Ten years ago, the pharma manufacturing industry looked very different; the age of the blockbuster drug had reached its zenith and sites across the US were being shut down, mothballed, or consolidated. Indeed, many believed the industry was heading to low-cost countries in Asia, lost forever from the West.
The times have changed and today’s reality is a stark contrast. There is a critical lack of capacity within small molecule manufacturing in the US and other Western countries. Pharmaceutical companies are repatriating projects from Asia, and at the same time FDA approvals for small-molecule new chemical entities (NCEs) are increasing. Biologics and biosimilar drugs are also seeing high growth, but when it comes to outsourcing, the market is still dominated by small molecule APIs (both originator and generic products). Biopharma products represent only a fraction of the contract manufacturing market. For contract manufacturing organizations (CMOs), the growing demand for small molecule manufacturing capacity presents new business opportunities, but also challenges. Given that many thought manufacturing would move to Asia, a number of companies have neglected investment in recent years and only taken on projects that fit with legacy capacity, which means they now face problems in terms of responding to newer market demands.
The key, of course, is to have the right capacity, but this is easier said than done. First of all, what exactly is the “right” capacity? Contract manufacturing is notoriously difficult to predict. Investment in the wrong capacity costs money – and finding projects to fill these assets can be a lengthy exercise. Finding the balance is crucial and to this end it’s important to understand industry trends. We’ve spent a great deal of time looking into historic market trends and analyzing the current pipeline of drugs to assess what the future market demands could be. One clear trend is a decline in the number of NCEs with a volume range above 10 metric tons (mt) a year. Of the 27 NCEs launched in 2014/2015, 12 are forecast to reach volumes of just 1mt at their peak. To frame this in the context of blockbuster drugs, however, there are small molecule drugs in the region of 1-10mt volumes that can create sales in excess of $500 million, especially in the area of oncology, where drug pricing per pill can be orders of magnitude higher than other drugs. The number of drugs requiring very low manufacturing volumes – less than 10kg of API per year – has also dropped. With their significance to patient care, orphan drugs are very much promoted by the FDA, but it is wrong to assume that a small patient population means a small annual volume of API. Not all orphan drugs are low volumes – some are taken in high doses and consumed daily. For any CMO, being able to offer a range of manufacturing services and options to customers – no matter what stage in the lifecycle or the volume of the drug – is a great advantage, as is offering key late-stage intermediates and starting materials for security of supply. But it’s important to not just focus on capacity. The CMO market is highly competitive and new technologies can be a key point of differentiation – particularly technologies that meet the specific needs of drugs in the pipeline. At the moment, I see a trend towards contained facilities that can safely handle potent and highly potent molecules. While not all high potent drugs are exclusively oncology products, an increasing percentage of new oncology drugs coming on to market could be nominally classified as highly potent, although experts differ somewhat in their potency assessment. For a manufacturer, being in the position to meet this demand relies on having undertaken the investment and accruing the expertise in handling these projects to attract customers. Building new capacity from scratch can be difficult, which is why the market has seen so much consolidation and M&A activity – some think it’s easier to buy than to build.
These are just a few of the key trends that I’ve noted, but overall the market is bright for CMOs. Far from the predictions that the rise of biologic drugs, as well as competition from low cost providers, would consign Western manufacturing of small molecules to history, the market is flourishing. Of course, nothing is constant and it would be foolish to think that CMOs should rest on their laurels, but through smart investment strategies, companies can aim to be flexible and responsive to the needs of the market.
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