Patricia Van Arnum was executive editor of Pharmaceutical Technology.

Patricia Van Arnum

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.  

IMAGE: NICHOLAS EVELEIGH / GETTY IMAGES			

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.   

 485 Route One South, Bldg F, First Floor, Iselin, NJ 08830 tel. 732.346.3072, 

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. 

Articles

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

Sizing Up the Global Market

Novartis presented an update on its long-term strategy, performance, and growth outlook last week, which revealed that the company is on track to deliver the strategic priorities it had set out in 2010. Some highlights during the last 18 months include achieving double-digit sales growth through new products and the integration of Alcon, the eye-care company, which Novartis acquired earlier this year. In addition, Novartis achieved double-digit sales growth in emerging markets, and obtained 17 regulatory approvals (including new indications for existing products) in the United States and Europe in its pharmaceutical division.

Alcon is a key part of the company’s growth platform. “Alcon is enhancing future prospects for Novartis—it brings to us a fast growing business in the eye-care segment. This transaction was about long-term growth and not just cost synergies,” said Joseph Jimenez, CEO of Novartis, in a Sept. 13, 2011, 

. “We believe that Alcon has significant growth potential by leveraging the Novartis expertise in research, market access, and reimbursement, among others.”

Novartis expects that Alcon will achieve high-single to low-double-digit sales growth. Part of that growth involves increasing its share in certain pharmaceutical-based eye-care segments, particularly dry eye and glaucoma outside the US, and further market and brand development in key emerging markets. The company also is exploring new treatments for glaucoma and macular degeneration. Despite competitive glaucoma product patent expirations, Novartis said that it expects that Alcon’s current glaucoma portfolio, including benzalkonium chloride-free formulations of ophthalmic solutions Travatan and DuoTrav, along with the ophthalmic suspension Azarga and a new combination product, will achieve sales growth during the next five years in the low-single-digit range. The company also expects to achieve annual cost synergies of $350 million by 2013.

In terms of new products, the company had 11 regulatory approvals in 2010, six in the first half of 2011, and eight regulatory filings in the first half of 2011. In the first half of 2011, sales growth from recently launched products increased 47% compared to the year-ago period. 

In terms of its productivity initiative, which includes changes in manufacturing, the company achieved more than $1.2 billion companywide in savings in the first half of 2011 and expects to exceed the $1.9 billion in savings from 2010. During the last 18 months, Novartis has achieved more than $1.6 billion in savings from procurement. The company also is progressing with reducing excess manufacturing sites, with 10 locations having been reduced or which are being divested, exited, or in which operations are being reduced.

Novartis to Seek Innovation and Efficiencies

Big Pharma’s Manufacturing Blueprint for the Future

Novartis presented an update on its long-term strategy, performance, and growth outlook last week, which revealed that the company is on track to deliver the strategic priorities it had set out in 2010.

Novartis Updates Long-Term Strategy

The Swedish Medical Products Agency (MPA) issued a report in July 2011 about how environmental standards in pharmaceutical production can be sharpened within the European Union. MPA issued the report to the Swedish government to address concerns over pharmaceutical production in low-cost countries, such as India and China, and the related environmental impact. The report was discussed at the Informal Meeting of Ministers for Health on July 6th in Warsaw, according to MPA.

“The proposal is unique and forces all manufacturers to follow the GMP rules on pharmaceuticals sold on the EU markets,” said MPA in a July 4, 2011, statement.  “Today a considerable share of pharmaceutical manufacturing and production of raw materials and semi-products takes place in low-cost countries, and many large companies plan to locate even more of their production there. In the first decade of the 21st century, Swedish research findings have revealed emissions from the manufacturing of pharmaceuticals in India on a scale that can seriously impact the health of humans and animals, as well as the environment.”

MPA took up the task of how to consider the environmental impact of pharmaceutical production as part of consideration of green pharmaceutical production overall as well as in improving manufacturing conditions in low-cost countries. One factor coming into play was release of Swedish research findings that showed that emissions from drug manufacturing in India, particularly with respect to multiresistant bacteria strains, could pose risk to health and the environment. The Swedish government commissioned MPA in 2009 and 2011 to draw up a platform to enable Swedish initiatives in considering the environmental impact of global pharmaceutical production. That work also involves participation from the research foundation, MistraPharma, a group funded by the Swedish Foundation for Strategic Environmental Research (Mistra), which examines the environmental impact of pharmaceuticals. Part of MistraPharma’s work is to identify what pharmaceutical substances in use today constitute a substantial risk to water environments and to draw up recommendations and technologies for enhanced treatment of medicinal products in wastewater. MistrPharma’s work includes consideration of the spread of antibiotic-resistant bacteria as a result of production emissions, according to the MPA report (1). Other EU efforts include the European Commission’s role in compiling reports from EU member countries about the problem of pollution and soils and waters with pharmaceutical residues and to determine whether EU legislation needs to be changed. The EU’s Baltic Strategy is a further initiative that is considering the relationship between the environment and medicinal products. That work is slated to begin in the autumn of 2011, which will include input from Sweden’s MPA, according to the report (1). 

In 2009, MPA, in consultation with the Swedish Environmental Protection Agency and the Swedish Chemicals Agency, was commissioned by the Swedish government to chart the possibility of tightening environmental requirements in the manufacturing of medicinal products and active substances for medicinal products in Sweden and abroad. The scope of these proposals included possible legislation, voluntary industry initiatives, and global initiatives at the United Nations level. In December 2009, MPA submitted eight proposed measures to the government. The main proposal was to require environmental certification of production facilities within the framework of GMP requirements. In 2011, MPA, in consultation with the Swedish Chemicals Agency and the Swedish Protection Agency, was commissioned by the Swedish government to create a platform to enable the initiation of a revision of EU legislation on GMP, if deemed suitable, to include environmental considerations. As part of that effort, MPA was to develop concrete proposals for changes in GMP legislation by June 30, 2011.   


 MPA issued its report in June 2011. The report includes proposals for regulations for environmental control and medicinal products within the framework of GMP. “What is unique about existing regulations regarding production and GMP is that they also impact third-[world] countries, as manufacturers wishing to export medicinal products to the EU are obligated to comply with regulations for production that apply in the EU. By also placing rules for environmental control among manufacturing regulations, they also have an impact on third-[world] countries,” said the MPA report. A further advantage of placing environmental requirements within the framework of GMP, according to the MPA report, is that there is a well-developed and well-functioning inspection system for monitoring manufacturing and GMP. “By placing environmental requirements within the framework of GMP, inspection protocols will also apply to the monitoring of compliance with environmental regulations. Thus no new system needs to be set up; all that is needed is the additional of internal or external environmental expertise,” according to the MPA report (1).


 In its report, MPA made four proposals: changes in the EU medicinal products directive, introduction of a new EU regulation, suggestions for proposed substances for priority attention, and a broad framework to identify further substances (1).  

Changes in medicinal products directive. 

In its proposal, MPA recommended that a measure be inserted in EU medicinal products directives, which would require manufacturers to comply with the requirements of a special new legal document, new EU legislation, in which emission levels for certain substances are stated. The requirement would be part of GMP compliance. MPA also recommended that a special legal document stating emission levels be adopted as there are not other legal documents in EU environmental legislation that would be suitable for that purpose. 

recommends that a new EU regulation be created to stipulate the medicinal substances that need to be controlled in terms of emissions from production as well as the emission levels that are not permissible. MPA says a new regulation is preferable because it would come directly into force in all EU member countries and would not have to be implemented in national legislation. 

The association offered recent cosmetics legislation in the EU as a model for how that regulation may be developed and presented. For example, a regulation recently adopted by the European Parliament, EC Directive 2009/1223/EU, contains annexes in which substances are listed that are prohibited for use in cosmetic products or for which limitations to their use are specified (1, 2). The power to adopt changes in the annexes was delegated to the European Commission. “An equivalent setup in itself would entail multiple advantages: emission limits apply to the entire EU, they have the same structure in all Member States, and changes are less complicated to effect in that the Commission can make them,” said the MPA report (1).

Proposed substances for priority attention. 

The MPA report specifies that priority substances should be specified in the new EU regulation. These substances would include substances for which there is scientific evidence that these substances negatively affect the external environment, and therefore public health. Substances, such as antibiotics, certain medicinal products with hormone-disrupting properties, and substances that may constitute a risk to the environment because they are used and produced in large volumes are examples of priority substances. In consideration of this prioritization, MPA further points to the EU Framework Directive for Water, which contains four medicinal products on a list of proposed priority substances that constitute a significant risk to the water environment (1, 3). These products include two hormones, 17 beta oestradiol and 17 alpha ethinyloestradiol, and two anti-inflammatory products, diklofenak and ibuprofren. 

MPA recommends that the new EU regulation establish a procedure on how to further identify substances and determine concentration limits, a task to be addressed by a EU body with the relevant environmental expertise. MPA does not offer a detailed proposal for how this procedure should be established or what EU body should be specifically charged with this responsibility. It suggests the responsibility would lie between the European Medicines Agency and cooperation between EMA and a EU chemicals authority, such as the European Chemicals Agency (ECHA), as well as engagement from other stakeholders. 

MPA recommends that consideration should be given to introducing requirements for monitoring and documenting concentrations in wastewater of all active substances produced at a facility. This requirement also would entail establishing a validated method for measuring active substances. MPA suggests that the process for the prioritization of new substances could begin with a general limit for the emission of active substances in manufacturing that correspond to what applies to applications for authorization of a medicinal product. “This would eliminate any necessity to gather environmental data for individual substances,” said the MPA report (1). “In a later phase, when environmental data might be required or become available in some other manner, substance-specific limits can be established for priority substances,” according to the report (1). 

MPA also suggests collecting environmental information about pharmaceutical substances through a database, which could be maintained by the EU medicinal products authority and EMA in a manner in which ECHA maintains the database relating to the requirements of REACH (Registration, Evaluation, Authorization and Restriction of Chemicals), a regulation on the registration and testing of chemicals in the EU. The MPA report also says that other practices of REACH can serve as a model, such as in setting up a candidate list and in providing direction on how to engage both EU authorities and individual EU member states in setting up certain substances in the legislation. 

Although most sections of REACH exempt human medicinal products and veterinary medicinal products, one section that can be applied deals with limits on the production, release for sale, and use of certain harmful substances and preparations. The MPA report points out that it is thus possible to introduce a limit for a certain substance used in medicinal products, but in practice it is not probable that this would be done as REACH is general legislation and not adapted to such a specially regulated field as medicinal products. Nor would REARCH entail the registration of data about the use of medicinal products as human and veterinary medicinal products are exempted from the registration requirement. 

But the MPA report points out that REACH can be used as a model for creating new EU legislation from the process for identifying substances for new limits and substances that may not be used without authorization. For example, REACH has a candidate list available on the ECHA website, which includes prioritized substances for authorization assessment and for which REACH specifies a specially delineated process for how new substances are placed on the candidate list. “Such a public list can function as a kind of 

 list of substances that are being singled out for special monitoring, which sends a signal to the industry regarding what substances are in the pipeline and have been deemed to warrant special attention,” said MPA in its report (1). Initiatives for new limits under REACH can be taken both by ECHA and a member state, which composes a so-called limits file whose contents are specified by REACH.  “This, too, is a process that can serve as a model when new legislation is drafted. It can be important that individual Member Countries are allowed to take the initiative for placing a certain substance in the legislation,” according to the MPA report (1). 


1. Swedish Medical Products Agency, “Platform to Enable the Initiation of a Revision of EU Legislation on Good Manufacturing Practives, GMP, In Order for Legislation Also to Comprehend Environmental Considerations (Uppsala, Sweden, Jun 16, 2011).

Sweden's Medical Products Agency issues a report calling for strengthening environmental standards for pharmaceutical production within the European Union.

A Push for Green Pharmaceutical Manufacturing Standards

Sanofi outlined its long-term financial objectives this week as the company discussed its strategy in mitigating generic-drug incursion and in generating growth in key therapeutic areas and emerging markets.

“Sanofi has undergone an impressive transformation over the last two and a half years, and the patent cliff is now almost behind us,” said Sanofi CEO Christopher A. Viehbacher, in a Sept. 6, 2011, 

. “While 2012 will be impacted by the loss of exclusivity of Plavix and Avapro in the US, Sanofi is set to embark upon a period of consistent and sustainable growth. Due to the strength of our growth platforms, the addition of Genzyme, as well as our continuous financial discipline, today we are setting for ourselves the objective of delivering sales growth of at least 5% per year on average over 2012–2015. Average business EPS [earnings per share] growth is expected to exceed sales growth over the same period. Our target to bring the dividend payout ratio to 50% reflects the improved future outlook of the company and our commitment to create shareholder value,” he said.

In 2012, Sanofi faces the loss of US patent exclusivity for two key drugs: the antiplatelet agent Plavix (clopidogrel bisulfate) in May 2012, and the antihypertensive drug Avapro (irbesartan) in March 2012. In 2010, Plavix had net sales of EUR 2.1 billion ($2.9 billion), and the Aprovel franchise-Aprovel and CoAprovel (irbesartan and hydrochlorothiazide)-had net sales of EUR 1.3 billion ($1.8 billion). Sanofi estimates that the impact of the loss of patent exclusivity for these drugs in 2012 will be EUR 1.4 billion ($2.0 billion), net of tax.

This anticipated financial impact is in addition to further generic-drug incursion expected in 2011. Sanofi expects that sales of key genericized products to decline to approximately EUR 3 billion ($4.2 billion) in 2011 compared with sales of EUR 7.6 billion ($10.6 billion) in 2008. These products include Lovenox (enoxaparin sodium) in the US, Plavix in Western Europe, Taxotere (docetaxel) in Western Europe and the US, Eloxatin (oxaliplatin) in the US, Ambien CR (zolpidem tartrate) in the US, Allegra (fexofenadine hydrochloride) in the US, Aprovel in Western Europe, Xyzal (levocetirizine dihydrochloride) in the US, Xatral (alfuzosin hydrochloride) in the US, and Nasacort (triamcinolone acetonide) in the US.

To mitigate current and future losses, Sanofi is focusing on six growth platforms: emerging markets, human vaccines, diabetes solutions, consumer healthcare, innovative products, and animal health. These growth platforms, as well as the acquisition of the biopharmaceutical Genzyme earlier this year, are expected to generate approximately 66% of the company’s sales in 2011, and to contribute more than 80% in 2015. Sanofi expects its sales in emerging markets to account for between 38% and 40% of overall sales in 2015 compared to 29% in 2010, which represents anticipated double-digit sales growth in emerging market from 2012–2015.

Sanofi expects that its previously announced target of EUR 2 billion ($2.8 billion) in cost-savings, which it began in 2009, will be reached in 2011, two years ahead of target. The company says it now expects new initiatives, combined with a previously announced $700 million in savings expected from the Genzyme acquisition, will generate additional incremental cost savings of EUR 2 billion ($2.8 billion) by 2015.

On the R&D front, Sanofi says it expects to launch 19 projects between 2012–1015, which include six regulatory filings between July 2011 and March 2012. These filings apply to Kynamro (mipomersen), Visamerin/Mulsevo (semuloparin), Aubagio (teriflunomide), Zaltrap (aflibercept), Lyxumia (lixisenatide), and Lemtrada (alemtuzumab). Aubagio and Kynamro were recently filed respectively in the US and the European Union. To support its growth platforms and R&D strategy, since January 2009, the company has invested EUR 23 billion ($32 billion) in 23 acquisitions, including the Genzyme acquisition, and has signed 61 in-licensing agreements.

Sanofi Outlines Long-Term Objectives

Pharmaceutical companies and their suppliers are faced with an ever-increasing complex and global supply chain. Several industry experts offer their perspectives on the challenges and strategies for ensuring product integrity and supply-chain security. Participating in the roundtable, moderated by Patricia Van Arnum, senior editor of 

Pharmaceutical Technology’s Sourcing and Management,

 are Jack Solomon, supply-chain practice leader with the consultancy Core Risks, and with executive-level experience at Aventis (now Sanofi) and Watson; Patrick Crowley, consultant with Callum Consultancy and former vice-president in pharmaceutical development with GlaxoSmithKline; Hedley Rees, managing partner at the consultancy Biotech PharmaFlow and author of a recent book, 

Supply Chain Management in the Drug Industry: Delivering Patient Value for Pharmaceuticals and Biologics 

; and Matt Anderson, global director of supply quality with Baxter Healthcare. These participants will be speakers at the 

, hosted by Xavier University in partnership with FDA in Cincinnati, Ohio, Oct. 2–5. The conference was developed through a collaborative effort of pharmaceutical companies, contract organizations, and FDA regulators as a means of engendering critical thinking, understanding, and continuous improvement in drug development, manufacturing, and the related supply chain.

 What would you identify as the most significant issues facing pharmaceutical companies, contract manufacturers, and suppliers in achieving supply-chain security and product integrity?

 It is always tough to single out the most significant issues because that leaves out other concerns, but I will focus on some fundamental troubles that I see creating challenges for the pharmaceutical supply chain: conflicting goals within most corporations; most pharmaceutical companies are under tremendous pressure to do more with less; in the rush to get products approved and out the door, critical steps, some of which may provide additional long-term product protection, may be missed; and the failure to have a risk- mitigation strategy.

At the executive level, goals are usually shared, but by the time corporate goals trickle down to department goals, they are not necessary aligned among the departments. Resources are wasted with people and organizations pulling in separate directions and not aligned with company goals. For example, if R&D is measured on how fast it files and receives approval, it may select suboptimal suppliers because they can get the job done faster.  However, that supplier may be unable to scale up or maintain tolerance to specifications at the scaled-up volume or the supplier may not provide the appropriate level of risk control for the long term.  If there is pressure on purchasing to reduce unit price, it may not have the time or skills to help R&D select the best long-term sources.

Patients and payers are demanding lower prices. Other industries have successfully implemented operational-excellence programs, and pharmaceutical companies are realizing this is a way to improve quality, improve customer service levels, and reduce costs.  However, we have seen companies cutting too deep, too fast, and leaving themselves short on skills and experience.  This leaves companies in a position where they can only focus on the most critical and most highly visible projects and issues. Unfortunately, the projects and processes that get neglected are the ones that will drive long-term reduction in exposure to risks.  It does not stop with internal risk. If too much pressure is put on suppliers to cut prices, they may cut corners to remain profitable. 

The difference between being first and second to market can be significant to the bottom line. Therefore, all companies must strive to get the product to the market faster, but with a smaller budget and limited resources.  It is no secret that when people rush, they make mistakes, and sometimes everyone else is too busy to catch the mistake.

The majority of high profile supply-chain security and product-integrity issues in the pharmaceutical industry has been self-induced and could have been avoided.  We are an industry driven by data, yet we often find that companies do not use data to predict or detect problems before they are major issues. Combine this with the above-mentioned conflicting goals, loss of experience, and the rush to get the product out the door, and it is no wonder that we see so many problems.

There are several challenges.First, delivering materials for clinical trials to many regions of the world for studies where dosage regimens need to be adapted quickly in response to biomarker measurements or other indications of safety, efficacy, and side effects. Personalized medicine and adaptive clinical trials will require such flexibility and speed of response. Second, persuading regulatory agencies that speed of delivery is necessary for the proper management of such trials. Traditional GMP requirements need to be replaced with more appropriate (i.e., faster and more flexible) processes for materials manufacture, packaging, and labeling. Dosage units must also be designed to facilitate dose flexibility while not compromising study blinding (i.e., units to have identical appearance). 

 First, it is important to make a distinction between supply-chain integrity and criminal activity since solutions fall at very different doors. In the short term, we have to limit the impact of criminal activity leading to counterfeiting and product adulteration. The need is urgent, and total vigilance is required. This is principally in the law-enforcement domain. There is, however, a deeper issue, and that is how do we build robust and secure supply chains that make it ever more difficult for criminals to operate? That, in my opinion, is down to the senior industry executives running the companies that hold marketing authorizations and sponsor clinical trials. Solutions require radical surgery, the scale of which demands those running the industry itself must undertake. 

So what does this mean? It means that changing industry business models have fueled what I term serendipity-induced, chronic-disconnectedness, with change inertia (SICCI). This began in the early 1980s when, in an effort to mitigate the impact of drug-approval uncertainty, the large pharmaceutical companies began to jettison their non-core fixed assets by outsourcing on a massive scale. This created a rapidly spiraling contract services sector (CMOs/CROs). Unfortunately, it was carried out as a tactical exercise rather than as a strategic methodology focused on effective make-versus-buy decisions. The result was hands-length relationships between the various players in the pharmaceutical supply chain with each operating within their own separate organizational structures, quality systems, and approaches to information-technology investments.

The contract base created needed to find customers to survive, spawning a symbiotic expansion of a virtual business model. These companies could use the contractors to develop an early-stage compound without investing in facilities themselves, selling on to larger pharmaceutical companies and eventually making an exit. This meant more handovers between company quality systems and more disconnectedness. In addition, another new business model emerged. Since Big Pharma was in the habit of dropping supply of drugs once off patent, a plethora of generic-drug companies rapidly grew, picking these compounds up. These companies created new supply chains of their own, operating with much reduced margins. Many sought low-cost country supply as a means of maintaining slim margins. This all took place as storage, distribution, and customer-handling facilities were also part of the fixed asset disposition, and major players emerged through consolidation (e.g., McKesson, Cardinal Health, and AmerisouceBergen in the US) that had no ownership connection with the drug manufacturers and license holders. There remains limited two-way communication between these two important stakeholders in the supply chain.

The net result has been a critical diminution of the ability of product-license holders and clinical-trial sponsors to exercise oversight and control over their supply chains. To use a well known phrase, ‘everyone’s responsibility is no-one’s responsibility.’ We now have to live with excessively multistaged, heavily outsourced supply chains, with arm’s length customer-supplier relationships that lead to poor upstream and downstream visibility, thereby providing perfect opportunity for counterfeiters and adulterators to do their worst. Globalization does not automatically mean disconnection, but for the pharmaceutical industry, sadly it has.

 Lack of transparency in the supply chain increases the risk for economically motivated adulteration.  However, requiring supply-chain pedigrees would require global legislation and the ability to prosecute criminals across borders.

 With the increased complexity and globalization of the pharmaceutical supply chain, what programs or initiatives (either industrywide or from regulatory bodies) have assisted companies in navigating the supply chain? 

 Having spent many years in industry and now as a consultant to industry, I see that the better companies are the ones who accept responsibility. They do not rely on regulatory agencies to do their job. These companies use all available information and increase their due diligence. This includes thorough on-site audits and follow-up, increased communications, including face-to-face meetings, and extra effort to understand the cultures of their suppliers. 

The more successful companies view the entire supply chain beginning with the early stages of R&D. They realize that the purchasing organization can do much more than focus on unit price. Purchasing can be a valuable source of market intelligence and supplier knowledge, especially when they are included at the start of the supply chain risk management process.  When measured on total cost of ownership, Purchasing can add value through the life of any product by improving quality, customer service, efficiency, and transaction costs.

Many say complexity and globalization, but they do not take the time to understand the implications. The differences go well beyond some of the obvious ones like logistics and exchange rates. Cultural differences are huge.  For example, you may think of due date as a commitment, but to some companies, in some countries, it may be merely a target that would be nice to hit. The better companies are building relationships with their suppliers and are clearly communicating expectations, even the obvious one.  When appropriate, consequences and incentives are put into contracts. 

 Some harmonization of material and product quality standards has helped, but there is still some way to go. Also, supply-chain providers have gotten increasingly sophisticated with respect to delivery, particularly where a cold-chain is necessary, as with many biopharmaceuticals. 

 I think some of the trade organization councils, such as the Active Pharmaceuticals Ingredients Committee (APIC) and International Pharmaceutical Excipients Council (IPEC) have been very active in flagging the issues and sharing best practices as has Rx–360. A really interesting industry initiative I came across a few years ago is from the International Serum Industry Association (ISIA). It represents a sector where pedigree is a major concern for its customers, and the association is producing simple, easy-to-follow principles and training, such as each party in the supply chain securing its immediate upstream and downstream stage. It doesn’t require sophisticated technology, but it does place emphasis on visibility and sharing of information by whatever means is effective. 

 by PEW Charitable Trust has been a welcome addition to our body of knowledge on the topic. Gabrielle Cosel and Allan Coukell did a great job of not just producing a brilliant report, but in disseminating it to important stakeholders who need to get behind corrective actions. As far as regulators go, there is strong evidence they mean business now. The latest organizational changes by Margaret Hamburg at FDA position supply-chain integrity as a high priority and Deb Autor, who is giving the keynote at GOC 2011, is a breath of fresh air, being very direct in her messages to corporate Pharma. FDA’s 

Pathway to Global Product Safety and Quality 

will be a major contribution. EMA is also updating its guidelines on good distribution practice, making them far more comprehensive and providing much needed clarity on supply-chain obligations.

For me, however, the overriding issue is one of accountability. There are so many passionate and committed people now working to address concerns, the top executive teams within pharmaceutical companies seem conspicuous by their absence.

 To address the increased complexity, industry, suppliers, regulators and legislators must work together to increase awareness and proactively put in preventive measures.  The Rx–360 consortium has begun to successfully address this need with over 60 members that include manufacturers, suppliers, and regulators.  Together they have worked with legislators to increase awareness and have begun to put in place preventive measures which include joint audits and sharing of best practices.

 Are there other programs or initiatives under consideration that you would like to discuss?

We are seeing more and more companies implementing enterprise risk-management processes. Insurance is a critical piece of the risk- mitigation program, but companies no longer view insurance as the sole solution to managing risk, nor should they, as insurance cannot restore market confidence or replace the product for the customer. Risk mitigation is everyone’s responsibility; it is no longer limited to the risk manager. 

More companies are driving risk mitigation up the supply chain and evaluating the plans of their suppliers.  More of this needs to be done, but many companies do not have the time or expertise. Instead, they react to problems when they hear about them.  If you need evidence of this, just ask your suppliers how many questions they received from their customers about pallets five years ago. How about recently?

 The prime initiative from my perspective is 21st century modernization from FDA and its embodiment into the ICH Q8–Q11 guidelines. The initiative is not strictly supply-chain integrity focused, but the guidelines provide a perfect blueprint for improvement. It is extremely frustrating, however, to see the industry misinterpret the intentions behind the guidelines and see such slow progress with their adoption. When the regulators penned the guidelines, they looked at a range of other sectors (semiconductor, aerospace, automotive) that were successfully translating product concepts into marketed products with high quality supply chains. They discovered these sectors focused on end-customer value, designed their products and supply chains from a very early stage with manufacture in mind, and sought to continuously improve quality, cost, and delivery performance.

To achieve this, however, those sectors had to radically rethink their organizational structures and attitude toward customers, suppliers, productivity levels, and, of course, quality. They recognized that R&D ‘throwing proposals over the wall’ for others to manufacture was a major problem for quality. To counter this, they involved all relevant parties at the design stage. This included, for example, marketing, manufacturing, procurement, and key suppliers. The focus of attention was on relentlessly meeting customer expectations for value as delivered by the end-to-end supply chain. They also redefined roles and responsibilities with respect to quality. Edwards Deming proved in the 1950s that if operators were given simple statistical tools that they understood and applied them for themselves, they could vastly improve the defect levels from their work. The massive quality functions were redirected away from inspection into more value-adding areas, such as quality engineering, where they worked on the integrity of the quality system. These improved quality systems were directed at reducing opportunities for error across the value stream. They recognized  that complex, ill-defined systems work strongly against the best efforts of committed employees.

Regulators have thrown down the gauntlet and provided the starting point by way of guidelines. It is now up to the pharmaceutical industry to carry out the surge.

 The Xavier University/FDA Global Outsourcing Conference and the annual PDA [Parenteral Drug Association] conferences help bring industry together to share best practices and create working sessions to identify preventative measures. 

: What barriers or challenges exist in developing collaborative models for global supply-chain security? Do country-by-country differences in terms of national regulations or custom and border-control practices present barriers to communication flow? What other barriers may play a role?

Cultural and language differences certainly make it difficult, as do the time zone differences. I have also seen travel issues affect communication. Sometimes there is a tendency to want to get through a discussion or an audit quickly. As more companies and more countries become involved in the supply chain of a product, there are more handoffs and more logistics issues. Each one of these creates an opportunity for tampering or diversion. The better companies may not be involved in each step, but they are aware of the processes and controls.

 One all-pervading barrier emerges: the industry’s mindset that the route to commercial success is through discovering and marketing blockbuster drugs. As a consequence, supply chain has become a low priority on the list of the pharmaceutical executive. This is a fundamental barrier. As business models changed to support the blockbuster paradigm, the critical piece in the middle, between discovery research and marketing, has become almost completely disconnected. It resides in the hands of multiple contractual parties: CMOs, CROs, third-party logistics providers, and license holders themselves, trying to make it all work. So we now have the following:

• Small drug-development and specialty pharmaceutical companies without the critical mass to properly invest in, monitor, and oversee their contract manufacturing base. 

• Hugely powerful CMOs carrying out work under third-party contracts, often not provided with the registered information of the products they are making on behalf of hundreds of different clients.

• Generic-drug companies with such large product portfolios manufactured across the globe that control of their supply chains is almost impossible.

• The critical link for complaints handling between customers (i.e., patients) and the registered manufacturer is through a distribution network that holds no responsibility for the product quality (other than to store and transport it appropriately) and is often several stages removed.

• Inadequate involvement of key stakeholders in the supply chain at the R&D stage.

• Outsourcing decisions based on short-term cost concerns not longer-term needs through the product life cycle. 

• Companies chasing low-cost materials across the globe when local supply may be as, if not more, cost effective.

• Procurement of contract manufacturing and distribution services by untrained R&D groups.

This is not an exhaustive list, but indicates the scale of the task ahead.

 National regulations and border-control practices vary significantly and cannot be considered as the only mechanism to ensure supply-chain security.  Ultimately, the manufacturer is accountable to ensure the safety of its products and needs to take the appropriate steps to secure the supply chain.

 Security with respect to materials for clinical trials may concern security of quality as materials themselves have little, if any, intrinsic value. With the increasing prominence of biopharmaceuticals, most of which need to be sterile and are temperature-sensitive, there is a need for small- volume cold packs that do not compromise product closure (i.e., conventional vials may not meet such requirements).  Biosensor/biomarker kits also need to be designed to withstand frozen conditions as they are likely to accompany supplies.

 What efforts could help in addressing those challenges?

 Implement an enterprise risk-management strategy/process.  Make it everyone’s responsibility, incorporate risk mitigation into all aspects of the business, and hold people accountable. Drive awareness as early in the process as possible; design risk mitigation into R&D processes. Risk mapping will help prioritize risks. Where possible, eliminate or transfer risks, but in some cases, the risk can only be reduced or may have to be accepted. If this is the case, develop contingency plans.Do not wait for a disaster to happen and discuss what needs to be done. Develop plans now that can be put in place when disaster hits.

There are public and private efforts to enable sharing information, including audits of supplier sites. The companies that are quick to participate in this and track-and-trace technologies will be ahead of their competitors. 

Companies are constantly trying to do more with less.  Some companies have the expertise to implement new processes to adapt to the growing complexities, but they do not have the time.  Others do not have the expertise.  These companies need to free up or develop internal resources or they need to bring in the resources to assist them.

 It has taken a long time to get to where we are today. It now depends of the law-enforcement agencies to deal with the pressing safety issues, but root-cause solutions will take a long time and require an understanding of the levers than can change industry behavior to achieve sustainable results. Some of these could be as follows:

•  Patents should only be awarded when there is sufficient evidence that the compound can be manufactured as a prototype finished product. That means proving it is suitable for a particular dosage form; quality by design would be an important enabler.
 •  Discovery research should stay and help develop the prototype and seek alternative compounds if necessary, rather than move on to new searches in different indications.
 •  Emphasis should be on proving manufacturability (as well as safety/efficacy) at representative scale  and defining a supply chain that is as simple and integrated as possible.
 •  Educate and train scientists and technologists in the principles and practices of strategic supply-chain management and involve supply-chain practitioners earlier in development.
 •  Regulators raise the bar at the clinical-trial application stage (IND/CTA) so that a minimum level of quality system and resource exists at the company sponsoring the trial. Consider even licensing drug developers before they can carry out studies in humans.
 • Focus increasingly on satisfying patient needs as the only sustainable way of doing business; today’s business models are failing.

 Manufacturers have to take ownership for their supply chains.  However, for this to work successfully and be sustainable industry needs to work with its suppliers to create global standards and guidance. Rx–360 has made and continues to make significant progress in this regard.

Industry experts discuss the challenges and solutions needed to ensure security in the pharmaceutical supply chain.

Strengthening Supply-Chain Security

Innovation. Any company looks to new products and services to drive value and competitive advantage. Our emphasis in innovation typically focuses on what is made new or improved, but not on how we innovate. In facing shortfalls in achieving innovation, one may ask: "Was the problem the idea or the process used to generate the idea?" The short answer: it is both.  

The practical ways to improve innovation in sourcing/procurement was discussed at a recent educational program of the Drug, Chemical, and Associated Technologies Association. Pharmaceutical companies, their suppliers, and other experts shared ways on how to cultivate and systemize innovation for generating actionable ideas for new or improved processes, products, or services, a particularly challenging task in sourcing/ procurement, where cost reduction is a primary and restrictive emphasis.  

An interesting thread in this dialogue was the growing use among pharma companies of "innovation communities." These communities consist of employees in multiple functional areas, suppliers, customers, and other stakeholders that use Web-based platforms as a means to share ideas, information, and lessons learned. The premise is simple but important: engage people, internally and externally, in a structured, but accessible way to cultivate innovation.  

A model for open innovation is Procter & Gamble's (P&G) "Connect + Develop" platform. According to P&G, more than 50% of its product initiatives involve collaboration from outside innovators. For pharma companies rethinking their innovation strategy, consider inside–outside  innovation enabled by Web 2.0.  

For additional insight, see "Strategies for Innovation in Pharmaceutical Sourcing and Procurement," at 

Internal and external Web-based communities are changing how pharma companies can innovate.