CMOS- SUP­PORT­ING THE PHARMA IN­DUS­TRY

BioSpectrum (India) - - BIO CONTENT - Dr Man­beena Chawla man­beena.chawla@mmac­tiv.com

The In­dian pharma in­dus­try has shown tremen­dous progress on sev­eral in­dices such as in­fras­truc­ture, tech­nol­ogy, prod­uct range, GMP, reg­u­la­tion com­pli­ant man­u­fac­tur­ing fa­cil­i­ties. Also, the high qual­ity stan­dards of pu­rity; sta­bil­ity and in­ter­na­tional safety; health and en­vi­ron­men­tal pro­tec­tion un­der which bulk ac­tive in­gre­di­ents are man­u­fac­tured and sup­plied by In­dian phar­ma­ceu­ti­cal com­pa­nies en­sure that they will pass through sev­eral rounds of strin­gent assess­ment by var­i­ous reg­u­la­tory author­i­ties. In­dia has al­ready gained a foothold in the global arena of ex­port due to its high pro­fi­ciency in man­u­fac­tur­ing fan­tas­tic qual­ity of drug prod­ucts. More­over due to the high num­ber of CMOs avail­able, In­dian pharma is look­ing for bet­ter prospects.

The In­dian Pharma in­dus­try poised to grow to $100 bil­lion by 2025 has un­fail­ingly been on a strong growth tra­jec­tory for many years now. But given the very na­ture of its busi­ness, the phar­ma­ceu­ti­cal in­dus­try is con­tin­u­ously faced with chal­lenges such as cost as­pects and stricter reg­u­la­tions, to name a few. In this re­gard, the in­dus­try’s re­sponse has al­ways been to­wards cre­at­ing novel ap­proaches and tech­niques to over­come the ob­sta­cles and move for­ward. Out­sourc­ing of var­i­ous de­vel­op­ment and man­u­fac­tur­ing op­er­a­tions to third party ven­dors is one such ap­proach pharma com­pa­nies have been seek­ing for quite some time. At present, with around 700 US

Food and Drug Ad­min­is­tra­tion (USFDA) ap­proved phar­ma­ceu­ti­cal man­u­fac­tur­ing fa­cil­i­ties, ac­count­ing to close to 40 per cent of the to­tal fa­cil­i­ties, In­dia has the high­est num­ber of such fa­cil­i­ties out­side the US.

But the very re­cent ban on 328 com­bi­na­tion drugs an­nounced by the gov­ern­ment has come across as a big blow for many do­mes­tic phar­ma­ceu­ti­cal firms. These fixed-dose com­bi­na­tion (FDC) medicines, which are a cock­tail of two or more ac­tive drugs packed in a sin­gle dose, ac­counts for at least one-fourth of the to­tal pharma mar­ket which is val­ued at Rs 1.3 tril­lion. What re­mains to be seen is that how this de­vel­op­ment

will im­pact the pharma sec­tor in the long run.

The present pipe­line of phar­ma­ceu­ti­cal prod­ucts is in­creas­ingly com­plex and re­quires spe­cial­ized fa­cil­i­ties, equip­ment and op­er­a­tional ex­per­tise. Small mol­e­cule drugs ac­count for nearly 90 per cent of the ther­a­peu­tics in the phar­ma­ceu­ti­cal mar­ket. Last year, FDA’s Cen­tre for Drug Eval­u­a­tion and Re­search ap­proved 34 small mol­e­cule drugs. This rep­re­sents an an­nual growth of nearly 56 per cent, sig­ni­fy­ing the grow­ing im­por­tance of con­tract man­u­fac­tur­ing in the over­all phar­ma­ceu­ti­cal in­dus­try.

Over the years, the con­tract man­u­fac­tur­ing mar­ket has grown into a prom­i­nent and promis­ing seg­ment of the over­all phar­ma­ceu­ti­cal in­dus­try. Since 2000, glob­ally close to 150 new Con­tract Man­u­fac­tur­ing Or­gan­i­sa­tions (CMOs) have been es­tab­lished, of­fer­ing cost-ef­fi­cient so­lu­tions to sev­eral stake­hold­ers in the in­dus­try.

The cur­rent global CMO mar­ket is highly frag­mented but char­ac­ter­ized by mul­ti­ple merg­ers and ac­qui­si­tions (M&A) as stake­hold­ers strive to broaden their re­spec­tive ser­vice port­fo­lios. This has en­abled sev­eral CMOs to

start of­fer­ing end-to-end ser­vices, rang­ing from drug de­vel­op­ment, in­clud­ing pre­lim­i­nary R&D, pre­clin­i­cal and clin­i­cal tri­als, to com­mer­cial scale pro­duc­tion and reg­u­la­tory fil­ings.

A con­tin­ued high level of M&A ac­tiv­ity is ex­pected over the next five years, lead­ing to fur­ther con­sol­i­da­tion of the con­tract ser­vices mar­ket. The key driver is the de­sire of con­tract man­u­fac­tur­ers to pro­vide in­te­grated ser­vice of­fer­ings across the en­tire phar­ma­ceu­ti­cal de­vel­op­ment cy­cle from dis­cov­ery to com­mer­cial­iza­tion (APIs and for­mu­lated drug prod­ucts) and life­cy­cle man­age­ment. The num­ber of CMOs trans­form­ing them­selves into con­tract de­vel­op­ment and man­u­fac­tur­ing or­ga­ni­za­tions (CDMOs) re­flects this trend, as does the rise in the num­ber of pri­mary con­tract man­u­fac­tur­ers that have ex­panded into sec­ondary (fin­ished dose) man­u­fac­tur­ing (and vice versa) through merg­ers or ac­qui­si­tions.

Un­der­stand­ing the Dy­nam­ics

As per the Mor­dor In­tel­li­gence 2017 re­port, the dy­nam­ics of the global phar­ma­ceu­ti­cal con­tract man­u­fac­tur­ing mar­ket can be bet­ter un­der­stood by means of two broad seg­men­ta­tions- Re­gion and Type. By re­gion, the five mar­ket seg­ments are North Amer­ica, Europe, Asia Pa­cific, Latin Amer­ica and the Mid­dle East & Africa. North Amer­ica holds a lion’s share of the mar­ket, with an ap­prox­i­mate share of 36 per cent, fol­lowed by Europe and Asia-Pa­cific.

The emerg­ing mar­kets of China, In­dia and Ja­pan are spear­head­ing the growth in the Asia-Pa­cific re­gion.

By type, the three Pharma mar­ket seg­ments are ac­tive phar­ma­ceu­ti­cal in­gre­di­ent (API), fi­nal dosage for­mu­la­tion (FDF) and sec­ondary man­u­fac­tur­ing. The growth in the API mar­ket is driven by sev­eral fac­tors such as the in­crease in de­vel­op­ment of bi­o­log­i­cal

APIs, in­crease in de­mand for API pack­ag­ing, up­surge in de­mand for ab­bre­vi­ated new drug ap­pli­ca­tions (ANDA) and rise in drug mas­ter files (DMF) from In­dian com­pa­nies. Also, API pack­ag­ing is a sig­nif­i­cantly rev­enue-gen­er­at­ing sub-seg­ment. Even though cap­tive man­u­fac­tur­ers are cur­rently lead­ing the API mar­ket, they are ex­pected to even­tu­ally part­ner with con­tract man­u­fac­tur­ers to over­come the chal­lenges of com­plex and costly in-house API man­u­fac­tur­ing and in­creas­ing com­pe­ti­tion.

Due to re­struc­tur­ing of the phar­ma­ceu­ti­cal in­dus­try, API CMOs are ex­pected to wit­ness a strong surge in de­mand, par­tic­u­larly in the gener­ics sec­tor. Ad­di­tion­ally, reg­u­la­tory de­vel­op­ments in the mar­kets would let generic drug com­pa­nies de­velop and man­u­fac­ture prod­ucts for ex­port, world­wide. How­ever, de­mand for spe­cial­ized tech­nolo­gies and im­prove­ments in phar­ma­ceu­ti­cal man­u­fac­tur­ing ca­pa­bil­i­ties, could

steer some com­pa­nies to re­turn to sourc­ing their APIs from sup­pli­ers. But con­tract man­u­fac­tur­ing, like other forms of shared ser­vices or out­sourc­ing has two sides to it. There are both ben­e­fits and risks as­so­ci­ated with it. The na­ture of pos­si­ble risks that could pos­si­bly have per­for­mance reper­cus­sions could range from di­rect eco­nomic ones, such as poor con­tract­ing de­ci­sions and ex­pen­sive rene­go­ti­a­tions; and the other con­tin­gency fac­tors such as qual­ity risk aris­ing out of the ag­ing man­u­fac­tur­ing fa­cil­ity.

In­dian Sce­nario

With more than 100 pharma com­pa­nies and 500+ units in­volved in con­tract man­u­fac­tur­ing, In­dia is the third largest pharma man­u­fac­turer in terms of vol­ume and thir­teenth in terms of value, con­tribut­ing about 10 per cent to the global pro­duc­tion. The coun­try is way ahead of its com­peti­tors in Drug Mas­ter File (DMF) fil­ings that is go­ing up more than three times for the last few years. In­dia is the largest ex­porter of for­mu­la­tions in terms of vol­ume, with 14 per cent mar­ket share and 12th in terms of ex­port value. Drug for­mu­la­tion ex­ports from In­dia reached $ 7.25 bil­lion dur­ing April to No­vem­ber 2017.

The In­dian pharma in­dus­try has shown tremen­dous progress on sev­eral in­dices such as in­fras­truc­ture, tech­nol­ogy, prod­uct range, GMP (Good Man­u­fac­tur­ing Prac­tices), reg­u­la­tion com­pli­ant man­u­fac­tur­ing fa­cil­i­ties. Also, the high qual­ity stan­dards of pu­rity; sta­bil­ity and in­ter­na­tional safety; health and en­vi­ron­men­tal pro­tec­tion un­der which bulk ac­tive in­gre­di­ents are man­u­fac­tured and sup­plied by In­dian phar­ma­ceu­ti­cal com­pa­nies en­sure that they will pass through sev­eral rounds of strin­gent assess­ment by var­i­ous reg­u­la­tory author­i­ties in the im­port­ing coun­tries of buyer com­pa­nies.

With 600 to 700 US Food and Drug Ad­min­is­tra­tion (USFDA) ap­proved phar­ma­ceu­ti­cal man­u­fac­tur­ing fa­cil­i­ties, ac­count­ing to close to 40 per cent of the to­tal fa­cil­i­ties, In­dia has the high­est num­ber of such fa­cil­i­ties out­side the US. USFDA given drug ap­provals to In­dian com­pa­nies have al­most dou­bled to 201 in 2016 from the pre­vi­ous year’s 109. In­dia has an im­por­tant role in the pro­duc­tion and sup­ply of drugs at in­ter­na­tional level, as, cur­rently over 80 per cent of the USFDAap­proved an­tiretro­vi­ral drugs used glob­ally to com­bat AIDS (Ac­quired Im­muno De­fi­ciency Syn­drome) are sup­plied by In­dian phar­ma­ceu­ti­cal firms.

The most im­por­tant fac­tors that are likely to keep con­tract man­u­fac­tur­ing in the In­dian Drug & Phar­ma­ceu­ti­cals In­dus­try in good stead in the global mar­ket in­clude: 1. Fast ap­proach­ing patent ex­piries; 2. Avail­abil­ity of ad­e­quate com­pli­ant fa­cil­i­ties in the coun­try to meet high mag­ni­tude of de­mand; 3. Rise in

pro­duc­tion ap­provals or li­censes and sup­ply con­tracts with over­seas com­pa­nies; 4. Chang­ing pref­er­ences in reg­u­lated mar­kets for generic com­po­si­tions to keep the ris­ing health care costs un­der check.

Gov­ern­ment’s Role

The draft phar­ma­ceu­ti­cal pol­icy 2017, floated by the min­istry of chem­i­cals and fer­til­iz­ers for stake­holder opin­ion last year, had pointed out In­dian in­dus­try’s in­creas­ing de­pen­dence on im­ported raw ma­te­ri­als - ac­tive phar­ma­ceu­ti­cal in­gre­di­ents and key start­ing ma­te­ri­als - to man­u­fac­ture fin­ished dosage for­mu­la­tions. The pol­icy pro­posed to phase out loan li­cens­ing which is a vari­ant of con­tract man­u­fac­tur­ing that ac­counts for 40 per cent of to­tal drugs pro­duc­tion in the coun­try, to im­prove drugs qual­ity. Many pharma com­pa­nies rely on loan li­cens­ing for

man­u­fac­tur­ing and fo­cus on sales and mar­ket­ing. Thus, phas­ing out of loan li­cens­ing will force pharma ma­jors to de­velop in-house pro­duc­tion ca­pac­i­ties.

Through ‘Pharma vi­sion 2020’, the Gov­ern­ment of In­dia is aim­ing at mak­ing In­dia a global leader in end-to-end drug man­u­fac­ture. Un­der this cam­paign, the ap­proval time for new fa­cil­i­ties has been re­duced to en­cour­age and boost in­vest­ments. Plans by the Gov­ern­ment to in­cen­tivise bulk drug man­u­fac­tur­ers, in­clud­ing both state-run and pri­vate com­pa­nies as a part of its ‘Make in In­dia’ pro­gramme is in­tended to re­duce de­pen­dence on im­ports of API, of which nearly 75-85 per cent is cur­rently im­ported from China.

How­ever, the re­cent ban on 328 com­bi­na­tion drugs by the gov­ern­ment has raised few con­cerns on the busi­ness of pharma con­tract man­u­fac­tur­ers. The fi­nal im­pact of this de­vel­op­ment is yet to be seen. As of now, In­dia has al­ready gained a foothold in the global arena of ex­port due to its high pro­fi­ciency in man­u­fac­tur­ing fan­tas­tic qual­ity of drug prod­ucts. More­over due to the high num­ber of Con­tract Man­u­fac­tur­ers avail­able in In­dia there is a wide spread growth of In­dian phar­ma­ceu­ti­cal in­dus­try mak­ing them a Build­ing block of In­dian phar­ma­ceu­ti­cal in­dus­try.

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