CPhI Pharma Insights recently published its report on the US market – produced in collaboration with research partner GBR. It reveals that while the US leads the world in many respects, there are some areas, such as biologics, where it currently lags behind
The United States accounts for one third of the total global spend on medicines and is predicted to reach US$1,400 per capita spending on pharmaceuticals alone by 2018. And although the US healthcare system has its critics, it does ensure that Big Pharma has enough money to continue its R&D spend to develop tomorrow’s breakthrough pharmaceuticals, according to the newly published CPhI Pharma Insights 2016 USA Pharmaceuticals report, produced in collaboration with research partner GBR.
A major development in the US that will affect the global pharma industry is the effect of free trade agreements. The US Government is currently pushing ahead with negotiations on the Transatlantic Trade Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP). If these are passed by Congress, pharma and chemical manufacturers will be able to source ingredients from abroad without costly tariff charges – making domestic manufacturing more competitive. However, this may have negative implications for the generics industry, particularly with regard to biosimilars, where 12-year patents have been suggested.
With manufacturing costs in Asia rising, coupled with a desire for increased control over the supply chain, generics production may start to return to the US. However, the report notes a preference for ‘near-shore’ production e.g. in Mexico and Canada. In response, some of the larger and more established generics manufacturers are looking to make acquisitions in the US to gain a manufacturing site within the region. This is an especially profitable strategy for some of the vertically integrated companies that are already selling APIs into western markets as they move to produce finished formulation generics.
The advantage of the US is the availability of infrastructure and high productivity levels, which is influencing the decisions of many companies to return to the US for manufacturing
‘Costs have risen in China and India, as both economies have boomed and the price of labour has increased,’ said Anil Andrade, Business Head, North America, Capsules Division, ACG North America. ‘The advantage of the US is the availability of infrastructure and high productivity levels, which is influencing the decisions of many companies to return to the US for manufacturing. The overall attractiveness of the country as a manufacturing location is increasing, but it does not yet compare to lower-cost economies based on that factor alone.’
With difficult-to-formulate compounds now emerging onto the market and with the rise in biologics continuing, it is apparent that generics companies are diversifying their product lines and capabilities to match. So the larger and intermediate firms are competing to get the right mix of technologies to manufacture the more profitable future product lines.
It is not only within the generics sector that acquisitions have continued to accelerate; manufacturing companies are looking to evolve their capabilities from traditional small molecule to large molecules and biologics. ‘The general view is that the industry is flipping its focus from a 60:40 split between small and large molecule activity to a 40:60 distribution in the future,’ explained Ramesh Subramanian, Vice President of Strategic Marketing at Piramal Healthcare. ‘This shift is occurring partly due to the higher clinical success in the biologics space and the belief that this space allows for longer patent positions.’
Contract manufacturing organisations (CMOs) are also evolving to accommodate this trend, with significant investment in new equipment needed for biologic production. ‘Almost 10% of our revenues come from biologic commercial manufacturing,’ said Cornell Stamoran, Vice President of Corporate Strategy at Catalent – the world’s largest CMO. ‘There has been a very definite focus in enhancing and expanding our biologics offerings.
‘A report came out recently suggesting that the future of biologic drug development would be in small, focused single-use containers rather than the big 20,000 L stainless steel tanks. For innovator drugs this is a path we started down around five years ago and the facility we invested in recently is built around a single-use bioreactor model.’
Pharma companies are concentrating their R&D efforts on speciality products and increased scouring of the biotech community for technologies or early assets that they have been unable to develop themselves. Meanwhile, contract manufacturers are looking urgently to invest in high-potency facilities and sterile capabilities. The result is a wave of small companies with specialist sterile development and manufacturing facilities being bought up across the region – any companies with FDA approved sites are especially desirable.
In fact, the majority of companies surveyed within the US market (whether domestic or international in origin) have recently made acquisitions or plan to in the next year. Moreover, there is a clear trend among all manufacturers to look for niche and specialist technologies, especially those with IP protection, as it is these technologies that could be the essential gateway to commercialising new biologics, the report suggests.
Many larger companies are buying small biotechs to acquire assets they have been unable to develop themselves
‘Many larger companies are buying small biotechs to acquire assets they have been unable to develop themselves,’ says Angeliki Cooney, Director of Strategic Planning at IMS Health. ‘At present we are also seeing an increase in smaller acquisitions. This epitomises the scientific transformation of the biopharmaceutical industry as it moves towards a more biotechnology-oriented one. Larger molecule products, and the expertise required to design, develop and manufacture them, are fuelling the latest waves of acquisition.’
Outsourcing continues to expand, the report says, with pharma players entering new markets and seeking the right distribution, ingredients, development and manufacturing partners. However, pharma companies are no longer looking simply to license a product, but also to stimulate external innovation. ‘Some pharma companies are sponsoring start-ups without expectation of further collaboration, while others are taking entire research groups out of academia and funding them in order to own the rights of their results,’ said Matthew Hudes, US Managing Principal, Biotechnology Deloitte.
But with as many as 600 contract development and manufacturing organisations (CDMOs) in the US, such a fragmented sector needs consolidation, creating smaller but higher skilled manufacturers able to deal with a raft of new development challenges. ‘In the first half of the last decade, [growth] was about scaling up to get a large geographic and service footprint,’ said Gil Roth, PBOA President. ‘The providers that were building scale now have it, and nobody is buying into a commoditised area of the industry just to get a bigger footprint. They are looking to the higher value aspects of the industry and what clients are looking for.’
The US CMO market generates in excess of $10bn in revenues per year. Moreover, after a difficult few years, it is now expected to grow faster than the overall pharmaceutical industry, and will be boosted by the outsourcing of non-core businesses, and an increasing number of speciality and biotechnology companies without in-house capabilities.
‘Big Pharma relies mostly on in-house resources in research, process development and regulatory services. In addition, the Big Pharma quality departments have experience in validation and regulatory filing. Therefore, they are mainly looking for flexibility and niche technologies to support a launch. Quality, speed and flexibility, mainly relying on specific technologies, are what they look for,’ said Lukas Utiger, President Drug Substance at Patheon. ‘Small biotech companies, on the other hand, expect a much broader service level. Besides relying on the CDMO’s regulatory and quality expertise, small biotech companies also look for process innovation and process development/scale-up expertise. Optimal process design in drug substance and drug product is mostly delegated to the CDMO, which allows for close partnership to create the best overall solution.’
The US, through the FDA, is the leading source of global regulation and inspection of manufacturing facilities all over the world. The FDA has long been seen globally as the benchmark regulatory agency and the driving force behind many of the industry’s quality improvements – from cGMP to PAT, QbD and continuous processing. However, in recent years, it is clear that the burden of overseeing a globalised industry is taking its toll. Many analysts are concerned that despite the FDA opening many offices around the world (notably in India), it is spread too thin and should not try to police the world’s drug supply chain.
CPhI Annual Report expert Prabir Basu, President at Pharma Manufacturing, believes the pharma industry itself should start to bear the costs of this regulatory burden. ‘I think if a company decides to source an ingredient, intermediate or a final product from a company outside the country, then they should submit a proposal for that to the FDA. The FDA should train and support private certified inspectors, who would be assigned to inspect and certify to the FDA that these outsourcing partners are qualified to do so. The FDA can review and spot check on these inspections. These facilities abroad should be inspected at least once a year. The entire cost of this should be borne by the industry,’ he suggested.
The rigour of regulatory review and scientific development must be applied equally to both generic and innovator drugs
In response to these concerns and some notable drug quality failures, the FDA established the Office for Pharmaceutical Quality (OPQ) in January 2015. It aims to work in a consistent and transparent manner and strives ‘to be a global benchmark for regulation of pharmaceutical quality’, according to Director Dr Lawrence Yu. ‘The rigour of regulatory review and scientific development must be applied equally to both generic and innovator drugs.’
The new standards that the FDA has set itself, including achieving inspection parity of domestic and foreign facilities by 2017, has had the knock-on effect of lengthening approval times. Not only is the OPQ ramping up its inspection levels, but it is also introducing an entirely new model for the pharma industry in the US. Its Vision for 21st Century Manufacturing has the ultimate aim of creating, in Yu’s words, ‘a maximally efficient, agile, flexible pharmaceutical manufacturing sector that reliably produces high quality drugs without extensive regulatory oversight.’
Concerns about the overseas supply chain, combined with domestic tax breaks, have resulted in a turnaround in API production in the US from a ‘race to the bottom’, according to Peter Werth, CEO at Chemwerth, to a major growth area. ‘Four years ago, the main consideration that finished formulation companies would take when sourcing an API was cost. However, these past four years have seen a rapid rise in quality concerns, which are now at the forefront of everyone’s minds,’ he says.
Another factor is the way in which the drugs pipeline is changing the types of APIs coming to market: the vast majority are for speciality and orphan drugs where large cost advantages are less relevant. Moreover, facilities in the US are well suited to the more complex APIs in the pipeline, with flexible scale-up options.
Additionally, specialist facilities in controlled drugs and highly-potent APIs are also lending themselves to the more niche capabilities available in the West. For now, however, generic API production will remain in Asia, with high-value new product development work increasingly carried out domestically.
The industry is no longer willing to consider just any facility in Asia for raw materials and intermediates, as transparency, quality track records and reputation are of prime importance today
‘There has been a realisation in the market that working with quality global suppliers, who also have an Asian presence, and who operate to world class standards of quality, offers a distinct advantage and the required security of supply and competitive costings,’ pointed out Garrett Dilley, Senior Director, Business Development, Sales and Marketing, Johnson Matthey Pharma Solutions. ‘The industry is no longer willing to consider just any facility in Asia for raw materials and intermediates, as transparency, quality track records and reputation are of prime importance today.’
David Hoffman, President, US Operations, Hovione, agrees: ‘The quality and regulatory concerns pertaining to China and India make the US market look increasingly attractive. As such, I think we are in a renaissance for European and US manufacturing.’
The report concludes that the primary changes within the wider, global pharma industry are seeing more specialist skills and smaller volume work take priority, which is producing conditions ripe for the US market to reaffirm its dominance.
Additionally, the US market is more structurally suited to the development of highly-potent, conjugated, and more difficult to formulate drugs, which require a high level of technical knowledge and regulatory rigour. But the US still needs to adapt to fully capitalise. Notably, it has been lagging behind Europe in its biologics development.