Power Moves: Contract Services' Success Strategies

Feb. 2, 2016
Pharma’s top CMOs are playing to their strengths, toning operations and flexing their technical muscles in an effort to compete

Contract services organizations are pursuing a number of strategies to be successful, competitive and relevant to their customers. To get there, this important Pharma sector is driving manufacturing and process innovation at an impressive pace. Critics may argue that compared to other industries this is all just so much catch-up, rather than true “innovation.” But that would be selling way short the direction CMOs are taking the industry strategically, tactically and operationally.

It’s becoming very clear today’s Pharma contract services providers are preparing themselves to compete for their spot in an increasingly sophisticated and multifaceted supply chain. Attracting customers in this environment is predicated on fielding the technologies and techniques to meet capacity and processing needs, but keeping those customers for the long haul and maintaining the stable, long-term revenue streams they bring, is another thing entirely.

Operational excellence is the rule, with no exceptions, especially as it relates to regulated, GMP-delivered pharmaceutical manufacture. But excellence is the desired end; the result: a goal to measure, achieve and sustain. Ultimately it’s the expression of an organization’s overall competence and internal ability to execute its business plans and roll out product, manufacturing and organizational strategies via its people and resources effectively. 

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From the point of view and a recent study of 2,000 companies by the Council of Supply Chain Management Professionals (CSCMP), supply chain performance in Pharma has not been as strategically important in this “high-margin sector” as it has been in other industries. To effectively respond to the many changes in the industry, CSCMP explains pharmaceutical companies (Branded Pharma primarily) will need to build better end-to-end supply chains. Well, no kidding, and certainly driving the demand for competence among supply chain partners.

Nice Insight’s Nigel Walker (See Strong Growth Ahead for Contract Manufacturing) notes that contract service providers that wish to attain a similar level of growth going forward will need to find ways to provide measurable added value — something that sponsor organizations cannot realize on their own. “Emerging markets, value-added generics (so-called supergenerics), and biosimilars provide other potential opportunities for growth,” says Walker, but only “if contract manufacturers have the global reach and technical capabilities necessary to capitalize on them.”

According to Nice Insight analysis, some 30 CMOs account for more than half of the industry’s revenues (PharmSource), and “more than 18 acquisitions in the CMO space (including only CMO-CMO deals) have taken place in the last three years.”

Current dynamics point to the contract services industry readying itself to play its increasingly important and primary role contributing to the global supply of pharmaceuticals. Many members of this “Club of 30” are well known and increasingly visible to the industry’s highly professional observers. Visiongain, in its pursuit of market intelligence, recently released “Pharma Leader Series: Leading Pharmaceutical Contract Manufacturing Organizations (CMOs) 2014-2024,” which analyzes 30 leading companies in the space.

Jonathan Weymer, a senior analyst for Visiongain, said: “There is a historic trend in the pharma industry of outsourcing activities such as drug and API manufacturing. Recent years have been lean for a number of the big players in the pharmaceutical contract manufacturing market, with M&A activity a core driver of revenue growth. However, the ability to deliver high-quality, flexible production will drive business to the leading firms in coming years.” Amen to that Mr. Weymer.

Visiongain forecasts strong revenue growth for CMO market leaders between 2014 and 2024. Their analysts say DPx Holdings and other leaders like Lonza and Catalent will experience the greatest increase in revenue between 2014 and 2024. Bottom-lining it, Visiongain notes “CMOs with specialist expertise, proprietary technology and flexible production facilities will experience market-beating growth rates over the forecast period.”

Who’s the hottest? Visiongain singled out Vetter and Lonza as two of the “best-placed” companies for high revenue growth during the forecast period. Visiongain analysts also called out Catalent and Lonza in particular as two companies that have placed considerable investment into high potency API and antibody-drug conjugate facilities, a couple of high value competencies that, at least according to just about anyone observing the industry, will help fuel revenue and growth.

“These areas are predicted to experience long-term growth in demand over of the next 10 years,” says Weymer, “and will drive growth for firms with experience and production capacity.” Similarly, say Visongain and others, competency with complex processing such as lyophilisation and pre-filled syringes will win increasing business from biopharmaceutical companies seeking partners that can demonstrate their ability to deliver such capabilities.

Patheon announced recently the appointment of Gilles Cottier as president of the company’s pharmaceutical development services (PDS) division effective immediately. According to Patheon, Cottier’s appointment is part of a larger realignment effort by the company to create three distinct business segments — drug product services (DPS), drug substance services (DSS) and PDS. Patheon says the structure will help forge deeper relationships with clients and employ new business models to help clients simplify their supply chain management activities and support the expanding number of new business opportunities and increasing complexity of client relationships.

Deeper relationships with customers are at the core of Patheon’s go-to-market strategy called OneSource. It’s under one roof that Patheon customers can combine drug substance and drug product development and manufacturing into a “single customized solution to simplify your supply chain and accelerate your discovery to proof of concept.” Patheon claims customers will be able to develop small molecules 8-12 weeks faster than the industry-standard 15 months and large molecules 14-20 weeks faster.
Lifecycle management is also a niche that Patheon chooses to pursue publicly, and its literature online identifies areas of formulation, dose form and associated attributes that the company’s operations can deliver for customers looking to extend the commercial lives of their products and part of Pharma’s kit of tactics to wring more revenue out of existing product lines.

A key to the development of highly targeted therapeutic approaches for a range of diseases, Antibody drug conjugates (ADCs) are an increasingly popular tool and the bio/pharmaceutical industry sees it as an important capability. Lonza, the preeminent Swiss biopharmaceutical CMO, recognized the potential and positioned itself accordingly. In an item covering the emerging value of ADCS, PharmSource consultants explained in one of its newsletters that because of their complexity, ADCs offer unique opportunities and challenges for CMOs and bio/pharmaceutical companies seeking CMO partners for their ADC candidates. PharmSource’s Tom Ransohoff, explains: “There are some real technical challenges in producing ADCs. It is not an easy thing to attach a drug to a monoclonal antibody (MAb).” There are four main elements to manufacturing ADCs: bulk production of the monoclonal antibody; bulk production of the small molecule drug; coupling of the monoclonal antibody and the small molecule drug via the use of a chemical linker; plus a fill/finish operation to put the product in the final dosage form for the patient.
It’s recognized that one of the major technical hurdles has to do with the fact that the antibody and the drug retain their viability after the components are chemically attached. Tom Rohrer, senior director, Lonza (Basel, Switzerland) offered this to PharmSource subscribers: “The union of the antibody, a biological compound, and the drug coupled to the linker, a small molecule compound, must be made chemically, with the ADC retaining the binding activity of the antibody as well as the biological activity of the drug.”

The production of ADCs requires small molecule and biologic manufacturing acumen within an HPAPI processing high-containment environment. PharmSource says this limits the number of CMOs that can participate in the process. Rohrer illuminates the task at hand: “Perhaps one of the greatest technology challenges associated with ADC manufacturing is the design and construction of an aseptic biological manufacturing environment that allows safe manipulation of highly toxic drugs. ADC manufacturing requires manipulation of cytotoxic drugs with very low occupational exposure levels, in the 10-9 gram/M3 range. The linkers are chemically synthesized and require traditional small molecule technology for production.”

Analysts say Lonza comes closest to offering a single source CMO option. It offers ADC conjugation services at its Visp, Switzerland, facility, where it fields manufacturing operations for highly potent APIs. Lonza manufactures the monoclonal antibody at production sites in Slough, UK; Portsmouth, NH, USA; and Tuas, Singapore.

More recently Lonza announced the expansion of mammalian production capacity at its Slough operations. According to Lonza, “Based on the increased demand for biopharmaceutical development and clinical manufacturing services, two 1000L single-use bioreactors have been installed at the site.” This expansion will significantly increase the existing single-use manufacturing capacity. Lonza says the Slough cGMP facility is the center of excellence for this kind of development and clinical supply. The site provides cell line construction, process development and clinical manufacturing services for mammalian-derived biotherapeutics.

Capacity to meet customer demand is at the heart of it as is the company’s investment and commitment to competing in this lucrative segment. “The increase in bioreactor capacity continues the implementation of single-use technologies at the Slough site and complements existing single-use equipment for both seed train systems and downstream processing, including chromatography, filtration and ultrafiltration unit operations. The new reactors are equipped with controllers that enable parallel reactor operations, expanded process capabilities with flexible operating scales and bioreactor types.” The last line of their press release says it all: “Use of these technologies supports Lonza’s ability to accommodate a variety of customer projects and processes across scales and clinical phases.”

Contract Service providers must demonstrate absolute competence regardless of the drug category. However, like Lonza, the advances in biopharmaceutical science require some next-level strategery to win and keep business in the coming years. Case in point is Catalent Biologics recent news announcing its research collaboration with Roche on Catalent’s SMARTag technology. Through its wholly owned subsidiary Redwood Bioscience Inc., Catalent has embarked on a collaboration with Roche to develop next-generation molecules coupling different therapeutic modalities using Catalent’s proprietary SMARTag technology.
According to Catalent, Roche will gain non-exclusive access to the SMARTag platform and will have an option to take commercial licenses to develop molecules directed to a defined number of targets. Use of SMARTag, Catalent’s programmable protein-modification technology, combined with the highly stable Hydrazino-Pictet-Spengler (HIPS) conjugation platform, will permit evaluation of alternative sites of drug conjugation so that Roche may develop molecules optimized for efficacy, safety and stability.

For its part, Catalent receives an up-front fee of $1 million and additional research funding during the initial phase of the collaboration. If Roche pursues commercial licenses and all options are exercised, Catalent says it has the potential to receive up to $618 million in development and commercial milestones, plus royalties on net sales of products, Naturally both companies are pleased with the arrangement. “Our goal is to combine our differentiated SMARTag technology with Roche’s expertise to create new transformational treatments,” says Mike Riley, Catalent Biologics’ vice president/general manager.

Last September Vetter announced it was embarking on a 300 million (Euro) investment strategy to develop its manufacturing sites. Vetter says the move was in keeping with its commitment to manufacturing high quality drug products for its customers. Vetter says the investment, to take place over the next five years, is intended to expand and upgrade its portfolio of manufacturing facilities. “Vetter is continuously developing its manufacturing sites and techniques to prepare them for future needs and requirements. The upgrades are being driven by a changing healthcare market that is affected by issues such as ever-more complex molecules, smaller batch sizes and increasing regulatory requirements.”

Facility expansions are already underway at several of the company’s locations in Germany, including its “Ravensburg Vetter West” center for visual inspection and logistics. According to Vetter, structural work for the facility enlargement, which will more than double its capacity, is complete with the site being on schedule to become fully operational in 2017. In general, Vetter says all of its site expansions will result in additional capacities for drug product manufacturing and logistic services.

A central technology element of the planned upgrades, says Vetter, is the implementation of an internally engineered restricted access barrier system (RABS) concept which the company says will contribute to increased operational excellence in aseptic manufacturing. For decades Vetter says it has relied on RABS and isolators to assure sterile conditions for its aseptic processes. To better meet future industry trends, Vetter created a corporate project team to develop an “Improved RABS concept” by combining the advantages of isolator and RABS technology. “The core of the approach,” says Vetter “is a uniquely fast, by today’s standards, three-hour cycle and fully automated decontamination of the cleanroom using hydrogen peroxide (H2O2), resulting from an extremely high level of process innovation.” Following a successful pilot, the company says it intends to roll the concept out to all of its cleanrooms within the next few years.

Naturally Vetter has its customers in mind and echoes the sentiments of the industry of late. Managing director Peter Soelkner put it like this: “We are continuously monitoring and reacting to a changing marketplace and are pleased that we are in the position to be able to make these strategic investments to further develop our sites and meet these challenges. Individually and collectively, they will help us keep pace with the market...” Managing director Thomas Otto notes that, “As trusted partners for drug product development and manufacturing, it is our intent to always get each customer’s job done right. In order to reach this level on a continuous basis, these investments are the right step, at the right time.”

It’s nearly universal that operational competence and technical acumen are essential and fundamental to CMO success. Granted, the Top 30 CMOs have the weight and momentum to preserve their share, but there are hundreds of companies out there preparing to compete in similar ways, carving out niches, playing to their strengths, and investing in their operations to answer customer and market demands. Big, small or in-between, contract service companies are readying themselves to make the power moves they need to be successful.

About the Author

Steven E. Kuehn | Editor in Chief