A Brave New World: Survival Strategies of Custom Manufacturers

24 February 2003 00:00  [Source: ICB Americas]

Custom manufacturers are weathering the downturn in pharmaceutical outsourcing by taking a cautious, yet forward, approach to maintaining and building their businesses. Adding small-scale development laboratories, strengthening technology positions and further building customer relationships are common strategies being taken by the top players. And for those companies with biopharmaceutical manufacturing capacity, expanding capabilities and capacity to meet increased demand remains a positive development.

Biotech Provides

Bright Spot

In Tough Market

The two key factors affecting the custom manufacturing market-the downturn in pharmaceutical outsourcing and increased demand for contract biopharmaceutical manufacturing-is best seen in one of the industry leaders, Lonza. Although Lonza's sales for its exclusive synthesis and biotechnology business increased to SFr 978 million ($718.6 million) in 2002, a 9.8 percent gain over 2001, the increase was the net result of strong growth in biotechnology combined with a downturn in its exclusive synthesis business. Its operation has been affected by production overcapacities at the pharmaceutical companies and the declining number of approvals for new products. That led to a restructuring last year, including the closure of a production facility in Los Angeles and the shifting of production from that site to its two remaining facilities in Conshohocken, Pa., and Visp, Switzerland. These two sites account for 85 percent of the current reactor capacity of Lonza's exclusive synthesis activities. With the restructuring, Lonza has nearly finished eliminating roughly 220 positions.

"We are confident that the exclusive synthesis business bottomed out in 2002 and will make a substantial recovery in 2003," says Markus Gemuend, chief executive of Lonza. "Our expectations are based on positive impulses from the strengthened R&D pipeline, the successful efforts to widen the customer base and savings from the restructuring measures adopted in 2002."

Lonza Biologics, the contract biopharmaceutical arm of Lonza, continues to see good growth from new projects, and the company is investing accordingly. Last month, Lonza Biologics and MorphoSys AG signed an agreement for access to Lonza's process development and manufacturing capacity for future antibody projects for both MorphoSys' own and partnered therapeutic antibody projects. MorphoSys plans to partner its current proprietary therapeutic antibody projects before entering clinical trials. MorphoSys will offer its partners manufacturing capacities at Lonza, thereby increasing the value of its pre-clinical deals. MorphoSys has proprietary technology for producing synthetic antibodies.

Lonza Biologics announced last month a large-scale supply agreement for the long-term commercial manufacturer of the C5 complement inhibitor antibody eculizumab, which is being developed by Alexion Pharmaceuticals. The drug is now in clinical trials.

Lonza is investing SFr 550 million for four projects. The first is the SFr 100 million expansion of its Kourim-based microbial fermentation capacity. Existing fermentation capacity will be increased by 50 percent, via the installation of two 75 cubic meter fermenters. The cGMP plant is scheduled to come on stream at the beginning of 2005.

Lonza has also committed SFr 100 million for a new cGMP microbial manufacturing facility for biopharmaceuticals in Visp, with commercial operations expected to begin in the first quarter of 2005. The company is also investing SFr 20 million for a small-scale production plant in Visp, which is expected to come on stream early this year. And SFr 330 million is being spent for the large-scale build out of Lonza Biologics' mammalian cell culture production in Portsmouth, N.H., which will add 60,000 liters of capacity, pushing the current 19,400 liters to almost 80,000 liters. Lonza is upgrading its Slough, UK, capacity to a center of excellence for development and small scale manufacture, having recently entered into a manufacturing supply agreement with Abgenix Inc. under which Abgenix has exclusive access to its Slough site for five years.

Avecia is another company positioning itself in both biotech and pharmaceuticals. "In both sectors, this calls for clear differentiation with an ability to combine the right technologies and capacities at each scale-early, pilot and late phase," says Peter Jackson, vice president for pharmaceutical products with Avecia. "We see a balanced portfolio in biotech/ pharma and across the clinical development pipeline as helping to counteract the current challenges in late-phase small molecules, and our biotech businesses-notably biologics and DNA medicines-are developing strongly," says Mr. Jackson. The company says it will pursue a combination of organic growth, bolt-on acquisitions and technology alliances. In line with a strategy of broadening its pharma technologies portfolio, Avecia will be announcing the acquisition of a range of chiral chemistries from Synthon Chiragenics during Informex this week.

Last year Avecia opened its roughly $3 million Early Phase Delivery Team (EPDT) plant at Huddersfield, UK. This facility is fully dedicated to fast conversion of customers' development processes into clinical trials quantities of pharma intermediates and actives. The order book is ahead of expectations, and expansion is likely to be announced later this year.

Avecia also recently completed a $2 million cytotoxics development suite at its Grangemouth, UK, facility, which will be officially open shortly. Further investment, planned to be on line in the fourth quarter 2003, will deliver additional cGMP hydrogenation capacity at Huddersfield in support of new product introductions. Meanwhile, construction is on schedule for Avecia Biotech-nology's Large Scale Advanced Bio-logics Center in Billingham, UK. The project is Avecia's largest single investment to date, with phase one capability due on stream in the second half of this year. Completion is scheduled for 2005. Avecia is also looking at further expansion for its DNA medicines manufacturing facility in Milford, Mass.

Building a technology platform that can serve both pharmaceutical and biotech companies is also a strategy for Cambrex. "Our goal is to be perceived as a life science company providing pharmaceutical fine chemicals and services and not a fine chemicals company providing pharmaceutical fine chemicals," notes Monika Lekander, president of Cambrex's pharma business unit. The pharma business unit of Cambrex is focused on building existing strong relationships with large, medium and emerging pharma companies, and the biopharmaceutical business unit of Cambrex focuses on pre-clinical and clinical trials while supporting its customer's transition to commercial production.

Last year, the biopharmaceutical business unit of Cambrex launched new, integrated bioprocessing services for biologics in early-stage development by offering process development and scale-up expertise in the production of active pharmaceutical ingredients (API) for pre-clinical studies. The service offerings include cell line improvements, assay development, media optimization and upstream/downstream process optimization for mammalian cell culture, bacterial- and yeast-based expression/production systems. Cam-brex is constructing a pilot plant dedicated to these services at its facility in Baltimore, Md. In addition to the pilot plant, it is doubling capacity in Baltimore to roughly 6,300 liters. Cambrex is also adding 3,000 liters of fermentation capacity to its existing facility in Hopkinton, Mass.

To support the supply of clinical trials and smaller scale active pharmaceutical ingredients, the pharmaceutical business unit of Cambrex upgraded research, development and quality control laboratories and added a new custom manufacturing production line in Europe and a new small-scale active pharmaceutical ingredient manufacturing facility in the US. Cambrex plans to further emphasize support services for process development and the manufacture of clinical trial material such as safety studies, stability testing, impurities profiles, and early pre-clinical lab scale development services. The company continues to invest in its controlled substances business and high containment product manufacturing. It is also interested in forming technology collaborations with smaller, innovative companies with proprietary technologies.

DSM is reasserting itself in the marketplace with a new organization for its fine chemicals and custom manufacturing activities. Last year DSM split its fine chemicals business into two parts-DSM Pharmaceutical Products (DPP), which focuses on custom manufacturing pharmaceuticals, and DSM Fine Chemicals, which focuses on the custom as well as multi-client specialty chemicals for other market segments such as agrochemicals and food ingredients.

DPP consists of DSM Pharma Chemicals, DSM Biologics and DSM Pharmaceuticals Inc. DSM Pharma Chemicals is dedicated to the development and manufacturing of custom chemical advanced intermediates and APIs. It includes multi-purpose plants in Venlo, the Netherlands; Linz, Austria; Greenville, N.C.; and South Haven, Mich. DSM Biologics focuses on biopharmaceutical ingredients and includes R&D and manufacturing facilities in Montreal, Canada, and Groningen, the Netherlands. DSM Pharmaceuticals, based in Greenville, focuses on the development and manufacture of oral, sterile and topical dosage forms.

Like other companies positioned in both fine chemicals and biotech, the biotech side of DSM's business has been the most active. Last December, DSM Biologics and Crucell NV, a Dutch biotechnology company specializing in technology platforms for therapeutic proteins, formed an alliance through which DSM gains a license to Crucell's PER.C6, a cell line that has been developed to enable efficient biopharmaceutical production.

"The alliance makes it possible to develop and produce biopharmaceuticals on a large scale," says Feike Sijbesma, member of the managing board of directors of DSM. "There is a great future for the type of medicine that we can develop using this technology platform. That is why an investment in this field is perfectly in line with our growth strategy for life science products."

DSM is in preparation of the building of 60,000 liters of fermentation capacity in Montreal, Canada, for large-scale production of monoclonal antibodies and recombinant proteins based on mammalian cell cultures. Last September, DSM and the Houston-based biotechnology Agennix an-nounced the opening of a new manufacturing facility on DSM's fermentation site in Capua, Italy, dedicated to the commercial production of pharmaceutical-grade re- combinant human lactoferrin.

On the pharma side, DSM's $800 million acquisition of Catalytica Pharmaceuticals in 2001 garnered DSM its sites in Greenville, N.C., and South Haven, Mich. Last year, DSM landed approval for the manufacture of Eli Lilly's Xigris (drotrecogin alfa, activated), Idec Pharma-ceuticals' Zevalin (ibritumomab tiuxetan) and Shire's Adderall (amphetamine/dextroamphetamine), and secured a three-year renewal of its contract with GlaxoSmithKline involving active pharmaceutical ingredients, dosage form and steriles. At this point, DSM has a pipeline of over 100 projects in various development stages, representing roughly $200 million to $300 million in potential revenue. The company recently invested  50 million to expand its GMP fine chemicals production sites at Linz and Venlo.

Building the Toolbox

The Dow Chemical Company is also pursuing strategies to service large pharmaceutical, smaller pharmaceutical and biotech companies. "With the volume of strategic acquisitions we've undertaken over the last few years, our offering is greatly improved, especially with the acquisition of Collaborative BioAlliance and the chiral and fine chemicals business of Ascot," says Nick Hyde, business director for Dow Pharmaceutical Services. "These recent acquisitions have built capacity, capabilities and competencies that Dow can apply to more effectively address customer issues and grow our relationships and business. Our portfolio can support large and small pharmaceutical companies as well as small molecule and biotech companies," he adds.

Dow's Pharmaceutical Services business is part of the company's custom and fine chemicals global business unit. It combines the personnel and assets from Dow's original contract manufacturing services business with those from Chirotech Technology Ltd., Mitchell Cotts Chemicals, Hampshire Chemical Corp. and Dow Biopharma-ceutical Contract Manufacturing Services. It currently manufactures small molecule active pharmaceutical ingredients, oligonucleotides, peptides, cGMP polymers and proteins from microbial fermentation.

Dow Pharmaceutical Services is investing to improve existing chiral capabilities and to enhance its toolkit. The company is focused on chiral hydroformylation and is leveraging technology gained from the Union Carbide acquisition and complementing it with Dow's knowledge of ligand synthesis and catalysis and Chirotech's chiral ligand/catalyst capabilities. In December, Dow secured exclusive rights to DuPont's DuPhos asymmetric hydrogenation technology. Chirotech originally licensed the exclusive rights for the commercial use of the DuPhos technology and of related BPE and ferrocene-based ligands for chemocatalysis.

Dow has also developed technology that permits the isolation of single enantiomer Dowanals (glycol ethers) and is evaluating the performance of these materials in various applications. In collaboration with the Plant Research Institute, Dow is working to accelerate technology development for production of mammalian-like glycan structures in transgenic plants.

Degussa has also made recent moves to support biopharmaceuticals. In November 2002, Degussa's fine chemicals business unit assumed responsibility for the oligonucleotide business line of Degussa subsidiary Proligo LLC, headquartered in Boulder, Colo. The range of products includes RNA and DNA oligonucleotides as well as aptamers of various lengths and modifications to be applied in genetic medicines

Like other companies, Degussa is emphasizing technology solutions. "We are taking a close partnership approach and are also aggressively extending our services to the agrochemical and non-life science segments," says Peter Nagler, president of Degussa's fine chemicals business unit. Through Degussa's Project House structure, the company is investing in chemocatalysis and biocatalysis technologies for chemical and process research. Together with Degussa's Biotechnology Project House, the fine chemicals unit has successfully started up a new biocatalytic manufacturing process in its cGMP multi-purpose plant at the Wolfgang Industrial Park in Frankfurt, Germany. This new hydantoinase process was used for the first time to produce a non-natural L-amino acid, a building block for an active pharmaceutical ingredient for high blood pressure treatment. Previously this product could only be produced via a complex chemical route.

Degussa also invested over  4 million ($4.3 million) to modernize a cGMP multi-purpose plant in the Wolfgang Industrial Park that manufactures active pharmaceutical ingredients (APIs) and intermediates. The plant is suitable for low-temperature syntheses down to -60ûC. It has a closed system for isolation and purification of crystalline solids.

In a joint venture with Nanning Only Time Pharmaceuticals Co. Ltd., Nanning, China, Degussa's fine chemicals business unit is building a cGMP purification plant that will produce amino acids to infusion-solution grade. The plant is expected to start up in mid-2003. In January 2003 the joint venture also began construction of a new plant for the production of L-methionine at Wuming, China. The plant will have an annual capacity of about 350 metric tons and use enzymatic resolution technology.

Other Custom

Players Adjust with

Moves of Their Own

The three Rs-restructuring, reorganization and rationalization-characterize Clariant's recent activity in its custom manufacturing business. After successful integration of BTP, Clariant's life science and electronic chemicals (LSE) division reorganized around four business units: pharmaceuticals, custom synthesis, specialty fine chemicals and electronic materials. Clariant Pharmaceuticals acts as a spearhead for the entire Clariant organization in working with the pharmaceuticals industry in chemical manufacturing, small-scale production, process development, technology development and regulatory support. In its pharmaceuticals business, Clariant has invested over $40 million on two cGMP centers of excellence to provide cGMP manufacturing capacity in both Europe and the US, specifically in small-scale, cGMP kilo laboratories.

"By realistically matching our capabilities with market opportunities, we will improve our productivity. We will also enhance the level of value we offer to our customers, who can be assured that they have the best asset mix serving the requirements of their project," says Joachim Mahler, president of the life sciences and electronic chemicals division of Clariant.

Clariant is therefore closing plants and moving production to newer, more technologically advanced multi-purpose facilities that are in the long run less expensive to operate and can do more complex synthesis at a lower costs. When production cannot be relocated, it will either be outsourced or the corresponding business will be sold to a company for which it is a good strategic fit. Clariant is primarily interested in the most difficult projects-those requiring a multiple-step synthesis where there is a technology fit, a reasonable longevity, and an acceptable payoff based on the required investment, says Mr. Mahler.

Clariant's custom synthesis business unit has added to its core capabilities. Core reactions include all types of halogenation, oxidation and reduction processes. Recent additions are substituted phenylhydrazines, metal organic compounds and carbonylation. The specialty fine chemicals business unit manufactures and markets primarily multi-customer products with some derivatives and single customer products. The product lines of this business unit are glyoxal and derivatives, silicone organics, diketene/DMS, and monochloroacetic acid and its derivatives.

Eastman Chemical is also emphasizing technology to maintain a competitive advantage. "Customers will prefer a company with a strong technology position," says David Reames, portfolio manager for Eastman Chemical's chemical synthesis business. "This will include having a wide array of technical tools and the ability to employ them in manufacturing. Eastman continues to invest in research and development to maintain and enhance our technology position," he says

Eastman provides batch and small-scale continuous custom manufacturing at sites in Kingsport, Tenn.; Batesville, Ark.; Longview, Tex.; and Llangefni, Wales. Recent product introductions and capabilities include epoxybutene, Eastman's BoPhoz chiral ligands and custom carbonylation. Epoxybutene leads to the production of chemicals traditionally obtained from Reppe chemistry (via acetylene and formaldehyde). Discovery and development of a continuous air oxidation of butadiene now make epoxybutene production economical. Its BoPhoz ligands, phosphinoferrocenylaminophosphines used for asymmetric catalysis, show enantioselectivity for amino acid derivatives by asymmetric hydrogenation. Eastman's custom carbonylation is now available at a scale suitable for custom synthesis projects and includes carbonylation of alcohols, esters, ethers and halides; hydroformylation of olefins; and hydro- or carboalkoxylation of olefins. Eastman's custom chemicals business unit has also added three staff members (two in North America and one in Europe) to call on trade customers.

International Specialty Products (ISP) has integrated its fine chemicals business into a core pharmaceutical business so that the pharmaceutical account managers will be able to build on their relationships by offering custom manufacturing services in addition to the company's excipient products. "This arrangement will increase our coverage of the pharmaceutical market and provide more exposure for our contract manufacturing business," says Dean Ross, senior key account manager, pharmaceuticals, fine chemicals.

ISP has also entered into a joint venture with Biocatalytics that will combine ISP's capabilities in large-scale GMP manufacturing with Biocatalytics' expertise in enzymatic chemistry for the production of beta-amino acids used in the synthesis of beta-peptides, beta-lactam antibiotics and alkaloids. ISP says it will also continue to build on its controlled substance capabilities by providing custom manufacturing for niche products at its Freetown, Mass., location that also has successfully completed a cGMP inspection by the Food and Drug Administration. In addition, ISP is expanding its capabilities to produce kilo quantities of intermediates and final drugs for early phase testing.

Johnson Matthey's strategy is to develop and deliver value-creating technologies for the pharmaceutical and fine chemicals sector, which includes new catalyst development, participating in academic collaborations and using in-licensing where appropriate, as well using a single market-oriented team, notes Martin T. Durnev, vice president and general manager, chemicals North America and Asia, Johnson Matthey.

A key recent move for Johnson Matthey was the acquisition last November of Synetix from ICI. "Johnson Matthey and Synetix have a like-minded approach to doing business. Innovation and technology underpin our activities and strong customer relationships characterize our approach," says Larry Pentz, director, chemicals division, Johnson Matthey. "In bringing together our activities in the pharma/fine chemicals sector, we are providing our customers with a much more complete offering."

With the acquisition, the newly combined catalyst businesses move Johnson Matthey to number two in the global catalyst market and adds base metal catalysts from Synetix to Johnson Matthey's platinum group metal catalysts. Last June, Johnson Matthey launched its Catalytic Services business in the US to provide a range of services from initial screening of commercial catalysts to the development of fully scaled-up catalytic processes. Com-plementing the recent start-up of its Catalytic Services business, Johnson Matthey has added a major asymmetric catalysis platform to its offering with Synetix Chiral Technologies (SCT, a part of the recent Synetix acquisition). SCT opened a $3 million laboratory facility at its Cambridge Science Park, UK, site last June. This unit provides the expertise and facilities for the efficient development synthetic routes to chiral pharma intermediates.

SCT in-licensed a year ago from Professor John Hartwig of Yale University technology to make chiral amines by hydroamination of aryl alkenes using a bisphosphine palladium-based catalyst. The company has spent the last 12 months broadening the application, and Johnson Matthey plans to announce at Informex this week that this chemistry can be applied to a range of beta-phenylalanine derivatives, an increasingly important feature of many pharmaceutical compounds currently in development. This technology allows broad access to chiral amines in a single step and it is cost-efficient, says the company. The relatively inexpensive starting material, a cinnamate derivative, when coupled with a very efficient catalytic step, yields a useful chiral amine with cost-effectiveness.

SCT has also successfully scaled up the alkyne addition chemistry developed by Professor Erick Carreira from ETH-Zurich, Switzerland, to produce chiral alcohols. This technology has been developed by SCT to allow convergent routes to a wide range of chiral alcohols. It has achieved high stereoselectivity (entaniomeric excess usually 98 percent plus) with an extensive range of aldehydes, says the company.

In addition to the two chiral routes cited above, Johnson Matthey's SCT also has access to these amines and alcohols via the classic asymmetric hydrogenation of prochiral enamines, imines, dehydroaminoacids (for amines) or ketones (for alcohols) from chiral ligands in-licensed from Professor Albert Chan at the Hong Kong Polytechnic University.

Johnson Matthey has recently made advances in developing novel palladium precursors for complex coupling reactions, polymer anchored homogeneous compounds and scavenging fibers for the removal of residual precious metals in product streams. The company is now offering in commercial quantities a next-generation coupling catalyst, palladium (I) tri-tert-butylphosphine bromide dimer, {Pd(µ-Br)(Pt- Bu3}2 or Pd (I) dimer. It can be used for the coupling of sterically hindered or electron-rich aryl bromides, aryl chlorides and heterocycles. The company says it can be easily handled: as a free flowing, fully formed catalyst, it eliminates the need for pyrophoric t-Bu3P, and it is comparable to or more active than Pd (t-Bu3P)2.

Rhodia has identified eight key markets in which it wants to strengthen its positions, including pharmaceuticals and agrochemicals. "To serve these markets better, Rhodia has created Rhodia Pharma Solutions, a pharma-specific enterprise to better meet the needs of its customers in this important market for a broad range of products and services, from development services to bulk active pharmaceutical ingredients, through building block products and custom manufacturing services," says Jean-Pierre Clamadieu, president of Rhodia's pharmaceuticals and agrochemicals division. At the same time, Rhodia has created the Perfumery, Performance and Agro enterprise, which will allow the company to serve a larger range of markets for fine chemicals based on a broader portfolio of technologies and product lines. At Informex, the company plans to share the details of this new organization. The company emphasizes its solutions from early drug development to commercial stage to commercial manufacture as well as a broad portfolio of technologies, such as fluorination, phosphorylation and chiral technologies.

Like other companies, Honeywell is putting a new face on its activities. This fall, Honeywell combined its active pharmaceutical ingredients unit, its agrochemicals intermediates business and its research chemicals business to form Honeywell Life Science. The objective is to capitalize on opportunities for "cross-pollination" between the customer bases of the units as well as across their technology platforms. Ultimately, the company hopes to grow Honeywell Life Science from its $100 million sales mark to around $500 million within three to five years. Honeywell hopes to build critical mass. For its current $100 million in sales, active pharmaceutical ingredients account for roughly 20 percent, research chemicals 30 percent and non-cGMP pharma and ag fine chemicals the balance.

Following the formation of the new Bayer to include four independent operating groups-Bayer Chemicals, Bayer Polymers, Bayer Cropscience and Bayer Healthcare-the company's fine chemicals and custom manufacturing activities now fall under Bayer Chemicals' basic and fine chemicals business group. Like other companies adding to their toolbox, Bayer commercialized a new chiral hydrogenation technology using Bayer's proprietary ligand Cl-Me-O-Biphep [R and S-5,5'-dichloro-6,6'-dimethoxy-2,2'bis(diphenylphosphino)-1,1'biphenyl] last fall. Bayer first launched the technology in late 2001 and now uses this ligand to perform multi-ton enantioselective hydrogenation. It is also partnered with Strem Chemicals to market the ligand in research quantities.

In other developments, Bayer started a new cGMP kilo lab in 2002. On the agrochemical side, the company has started the production of several highly active herbicides in a state-of-the-art high-containment facility, which includes the active ingredients for its Bayrepel [1-(1-methyl-propoxycarbonyl)-2-(2-hydroxyethyl)piperidine], used in insect repellent products. Bayer has also begun targeting the non-life science sectors, such as cosmetics, fragrances, electronics, water treatment and photo applications.

Sigma-Aldrich's fine chemicals activities underwent a major management change last year with Jai Nagarkatti, former president of the company's fine chemicals division, becoming the new president of the company's scientific research division and Franks Wicks, former president of the company's scientific research division becoming the new president of its fine chemicals division. Although its research chemicals are the company's core business, it does offer custom manufacturing services and products through its fine chemicals division. Fine chemicals account for roughly 19 percent of the company's total revenues and scientific research 59 percent.

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