Asian
CMOs in demand
Asia never had it so
good. Multinational pharma companies are de-risking their R&D
manufacturing by outsourcing it to Asian contract research and
manufacturing companies—in turn effecting substantial cost
savings and keeping their faith in Asian capabilities
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The global pharmaceutical industry has been
facing many challenges in the form of increasing competition from
generics, rising cost of new product development, declining research
and development (R&D) productivity, shrinking average patent
life, and mounting governmental pressure to reduce drug prices. Given
the backdrop of such a competitive landscape, the decisive factors for
growth and sustainability are faster new drug development and cost
containment with “contract manufacturing” emerging
as a strategic option offering several advantages.
Firstly, outsourcing provides pharmaceutical companies the opportunity
to avail flexibility, quicker time- to-market, and lower scale-up
costs. Thus, companies are able to meet growing demand for new drugs
and focus on their core competencies. Secondly, outsourcing enables
companies to reduce excess capacity in their manufacturing networks and
restructure supply chains. Finally, value-added outsourcing services
meet the increased demand for specialized manufacturing capabilities in
key technical niches and increased demand for back-up sources of
supply.
The global contract manufacturing market was about $38 billion in 2007
as per ValueNotes & Know Genix estimates and is expected to
grow at CAGR of eight percent by 2010 to touch $49 billion. Global
market for pharmaceutical contract manufacturing is estimated at $20.4
billion for 2008, notes Global Industry Analysts. The US is the single
largest market for pharmaceutical contract manufacturing with revenues
projected to be $12.8 billion in 2012. In terms of revenues, although
North America and Europe are the largest markets, Asia with its immense
manufacturing capacity is projected to exhibit robust growth.
Exhibiting a CAGR of nearly 16 percent, Asia Pacific is expected to
emerge as the fastest growing region in the global pharmaceutical
contract manufacturing market. Injectables represent the fastest
growing product segment, and are forecast to record revenues of $10.6
billion by 2015. Solid Dosage Forms, the largest segment, is vibrant
with a projected market value of $12.3 billion for 2010.
The European and North American pharmaceutical contract manufacturing
sector has been categorized into three tiers. Tier 1 companies offer
end-to-end services ranging from clinical trials to commercial
manufacturing, logistics, packaging, and marketing assistance. Tier 2
companies provide services ranging from early stage project development
to commercial level manufacturing. Tier 3 companies are conventional
manufacturing companies, which address the needs of the generic drugs
industry. However, contract manufacturing in Europe is dominated by
generic drug variants, while in North America branded versions are
preferred. In Asia, numerous local players operate in the market. Key
global market participants include Althea Technologies, Catalent Pharma
Solutions, Dishman Pharmaceuticals and Chemicals, DSM Pharmaceuticals,
HAUPT Pharma AG, Jubilant Organosys, Kemwell, Nipro Corp, NextPharma,
Patheon, and Penn Pharmaceutical Services.
The Asian contract manufacturing organizations (CMOs) account for an
ever-expanding share of global pharmaceutical manufacturing and is
expected to account for around $3.3 billion of the total projected $23
billion CMO market by 2010. A growing number of CMOs have obtained US
Food and Drug Administration (FDA) approval for their operations and
completed good manufacturing practice (GMP) certification. Asian
countries provide a significant cost advantage with manufacturing
savings of upto 50-80 percent of the cost that would be incurred, if
the manufacturing is undertaken in western territories.
The governments in the region are encouraging local companies to shift
to the Pharmaceutical Inspection Convention and
Pharmaceutical Inspection Co-operation Scheme (jointly referred to as
PIC/S)—two international instruments between countries and
pharmaceutical inspection authorities, which provide together an active
and constructive cooperation in the field of GMP. In South East Asia,
Malaysia and Singapore have joined this PIC/S, which currently has 33
participating authorities including WHO, Unicef, EMEA and EDQM.
Thailand and Philippines are soon expected to join this scheme. This
will boost the volume of manufacturing activities to the region.
Frost & Sullivan says the region will continue to hold its lure
with low production costs, increasing reliant manpower, incentives from
the local governments to lure CMOs, implementing IP laws to assure
companies of the viability of producing/outsourcing to their countries
and expanding healthcare markets in the growing economies. These
factors are supporting the Asian CMOs to secure more outsourcing orders
from big pharmaceutical companies. In India, for example, there are
close to 100 FDA-approved pharmaceutical facilities—the
largest number in any country outside the US. Chinese company Zhejiang
Huahai Pharmaceutical became the first company to get FDA approval in
2007 and is expected to start exporting its finished drug to the US by
2012. Opening of USFDA office in China in November 2008 is testimony
that more companies in China are looking for the US approval and
exporting their drugs to the western markets. All these make the region
an attractive destination for pharmaceutical contract manufacturing.
PricewaterhouseCoopers notes that Asian countries provide a significant
cost advantage for pharmaceutical manufacturing. The overall costs of
drug manufacturing in India, for example, are up to 50 percent cheaper
than in western territories. Cost savings on this scale present a
compelling reason for manufacturing outsourcing to Asian CMOs. However,
cost savings are nothing compared to the need to ensure quality and
safety. The reports of deaths linked to contaminated heparin in the US
sourced from China highlight the critical issue of quality. The general
trend, however, is of ever-increasing quality of work from Asian
territories. To overcome these safety and quality issues the
governments in region are taking measures to provide quality healthcare
to the public.
Besides regulatory system in place, the region has a large pool of
educated and appropriately qualified talent with the ability to run
manufacturing plants matching western complexity and quality. Several
CMOs operating out of Asia have obtained approval from the FDA gaining
credibility for their quality standards. China completed Chinese Good
Manufacturing Practice (GMP) certification as far back as July 2004 on
all the drug manufacturers in the territory. At the end of 2005, more
than 5,000 Chinese drug manufacturers had obtained their Chinese GMP
certificates. There is an ongoing effort in China to increase
inspections on already certified manufacturing sites, in response to
evidence that some of the certified manufacturers have not consistently
adhered to GMPs in the past.
With an increased commitment to international standards, Asian CMOs are
securing more outsourcing orders from big pharmaceutical companies. The
commitment to Western standards is also being reflected in the
modernization of plants, and moves to innovate through the development
of technologies, to ensure facilities are ready to meet future
manufacturing needs.
PricewaterhouseCoopers (PwC) also notes that China and India, followed
by Korea and Taiwan, are now providing an atmosphere for the
pharmaceutical industry where benefits such as the pool of educated and
qualified scientists, intellectual property law reform and market
growth are outweighing factors that had previously inhibited
development, principally uncertain regulatory frameworks and
enforcement. It also noted that Singapore is best suited for complex
and technology intensive manufacturing. Among the hotspot territories,
it has access to the best technology and funding for outsourcing
high-technology intensive products. Apart from this, Singapore also has
extremely well regulated IP protection and enforcement regime, and is
considered one of the best among all Asian territories in terms of
regulatory compliance. Along with Australia, Singapore has consistently
topped the rankings as the top Asian territory for IP protection and
enforcement. Singapore is able to attract companies like Lonza besides
being home to local companies like A-Bio and Beacon
Pharmaceuticals.