In the drug services industry, growth has no end in sight
C&EN, 20 May 2019
Transformative investments, and capacity expansions abound at CPhI North America
Pharmaceutical services firms attending the CPhI North America trade show in Chicago earlier this month were virtually unanimous in reporting another year of strong growth in a business that has seen no direction other than up for nearly a decade. Investment continues apace, as do acquisitions, with many firms claiming their manufacturing assets are at or near full capacity.
Tied as it is to the drug industry, the sector has long defied traditional economic cycles. Contract manufacturers of active pharmaceutical ingredients (APIs) have also added services, developed expertise in complex chemistry, and generally taken risks to grow businesses in the direction required by customers developing the drugs of the future.
Results this year indicate that many of these risks have paid off. And ongoing investments hint at another round of risk taking on new technologies and service models.
"Business is buoyant, the strongest it's been on record," said Denis Geffroy, vice president of business development for the Northern Irish firm Almac Sciences. "We are approaching 20% growth this year, which is really surprising because we've been growing 15-20% for the last 10 years."
Several factors explain yet another year of strong results, Geffroy said. "First, I like to think we are doing a good job. But the market has improved, especially in the US," he said, citing a steady flow of venture funding for biotech start-ups. Meanwhile, customers continue to bring their outsourcing back to Europe from China, a shift that accelerated with a Chinese crackdown on environmental regulations starting in 2017.
Almac Sciences is experiencing strong growth and is operating near full capacity. The firm plans a major expansion.
Almac has also benefited from a commitment it made to biocatalytic services beginning in 2010. "We are staying ahead of the game, using enzymes not only for chiral molecules," Geffroy said. "About 20% of the compounds we make have got an enzyme somewhere, either in a final step or in an intermediate step." The 2015 acquisition of the Irish firm Arran Chemical was key to developing the service, he added.
At the time, he told C&EN that Almac was "hitting the wall" on biocatalysis capacity. The company is hitting the wall again, according to Geffroy, this time in its core API business. "We are growing so quickly, we are at full capacity at the moment, which is a bit frustrating," he said. "We need more capacity, and we now have the approval from the board to start building an API plant next door to our current plant." The $20 million facility is expected to open in 2021, yielding a fivefold jump in the firm's capacity to make highly potent APIs.
The Portuguese firm Hovione is also expanding. "We acquired a new piece of land in Portugal, a greenfield site, 10 times larger than the site we have," Marco Gil, senior director of commercial services, told C&EN. At the 40-hectare site, a half-hour drive from Hovione's headquarters plant in Loures, outside Lisbon, the firm will add API capacity while expanding in new areas such as flow chemistry and finished-drug production.
The company is already expanding in Loures, where it recently established a continuous tableting line. Spreading out at the new site will give Hovione a chance to broaden its services and establish a full line from early-stage development to commercialization, all in the Lisbon area, according to Gil.
In France, Minakem is building a lab for cytotoxics used in antibody-drug conjugates at its site in Louvain-la-Neuve, Belgium, where it is also installing a high-performance liquid chromatography column, according to Jean-Marie Rosset, vice president of sales and marketing. And the company, last year, completed and $11 million API-capacity expansion in Dunkirk, France.
"We are facing capacity constraint," Rosset said, noting that Minakem is also pursuing an acquisition. "We have been looking for 18 months." The company may acquire R&D or pilot manufacturing assets in the US, he said.
Rosset said that prospects look good for the year ahead. "We have a lot of stuff in the works that will require scale-up," he said. "The problem is where to put these products. But that's a good problem to have-better than empty capacity."
Helsinn finds itself in similar straits, according to Sandra Moro, business development director. The company is in the midst of a $20 million project at its Biasca, Switzerland, headquarters to install large-scale cytotoxic manufacturing capability.
We believe in the one-site shop with chemistry, particle engineering, and final product.
Marco Gil, senior director of commercial services, Hovione
The project will free up smaller-scale capacity, Moro said, allowing Helsinn to take on more of customers' early-stage work, such as oncology projects that have been fast-tracked by regulators. "We can go from Phase I to Phase III," she said, referring to stages of drug development, "but we currently have very few early-phase compounds-56% of our compounds are commercial."
Tight capacity has not stifled growth, however. Helsinn's revenues increased about 20% for the second year in a row last year, Moro said.
It's not only European firms that are investing. India's Hikal also has achieved 20% annual growth in recent years, according to Anish Swadi, head of business development and strategy.
The company is also in need of capacity. "We are investing $55 million into assets and infrastructure," Swadi said; this investment will support the company's pharmaceutical chemical and crop protection divisions, which share core chemistries. The new capacity will expand continuous manufacturing and biocatalysis capabilities, he added.
Some of the firms that disclosed expansions at CPhI did so on top of large acquisitions. Executives from such firms discussed integrating internal and external investments to create full-service offerings for their drug-industry customers.
Catalent recently announced a $1.2 billion acquisition of the gene-therapy specialist Paragon Bioservices, setting itself up in an increasingly competitive new field in drug development.
Separately, the company is investing more than $200 million to expand its monoclonal antibody (mAb) and other large-molecule production capabilities in Madison, Wisconsin, and Bloomington, Indiana. It's adding fill-and-finish and associated analytical and packaging capabilities as well, to "take your mAb from preclinical all the way to commercial," said Elliott Berger, vice president of global marketing and strategy.
Although Catalent doesn't manufacture pharmaceutical chemicals, it is looking to bolster its presence in small molecules, where bioavailability-enhancing techniques are of increasing importance. Acquisitions over the past 5 years-including Micron Technologies in 2014, Pharmatek Laboratories in 2016, and Juniper Pharmaceuticals in 2018-have brought in spray drying, formulation, and other services downstream of API production. At the Chicago event, Catalent announced a $40 million expansion of oral-dose capabilities and the addition of spray drying in Winchester, Kentucky.
And the company is also ready to invest heavily in its newest business, Berger said, noting that Paragon is building two commercial production facilities in Baltimore and expanding its relationship with Sarepta Therapeutics, a key customer for its adeno-associated virus vectors. "We have financing secured for larger than the acquisition to fund that," he said.
At CPhI, Lonza announced what it calls a "first in human" service: a combination of API and finished-drug development, formulation, and manufacturing targeted at the 70% of compounds in development that have solubility challenges.
According to David K. Lyon, a senior research fellow with Lonza, the service draws on both internal assets and those acquired in recent years, such as Micro-Macinazione, a Swiss micronization specialist that Lonza bought in 2017. Other assets are as far afield as Bend, Oregon, where Lonza does solubility work; Guangzhou, China, where it manufactures APIs; and Edinburgh, Scotland, where Lonza operates a liquid-drug formulation facility.
Lonza is cuing up these assets to crack the bioavailability case at Phase I and expedite commercialization, especially of fast-tracked projects, Lyon said. It aims to reduce development time from 52 weeks to 32 weeks for customers seeking to file an investigational new drug application with the US Food and Drug Administration.
The small-molecule specialist Cambrex is also putting recent acquisitions together. The company brought in early-stage API development when it bought PharmaCore in 2016 and added early-stage API capabilities and sites in the US and Scotland when it acquired Avista Pharma Solutions last year. It also bought Halo Pharma, a finished-drug producer, for $425 million last year. Cambrex is now better positioned to address the changing needs of innovative drug companies, according to Matthew Moorcroft, vice president of marketing.
Meanwhile, Cambrex continues to invest in large-scale API production. It completed an expansion of its high-potency API plant in Charles City, Iowa, last year. The company is now ramping up continuous manufacturing capabilities at its Highpoint, North Carolina, facility-the former PharmaCore-and its factory in Karlskoga, Sweden.
"To make a long story short, we are excited about what we've done over the last 6 months," Moorcroft said. "Now it's all about delivering."