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.
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