 is a contract research organization (CRO) that is building its capabilities in preformulation, formulation, analytical, manufacturing, and packaging services. The company was formed in May 2006 as a management buyout from its former parent company, 

 (King of Prussia, PA). Xcelience recently announced an expansion of its facilities and equipment capabilities.

Xcelience was founded by current CEO Derek Hennecke and current Vice-President Randall Guthrie, both formerly with MDS Pharma Services and part of the management team that created Xcelience. Hennecke was vice-president and general manager, pharmaceutics and biopharmaceuticals of MDS Pharma Services from 2004â2006. He was responsible for the business and operations of MDS’s CRO formulation development, including capsule development, tablet formulation, modified-release tablets, suspensions, solutions, suppositories, creams, ointments, and gels. This business was spun off from MDS Pharma Services in 2006 and is now the basis of Xcelience. Prior to the launch of Xcelience, Guthrie led MDS Pharma Services and the legacy Phoenix International as vice-president of business development and vice-president of strategic development.

"Xcelience supports the drug-development process between drug discovery and Phase IIb," explains Guthrie. "We are focused on assisting our clients by accelerating their early drug development, which can include proof of concept, candidate optimization, preclinical dose preparation, and clinical supplies."

Roughly 90% of the company's business involves oral drug development, which includes solids, semisolids, and liquids. Xcelience also performs formulation development for topical creams and ointments. Filling of active pharmaceutical ingredients for capsules is one area of particular expertise for the company. Xcelience uses 

 (Peapeck, NJ) "CFS1200" capsule-filling and sealing machine for liquid fills and Capsugel’s "Xcelodose 600" for solid fills.The CFS1200 can fill and seal two-piece capsules with liquid or semisolid formulations. The Xcelodose system is a precision powder microdoser and automated encapsulator with a fill range of 100 micrograms to greater than 100 milligrams. It allows the user to directly fill APIs into capsules (without excipients) at a rate of several hundred capsules per hour. The system is suited to producing formulations for use in clinical trials.

In January 2008, Xcelience enhanced its solid-fill capabilities with the purchase of "Xcelodose 600 S" precision powder micro-doser and automated encapsulator. The S model fills at speeds of over 600 capsules an hour at 50% greater throughput than its predecessor, the Xcelodose 600, according to Xcelience. The company expects to put the Xcelodose S in operation by May 2008.

Since its formation as a independent company, Xcelience has grown from 43 employees to almost 80. Based in Tampa, the company purchased a 24,000-ft

 building in Tampa in 2007 that will double its overall size to 50,000 ft

. Plans are to open the new facility in the third quarter of 2008. The facility will house additional good manufacturing practices (GMP) and non-GMP capabilities to support client needs.

Xcelience serves small biotechnology or virtual companies, mid-sized pharmaceutical companies, and large pharmaceutical companies. It supports the spectrum of companies from simplistic fee-for-service arrangements to more complex risk-sharing arrangements. "Companies outsource for a variety of reasons,"says Guthrie. "Whether it is overflow needs, specialized services, a lack of their own capabilities, or just parallel development plans, there is always an expectation of quality and understanding of the sponsor company's expectations in the outsourced relationship."

Articles

Pharma Partner Focus

The former formulation-development business of MDS Pharma Services seeks to build its niche in early-phase drug development.

Xcelience Targets Formulation Development

The pharmaceutical industry performed reasonably well in 2007, but analysts point to weak fundamentals in the sector. A dearth of new drug approvals, some major clinical setbacks, lower financing into the biotechnology sector, and a new wave of patent expirations negatively affected the financial performance of the pharmaceutical sector. For 2008, analysts are evaluating whether the eroding macroeconomic conditions will put further pressure on the sector, whether the pace of drug approvals will improve, and the impact of more generic-drug entries.

Despite volatility, the healthcare sector performed reasonably well in 2007, but there were important changes in investor confidence in the pharmaceutical and biotechnology sectors. "Generally, there has been a shift away from the traditional healthcare favorites (Big Pharma and Big Biotech) to smaller, niche players (medical technology and services)," says Jeff Shacket, vice-president of corporate advisory services with 

. Shacket spoke at an educational program organized by the 

Drug, Chemical, and Associated Technologies Association

Overall, the 10 most active US investors with the most money invested in healthcare held steady during 2007, representing $395 billion or 11.5% of equity assets, according to data from Thomson Financial. Among the largest investors, holdings in the pharmaceutical sector increased 6% in 2007 to $207.9 billion, holdings in the biotechnology sector decreased 3% to $69.6 billion, and holdings in medical technology firms increased 15% to $57.5 billion.  "Collectively, these firms bought pharmaceutical and medical technology stocks, but sold biotechnology stocks despite some gains in this sector," says Shacket. "Five of the largest investors increased their healthcare exposure, but five trimmed their holdings."

In evaluating the corporate performance of Big Pharma in 2007, Shacket pointed out there were few significant clinical developments. The sector was marked by cost-savings efforts in cutting sales forces and trimming research and development (R&D) expenses, small-acquisitions aimed at specific therapies or technology, and companies repurchasing stock and raising dividends. 

Stock price and earnings (P/E) multiples for Big Pharma dropped in 2007. "A couple of years ago, most of pharma was expected to deliver double-digit earnings growth," says Shacket. "Current three- to five-year forecasts for many are in single digits and are falling. It is not surprising 2007 stock price performance was correlated." 

Although Big Biotech turned to traditional financing vehicles in 2007, there was an more of an emphasis on raising capital by partnering with Big Pharma accompanied by relatively low levels of financing through public and private markets. Shacket pointed out that there were 53 private placements in the US in the biotechnology sector in 2007 that raised an average of only $20.6 million per deal. There were 40 deals for follow-on offerings with an average of $71.1 million in 2007, but which averaged a loss of 7% after the announcement of the offering. There were 22 initial public offerings in 2007, and 19 deals in convertible debt that raised an average of $114.9 million. In contrast, some of the larger partnering deals with Big Pharma included 

 (Whitehouse Station, NJ) $452-million pact with 

 (Kenilworth, NJ) $380-million agreement with 

Although the healthcare sector has historically been bolstered by investors selecting the sector as a defensive strategy when macroeconomic conditions decline, there is a question as to how investors will react this year. "One of the key issues facing the sector is whether clinical setbacks and patent expirations erased the downside protection,"says Shacket. "Also, on the regulatory and political landscape, key factors to consider are the rate of regulatory approvals in 2008, the threat of generic biologics, and the impact of the Presidential campaign in moving investors to stay on the sidelines as debates over healthcare continue."

As innovator companies struggle, opportunities for generic-drug companies are fairly strong. Over 150 products, including 20 blockbusters, with $77 billion in total branded drug sales in the US are coming off patent through 2012, outlined David Harding, sales support specialist of API intelligence for pharmaceutical and chemical markets with Thomson Scientific at the DCAT program. In 2007, the US led all countries with approvals for abbreviated new drug applications (ANDAs) with 169, or 38%, of the total final ANDA approvals. India followed with 132 or 29%. Israel followed with 40 or 9%, then Germany with 25, or 5%, Canada with 24 or 5%, and Switzerland with 19, or 4%. The rising influence of India in the generic-drug market is further underscored by its leading position on the supply of active pharmaceutical ingredients (APIs).  India, alone, accounted for 274 US drug-master filings between 1998-2007, according to Thomson Scientific. The rest of the world accounted for 292 and China, 90.

Of the 29 products that had first ANDA approval in 2007, 15 drugs were considered blockblusters, pointed out Harding. Some major new generic launches in 2007 included:  ceterizine hydrogen chloride (HCl), carvediol, pantoprazole sodium, zolpidem tartrate, risedronate sodium, and valacyclovir HCl.

In 2008, 25 products will lose patent protection in the US, notes Harding. Some anticipated generic launches of 2008 include memantine HCl, topiramate, risperidone, levetiracetam, ropinirole HCl, alfuzolin HCl, eplerenone, and rocuronium bromide. For 2009, there are 29 molecules with new chemical entity exclusivity expiring and therefore exposed to Paragraph IV patent challenge in 2008, explains Harding. Some major products that are likely to see a patent challenge in 2008 are duloxetine HCL, pregabalin, and tiotropium bromide.

Despite the opportunities in the generics market, the low-margin and cost-competitive nature of the business continues to drive consolidation, some positioning in novel R&D by generic-drug companies, and tactical acquisitions by major generic companies in biogenerics. Between 2005 and 2008, the top generic-drug companies spent approximately $40 billion in mergers and acquisitions (M&A), says Mike Chace-Ortiz, director of product strategy with Thomson's API intelligence business. He also spoke at the DCAT conference last month. M&A among second-tier generic drug companies has also increased. Some noteworthy deals include the pending $450-million acquisition of 

 (Mumbai, India); the estimated $200-million acquisition of 

 (Guarulhos, Brazil); and the combined $450-million purchases of Morton Grove, Pinewood, and Negma by 

This M&A activity has also spread to biogenerics."Behind the big deals, biogenerics have been quietly pursued by some of the major generic-drug companies such as Teva, Hospira, Stada, Barr Laboratories, and Apotex,"says Chace-Ortiz. These deals include: 

 (Lake Forest, ILL) acquisition of Bresagen and its alliance with 

 (Stadastrasse, Germany); the creation of Bioceuticals by Stada; 

 (Montvale, NJ) acquisition of Pliva; and continued investment by 

 (Toronto). "A key question is how will other major players such as 

 react in position in biogenerics," he says. "To date, they have not made major moves in biogenerics."

The major generic-drug companies are also tactically investing in innovator R&D as means to offset cost competition and low margins. Teva leads with innovative R&D spending at $500 million, which accounts for roughly 51 development programs, notes Chace-Ortiz. Other estimates include: Hospira at $161 million, Barr at $140 million, 

 (Budapest) at $65 million, Apotex at $50 million, and Watson (Corona, CA) at $47 million. Apart from Teva, the other companies are developing a relatively small number of novel drugs: either in the single digits or up to 18 for Barr or 16 for Gedeon Richter.

"Given typical attrition rates for drug development, an important question for these innovative R&D programs is whether pipelines of less than 10 molecules, most of which are in preclinical phases, are really sustainable," says Chace-Ortiz. "We see top and mid-tier Indian generic drug companies investing in novel R&D with some success. Most notably, Dr. Reddy's and Glenmark, both of whom attracted some healthy attention from major brand companies. " 

Global Feature

Financial experts share their insights for the performance for innovator drug companies and generic-drug players.

Rocky Outlook for Pharmaceuticals

The annual Informex trade show, the principal North American showcase for pharmaceutical chemical manufacturers, is usually a bellwether of how the contract manufacturing industry is doing. The mood of the exhibitors is a good indicator of market conditions, and the presentations at the preshow Exhibitor Showcases are a reflection of what the manufacturers think the market is buying. 

This year's Informex was held in late January in New Orleans, and I would describe the mood as upbeat but cautious. Most manufacturers had a strong year in 2007, and they believe that the same dynamics are in place for 2008. In particular, the robust early stage pipeline continues to drive demand for process development services and preclinical and clinical quantities of intermediates and active ingredients, especially from small biopharmaceutical and pharmaceutical companies. In fact, company presentations during the Exhibitor Showcases focused primarily on development services, often touching just briefly on commercial-scale capabilities.  

The ability to offer "one-stop shopping," i.e., to service the client from early development through commercial supply, was a common theme, but contract manufacturing organizations (CMOs) clearly understand that, in light of the slowdown in new commercial approvals, the present market opportunity is primarily in early development. 

This year's "must-have" capability was solid-state chemistry, which has become increasingly important for improving compound performance and for intellectual property protection. Once reserved for a handful of specialty labs, the ability to analyze different polymorphs and salts of a chemical compound is now being offered by many, if not most, active pharmaceutical ingredient (API) manufacturers.  

There has always been something of a herd mentality in the pharmaceutical chemical sector as CMOs try to offset any competitor's advantage in service offerings, and this year is no different. With most CMOs emphasizing their development and scale-up capabilities, solid state and chiral chemistry know-how, and high potency facilities, it's not easy to tell them apart.  

Despite the strong showing last year and at the start of 2008, CMOs remain wary of the potential for an industry downturn. Several noted that the industry has traditionally been cyclical, and after four years on an upward trend, a correction may be due. There is growing concern that there may be too much capacity in the industry, even for preclinical- and clinical-scale manufacturing.  

Several CMOs complained of some price-cutting by competitors, and there were concerns about some companies whose financial positions were somewhat shaky. There were some complaints about the relatively low number of pharmaceutical company attendees and slow floor traffic, but this may be a reflection of changing shopping habits (major pharmaceutical companies want fewer vendors, not more) rather than overall industry conditions. 

A major element of the API development and manufacturing environment in recent years has been the emergence of CMOs and CROs, contract research organizations, in Asia and Eastern Europe. Although cost has been viewed as a major advantage of those companies, the actual strategic implications have been more complex. On the one hand, the cost advantage can be played in several ways, either on the development side, which is labor-intensive, or on the commercial side, where lower capital costs and environmental compliance requirements can be exploited. On the other hand, companies can compete in segments where cost advantages are not so important (e.g., for high-potency compounds; processes exploiting new technologies; or development services where proximity to the customer and intellectual property protection are more important considerations). These strategy considerations are faced equally by companies based in North America, Europe, and Asia. 

API manufacturers are pursuing strategies that address these cost and non-cost considerations in various ways. For example, Cambrex Corporation (East Rutherford, NJ), now focused on the API market after the sale of its biomanufacturing and research products businesses to Lonza (Basel, Switzerland) last year, has targeted high-end generic APIs and custom manufacturing. With manufacturing assets in relatively high-cost countries (the United States and Sweden), Cambrex has focused on niche high-value APIs, including controlled substances and high-potency compounds.  

At the same time, Cambrex's management realized that if it is to remain competitive in the custom manufacturing arena, it had to strengthen its offering of early development services, where long-term commercial relationships are often established these days. Consequently, in January, it agreed to acquire ProSyntest AS, of Tallinn, Estonia. ProSyntest provides early process development and scale-up services and has particular expertise in chiral and organometallic chemistries. It was established in 1990 and has 25 chemists. The business will be renamed Cambrex Tallinn after completion of the acquisition, and Cambrex will invest to expand its capacity. 

The ProSyntest acquisition benefits that strategy in two key ways: it gives it the capability to serve the early development market, and it provides that capability in a low-cost geography, enabling Cambrex to compete more effectively with CROs in Asia. The deal should enhance Cambrex's ability to engage clients at early stages and keep them through scale-up to late-clinical and commercial-scale manufacturing, especially European clients. 

Coming from the other direction, CMOs in India have used acquisitions in the US and Europe to gain proximity to clients and build their technology base. A prime example is Dishman Pharma and Chemicals (Ahmedabad, India) which acquired Switzerland-based Carbogen and Amcis in 2005 from Solutia. Carbogen Amcis, with three sites in Switzerland and one in the United Kingdom, has a strong technology base with particular capabilities in chromatography, chiral separations, and high-potency compounds. The company has a staff of 400, including 150 PhD chemists. According to CEO Mark Griffiths, Carbogen Amcis is doing more than 300 development project per year, which sets up a substantial potential commercial pipeline for Dishman. In fact, says Griffiths, the ability to offer a commercial scale-up route via Dishman's operations in India has been a business development boon for Carbogen Amcis, enabling them to win contracts that they might not otherwise have won without the large commercial capabilities. 

Other prime examples of companies with footprints in the West and Asia include Albany Molecular Research (US, Eastern Europe, India and Singapore), NPIL Pharmaceuticals (India, Canada, and the UK) and Lonza (Switzerland, China, and the US). With the pharmaceutical research and development networks and high growth market opportunities now encompassing Asia and Latin America as well as North America and Western Europe, the globalization of the CMO industry is bound to pick up speed. 

is president of PharmSource Information Services, Inc., and publisher of 

Outsourcing

CMOs have positive outlook for 2008 but are wary of competitive pressures.

PTSM: Pharmaceutical Technology Sourcing and Management-04-02-2008

Xcelience Targets Formulation Development

Rocky Outlook for Pharmaceuticals

Outsourcing Outlook: API Manufacturers Go From Grams to Tonnes