agreed that the opportunity to deliver on the information is often lost when dealing with a CMO.
From the perspective of an emerging pharmaceutical company, said panelist James Bruno, president of Pharmaceutical and Chemical Solutions, the focus is on minimizing the amount of work needed to reach clinical milestones. “There is a heavy reliance on CMOs, because few of these companies have strong tech groups. Many don’t understand scale up and process development. Their whole point is, ‘how much will it cost and when can you deliver.’”
The CMO, he said, is therefor under significant cost and time pressure, and will move a reasonable process along without the full QBD vetting. “There is a disconnect on expectations,” he said. “It’s a highly competitive market, and you want to make sure what you turn over to Merck and Lilly is a good package.” The CMO looks to the drug company, and vice versa, to get that together. “It is about money at end of day,” he says. “It’s about how can you minimize cost going forward.”
After the panel, Bruno told me that QBD will eventually be applied effectively, and that it will accelerate the use of efficient technology and process design that are beginning to transform drug chemical production—see his comment yesterday on the need for simple assets.
The panel was followed by a plenary presentation featuring Stefan Loren, managing director of Westwicke Partners. Loren reprised his plenary talk of 2010 on Wall Street’s view of emerging pharma, biotech, and pharma outsourcing.
That view has changed markedly since Loren’s last appearance, largely because money can be had at the moment.
Loren noted, however, that uncertainty is a dirty word on The Street. And there is a solid trace of it in the air right now. For example, there is concern that the upswing in productivity at Big Pharma results from in-licensed products, and that gains in drug approvals may not be sustainable.
Outsourcing, said Loren, has “matured” in Wall Street’s assessment in recent years. It is applauded now as a means of diversifying risk. This marks a welcome evolution from an earlier insistence on the one-stop-shop approach. He advised pristine due diligence in picking a contract manufacture, however, noting that a problem caused by a contractor can hit a drug firm’s stock hard and long.
One surprising bit of intelligence at ChemOutsourcing comes from Fabbrica Italiana Sintetici (FIS): Managing director Laura Coppi will be leaving for a position at CordenPharma in Milan after two years in the key business management role at the Vicenza-based pharma chemicals firm. Her replacement has not been named.
I haven’t spoken with Coppi since writing a C&EN Talks With feature about her earlier this year. But on hearing the news, I was reminded of the quote that ended that article: “I would have loved to have studied mathematics. But, I have to say, I am a chemist in the soul. Deep inside.”
Meanwhile FIS has been investing in Delmar, the Montreal, Quebec-area pharma chemical company it acquired shortly after Coppi came in, boosting capacity and adding significant new isolation and drying capabilities. Delmar will also be adding a kilo lab to its existing pilot plant and expanding its R&D lab to enhance small-scale cGMP synthesis. Delmar and FIS will continue to operate as separate companies, with Delmar making some material for FIS, says John Brady, business development manager. They will also coordinate on projects, leveraging their newly-established connection between Europe and North America, with Delmar passing some projects to FIS for larger-scale production.
FIS has invested about $19 million in developments at Delmar to date, with an additional $5 million per year slated for the next two years, according to Brady.
The day ended on the beach with the annual bonfire, which this year seemed to throw an inordinate quantity of sparks. Not enough to deter marshmallow roasting, however. The karaoke stage had a few takers. Fullish moon. All very nice.
The pharmaceutical chemicals sector returned to the miraculously unmolested Ocean Place Resort & Spa on the Jersey Shore this week. Unlike much of the coast to the north and south, Long Branch sustained only minor damage from Sandy, which hit shortly after last year’s meeting. The place has a fresh coat of paint, and the Tiki Bar looks pretty much like the one that was there last year.
There have been a few changes, however. Tighter security. Conference sessions held in the exhibit halls, and an increased emphasis on biopharma, reflecting the growing business in biotech drugs. There was also a kind of speed dating session—a stretch of the afternoon during which Merck, Pfizer, Novartis, Celegene, Gilead Sciences, Ironwood Pharma and other drug companies large and small had representatives at round tables around which contract chemical suppliers could sit and try to break the ice. This was a hit with attendees who are always looking for customers (ie drug company decision-makers) at pharma chemical trade shows, usually finding very few.
“Large and small” was a big theme in discussions on the exhibit floor and in one of the panel sessions (which was technically also on the exhibit floor—taking the sessions out of the conference rooms was not such a big hit with attendees). Focusing on contract work, both manufacturing and research, with biotech and emerging drug companies, the panel came to the conclusion that extra up-front planning is in order when passing work from a small drug firm to a contractor, but that the time to do that work is generally extremely tight.
“As we learned in grad school, a day in the library is worth more than a week in a lab,” said Stuart Levy, principal at SBL Chemistry Consulting, who chaired the panel. It is especially important to get the technical package in order before transferring a project to a contract manufacturing organization (CMO), he said. “You need to write up a good request for proposal and set the tone. If you don’t, trying to back-fill that later is extremely difficult.”
But windows of opportunity don’t always allow for much time in the library, said panelist Richland Tester, principal scientist at Celgene Avilomics Research. “Sometimes we are asked to do crazy things.,” he said. There is generally a deadline to deliver the next data point in a clinical trial in order to receive the next tranche of venture funding. “If you have until a particular date to do it, you have to do it,” he said. “It’s not like having a six-month timeline from a big drug company. Sometimes you don’t have that luxury.”
Time, on the other hand, is money. “I have heard clients comment that money is no object,” said panelist Cheryl D Garr, director of business development at PharmaCore. Such comments are, she noted, more often than not disingenuous.
Jeff Saunders, vice president of small drug design at Ember Therapeutics, responded that the object is value, not money.
Overall, the companies in the sector continue to be optimistic about business. James Bruno, president of consulting firm Chemical and Pharmaceutical Solutions, told me, however, that a shift is underway in the work being done, one that puts the installed manufacturing base a bit out of kilter.
“I’ve said for a number of years that I’m concerned about is what I call simple assets,” he said. “Some companies just have the wrong assets. We have large reactors when we really need smaller ones. We have big vessels that can make 100 tons when the product is only going to be two tons.” Oncology drugs and other high potency, highly active drugs make up an increasing proportion of the work being outsourced. And drug company pipelines are filling with more.
“We are still not pushing drugs out at a rate that makes everyone happy,” he says. “And if your pipeline is weak, the generic pipeline is weak.”
The current business environment in China was a prominent subject of discussion today, with a panel on the subject (see previous post The China Conundrum). More on this topic in the magazine (C&EN) soon. Another panel of interest covered “crowdsourcing,” an online, open innovation technique, as employed by Pfizer and Purdue Pharma—another topic ripe for coverage in C&EN, so I will keep my powder dry for the moment. But it’s an interesting topic at a conference like this.
And in the interest of full disclosure, this from David Zimmerman, CEO of Kalexsyn: “I am actually going to walk away from here tonight with three very good leads. Frankly, I came out of ACS [the Society's annual meeting in Indianapolis last week] with one!”
China has traditionally presented a complex mix of threats and opportunities to the pharmaceutical fine chemical industry, as it has to most other industries. Cost of operations, quality of manufacturing, environment and safety standards, corrupt business practices, and corrupt local authorities are widely tolerated as threats by western firms interested in the overwhelming opportunity of doing business in and with the world’s second-largest and fastest-growing economy.
Lately, however, a new threat of doing business is in the news—the threat that strict environment, site licensing, and anti-corruption laws will actually be enforced. With the advent of President Xi Jinping and the start of the new five-year plan, crackdowns are on a real upswing. Worldwide coverage of the corruption trial of Bo Xilai, a former member of the Central Politburo, has only slightly distracted from coverage of GlaxoSmithKline’s travails. Chinese authorities have accused the British drug major of funneling as much as $500 million to travel agencies to facilitate bribes to doctors in order to boost the sale of drugs.
I sent several e-mails to executives at fine chemical firms operating in China this week, inquiring on the new enforcement regime. I received two replies and spoke with one of the respondents, an executive at a European firm who, like many others that have spoken on China in the press recently, asked not to be identified. The second respondent, Oliver Ju, CEO of Porton, a company based in Chongqing, China, sent a detailed e-mail. Both see the changes underway as extremely important to active pharmaceutical ingredient (API) manufacturers in China.
From a follow-up interview with my first source, I gleaned that the new environment of investigation and enforcement is the latest episode in a kind of cat and mouse game in which authorities, well aware of the complexity of regulations and the slow process of licensing and other approvals, generally turn a blind eye to businesses that can’t wait years for the system to work before getting to work themselves. With every new change in leadership and new five-year plan, there is a crackdown. It is a kind of cyclical cat and mouse game.
Under Xi, however, it seems there is a more thoroughgoing enthusiasm for rooting out corruption and enforcing laws that impact manufacturers in a variety of ways. Energy conservation is high on the docket, as the country reacts to the cost of its huge urban and industrial development programs. Somewhat bizarre enforcement practices have included edicts that if the air conditioning in a hotel brings the temperature in any room below a designated degree, all power to the building will be shut down until further notice. Industrial parks are told with no warning that necessary power shutdowns will be implemented. Management at companies in these parks is encouraged to give employees a little vacation time.
Bribery is prominent on the radar screen as well. Chinese New Year celebrations were curtailed this year in order to assure that government officials were not unduly entertained.
In essence, given business practices that have gone on in China for a long time, cracking down on corruption will be like shooting fish in a barrel. Companies will seem to be randomly targeted. But as my source, who has operated in China for many years, says, everything in China happens for a reason.
Ju contends that recent developments have to be viewed in the context of a wave of economic reforms proposed by China’s new leadership. “Otherwise,” he writes, “it’s difficult to understand what’s going on and how to do business in China in the next decade.”
He notes that a meeting of the Plenary Session of the 18th Central Committee of the Communist Party of China in November may yield more information. “But the direction and priority is already seen since early this year,” he writes. “In my view it’s quite clear that the new leadership strives to transform China into a more market-oriented economy.” The top priorities, he says are a leaner but more effective government, greater law enforcement, and a lowering of barriers to market entry. The latter will provide entry by private companies into banking, energy, and telecommunications.
“I believe API and drug companies will be impacted inevitably,” Ju writes. This will include greater enforcement of current good manufacturing practice standards in API manufacture.
For fine chemical companies, the major practical concern will be flexibility of manufacturing operations, according to my source in Europe. “For you to get approval to build a plant, you must describe the products, the processes, and the quantities,” he says. “It will take you three years for approval, but nobody waits. Think of the speed with which China is growing! How could you be in such a licensing environment? Obviously nobody is in compliance.”
Xi has been extremely vocal in his vow that corruption will not be tolerated. But so has every leader since Mao Zedong. The show of force in recent months may be a sign of a major shift, or it may be another antic swing in the game of cat and mouse. “It remains to be seen whether they just pick on one or two situations to showcase,” says my source, “or whether it percolates everywhere, and people have to come up with the goods.”
Either way, it highlights the conundrum of operating in a vital, but still-developing country where laws and law enforcement are in flux and industry advances at a rapid pace.
The European Union’s Falsified Medicines Directive (FMD), a law enacted in 2011 to prevent falsified active pharmaceutical ingredients (APIs) from entering Europe’s drug supply chain, went into effect on July 2. The FMD requires that any APIs coming into Europe be accompanied by a written confirmation from a competent authority that the chemicals were manufactured according to current good manufacturing practice (cGMP) standards, the U.S. Food and Drug Administration criterion that has been established as the gold standard for regulatory quality oversight worldwide. The response from Europe’s API suppliers to FMD is: good, but far from good enough.
Characterizing FMD as merely a step in the right direction, Tony Scott, adviser to the European Fine Chemicals Group (EFCG), says the level of trust involved in requiring only a written confirmation on material shipped from China, India and elsewhere is ill advised, given the known instances of falsified documentation and corrupt practices in those countries. He points to the recent, rather glaring example of Ranbaxy, a major Indian generic API supplier that has been embroiled in a data falsification scandal since a plant inspection brought problems to light in 2006.
According to Scott, who was instrumental in forming EFCG and has led the organization since its inception in 2004, the only way to assure the quality of materials entering Europe is to actually inspect the plants manufacturing those materials. In the protracted debate and discussion leading up to the FMD, however, European regulatory authorizes arrived at an estimate of 15,000 to 20,000 facilities supplying APIs to Europe’s drug makers. Inspecting that many plants, it reasonably determined, would be impossible. Scott says EFCG has no idea how regulators arrived at that range. The association insisted during deliberations that fewer than 1,500 sites operated by the top 20 API suppliers from outside the EU are the source of most imported APIs—a number of facilities that could have manageably undergone inspection in time for the law to go into effect, says Scott.
“I think the European authorities have taken a big risk in beginning a process of trust, and I think that is an admirable thing to do,” says Scott. “But where is the enforcement?” The only way to enforce the directive is to physically inspect the plants importing APIs to Europe, he says.
Scott contends that far more powerful lobbyists than the EFCG —including those representing pharmaceutical companies—supported the notion that the number of plants involved would eliminate the possibility of comprehensive inspection, or lead to drug shortages and price increases if an inspection regime were launched.
Enforcement of laws protecting the supply chain has been a thorny issue in Europe for some time, says Scott. He points to a 2001 European Commission directive requiring APIs to meet the cGMP standard. “If that were to have been properly enforced, you wouldn’t need the FMD,” he says. “FMD is really an umbrella over things already in place for regulatory purposes with a view to putting sticking plaster over them and assure that they seem to be working better than they have in the past.”
Scott says the API producers have also expressed a willingness to pay for inspections through a program similar to the Generic Drug User Fee Amendments of 2012 (GDUFA) in the U.S., under which drug makers and API suppliers pay a fee to expedite plant inspections as part of the drug approval process for generic drugs. “We offered, but we were refused by the European Medicines Agency,” says Scott. The agency, Europe’s equivalence to the FDA in the U.S., saw a user free as, “a step too far,” he says. “And very often, dare I say, when the Americans do something and do it well, the European people will just for that reason not do it. And it is really very worrying if this attitude prevails.”
Scott notes that differences between the U.S and European fine chemicals sectors have become a bit problematic elsewhere, as negotiations on pending trade agreements currently find the Europeans, “more advanced in their preparations and thinking than the Americans, who are dragging their feet in all directions.” More on that at Fine Line soon.
FMD, of course, is but one front in the war against falsified, counterfeit, and criminally adulterated drugs which has ramped up considerably since the heparin case in 2008. FMD is also inextricably connected to the competitive landscape in pharmaceutical fine chemicals, where European and U.S. producers have over a long period of time seen much of the business go to lower-cost, and in many cases, lower-quality producers in China and India. While there are many world-class chemical suppliers in these countries, all of which are regularly inspected and glad of it, there are many stories about Chinese companies being inspected, but having the chemicals they supply manufactured by uninspected subcontractors. Scott claims EFCG has presented photographic evidence of this practice to regulators.
And then, there is Ranbaxy, which has truly shaken the Indian API supply sector.
What is lacking, still, is a great public outcry for safer drugs. This is partly a problem of communicating the arcane mechanisms of the drug supply chain. API falsification is a lot harder for the public at large to understand than lead paint on toys. And Scott says regulators throughout the process of developing the FMD, have challenged industry repeatedly for greater evidence of a threat to the public due to falsified drugs.
“They keep saying, ‘show us the body bags,’” says Scott. “We can’t!” And he admits that the issue not resonating with the public is a problem, given the political dimension to making changes in a law that will be perceived as liable to increase the price or interrupt the availability of drugs, and/or raise taxes. It is an uphill climb for EFCG. “Trade associations like ours have a lot of high quality thinkers,” he says. “But only modest resources.”
A Midwest congressional wannabe who somehow has me on his list sent an outraged e-mail today regarding the 5-week vacation that Congress has embarked on having done pretty much nothing this session. This politician is right—I would get fired if I did nothing all year and took five weeks off. I shared his outrage. And I called Lawrence D. Sloan, president of the Society of Chemical Manufacturers and Affiliates, the trade association representing fine and specialty chemical firms in the U.S., to see how this morass in Congress is impacting the fine chemical sector.
You might recall that Sloan told C&EN in our forecast issue published in January that there is a distinct air of wait-and-see hovering over an otherwise optimistic sector. The sequester had just been postponed, heading off an immediate tax increase for S-corporations, privately-held companies where income taxes are paid by individual shareholders. The sequester kicked in a couple of months later, of course, causing taxes for many of these companies to shoot up to 39%. Meanwhile, there is no resolution on lowering the corporate tax rate from 35% to the proposed 25%. And Congress is gone until the end of September.
“At this point,” says Sloan, “we are not sure this will be a front burner issue when Congress comes back.” Immigration reform and gun control, if re-introduced, could dominate the rest of the session, he says. “Then there is the overall 2014 fiscal budget and the debt ceiling. There are so many issues now in the coming months, I just wonder if this whole tax reform is going to get lost.”
SOCMA members are also in limbo, says Sloan, over the renewal of the Miscellaneous Tariff Bill (MBT), which allows a reduction or elimination of tariffs on raw materials that cannot be supplied from within the U.S. This is of major importance to fine and specialty chemical firms. SOCMA has for some time offered a service to help members navigate the rather arcane system of filing separate bills for each chemical and having these amalgamated into a single tariff bill that comes before the House of Representatives and the Senate. The MTB is up for renewal every three years, and this is a renewal year, and it hasn’t been renewed. One of the problems, Sloan points out, is that Republicans in Congress have begun classifying the MTB as earmarks.
Sloan says there may be a ray of light in a new bill in the House, the U.S. Job Creation and Manufacturing Competitive Act of 2013 (HR 2708), sponsored by Dave Camp (R-Mich) who chairs the House Ways and Means Committee, and Sander Levin (D-Mich). The bill includes provisions from more than 2,000 separate bills introduced in Congress over the last year, and would, in effect, renew the MBT.
Sloan characterizes the process as “a bit convoluted,” noting that a bill had been introduced in Congress that would have transferred MTB to Department of Commerce oversight. But that bill has been killed.
While federal departments and agencies have been a bit more responsive than Congress lately, an inexplicably languishing Definition of Solid Waste (DSW) rule at the Environmental Protection Agency has become another wait-and-see nightmare for U.S. fine chemical producers, says Sloan. EPA said last December that it would finalize a rule by the end of April—the month that EPA, instead, moved DSW into its “Long-Term Action” category, where things have no deadline. Sloan notes that the uncertainty is likely keeping some states from adopting the 2008 version of the rule, which, among other things, impacts the recycling of waste from toll manufacturing. Sloan hopes for some action within six months on DSW.
Can the overall picture in Washington be characterized as the worst it’s been? “It’s very bleak,” says Sloan. “I’m still optimistic that things will brighten by the end of the year, but it’s very frustrating to see the lack of real dialogue in Congress.”
Albany Molecular Research Inc. (AMRI) and Ampac Fine Chemicals, two publicly-traded U.S. fine chemical firms, came out with quarterly earnings this week. Both companies have good news to report.
Ampac, the fine chemical division of American Pacific Corporation, reported revenues of $44.2 million for its third quarter in fiscal 2013, ended June 30. This is an increase of 22% over the third quarter for 2012. Nine month revenues of $102.8 million for 2013 represent a 31% increase over the same period for 2012.
Meanwhile, AMRI saw a 19% increase in total revenue to $59.3 million, including a 20% increase in total contract revenue to $50.8 million for its second quarter ended June 30. Discovery services, development services, and large-scale manufacturing are all up for the quarter.
The results at both firms are in keeping with a continued improvement in business across the sector, which is energized to some extent by a shift in outsourcing contracts from China and India to the U.S. and Europe. Company results in the fine and pharmaceutical chemical sector are highly idiosyncratic, however. One big contract can make or break more than a quarter. We see projects in the works for a long time at both companies paying off, but both companies have also made some structural changes that may be showing up in revenues.
AMRI, for example, has launched a comprehensive services initiative called SmartSourcing that integrates chemistry, biology, discovery and development work. Ampac, meanwhile, has been working on manufacturing efficiency improvements. Both companies cite these measures in analyzing results.
Ampac also emphasizes product revenue, including development revenue associated with the completion of a validation campaign for an antiviral product in late stages of clinical trials, as well as an increase in revenue for products associated with commercialized oncology drugs.
Last week Cambrex, the other publicly traded U.S. firm in the sector, reported second quarter results—a 20.1% drop in sales to $61.6 for the quarter ended June 30 compared to the second quarter of 2012. The explanation comes down to product mix—Cambrex cites lower sales of controlled substances and generic APIs. The company also had an exceptionally strong first half in 2012, it explains, and it expects a stronger second half of 2013, with revenue from a major contract signed last August boosting results through 2014.
Always hard to draw conclusions from results in this sector, which is what makes it such a wonderful economic indicator of the pharmaceutical industry. But the rough narrative is that things continue to look up in the post-recession recovery in fine chemicals.