Patricia Van Arnum was executive editor of Pharmaceutical Technology.

Patricia Van Arnum

To coincide with the United Nations High-Level Meeting on Noncommunicable Diseases (NCDs), the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) issued a report of independent policy research, conducted by RAND Health, which identified the most significant obstacles to stemming the rise of NCDs in developing countries. The key finding of the research shows that effective treatments for NCDs exist and are likely to be available in generic form, but in many instances, these drugs fail to reach many people in the developing world. The study identified four key areas in improving access to NCD treatments: innovative ways to improve NCD medicine adherence; overcoming barriers to availability in poor and remote areas, where markups, taxes, and duties along the supply chain and counterfeit drugs are a problem; improving access to primary care; and removing regulatory restrictions that hamper medicine availability in developing countries. 

“Fifity percent of NCDs are avoidable, therefore, prevention measures, including lifestyle modifications, doing more physical exercise, stopping smoking and a healthy diet, are some of the most cost-effective and efficient ways to tackle the magnitude of NCDs across the developing world,” said IFPMA Director General Eduardo Pisani, in a Sept. 19, 2011, IFPMA press release. “But we know that while prevention is imperative and cost-effective, its impact can only be felt over the longer term. We also need to know how best to improve access to treatments that patients in developing countries need more urgently. The launch of the first in the series of IFPMA reports illustrates how the research-based pharmaceutical industry is committed to this challenge and how we want to understand what areas require particular focus,” he said. 

As in many global health initiatives, a multistakeholder approach, including participation from industry, the public sector, public and private partnerships, and nongovernmental organizations (NGOs) is considered a crucial way to address the problem of NCDs in the developing world. “The increasing burden of NCDs in low- and middle-income countries poses an economic, social, and moral stumbling block to global health and prosperity,” said IFPMA President and AstraZeneca CEO David Brennan, in the IFPMA press release. “This underscores the importance of partnership to understand what the most significant problems are and to work together to solve them.”

According to data from IFPMA, research-based pharmaceutical companies are engaged in 213 health partnerships, of which approximately 25% deal directly with NCDs or help strengthen the primary care to deliver treatments. A recent partnership for NCDs was announced in September 2011, when the World Health Professions Alliance (WHPA) announced an NCD Health Improvement Card and toolkit, sponsored by IFPMA. WHPA is an international organization representing healthcare professionals, such as dentists, nurses, pharmacists, physical therapists, and physicians. WHPA represents more than 26 million healthcare professionals in 130 countries, and the NCD toolkit will be shared with them to help encourage patients to identify and prevent risky behaviors. 

The RAND report identifies four key areas in which the pharmaceutical industry can be participate in addressing the problem of NCDs in the developing world: realizing product improvement beyond the chemical compound, enhancing supply-chain efficiency and integrity, achieving gains from regulatory harmonization, and improving access to primary care. 

The RAND research showed that a large array of drugs for NCD treatment has been developed and are likely to exist in generic form, so that the most immediate gains in health can be achieved by improving access to existing medicines as opposed to developing new compounds. The four major NCDs are cardiovascular disease, chronic respiratory disease, diabetes, and cancer. In reviewing the availability of noncancer NCD drugs on the World Health Organization’s (WHO) Essential Medicines List, the report concluded that first-line treatments for noncancer NCDs and palliative care are likely to be available in generic form in developing counties. Development needs still exist for second- and  third-line medicines for refractory cases, to reduce side effects in the treatment of noncancer NCDs, for palliative care, and for the first-line treatments for many cancers. Given the availability of NCD treatments, however, the report points to the importance of strategies to improve access and adherence to treatments, such as through packaging (e.g., blister packaging to facilitate patient compliance and administration), pricing, and patient education. The viability of fixed-dose combination products for NCD treatments is another area that can be further explored as a means to reduce dosing and consolidate treatment although the report points to certain challenges in developing fixed-dose combinations for NCDs, such as development, manufacturing, and regulatory challenges. 

Supply-chain efficiency and integrity are two major concerns in tackling the problem of NCDs in the developing world. The availability of medical treatment and drugs in poor and remote areas is limited and made more difficult through large markups in the supply chain and further compromised through counterfeit drugs. Although consumer goods, such as beverages, shampoos, and mobile-phone cards, often are available in remote areas, drugs are not available due to segmentation for the supply chains for medicines. Particularly in low-income countries that depend on donor assistance, supply chains are commonly segmented horizontally and vertically. Horizontal segmentation refers to instances where international donors coordinate the delivery of medicines to the point of entry and leave the distribution to local organizations, which can result in variable and unpredictable distribution of supplies. Vertical segmentation refers to separate supply chains that are maintained by different donor organizations or by different disease states, which can create highly fragmented and inefficient supply chains. Other problems in the supply chain include problems for distribution to rural or remote areas and weak supply-chain management. Problems in supply-chain management are caused by a lack of standardized information systems, inefficient inventory accounting and management practices, a lack of trained supply-chain managers, limited tracking and tracing mechanisms, poor storage facilities and conditions, and stock theft. These problems contribute to increased transportation and inventory costs, a lack of reliable data to forecast future demand, significant imbalances between local demand and supply, increased waste and vulnerability to breaches of supply-chain integrity. Counterfeit drugs are part of those breaches in supply-chain integrity, and according to WHO estimates, 25% of drugs are counterfeited in developing countries.

The RAND research points to the importance of improving supply-chain integrity and recommends the evaluation of public-sector solutions with a private-sector approach for supply-chain security and verification of product authenticity. For example, the adoption of efficient purchasing and supply-chain management practices from private industry has the promise of improving NCD drug distribution. Public-private partnership models are another possibility. The report points to Tanzania’s accredited drug-dispensing outlets as an example. These are privately operated outlets that are organized to dispense a limited set of prescription drugs to underserved communities, and which operate with very little capital and by which the government provides incentives and training to outlet owners. The adoption of radio frequency identification (RFID) and bar coding for tracking and tracing drugs is another tool, but would require international or at least regionally accepted standards for implementing the technology. 

The report also points to regulatory obstacles in developing countries that impede access to NCD treatments. The report points to uncertain timelines and variable requirements for product registration, GMP inspections, labeling, and product identification codes, which can increase cost, sometimes to the point to which it makes product registration prohibitively difficult in a given country. For example, a recent analysis by WHO found that none of the 26 assessed sub-Saharan countries had adequate and sustained funding for operation of their national medical regulatory authorities. These authorities lacked qualified staff, especially with respect to marketing authorization and inspections, and the capacity to assess the application for an innovator medicine was highly limited. 

The report points to the benefit in greater harmonization of regulatory requirements as a means to increase product availability. The report suggested quantifying the benefits of regulatory harmonization to promote a data-driven dialogue with national authorities and to promote the use of existing activities, such as the WHO Certificate of Pharmaceutical Product (CPP) scheme, the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme (PIC/S), and the International Conference on Harmonization (ICH) Global Cooperation Group (GCG) scheme. The WHO CPP scheme allows countries to rely on the registration by another recognized competent regulatory authority in evaluating the quality, safety, and efficacy of a drug product. This process is advantageous for developing countries, where national drug authorities may not have the capacity to do their own evaluations. PIC/S consists of the national regulatory authorities of nearly 40 countries and seeks to develop and promote harmonized GMP standards by providing guidance documents, training, assessing inspectorates, and facilitating cooperation. 

Improving access to primary care is an important way to tackle the problem of NCDs. The RAND report highlighted that in the absence of a primary-care system, NCDs go unnoticed until complications arise, adequate treatment is not initiated, treatment effect is not consistently monitored, and terminally ill patients do not receive palliative care. A recent World Health Survey conducted by WHO in 70 countries showed that only 50.6% of respondents with a chronic condition in high-income countries reported having access to treatment, and these percentages are even lower for people in less economically strong countries, with only 32% of respondents having access to treatments in low-income countries and 37.5% in lower-middle-income countries. According to World Bank data, low-income countries have on average 0.18 physicians and 0.53 nurses for every 1000 people compared with one physician and 1.69 nurses per 1000 people in lower-middle income countries. In terms of affordability, according to WHO’s 2010 NCD country-capacity survey, only 25% to 35% of low-income and lower-middle income countries have insurance schemes, be they public or private, that cover NCD-related services and treatments, compared with 85% of high-income countries. At the same time, improving access to primary care is a complex challenge, which requires fundamental issues, such as resourcing, governance, and capacity building. As initial steps, the report proposes a survey of innovative approaches for delivering effective and efficient primary care in developing countries and an assessment of those approaches that can be scaled up in a given country or area. 

“We are confident that further research into these priority areas can yield actionable guidance on how to improve access to NCD medicines in the developing world and that the research-based pharmaceutical industry is committed to executing this program,” concludes the report. The report is part of the process of a multistakeholder approach to participate in the problem of NCDs in the developing world. 

Articles

The International Federation of Pharmaceutical Manufacturers and Associations offers an action plan and research for addressing noncommunicable diseases.

Pharmaceutical Industry Prioritizes Its Action Plan for Tackling Noncommunicable Diseases

Although the global biotechnology industry delivered top- and bottom-line growth in 2010 and achieved aggregate profitability in 2010 for the second year in a row, funding for R&D and early-stage companies and related activities was down. These are some of the major findings from a recent analysis by Ernst & Young in its report, 

Beyond Borders: Global Biotechnology Report. 

Although aggregate performance improved in 2010, there is a widening gap between large, established companies and those at earlier stages for whom access to capital continues to be difficult. “Biotech firms will need to adapt creatively to this environment by doing more with the funding that is available and by working from the earliest stages of development to demonstrate the potential value of their products to investors, payers and regulators,” said Glen Giovannetti, Ernst & Young's global biotechnology leader, in a June 14, 2011, press release.

On the plus side, companies in the established biotechnology centers of Australia, Canada, Europe and the United States had a record-breaking aggregate net profit of $4.7 billion in 2010, a 30% increase from the previous year, according to the Ernst & Young analysis. Also, companies in Canada, Europe, and the US raised $25 billion in 2010, which equaled the average for the four years before the global financial crisis. 

However, the distribution of that funding was oriented toward established, mature companies. In the US, large-debt financings by mature, profitable companies grew by 150% compared with levels in 2009. Conversely, there was a 20% decline in the amount of “innovation capital” for the sector, defined as total funding minus large-debt financings. Also, 82.6% of funding went to just 20% of US companies, up from 78.5% in 2009. The bottom 20% of companies raised 0.4% of the funds, down from 0.6% in 2009. The total potential value of strategic alliances remained strong, totaling more than $40 billion, according to the Ernst & Young analysis, but up-front payments from partners to biotechnology companies dropped 37% to $3.1 billion. In addition, deal-making slowed in 2010. Merger and acquisitions (M&A)  involving European or US biotechnology firms dropped from 58 deals in 2009 to 45 deals in 2010 while the aggregate value of these transactions remained relatively flat (after normalizing the 2009 numbers to exclude the mega-acquisition of Genentech by Roche). 

Looking at the US, revenues of publicly traded biotechnology companies increased to $61.6 billion in 2010, a 10% increase and equal to the growth rate of 2009 when adjusting for the acquisition of Genentech by Roche. Net income increased from approximately $3.7 billion in 2009 to $4.9 billion in 2010. M&A transactions involving US-based biotechnology companies turned in the lowest aggregate value in the last five years, totaling $12.6 billion. Total US industry funding reached $20.7 billion in 2010, up from $18 billion the previous year but driven largely by dept raised by profitable companies to refinance existing debt and for stock buybacks and acquisitions, according to the Ernst & Young analysis. Venture capital raised in the US totaled $4.4 billion in 2010, down slightly from the $4.6 billion reached in 2009. 

In Europe, revenues of European public biotechnology companies increased 12% to EUR 13 billion ($17 billion), a significant increase from the 2% growth seen in 2009.The combined net loss for biotechnology companies in the region improved slightly, from EUR 467 million ($622 million) in 2009 to EUR 459 million ($611 million) in 2010. The value of M&A activity in Europe increased from EUR 1.8 billion ($2.4 billion) in 2009 to EUR 3.5 billion ($4.7 billion) in 2010. Total funding for the European industry in 2010 was essentially unchanged from the previous year, with EUR 2.9 billion ($3.9 billion) raised. Venture capital raised in Europe totaled EUR 1 billion ($1.3 billion), an increase from the EUR 790 million ($1.1 billion) raised in the previous year. 

In looking at other regions, the Canadian biotechnology industry raised more than $482 million in 2010, a decrease of $251 million compared to 2009. However, when removing the financing of $325 million from one company, the sector raised 18% more in 2010. Australian publicly traded biotechnology companies raised $129 million in 2010, less than half the amount raised in 2009. 

The overall volatility in the stock market, caused by the fight of the raising of the debt ceiling in the US and the debt crisis in Europe, has had an effect on financing in the US biotechnology sector. Public financing in the third quarter of 2011 fell to just under $3.1 billion compared to $9.1 billion in the second quarter of 2011, according to data from Burrill & Company, a life-sciences financial services firm. The amount raised through initial public offerings  fell 72% to $151 million in the third quarter of 2011 compared with $540 million in the second quarter of 2011. Follow-on offerings declined 79.8% from $2.2 billion in the second quarter of 2011 to $453 million in the third quarter. Private investment in public equity declined 53% from $450 million in the second quarter to $211 million in the third quarter. Venture-capital funding also declined for the US biotechnology industry from nearly $1.3 billion in the second quarter of 2011 to $832 million in the third quarter. Partnering financing also declined from nearly $3.7 billion in the second quarter of 2011 to nearly $2.9 billion in the third quarter of 2011, according to Burrill & Company. 

The biotechnology industry achieved aggregate profitability in 2010 and funding improved, but levels of innovation capital still lag.

A Mixed Review for Biotechnology Financing

External development and manufacturing is an important part of pharmaceutical companies’ strategies and directly affects the business models adopted by contract service providers in meeting those needs.The role of pharmaceutical outsourcing, particularly pharmaceutical chemical development and manufacturing, was addressed at the Pharma ChemOutsourcing conference, which was held last month, in Long Branch, New Jersey, and which brought together pharmaceutical companies, CROs, and CMOs to discuss industry trends and perspectives. The central question at the heart of many of the discussions was a fundamental but important one, namely where is the opportunity in pharmaceutical outsourcing, specifically in pharmaceutical chemical development and manufacturing? 

The answer to that question as it was discussed reflected many of the larger and well-chronicled trends affecting the pharmaceutical industry, such as generic-drug incursion, declining R&D productivity, and the ongoing need for cost reduction in development and manufacturing. At one level, these pressures make outsourcing an attractive alternative to internal development and manufacturing as a means to reduce fixed cost structures and achieve greater flexibility, which is a plus for CROs and CMOs. On the downside, however, CROs and CMOs face greater competition as pharmaceutical companies, particularly large pharmaceutical companies, seek to reduce their supplier base and partner with strategic, if not preferred, providers as the choices for these potential CROs and CMOs broaden globally. 

Part of the dialogue at the conference focused on the strategies that contract service providers should take based on this increased level of competition. Some suggestions offered by pharmaceutical companies were integrated service offerings, higher levels of project management, specialized technical offerings, and other approaches that meet the evolving needs of pharmaceutical companies in realizing their goals for greater flexibility while maintaining reliability and quality of supply. The choices for CROs and CMOs relate to how to adapt their business models either through increased service offerings, partnering with other contract service organizations to achieve a fuller slate of capabilities, and finding opportunity in the globalization of the pharmaceutical contract service industry. 

An additional challenge for pharmaceutical companies is how to align their supply chains to meet the changing direction of the industry. According to a recent analysis by the management-consulting firm PwC, many companies have asset bases that are not equipped for more complex manufacturing and distribution processes, different supply chains for a range of products, and shorter product life cycles. The growing importance of emerging markets, new modes of healthcare delivery, live licensing developments, and environmental concerns, are placing pressure on current pharmaceutical supply chain models. Over the next 10 years, PwC asserts that pharmaceutical companies will increasingly have to manage a vast network of service providers in addition to manufacturing and distributing their own products. By 2020, the PwC study concludes that the management of information transfer between the pharmaceutical company, the patient and healthcare provider will be as important as the movement of products. Supply chains must therefore evolve so as to direct and manage this shift, and companies will need to acquire a much deeper understanding of patients and their healthcare needs. 

“In a world where outcomes now count for everything, the ability to integrate data, products and services in a coherent business offering that delivers increased value and better understands the needs of the patient is vital,” said  Simon Friend, global pharmaceutical and life sciences leader, PwC, in a Feb. 21, 2011, press release. “Companies must now work hard to get closer to their patients as by 2020, there is little doubt that the data behind a product will as  valuable as the product itself.” 

The global pharmaceutical industry will therefore, need to develop different supply chain models for different product types and patient segments, learn to use their supply chains as a means of market differentiation, all while recognizing the importance of information over product. “The most successful pharma companies will be those that now recognize the underlying value locked in their supply chain and can leverage it as a value and brand differentiator rather than just a cost,” said Steve Arlington, global advisory pharmaceutical and life sciences leader, PwC. Those that recognize information is the currency of the future will be those that go the final mile and stand out by 2020.”

On a quantitative basis, the market research firm Business Communications Company (BCC) recently offered an analysis of the market for contract pharmaceutical manufacturing, research and packaging. In 2011, global pharmaceutical contracting revenues total nearly $218 billion and are expected to reach nearly $361 billion in 2016, increasing at a compound annual growth rate (CAGR) of 10.6%. BCC breaks pharmaceutical contracting into four segments:– contract manufacture of over-the-counter (OTC) drugs and nutraceuticals, contract manufacture of bulk and dosage form drugs, contract research, and contract packaging.

The OTC drug and nutraceutical segment accounted for nearly $128 billion in 2011 and is expected to grow at a CAGR of 10.9% to reach nearly $215 billion in 2016, according to BCC. The bulk and dosage form drug segment held a value of $53.4 billion in 2011 and is expected to increase at a CAGR of 10.1% to reach $86.3 billion in 2016. The research segment was worth $30.2 billion in 2011 and should be worth $50.5 billion in 2016, a CAGR of 10.8%. The packaging segment, worth $6.4 billion in 2011, should be worth $9.3 billion in 2016, a CAGR of 7.8%.

Industry experts share perspectives on the changing fundamentals and business models for outsourcing pharmaceutical chemical development and manufacturing

A Changing Paradigm for Pharmaceutical Chemical Outsourcing

The United Nations (UN) held a High-Level General Assembly meeting in New York last month on Sept. 19 and 20 to address the problem of the rising prevalence of noncommunicable diseases (NCDs) in the developing world. The meeting was attended by more than 30 heads of state and government and by at least 100 other senior ministers and experts. The delegates adopted a declaration that calls for a multipronged approach by governments, industry, and civil society to set up by 2013 the plans needed to curb the risk factors behind four of the leading NCDs: cardiovascular disease, chronic respiratory disease, diabetes, and cancer. 

“This will be a massive effort, but I am convinced we can succeed,” said UN Secretary-General Ban Ki-moon, in the opening session of the meeting held Sept. 19. The General Assembly meeting was only the second meeting by the General Assembly to deal with a health-related issue; the first and only other time was on HIV/AIDS. The overall annual death toll from NCDs is estimated at 36 million worldwide, accounting for more than 60% of annual global deaths of 57 million, according to a Sept. 20, 2011, UN press release. By 2030, the number of deaths attributable to NCDs is expected to reach 52 million. Approximately 9 million of the deaths attributable to NCDs occur before the age of 60, with nearly 80% of those deaths occurring in the developing world. 

“Our collaboration is more than a public health necessity,” said Secretary-General Ban. “Noncommunicable diseases are a threat to development. NCDs hit the poor and vulnerable particularly hard and drive them deeper into poverty,” he said, pointing to the problem of families being pushed into poverty when a member becomes too weak to work or when the cost of medical care and treatments overburden the family. “The prognosis is grim,” he said. According to the World Health Organization (WHO), deaths from NCDs will increase by 17% in the next decade. In Africa, that number will jump to 24%. 

The High-Level meeting, which heard from nearly 90 speakers, also featured two roundtable discussions. The first discussion was on the rising incidence of NCDs,  developmental challenges and the social and economic impact of NCDs and their risk factors. The second discussion was on strengthening national capacities, including appropriate policies, for prevention and control of NCDs. 

Secretary-General Ban outlined five recommendations to further progress in tackling the problem of NCDS.  First, implement a complete government approach to adopting population-wide interventions that address risk factors. Second, undertake sustained primary health-care measures, including prioritized packages of essential interventions, along with palliative and long-term care, for those who already have NCDs or who are at high risk of contracting them.  Third, strengthen the capacity of member states to monitor such diseases and their risk factors and determinants, especially in lower-income countries; social data disaggregated by, for example, by gender, was also encouraged.  Fourth, harness lessons learned from national HIV/AIDS, tuberculosis, and malaria programs in low- and middle-income countries for effective integration of communicable diseases and NCD initiatives.  Finally, prioritize the prevention and control of NCDs through commitments governments, the private sector, civil society, the UN, and other international organizations. 

 The declaration adopted by the delegates calls for greater measures at global, regional, and national levels to prevent and control NCDs. Steps range from price and tax measures to reduce tobacco consumption to curbing extensive marketing to children, particularly on television, of foods and beverages that are high in saturated fats, trans-fatty acids, sugars, or salt. Other measures seek to cut the harmful consumption of alcohol, promote overall healthy diets, and increase physical activity. The UN has directed WHO to set up a comprehensive global monitoring framework and prepare recommendations for voluntary global targets before the end of 2012. The member states also requested Secretary-General Ban to prepare two reports, in collaboration with the Director-General of WHO and other stakeholders; one to be presented to the General Assembly’s sixty-seventh session on strengthening multisectoral preventive actions, and the other, to be presented at the assembly’s sixty-eighth session, on progress to that end and towards achievement of the UN Millennium Development Goals.  That report would set the stage for a comprehensive 2014 review of the status of the declaration’s implementation. 

The United Nations calls for a multistakeholder plan by 2013 to curb the rise of noncommunicable diseases.

UN General Assembly Addresses Issue of Noncommunicable Diseases in the Developing World

The pharmaceutical industry is undergoing a transition that is marked by evolving product demand, generic-drug incursion, a greater emphasis on specialty products, and an intensification in product development for biologic-based drugs. Industry growth patterns are shifting not only on a product basis, but on a geographic basis as well. Pharmaceutical companies are seeking to meet rising demand in emerging markets and face a more global and complex supply chain, both on an ingredient basis and on a finished-product level. John Kelly, vice-president of strategy and transitioning sites for Pfizer Global Supply (PGS), recently discussed these trends and Pfizer’s manufacturing and supply strategy to address the changing marketplace.

“Our mission is to have an integrated internal and external supply network to provide a competitive advantage for Pfizer by offering fast, flexible, and innovative supply solutions,” says Kelly. That task involves aligning the company’s supply network, consisting of both external and internal partners, with changing product demand, as well as integrating the former Wyeth network with Pfizer’s supply network following Pfizer’s $68-billion acquisition of Wyeth in 2009. 

Pfizer has 87 manufacturing sites across all business sectors—pharmaceuticals, consumer healthcare, and animal-health care. This supply network includes 188 logistics centers, more than 500 supply partners, and more than 30,000 employees. On a geographic basis, the company has 30 sites in North America, 20 in Europe, seven in China, 17 in the rest of Asia, and seven in Latin America. On the pharmaceutical side, the company operates six small-molecule manufacturing sites, six biologic-based drug sites (five for drug substances and one for packaging), eight solid-dosage facilities, and four sterile-manufacturing sites. Additionally, the company operates six manufacturing sites for its consumer-healthcare business and 23 for its animal-health business.

 Kelly explains that the company’s supply network is focused on four main strategies: to optimize its supply network, optimize its network performance, increase commercial value, and enhance core process excellence. In building a cohesive strategy, Kelly points out that PGS has developed a co-manufacturing approach by combining and consolidating global operations, not only through its most recent acquisition of Wyeth in 2009, but through earlier large-scale acquisitions, namely Warner-Lambert in 2000 and Pharmacia in 2003, as well as through bolt-on acquisitions, with some recent examples being the animal-health care company Synbiotics in 2010, the specialty pharmaceutical company King Pharmaceuticals in 2011, and the consumer-healthcare business of Ferrosan, which the company announced earlier this year that it will acquire. 

With respect to its goal of optimizing its supply network, Kelly emphasizes that PGS’s strategy is to optimize internal and external partnerships in sourcing, capacity, capital allocation, costs, and asset utilization. Pfizer uses external partners for approximately 30% of its production on a cost-of-goods-sold basis, which includes API manufacturing and finished-product manufacturing. “External manufacturing is of increasing importance as we look at different ways to supply products,” says Kelly. 

In its goal of optimizing network performance and enhancing process excellence, the company measures and seeks continuous improvement in its manufacturing operations and supply-chain activities. The company recently adopted a balanced-scorecard approach for evaluating and improving the performance of its manufacturing network. The metrics from the balanced scorecard are applied on a site-specific basis and divisional level to assess PGS’s performance on processes, quality, and environmental, health, and safety compliance. PGS rolled out the balanced-scorecard approach in part in 2010, and this year is rolling it out fully across its network. 

“It helps us understand the progress we are making and how we are improving in several areas, such as how we serve our customers, how we meet our financial commitments, how we engage our colleagues, and how we improve our processes,” says Kelly. 

As part of its strategy to increase commercial value, the company focuses on developing and maintaining partnerships with the company’s business units to support innovation across the product life cycle, drive revenue creation and enhancement, and optimize supply-chain security. From an organizational perspective, PGS operates nine operating units, seven that support Pfizer business units and two that are responsible for managing external supply and transitioning sites. The PGS operating units support business units in specialty care, primary care, oncology, emerging markets, established products, animal health, consumer healthcare, and nutrition. The functions of these units and PGS operating units that focus on external supply and transitioning sites are supported by global logistics and supply activities, quality operations, global manufacturing services, and network-enabling functions, such as finance, human resources, legal, and procurement. 

 Kelly emphasizes that the company’s supply strategy is shaped by various factors affecting the industry. “The product mix is changing,” says Kelly. “We see shifts not only in small molecules versus large molecules, but see the need to address supply challenges caused by the changing blockbuster model and a move to smaller-volume products.” 

As part of those changes in product demand, as well as part of it integration with Wyeth, Pfizer announced plans to exit 13 sites during the next several years.The timing of specific exits will depend upon the complexity of operations, the amount of time needed for product transfers, and other business requirements.  Earlier this year, Pfizer sold its manufacturing plant at Dun Laoghaire, Ireland to Amgen. The 37,000-m

 aseptic operations facility has freeze-dried product and liquid vial-filling operations. Pfizer sold its bulk biologics facility in Shanbally, Ireland, to the biopharmaceutical company BioMarin. Pfizer also recently sold its consumer healthcare manufacturing facility in Richmond, Virginia, to Fareva, a pharmaceutical and consumer-products company, which will continue to supply Pfizer with product from the facility. 

 Pfizer's strategy includes plans to discontinue operations at three solid-dosage sites in Caguas, Puerto Rico; Loughbeg, Ireland; and Rouses Point, New York. Pfizer also announced plans to phase out pharmaceutical solid-dosage manufacturing in Guayama, Puerto Rico, but that site will expand its consumer-healthcare operations. Reductions are planned at two other solid-dosage facilities in Illertissen, Germany, and Newbridge, Ireland. Two aseptic facilities that make sterile injectable medicines were targeted for exit: Dublin, Ireland, (recently sold to Amgen), and Carolina, Puerto Rico. 

Pfizer also announced changes to its biopharmaceutical-manufacturing network. The company said it planned to exit operations in Shanbally, Ireland (recently sold to BioMarin), and Pearl River, New York. The Pearl River site, however, will remain Pfizer's center of excellence for vaccine R&D. Biotechnology plants in Sanford, North Carolina, Andover, Massachusetts, and Havant, United Kingdom, are expected to see reductions. Pfizer reported plans to cease production of consumer-healthcare products at its plant in Richmond, Virginia (sale of the facility to Fareva was recently completed), but consumer healthcare R&D operations will continue in the downtown Richmond site. 

Most recently, Pfizer announced plans to exit solid-dosage sites in St. Petersburg, Florida, and Bristol, Tennessee, as well as an animal-health diagnostic manufacturing site in Lyon, France.

In outlining the changes to its manufacturing network, Pfizer summarized how its transformed manufacturing network will look. Pfizer's solid-dosage network will include plants in Freiburg, Germany; Amboise, France; Vega Baja and Barceloneta, Puerto Rico; Ascoli, Italy; Newbridge, Ireland; and Illertissen, Germany. Its aseptic-manufacturing network will consist of plants in Puurs, Belgium; Perth, Australia; Catania, Italy; and Kalamazoo, Michigan. Its biotechnology-manufacturing network will consist of sites in Grange Castle, Ireland; Strangnas, Sweden; Algete, Spain; Havant, United Kingdom; Andover, Massachusetts; and Sanford, North Carolina. The consumer healthcare network will include plants in Guayama, Puerto Rico; Montreal, Canada; Albany, Georgia; Aprilia, Italy; Hsinchu, Taiwan; and Suzhou, Jiangsu, China.

Kelly explained that the changes underway at Pfizer reflect broader trends affecting the pharmaceutical industry. He points to the growing complexity of pharmaceutical companies’ product portfolios and the resulting need for increased flexibility, specialized capabilities, and technological complexity. He also points to a more dynamic market environment, which requires a need to develop and launch products quickly and to respond to pricing and supply changes as well as increased volatility in demand. These factors contribute to greater pressure on margins and a stronger need to reduce costs of goods sold and justify capital expenditures. As supply networks become more elaborate and costly to operate in light of these factors, Kelly says that “more value is placed on fungible assets for improved utilization and efficiency.  All this must be done while maintaining focus on quality and compliance, supply reliability, and delivering value to our customers,” he adds. 

“There is a critical need for the industry to focus on efficiency gains and value creation,” sums up Kelly. “Through the clarity of our vision and delivering on our strategies, Pfizer will achieve a competitive advantage by offering fast, flexible, and innovative supply solutions,” he concludes. 

 for a podcast with John Kelly, vice-president of strategy and transitioning sites for Pfizer Global Supply, who discusses the company's manufacturing and supply strategy and network.

John Kelly, vice-president of strategy and transitioning sites for Pfizer Global Supply, discusses the company's manufacturing and supply strategy and network.

Pfizer Outlines Its Supply Strategy

Excipients play an important role in pharmaceutical formulations by adding functionality or by facilitating the processing of a drug product. Despite this essential role in drug development and commercialization, as with other suppliers to the pharmaceutical industry, such as producers of raw materials, intermediates, or APIs, excipient manufacturers have to respond to the changing fundamentals influencing  pharmaceutical supply and demand. In reviewing the recent activity of excipient manufacturers, several trends emerge: increased consolidation based on product-line enhancement or geographic expansion, select investment in emerging markets, and targeted growth in select product areas.  

The global excipients market is expected to grow at a moderate pace through 2016 in line with overall pharmaceutical industry growth. The global pharmaceutical market is expected to reach $1 trillion by 2014 and nearly $1.1 trillion by 2015, according to the IMS Institute for Healthcare Informatics. The market is projected to increase at a compound annual growth rate (CAGR) of 3–6% during the next five years, slowing from the 6.2% annual growth rate that occurred during the past five years. For purposes of this analysis, the pharmaceutical market includes all types of biopharmaceuticals, including biologics, over-the-counter drugs, and traditional medicines distributed and administered through regulated delivery systems, such as pharmacies, hospitals, clinics, physician offices, and mail order. Spending figures are reported as ex-manufacturer estimates that do not reflect off-invoice discounts and rebates (1). 

The global excipients market was valued at $4.6 billion in 2010 and is expected to reach $4.9 billion in 2011, according to a recent report by the market-research firm Business Communications Company (BCC). The global excipients market is expected to increase to $6.7 billion by 2016, representing a five-year CAGR of 6.5%. In terms of volume, 11.1 billion pounds of excipients are projected to be consumed in 2011. This level is expected to increase to 14 billion pounds by 2016, representing a CAGR in volume of 4.6%. BCC cites several factors influencing the global excipients market: concerns in the global pharmaceutical supply chain, application of quality by design in drug formulation and manufacturing, and overall concern for drug safety.  

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BCC segments the market for excipients into three major areas: organic excipients, inorganic excipients, and 

) water. Organic excipients represent the bulk of the global excipients market, accounting for approximately 93% by value in 2010. The market for organic excipients was valued at $4.3 billion 2010. It is expected to reach $4.5 billion in 2011 and $6.3 billion in 2016, representing a five-year CAGR of 6.6%. The market for inorganic excipients was $248 million in 2010. It is expected to reach $268 million in 2011 and $350 million by 2016, representing a five-year CAGR of 5.5%, according to BCC. USP water is the smallest segment in the global excipients market. In 2010, the market for 

 water accounted for only $88 million. It is projected to increase to $92 million in 2011 and to $114 million by 2016, representing a five-year CAGR of 4.4%.  

Like the pharmaceutical industry as a whole and within specific sectors of the pharmaceutical ingredient supply chain, the excipient market has seen a fair amount of mergers and acquisitions (M&A) in 2010 and 2011. In some instances, this M&A activity has been part of larger acquisitions among specialty-chemical and fine-chemical companies and other buyers. The deals also have included targeted product-line acquisitions as well as specific acquisitions by Western excipient manufacturers to increase their manufacturing, technical-service capabilities, and product offerings in emerging markets. Additionally, excipient manufacturers have partnered through alliances or other agreements to expand their product reach. Along with this deal-making, some excipient manufacturers also are expanding production capacity for select products.  

  One of the largest and most recent deals occurred in September 2011, when the conglomerate Berkshire Hathaway completed its $9.7-billion acquisition of the specialty-chemical company Lubrizol, which included the company's excipients business. Lubrizol's excipient business includes excipients used in solid, semisolid, and liquid dosage forms for oral and topical formulations. For oral solid dosage forms, key products are Carbopol polymers and Noveon polycarbophil, high molecular-weight polymers of acrylic acid, which are chemically crosslinked with polyalkenyl alcohols or divinyl glycol. These polymers are used in several commercial tablet forms, including swallowable (peroral), chewable, buccal, and sublingual tablets (2). With the closing of the deal, Lubrizol became a wholly owned subsidiary of Berkshire Hathaway, and  Lubrizol's international headquarters will remain in Wickliffe, Ohio, according to a Sept. 16, 2011, Berkshire Hathaway press release.   

Berkshire Hathaway's acquisition of Lubrizol follows recent investment by Lubrizol in India and the United States. In November 2010, Lubrizol opened a new regional applications and business center in Mumbai to support its advanced materials business segment, which includes pharmaceutical ingredients and other consumer and industrial products. The center includes a development and applications laboratory, which includes development, formulation, and applications-testing capabilities in multiple personal-care and coatings applications as well as a pharmaceutical application development center.  

In May 2010, Lubrizol Advanced Materials, a business segment of Lubrizol, announced an investment of approximately $40 million in its Calvert City, Kentucky, manufacturing facility. The facility specializes in the production of Carbopol polymers, which are used in pharmaceuticals and personal care and home care products.  

  Another recent large deal was the $3.2-billion acquisition of International Specialty Products (ISP) by the specialty-chemical company Ashland. The deal was completed in late August 2011. ISP is being integrated into Ashland Aqualon Functional Ingredients commercial unit, which was  renamed as Ashland Specialty Ingredients following the acquisition. The deal combines the companies' product portfolio in water-soluble polymers and functional ingredients, inclusive of pharmaceutical excipients.  

Ashland Aqualon Functional Ingredients offers functional excipients for solid, semisolid, and liquid dosage forms with a range of cellulosic products: hydroxypropylcellulose, methylcellulose, hypromellose, hydroxyethylcellulose, ethylcellulose, and carboxymethylcellulose. Ashland formed the Ashland Aqualon Functional Ingredients business following its 2008 acquisition of the US-based specialty-chemical company Hercules. With the acquisition of ISP, Ashland gained additional excipients (e.g., crospovidone used as tablet disintegrants as well as povidone and copovidone used as binders). Ashland also acquired process technology for drug solubilization (e.g., spray drying and hot-melt extrusion) and related ingredient supply for drug solubilization (e.g., cyclodextrins and polymers for solid dispersions) as well as coating technology for immediate and delayed-release formulations.   

  In December 2010, BASF completed its acquisition of Cognis, a specialty chemical company to the food, home care, personal care, and pharmaceutical industries, including excipients. The equity purchase price was €700 million ($958 million). Including net financial debt and pension obligations, the enterprise value of the transaction was €3.1 billion ($4.2 billion). Completion of the structural integration of Cognis is targeted for the end of 2011, according to a Dec. 10, 2010, BASF press release.  

From a strategic perspective, although BASF's acquisition of Cognis was centered on increasing its position in functional ingredients in nonpharmaceutical markets, such as food, personal care, and home care, the company gained additional product offerings in excipients. For example, some products of the former Cognis businesses include oleochemical-derived pharmaceutical-grade excipients, such as specialty esters, fatty alcohols, ethoxylates, hard fats, stearic acids, mono- and triglycerides, and castor-oil derivatives, which are used in topical, oral, and parenteral formulations. Other product offerings from the former Cognis businesses include chitosan, a natural cationic polymer (polysaccharide), which is used in dermatology, medical applications for wound healing, tissue engineering, and as a drug-delivery agent in pharmaceutical formulations, and D-alpha tocopheryl polyethylene glycol 1000 succinate (TPGS), a water-soluble derivative of vitamin E used to enhance the bioavailability of poorly soluble actives.  

In a smaller, separate deal, in February 2011, BASF and Sigma-Aldrich signed a global distribution agreement for several of BASF's pharmaceutical excipients. Under the deal, Sigma-Aldrich will repackage the products into small pack sizes to make them available for academic-oriented R&D activities for use by universities and laboratories. The excipients portfolio offered comprises various grades of binders (i.e., Kollidons), coatings (i.e., Kollicoats), and solubilizers (i.e., Cremophors, Lutrols, and Solutol). 

On the new product front, BASF introduced Kollicoat Smartseal 30 D, a water-based dispersion for taste-masking and moisture-barrier applications, in 2010. The product is highly impermeable to water vapor, which facilitates preserving the potency of sensitive active ingredients, according to a Nov. 15, 2010, BASF press release. The polymer is stable in saliva and soluble in gastric juice. These properties ensure effective protection from unpleasant taste in the patient's mouth and rapid release and onset of active ingredient action in the stomach, according to the BASF press release. Kollicoat Smartseal 30 D complements BASF's existing tablet coatings portfolio, which includes polymers and copolymers used to coat tablets, capsules, and pellets, and to control the release of drugs from solid dosage forms.  

  The specialty- and fine-chemicals company Evonik reorganized, effective Sept. 1, 2011, and combined its businesses for custom API manufacturing (i.e., exclusive synthesis), pharmaceutical amino acids (i.e., its Rexim product line), and pharmaceutical polymers in a new healthcare business line. The pharmaceutical polymers business includes the company's Eudragit and Resomer product lines. The Eudragit line consists of acrylic copolymers for oral solid dosage forms, and the Resomer line includes bioresorbable poly(lactic-co-glycolic acid) copolymers, which are used in depot formulations. Evonik acquired the Resomer business from Boehringer Ingelheim in March 2011.  

  Avantor Performance Chemicals is proceeding with an expansion in India, following a key acquisition in 2010. Avantor Performance Chemicals was the new name given to the company after the acquisition of Mallinckrodt Baker from Avantor's former parent company, Covidien, to the private equity group, New Mountain Capital. Avantor is a producer of products and materials for the pharmaceutical industry, including excipients.  

In May 2011, Avantor opened a new pharmaceutical formulation application laboratory in Sinnar Nashik, Maharashtra, India, with its partner RanQ Remedies. The new laboratory will be used to characterize excipients, perform functional testing, develop and characterize drug formulations, and support customer applications and product implementation. In terms of excipients, RanQ has a position in  microcrystalline cellulose and sodium starch glycolate and also has expertise in developing premixed and other application-focused pharmaceutical excipients that result in a homogenous mix and coprocessed excipients. 

In addition to the applications laboratory, Avantor completed construction of a pilot plant onsite at the RanQ facility. The pilot plant will be used to develop and scale up additional performance excipients to extend Avantor's J.T. Baker PanExcea product line. The PanExcea line includes performance excipients that combine fillers, binders, and disintegrants for increased functionality for immediate-release formulations and orally disintegrating tablet applications. 

  Several other excipient companies are expanding. In 2011, DMV–Fonterra agreed to acquire the business and assets of Brahmar Cellulose Private Ltd. an Indian-based producer of pharmaceutical microcrystalline cellulose and sodium carboxylmethylcellulose. The acquisition, subject to customary closing conditions and regulatory approval, is scheduled to close in the fourth quarter of 2011. 

In April 2011, FMC completed an expansion of its microcrystalline cellulose plant in Cork, Ireland. Production from the final phase of the expansion began in March 2011 and increased FMC's global capacity by 25% for pharmaceutical- and food-grade microcrystalline cellulose. FMC operates another microcrystalline cellulose plant in Newark, Delaware. 

In March 2011, Grace Davison Discovery Sciences, part of W.R. Grace & Co., opened a new technical service knowledge center in Southern India for customers in the pharmaceutical and biotechnology industries. The new facility is located in the Genome Valley near Hyderabad. The knowledge center supports Grace's customers in the areas of excipients, pharmaceutical intermediates, laboratory separations, and bulk purification. The center also will provide product development and applications support and include such services as customer training, validation, testing for various products, and product demonstrations. The new center complements existing application laboratories in the United States, Europe, and China. 

In October 2010, ABITEC and Mutchler Pharmaceutical Ingredients, announced a comarketing and distribution partnership for ABITEC's Captex, Capmul, Acconon, Sterotex, BBS-C, and Hydro-Kote lipid-based pharmaceutical-grade excipients. The partnership provides for expanded customer service, sales, technical formulation-development support, and supply capability. 

Excipient producer also are expanding in related pharmaceutical applications. For example, Huber Engineered Materials (HEM), a division of J.M. Huber Corp., is expanding its Quincy, Illinois, manufacturing operations to increase capacity for calcium carbonate granulation production. The new addition is expected to become operational in the second quarter of 2012 and generate nearly 10,000 metric tons of calcium carbonate granulation annually to serve the dietary supplement and pharmaceutical markets. The calcium carbonate granulation to be manufactured in Quincy will mirror that of the granulation line at HEM's plant in Modesto, California. The company recently received its California drug-manufacturing license for the Modesto facility and will continue to produce APIs at Quincy. Huber also produces calcium carbonate powder.  

Huber became a granulator of calcium carbonate and oyster-shell powders with its 2003 acquisition of Micro Powders and Braig and added to its portfolio with the addition of West Coast Ingredients in 2006. The company added to its particle-engineering capacity in 2007 with the addition of fluid-bed granulation and trituration capabilities.   

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1. P. Van Arnum, "Global Pharma Market Expected to Reach $1 Trillion," 

Pharm. Technol. Sourcing and Management, 

2. Lubrizol, "Pharmaceutical Polymers for Oral Solid Dosage Forms" Product Literature (Wickliffe, OH), 2011. 

The global excipients market shows moderate growth, increased consolidation, and expansion activity in emerging markets and select product areas.