State of the Vibe
I’ll share the gist of my Informex talk, which was entitled State of the Vibe in Pharma Chem or When New Worlds Collide. I spoke using PowerPoint slides, which I had never done before. Having seen hundreds of PowerPoint presentations, however, I knew that they had to begin with a “Forward-Looking Statement”, something to get the speaker or the speaker’s employer off the hook. So, I led the presentation with my own forward-looking statement, a quote from the German poet, Rainer Maria Rilke:
“The truth is buried under a pile of facts.”
I can’t find where Rilke actually says this, but who else would say such a thing?
Thus covered, I went into an introduction of the magazine, beginning with a review of our cover stories on pharmaceuticals and fine chemicals from 2013. These showcased important themes. We covered the push toward services in contract manufacturing, the reevaluation of markets in fine chemicals, and the rise in biosimilars. Our annual case history explication of the mechanics of contract manufacturing had its crowd-pleasing focus on the drug molecules in question. There was a uniquely comprehensive feature on the quest for cures for rare diseases (a highlight of C&EN’s coverage last year, written by Lisa Jarvis). Then, there was the Pharmaceutical Year in Review, a look at what we called “The New Machine”.
As for inside action, we ran features on China, where the long-running story of low-cost competition and its down side is nuanced by the anti-corruption push of the new five-year-plan. There was an article on the push to bring excipients into the fold of regulated manufacture, largely as a means of securing the supply chain and the businesses of Western suppliers of bulk drug material. And there was one on the reemergence of Design of Experiment, the statistics-intensive industrial quality regime from the 1960s that is currently riding the wave of data analysis in science-based (certainly in pharmaceutical-based) industries.
I pointed to only one news story from 2013—DSM’s announcement last month of a deal with Patheon to create a separate company combining DSM’s pharmaceutical fine chemicals and Patheon’s formulation services businesses. A quick look at the number of diversified chemical companies who have somehow entered and exited the field of fine chemicals between the mid 1990s and 2000s has us wondering whether DSM will somehow join the club, leaving BASF as the sole diversified chemical giant still in the pharma chemical game.
Next: A swing through ten years of fine, custom, and contract manufacturing in the pharma sector with a look at the CPhI headlines from 2003 to 2013. Long story short, we watched the sector rise steadily from a prolonged slump in the early 2000s, only to gain real traction at the beginning of a worldwide recession in 2008. Despite claims that pharma operates on its own economic cycle, we found the pharma chemicals sector in another ditch, a tough one, from which it has risen over a relatively short space amidst real optimism for the future. That optimism was in evidence not only at CPhI in Frankfurt last November, but also on the exhibit floor of Informex in Miami.
Turning to the recent (five-years) evolution of the pharma sector, my first slide questioned any optimism having to do with pharmaceuticals. It showed a precipitous drop in R&D investments 2013, caused primarily by a big drop in Phase I trials. Quoting from IMS Institute for Healthcare Informatics, I noted that global drug sales grew a mere 1.3%, to $854 billion, in 2013 compared with 3.5% growth the previous year. With the five-year consolidated annual growth rate up to the present totaling about 4.5%, it’s fair to say that the pharma industry, after all it has done to reinvent itself following the blockbuster bust and in preparation for the 2012 patent cliff, had a terrible 2013. The new machine, as we called it in the C&EN Pharmaceutical Year-in-Review article, may need a little more runway before takeoff.
I ran down the checklist of features characterizing the new world in pharmaceuticals, which includes the development of complex molecules, the push for personalized or targeted therapies, and the outcomes focus of regulatory reform. Drug companies, regulators, and payers are currently scrambling to develop means of determining and communicating the value of a new chemical entity—the only point of agreement is that scientific innovation will not be the determining factor. The future seems headed toward more complex molecules required in small volumes, one in which the major pharma companies will play a drastically different role vis-a-vis emerging companies and biotechs. It is the latter who dominated the M&A action last year, with big pharma dropping from a 70% share in the deals in 2011 to less than 10% in 2013, according to Ernst & Young. Notably, one of the biggest deals in 2013 was Shire’s acquisition of ViroPharma—a $4.2 billion investment in a portfolio of drug candidates for rare diseases. The biggest deal was Amgen’s $10.2 billion acquisition of Onyx. All right, Amgen is more like big pharma than biotech these days. One of my bullet points, “Big Pharma as Bit Player?”, may have been an enormous exaggeration. For effect.
The push for patient data finds many of these large drug companies, who are notably in sparse attendance at Informex, forming unique partnerships. Merck, for example, is working with the Regenstreif Institute, a nonprofit medical informatics and health care research organization affiliated with Indiana University School of Medicine. The partners are studying patient health outcomes in the area of osteoporosis with data culled from Regenstrief’s information on 13 million patients. AstraZeneca is signed with HealthCore, the health outcomes research subsidiary of WellPoint, a big managed-health-care firm that keeps a huge database culled from the 44 million patients it covers. C&EN noted this year that Humedica, founded in 2008 by former pharmaceutical executives to conduct drug effectiveness studies, has seen a big rise in outcomes research, which now accounts for 40% of its business.
Moving on to the new world of fine chemicals, I noted the push for high tech chemistry and processes, which was mentioned as early as the 2003 CPhI feature as a strategy for rising from the trough. Services extending to R&D have been an obvious trend of late, also dating back several years. The development of generics is an ongoing trend, as is the reevaluation of markets: The economics elsewhere seem a lot better and always have, as this chart from Ann Thayer’s feature on fine chemicals for 2013 makes clear.
Then, there is the new twist on China. I noted that while there are many accounts (100% of them anecdotal) of projects gravitating back to the west because of quality concerns in Asia, several companies, including Asymchem, Porton, and Wuxi Apptech, have established themselves as alternatives to the West operating at Western standards in China. Of interest this year is a new anxiety—President Xi has made clear that the country intends to crack down on corruption, which in the huge country’s Byzantine regulatory environment will be no mean feat. Companies operating there have expressed some concern that Western firms will be targeted with arbitrary suits. The travails of GlaxoSmithKline, accused of paying doctors to prescribe drugs, is held forth as an example. But we know of several Chinese firms that have similarly been visited by investigators. A bit more volatility in China these days, to say the least.
Looking at recent action in the fine chemicals area, I made a point of what one company, Axyntis, has done over the last year. Axyntis formed a partnership with a Japanese silica specialist, Fuji Silysia Chemical, to acquire Kyralia, a chromatography services firm that Axyntis has contracted with previously. Kyralia’s assets will be moved to Axyntis’s plant in Pithiviers, France, and it will operate as a company called Kyrapharm. Axyntis also formed a Partnership with Provence Technologies Group, an R&D services firm focused on scouting chemical synthesis pathways, process design, and analytics. The partnership is intended to link early-stage drug development services to industrial-scale manufacturing at the company’s plants in France. Axyntis also acquired a plant in Calais, France, from International Chemical Investors Group, a German holding company that acquired it only a year ago from the Belgian firm Tessenderlo. Partnership, acquisition, analytical and R&D services, capacity expansion…Axyntis touched a lot of bases last year.
The poster boy for high tech chemistry and process design in my speech, somewhat randomly chosen from a large cast, was Dottikon Exclusive Synthesis, which has spent 12% of annual revenues on R&D over the past three years in preparation for the emerging upturn in business, according to CEO Markus Blocher. “The actual work is coming,” he said at CPhI in regard to process engineering services. “A new phase is just starting in pharmaceuticals, and anything that was put off into the future has to be done now.”
Some statistics supporting the rise of formulation services: More than half of the new pharmaceutical compounds moving into development have tricky physical properties. An industry-sponsorted report by Nice Insights, detailed in C&EN’s coverage in 2013, revealed that 82% of drug industry respondents believe that innovative dosage formulation is required to meet the needs of pharma R&D.
58% outsource dosage form development and 56% report that they spend $10- to $50 million on it annually. With 30- to 40% of drugs new drugs having problems with water solubility, moisture sensitivity, or acid sensitivity, there is a booming market for services.
Hovione, Solvias, Catalent, Siegfried, and others have been building this kind of business. DSM is obviously now in the formulation service sector on a large scale.
Bringing the new world of pharmaceuticals and the new world of fine chemicals together, we will find no overall match or miss-match, obviously. The individual supplier will have to show certain specific assets, physical and scientific, to meet very specific needs of the customer. The Evonik ad above illustrates the situation nicely. But in nearly all cases, those needs will trend toward smaller-volume production of higher-value, more complex molecules. A flexible response, based on large- and small-scale manufacturing and a menu of in-demand chemistry, will be required as molecules move through development and to the market. And the drug industry’s focus on the patient will impact the volume and scientific nuance of the business available to contract suppliers of chemicals and services. The new worlds will collide at many different junctions amidst various failures to connect.
But wait. What about those down numbers for the pharma industry last year? Could all of this high-tech momentum and enthusiasm be for naught in the face of an inevitable cyclical downturn in the fine chemical sector, one that may already be underway? Will we hear the specious argument of “this cycle is different” from those attempting to maintain the high at next year’s CPhI? Who knows? Well, it’s always worth asking James Bruno, president of Chemical and Pharmaceutical Solutions, a prominent industry watcher. “I think 2014 is probably going to be a good year for most people, but those are the guys that started preparing for it in 2010, 2011,” he told me in an interview for our recent World Forecast feature a few weeks ago.
In summation, I would describe the State of the Vibe in Pharma Chem as solidly optimistic in the face of some worrying numbers in the far-from-booming pharmaceutical sector
Everyone reconvenes for DCAT Week in New York in March. Not much could change between now and then, one would think. And that’s a good thing for fine chemicals in the New World.
I have broken blog protocol on length here. I will try to keep it down next time. Thanks to the folks who showed up for my talk last Wednesday!