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CMOs on the rise

How do you establish yourself as a successful CMO? What does the future look like for CMOs over the coming years? Nordic Life Science Review takes a look at some of the developments and trends among contract manufacturing organizations in the Nordic countries.

The life science industry has been through a few difficult years and the past months have seen some restructuring, for instance at AstraZeneca, which has been the biggest topic in the last couple of months. As a consequence, a possible future scenario is that an increasing portion of drug development will be performed by cmos rather than by the pharmaceutical giants. Outsourcing to cmos is likely to become increasingly established as a strategic manufacturing option, as pharmaceutical and biotech companies struggle to improve their internal core competencies. According to a recent analysis from Frost & Sullivan, European Pharmaceutical and Biotech Contract Manufacturing Markets, the European pharmaceutical contract manufacturing market earned revenues of 10.02 billion USD in 2011 and this is estimated to double to 20.75 billion usd by 2018. Simultaneously, the European biotech contract manufacturing market is supposed to expand from 1.21 billion USD
to 2.67 billion usd over the same time period.

It’s still extremely expensive xand risky to provide early research.”I think we will see more of large pharma companies choosing to limit their own risk by reducing internal r&d and replacing their pipelines by the purchase of successful clinical projects,” says Magnus Gustafsson, Business Manager at Cobra Biologics.

CHANGE OF STRATEGY
The Swedish cmo has three gmp inspected facilities, two in Sweden and one in the uk. Cobra Biologics specializes in the development and manufacture of monoclonal antibodies, recombinant proteins, dna, viruses, whole cells and aseptic fill and finish. For a long time the company was known as an early manufacturer of dna and had a strong customer-base in this field. However, a period came when their customers experienced unsuccessful clinical trials and the company realized they were taking a risk in focusing all their energy within one specific area.

“I don’t think we will take the decision to limit ourselves to only one domain. As a cmo you unfortunately become too vulnerable, since the market can turn quickly. Looking at tendencies in the business, I think this is a trend that we will see more of among other cmos as well,” says Magnus.

Today, Cobra Biologics is trying to provide as comprehensive service as possible, offering everything from cell line and process development to late clinical studies and commercial supplies.

“By providing a comprehensive service, we are able to attract many potential customers and since many pharma companies are small or even virtual, especially in Sweden, many of them are in great need of buying expertise as well as our services. At the same time, customers of today, are and should be selective in their choice of service provider, as this is a relationship that should survive for many years.”

ATTRACTING INDIAN INVESTMENT
In a time when cros and cmos are often outsourced abroad, another Swedish cmo, Kemwell AB, has managed to attract a lot of new commissions to Sweden, both in production as well as in quality services. Kemwell AB is a part of the family-owned contract manufacturing Kemwell Biopharma Pvt Ltd in India, with its headquarters in Bangalore. The company is a global producer of pharmaceuticals and development services with customers such as GlaxoSmith Kline, Johnson & Johnson and Pfizer. In 2006, the family-owned Kemwell acquired the Pfizer facility in Uppsala, Sweden, retaining the manufacturing contract for Salazopyrin and nearly 180 people on site. The plant has continued to make Salazopyrin, Pfizer’s antiinflammatory drug for Crohn’s disease and ulcerative colitis. In 2010, Kemwell opened their second pharmaceutical production centre in Sweden. The plant, on the Uppsala Business Park, is a 16,000 sq.m. plant. But why does an Indian company want to invest specifically in Sweden?

“The chairman of the board at Kemwell AB previously worked for 30 years at Pharmacia. During a business trip that was the start of a long relationship in India he met with Subhash Bagaria and started a collaboration. When the factory in Uppsala was available, they took the chance to expand in Sweden. I think that they saw the mutual possibilities that this acquisition could offer for Kemwell as a company in the long run, first what the location and country can offer with our quality approach and stable society, meaning that we have a high level of delivery reliability. A second reason is all the advantages with a Swedish-Indian collaboration, considering ongoing activities with existing clients as well as with new ones,” says Leo Fällgren, Manager of Business Development for Kemwell AB.

SWEDISH STABILITY
Today, the company has 180 employees working in Uppsala, a turnover of approximately. 370 msek each year and Kemwell cooperates with six of the world’s ten largest pharmaceutical companies today. Part of the success of bringing business to Sweden, Leo Fällgren thinks is thanks to the country’s good reputation and the Sweden/ Indian approach.

“When we are meeting customers abroad, Sweden is viewed by many as a country that has great expertise in the field of life science and a strong standing in drug development and in pharmaceutical production. We also have a strong network that involves industry and the academic world. Combined with hard working entrepreneurs with high ambitions, Sweden comes out as a competitor to count and rely on,” says Leo Fällgren.

The location of the cmo and the stability in the country are other important key factors in attracting customers, Leo continues. Sweden for example isn’t a place where there are generally  many working disputes, strikes or interruptions.

“Sweden is also good at environmental and social responsibility, which I believe is becoming a more prioritized issue when it comes to choosing cmos. Previously there was a tendency to place the majority of production in Asia. Today, we can see that there is an equal amount of production going on in Europe. It might depend on which market the product is designated for, but in many ways I think it is a strategic decision from the pharmaceutical companies to choose either a European location or elsewhere. At Kemwell we can offer both solutions.”

MORE MERGERS AHEAD
Giving a prediction for the next ten years, Leo Fällgren believes that there will be some changes in the business. There will probably be fewer cmos active on the market while we will see significantly more mergers, given that more pharmaceutical companies are buying out others. Considering that a great deal of patents will expire in 2014 and 2015, Leo Fällgren guesses that a lot of companies will probably continue buying market shares.

“For example one client acquired another company, which is a common way forward in the industry by today, allowing the company, among other strategic and success factors, to protect itself from a drop in revenues when they would lose patent protection a couple of years later.”

But the increasing number of cmo mergers can also be explained by the need to reach out to more clients.

“By merging with another company, you increase your possibilities of providing a greater range of services and capacities. Furthermore, I get the impression that customers look for stability and for companies that can deliver for a longer period of time. At the same time it can of course become problematic to be unique, and thereby to attract clients, if every company is broadening its capabilities,” says Magnus Gustafsson.

IMPORTANCE OF SCANDINAVIAN COLLABORATION
Looking ahead, Leo Fällgren sees a bright future for Kemwell AB, as well as for the industry.

“It is a tough climate for cmos and for other companies active in the life science business. But there are companies that are going against the flow. Today we have six of the top pharmaceutical companies as our clients, with global distribution. In ten years I hope and I believe we still see a bright future for Kemwell and that we will have a great mix of big/ medium/ small size pharma as our clients globally, and that the outlook for the industry is still expanding.”

“Of course, it is always difficult to predict what will happen in the future, especially in light of the economic situation. That is why I think the belief in the life science industry has to change; Sweden can certainly compete in terms of pharmaceutical production and in other services as well. The Scandinavian countries should start collaborating more and accentuating the capacity and high competence this region has to offer. We are proud and driven by trust and commitment to our clients in being a contract manufacturer in Sweden,” summarizes Leo.