Edition 3 / March 2019
Dr. Mimoun Ayoub
Director, Head of North America & Emerging Market Sales
Past Three Decades: Outsourcing Fashion
Constantly increasing drug development costs are pushing the pharmaceutical sector to challenge its growth strategy and adjust to address risk. The high cost pressure and increasing competition has led pharmaceutical and biotech companies to outsource their manufacturing in order to reduce liability related to plant maintenance and regulatory compliance. This trend started some 25 years ago. Today, about 40% of the API needs are manufactured in Asia, a majority of which are generic APIs, including those forward-integrated with generic companies performing the formulation. The outsourcing of manufacturing was followed by the delocalization of R&D to low-cost countries. Hence, the whole supply chain has turned upside-down in the last 30 years.
New Trends: Back to Captive?
However, the lack of visibility and increasing number of warning letters have encouraged the pharma companies to revise their approach and invest in manufacturing assets to mitigate the risk. The graphic below shows the huge number of product recalls and warning letters as reported by the USFDA.
Furthermore, newly developed drugs have reached a high level of complexity, which then adds more challenges to the supply chain management. Examples of sophisticated drugs include the use of novel drug delivery systems, conjugations, and complex formulations requiring special excipients. Multiple stakeholders are now involved in the manufacturing cycle, which requires full alignment on quality, timelines, manufacturing process controls and changes.
In light of this trend towards risk reduction, we have seen several large manufacturing operation investments from mid-size biotech companies such as Alnylam, Ionis, and United Therapeutics, and larger biotechs like Celgene and Biogen. Some of the outsourced manufacturing is back to captive production, leaving CDMOs with a gap to be closed mostly by opportunities from smaller pharma & biotechs, which either generally don’t have enough capital to invest in operations, or their pipeline and volumes don’t justify the investment.
Visibility & Transparency Are Key
Although end-to-end visibility should be the key driver of the supply chain, it is often currently missing, or rather fragmented and unclear. Clarity doesn’t necessarily relate to which stakeholder is producing which product in the chain, but more importantly tied to management of the quality and regulatory aspects associated with various manufacturing process changes and their impact on the final product. This landscape thus demands very close collaboration and transparency between all stakeholders involved. CordenPharma has the privilege of being one of the few CDMOs in the industry with both end-to-end Fully Integrated Supply services and backward integration of critical starting materials, available through our sister company Weylchem. This has proven to greatly benefit our customers with reduced complexity in their supply chain and faster speeds to market for their pipeline.
Any disruption in the supply chain has dramatic consequences on product development and commercialization. For pharma & biotech customers, all roads tend to lead back to managing these uncertainties, which can be greatly augmented and supported by a high level of visibility and transparency on the part of the CDMO.
With such fluctuating dynamics in the supply chain, CDMOs have to constantly reinvent themselves by seeking out improvements, streamlining capacity and gaining a better understanding of market demand. The focus has turned towards niche segments which require a sufficient level of complexity that could also benefit from the concept of a fully integrated business model. However finding a CDMO like CordenPharma with expertise, regulatory track-records, capacity and capabilities in a niche sector such as highly potent drug development, which also spans the spectrum from APIs to fill-finish and packaging, is rather challenging. Such a high level of specialization encourages the pharma industry to invest or co-invest in CDMOs to close potential gaps in technologies that often arise.
The CDMO space has also seen a high amount of M&A activity over the past decade where a few CDMOs, backed by venture capital funding, have moved into the top 10 in a very short period of time. The top 5 CDMOs account for about 15% of the market, which also reflects that this consolidation is driven not only by the search for growth but also the necessity to close capability gaps through acquisition. These M&A activities and need for consolidation create a more complex supply chain, regardless of whom is doing the acquiring. From the pharma industry point of view, bigger CDMOs may appear to have greater capabilities and financial stability, but severely lack the flexibility, transparency and dedicated attention needed for the scale-up of smaller projects that could potentially progress into commercial blockbusters.
The combination of drug complexity with a high number of stakeholders on one end, and the rise in regulatory pressure on the other, has made the supply chain a difficult task to manage. Pharma companies and regulatory agencies are investigating the whole process with greater scrutiny by requesting more details at every step in the supply chain to secure product quality. CDMOs in turn have to constantly evaluate, adjust, invest and reinvent themselves to address these requirements based on the market challenges. Is your CDMO up to the task?
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