Get documents about "Emerging Opportunities in Pharmaceutical Contract Manufacturing
Shared by: cqp14386
Categories
Tags
contract manufacturing, pharmaceutical contract, contract research, pharmaceutical companies, pharmaceutical manufacturing, pharmaceutical outsourcing, pharmaceutical industry, indian companies, pharma companies, manufacturing news, manufacturing market, supply chain, emerging markets, global pharma, value chain
-
Stats
- views:
- 24
- posted:
- 5/24/2010
- language:
- English
- pages:
- 3
Document Sample
Special Report
Emerging Opportunities in Pharmaceutical
Contract Manufacturing
E
merging trends in the global of a drug, several generic versions are
PRATIK KADAKIA, JEFFRY
pharmaceutical industry launched, which are available for a
JACOB & ANKUR SINGHAI
present unique challenges and fraction of the price of the original
Tata Strategic Management Group
opportunities for Indian contract patented drug.
Nirmal, 18th Floor, Nariman Point
manufacturing organisations
Mumbai 400 021
(CMOs). The age of one-size-fits-all The global pharmaceutical indus-
Tel: +91-22-6637 6789.
strategy will no longer work in try is projected to grow at 6% annu-
Fax: +91-22-6637 6600
today’s changing business scenario. ally from US$700-bn in 2007 to about
Email: pratik.kadakia@tsmg.com
The time has come for managements US$940-bn by 2012. The generics seg-
Website: www.tsmg.com
of Indian CMOs to decide on their ment is expected to grow faster at 11%
focus segments and build capabilities CAGR, compared to the innovator seg-
striking strategic alliances (e.g., GSK-
necessary to succeed in them. ment at 5% CAGR during this period.
Aspen deal) in order to participate in
This is mainly driven by governments
the fast growing generics market.
Global pharmaceutical industry of various developed and developing
countries increasingly promoting the
Innovators and generics compa-
The global pharmaceutical indus- shift to generics in an effort to control
nies are both increasingly facing pres-
try can be divided into innovators, their rising healthcare budgets. Glo-
sure on their bottomline. EBIT (earn-
generic companies and independent bally US$ 80-bn worth of drugs is ex-
ings before interest and taxes) margins
supply organisations. Innovator com- pected to go off-patent by 2010.
for most global pharmaceutical com-
panies focus on developing innova-
panies have been stagnating or declin-
tive drugs and formulations that en- Changing industry dynamics
ing over the past few years.
joy patent protection for a defined
period of time, usually 20 years. Ge- Many stereotypes are being bro-
This has forced companies to re-
neric players focus on manufacturing ken in the pharmaceutical industry to-
look at optimising their cost structure
versions of off-patent drugs, which day due to changing realities of the
and increased focus on outsourcing
are similar in dosage, safety, strength, marketplace. Innovator companies are
less critical activities to more cost com-
method of consumption, performance increasingly acquiring generics com-
petitive locations/ options. Manufac-
and intended use. After patent expiry panies (e.g., Daiichi-Ranbaxy deal) or
turing, which represents about 30% of
the annual cost base for a typical glo-
bal pharmaceutical company, offers
good opportunity for significant cost
savings, while simultaneously en-
abling the company to focus all efforts
on research and marketing. Innovator
companies like Pfizer, Merck and Astra
Zeneca have already announced in-
tentions to contain production costs
by increasing outsourcing of manufac-
turing activities to emerging econo-
mies.
This is expected to lead to an in-
crease in pharmaceutical contract
manufacturing globally from US$20-bn
in 2006 to US$40-bn by 2012.
Chemical Weekly November 25, 2008 201
201
Special Report
power is uniquely positioned to take
advantage of this opportunity.
Both innovators and generics of-
fer different opportunities and the age
of one-size-fits-all strategy is no
longer valid. While the generics seg-
ment will continue to bring in the vol-
umes, the innovator segment is likely
to be more profitable. Focusing on in-
novators will enable current Indian
CMOs to move from plain toll manu-
facturing to value-added offerings
with higher margins.
the industry, along with the rapid pace Focusing on innovators would,
of infrastructure development, result however, require basic changes in the
in their ability to get into the game and DNA of an existing CMO. Adherence
change it very quickly by focusing on to regulations, FDA certifications and
building scale, thereby becoming cost GMP will no longer suffice as a differ-
leaders. China, with strong basic entiating edge. Focusing on innova-
chemistry skills, has clear advantages tors would require different capabili-
in products featuring wide range of ap- ties to be built and a different mindset,
plications and requiring large produc- business model and risk appetite, as
tion volumes. However quality, reliabi- enumerated hereunder:
Implications for Indian CMOs lity, environmental issues and IPR pro-
tection are some of the issues need- Change in critical success factors:
The changes in the global pharma- ing attention in China. Scale and size are no longer competi-
ceutical industry have far-reaching im- tive weapons. Adherence to IP, world
plications for their outsourcing partners. With the changing industry dyna- class quality standards and manag-
The generic companies spawned the first mics and increasing competition, both ing client relationships are the new
wave of contract manufacturing in In- locally and from China, the erstwhile determinants of success.
dia, led primarily by the need to be glo- successful approach of most Indian
bally cost competitive and to protect their CMOs of achieving economies of scale Shift in business model: Innova-
margins. At last count, there were over to reduce costs does not appear to be tors prefer a company with a non-
1,500 pharmaceutical contract manufac- sustainable going forward. conflicting business model — a
turing firms in India, most of them focus- partner who would always assist
ing on basic APIs and intermediates. How Indian CMOs can stay in its operations, rather than launch
However, with the generics segment competitive a competing product. A number of
across the world increasingly under pres- domestic firms offering contract
sure due to increased competition, their While the opportunity to service manufacturing services today re-
outsourcing partners are now feeling the generics companies continues to of- invest the revenues in developing
heat. Mushrooming of a large number of fer significant potential, increasing their own compounds. This model
CMOs in emerging economies has also interest in contract manufacturing by is no longer preferred due to in-
decreased their bargaining power to an innovator companies opens up an- creased sensitivities around IP. As
extent. other rapidly growing segment. India, the market matures further, these
with the largest number of US-FDA two business models will separate
Also, China is fast emerging as the certified plants outside the US, maxi- out completely. For e.g., Indian
destination of choice for production mum number of DMF filings (more than companies like Divi’s Laboratories
of basic APIs and intermediates. Gov- twice its closest competitor) and huge and Jubilant Organosys with non-
ernment subsidies and incentives to pool of highly trained technical man- conflicting business models have
202 Chemical Weekly November 25, 2008
202
Special Report
been able to successfully attract lead to eventually transforming it- ticals Inc, a subsidiary of Johnson
global innovator companies. self into an end-to-end CRAMS & Johnson, to develop two drug
(contract research and manufactur- candidates for various disease tar-
Developing additional capabilities: ing) player. For e.g., Divi’s Labora- gets. Advinus will receive an
The CMO should support the cli- tories offers services in custom upfront payment, as well as mile-
ent in his future growth areas, e.g., chemical synthesis to several glo- stone payment of up to US$247-mn,
high potency drugs, which may bal pharmaceutical companies and upon successful development of the
require additional investment or enjoys one of the highest EBITDA two targets. Advinus is also eligible
dedicated facilities. Business de- margins in the industry. for royalties on the sales of any
velopment and managing client re- drug products resulting from the
lationships is critical. Acquisitions Increasing risk profile: Risk shar- collaboration.
or strategic alliances may need to ing agreements with innovator
be actively considered to gain ac- companies for custom synthesis Succeeding profitably in the
cess to technology or increasing and milestone based royalty pay- new environment
global market reach. For example, ments exposes it to the risk of non-
Dishman Pharmaceuticals acquired commercialisation of a potential The Indian contract manufacturing
Carbogen AMCIS, a Swiss com- new drug. For example, Indian market is expected to grow at 38% annu-
pany, in 2006 for its high potency companies such as Nicholas ally from less than US$1-bn currently to
manufacturing capability. This ac- Piramal, Jubilant Organosys and reach US$4.2-bn by FY 2012. Both the
quisition enabled the company to Suven Life Sciences have entered innovators and generics segments offer
broaden its technological base and into risk-and-reward-sharing agree- huge potential for Indian CMOs going
also gave it an European interface ments with Eli Lilly. The com- forward. Critical success factors for par-
with the global pharmaceutical pounds, initially made available by ticipating in the opportunity offered by
community. Lilly, have to be brought forward each segment are different and accord-
by the Indian companies by invest- ingly merit serious consideration by se-
Offering end-to-end services: In- ing their own financial and human nior management. Indian CMOs will do
novators prefer partners who can resources. Eventually, if the drug well if they identify their target segments,
assist them across the entire value gets commercialised, Eli Lilly would develop necessary capabilities and re-
chain. This could mean extending pay the companies royalty on its define their value proposition accord-
services from drug discovery and global sales. Similarly, Advinus ingly, failing which they may risk falling
development, at one end, to manu- Therapeutics, a Tata Group com- by the wayside as the industry consoli-
facturing of formulations and pany, has entered into a deal with dates and new entrants jump into the
injectables, at the other. This could Ortho-McNeil-Janssen Pharmaceu- fray.
Chemical Weekly November 25, 2008 203
203
Related docs
