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European Biopharmaceutical Review
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With the cost of manufacturing on the rise, it seems as if outsourcing
has become an appealing choice for pharmaceutical and biotech
organisations, with a growing interest in emerging markets such as India
and China proving popular
Outsourcing has increasingly become a strategic move for most
pharmaceutical and biotech companies, rather than a mere cost-cutting
tool. With manufacturing costs contributing to a major chunk of
expenditure, pharmaceutical and biotech companies consider leveraging
the services of contract manufacturing organisations (CMOs), which are
equipped with the required expertise, technology and tools, as a viable
option to save costs and time. Currently, the US and Europe account for
nearly 75 per cent revenue share of the global pharmaceutical and
biotech contract manufacturing markets; however fast growth is
anticipated from the large number of emerging CMOs in Asian countries –
such as India, China and Singapore – which can effectively compete on
cost. While outsourcing manufacturing to CMOs in emerging markets is on
an increasing curve, forging strategic partnerships with such CMOs is
likely to be a sought-after strategy by the pharmaceutical majors, as it
helps them gain easy access to the emerging markets. However, as
quality and timely delivery are major concerns, a cost advantage alone
does not propel clients to opt for CMOs in emerging markets.
The results of a recent end-user analysis conducted by Frost &
Sullivan, based on the key competitive factors involved in the selection
of a CMO by pharmaceutical and biotech companies for contract
manufacturing services, can be seen in Table 1 on page 36.
Emerging Trends
The key trends which are expected to have an impact on the global
pharmaceutical and biotech contract manufacturing markets are:
Patent Expiry of Blockbuster Drugs and Biologics
With several patented and firstgeneration biotech drugs nearing the end
of their life cycles, companies prefer outsourcing their manufacturing
and other developmental activities, retaining only the marketing rights.
The plants present poor utilisation rates of 20-30 per cent, making it
highly unprofitable for companies.
Increased Industry Consolidation
Big Pharma companies are constantly on the lookout to expand their
business into the biotech sector and gain access to the highly
fragmented emerging markets. This is expected to foster industry
consolidation in the form of mergers, acquisitions and strategic
partnerships, and result in large-scale contract deals between Big
Pharma companies and CMOs that possess the required expertise and
reliable presence within local markets.
Expansion of Manufacturing Capacities
As independent generic fi rms consider biosimilars to be a more
definitive and commercially attractive segment than commodity generics,
the demand for additional biomanufacturing capacity is expected to be
high in the long term. The global biopharmaceutical industry is
characterised by greater outsourcing of mammalian cell culture
activities and a significant expansion of capacity is expected in this
sector, as opposed to the microbial cell culture systems.
Novel Drug Delivery Mechanisms
A large number of new products that are based on innovative technologies
across diverse therapeutic segments are likely to be launched over the
next five years, and small and mid-sized innovator pharmaceutical and
biotech companies are expected to leverage the expertise and resources
of CMOs. Currently, nearly 35 per cent of the drugs in development
worldwide represent biologics, and in Europe, more than 1,000 biological
drugs are in the pipeline. The track record of biopharmaceutical
approvals in recent times has also been noteworthy.
Increasing Adherence Towards an Integrated Business Model
Although traditionally CMOs have focused on manufacturing services as
their core business segment, the changing needs of clients and the
emerging concept of ‘virtual pharma’ has led to an increase in
realisation of the importance of value-added services, which include:
process development and optimisation; marketing support; sales and
distribution; logistics; and packaging. This provides a ‘one-stop-shop’
option for customers where they can exploit the resources and expertise
of the CMOs to reap maximum benefits while they concentrate on their
core capabilities and R&D activities.
Emerging Markets
Cost-efficiency, which includes benefits such as improvement in overall
cost structure, significant costsavings, manpower cost-savings, and
reduction in asset base and capital expenditure, is the major driver for
suppliers to outsource manufacturing to CMOs in the emerging markets.
Low-cost destinations such as India and China provide cost savings of
approximately 60 per cent compared to western countries. The cost
arbitrage results primarily from labour and manpower costs, which is
almost seven to eight times less than in the US and Europe. Countries
like India not only have a large pool of qualified and experienced
manpower with strong chemistry skills, but also lead the world with 119
Food and Drug Administration (FDA) inspected facilities, thereby
ensuring product quality.
Traditionally, however, emerging Asian markets have been looked upon as
favoured destinations for manufacturing of bulk drugs, where active
pharmaceutical ingredients (APIs) and intermediates – particularly APIs
for generic drugs – represent 80-85 per cent volume share of total
outsourcing by international pharmaceutical companies. Outsourced
manufacturing of advanced bulk drugs for niche therapeutic areas, APIs
for new chemical entities, biotechbased APIs and formulations to
emerging markets currently represent a relatively small segment and are
expected to gain momentum in the future.
The primary reason for this could be the limited technical knowledge of
pharmaceutical companies and CMOs in emerging markets, compared with
those in more developed regions, with regard to manufacturing of
technically challenging formulations such as sterile products,
controlledrelease products, combination drugs, biosimilars and specialty
pharmaceuticals. To date, very few Indian companies have focused on the
manufacturing of complex technology-based products, which include Dr.
Reddy’s and Biocon for biosimilars; Sun Pharma and Lupin for
injectables; Cadila, Dr. Reddy’s and Troika for transdermals, and so
forth. Besides, multinational corporations fear the breach of
proprietary information and reverse engineering of patent protected
molecules to produce generic equivalents, when outsourced to less
regulated markets.
Strategic Alliances
The immense untapped potential of the emerging markets have made them
attractive targets for multinationals to enter into strategic
partnerships with. Outsourcers, who are mostly global companies, require
understanding of the regulatory scenario of a particular country in
terms of policy, law, regulations, implementation, and most importantly,
dealing with regulatory agencies. As CMOs also perform the important
task of dealing with regulatory agencies besides manufacturing,
penetration into the emerging markets becomes easier for global
companies by acquiring or forming strategic partnerships with CMOs in
these markets. It is alarming to note that generic drugs exported from
India account for nearly 15 per cent of the generics in the US, and with
drugs worth $67.5 billion losing patent protection in the US, it is
expected that Indian companies will capture at least 30 per cent of the
replacement equivalent generics by 2017.
Therefore, it is interesting to note that big pharma companies and
global generic pharmaceutical companies show greater preference towards
generic companies offering contract manufacturing services, as opposed
to exclusive CMOs in emerging countries. The primary reason for this is
that these companies not only possess expertise across different
therapeutic segments, but they also have well-established distribution
and marketing arms in their respective domestic markets, which in turn
makes it easy for multinationals to gain access to less regulated
markets. Table 2 shows a list of key contract research and manufacturing
deals between Indian and multinational pharmaceutical companies.
Conclusion
Outlined in Table 3 are a number of strategic recommendations for the
success of CMOs. Despite the vying attention of global participants
towards the emerging economies, it is crucial that CMOs in emerging
markets conduct extensive research on customer needs, preferences and
expectations, and align their services in conjunction with global
trends.
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