Although the contract services sector has been recovering over the last few years, contract manufacturing organisations haven’t been so lucky. The answer is far from being ‘one size fits all’, as different market conditions in each region means that each solution will require a personal touch.
Everyone in the pharmaceutical industry is aware of how the balance in the global market is shifting. After all, it was back in March 2010 that the Institute for Healthcare Infomatics (IMS) ranked 17 countries as high growth ‘pharmerging’ markets, forecast to contribute nearly half of industry growth by 2013. Due to its size, China stands alone as the number one pharmerging market, followed by Brazil, Russia and India as a second tier. Thirteen other countries including Venezuela, Poland, Argentina, Mexico and Turkey make up the balance.
Since then we have seen how consumers in emerging markets such as China, India and Brazil have been driving increases in pharmaceutical spending and thereby offsetting stagnation in traditional markets such as the US, Europe and Japan; how has this growth affected contract manufacturing organisations (CMOs)?
The Contract Manufacturing Perspective
Although the overall pharmaceutical contract services sector is now experiencing something of a recovery after a lean couple of years, the contract manufacturing segment is not doing so well, according to Jim Miller of PharmSource. Presenting his annual keynote lecture at the Interphex exhibition in New York in early 2012, Miller noted that the CMO sector is being held back by the reluctance of the pharmaceutical industry to outsource new molecular entity production, as well as more countries granting tax concessions to encourage investment in local production by large pharmaceutical companies (1). This capital investment by large pharma is driving down the cost of producing drugs and thereby putting enormous pressure on CMO margins. In some regions, manufacturing costs must drop 30 per cent to match the tax savings that pharmaceutical companies can receive.
The trend towards smaller volume niche and orphan products, as well as branded generics, is opening up the market to smaller CMOs. Technology advances are reducing capital and operating costs and lowering barriers to entry, making it easier for smaller CMOs to compete for commercial scale contracts. Faced with these challenges, CMOs have had to review their business strategy and come up with different ways of working in the evolving world of contract manufacturing.
Contract Manufacturing in the Pharmerging World
Traditionally, many CMOs have been based in the emerging world, using a combination of focused skills, lower labour costs and partnerships with licence holders to deliver cost-effective production. On paper, being based in any of the 17 pharmerging markets should unlock new opportunities for these companies; however, in practice they are being affected by a unique set of challenges. Similar to CMOs everywhere, they are seeing margins squeezed by new smaller entrants at the bottom end of the sector and investment by large pharma at the high end.
This means they need to change and adopt new strategies for growth, investing in new products (such as peptides), new markets, and business models (such as providing direct to market sales). All of these require new skills, many of which are in short supply in their existing organisations and within the country itself. So, what are these new skills that are required? What talent management strategies are companies adopting to develop them? This article looks to three organisations in the emerging markets of India, Turkey and Brazil for their perspectives on contract manufacturing.
Moving India Up The Chain
Neuland Laboratories is a leading Hyderabad-based manufacturer of active pharmaceutical ingredients (APIs) and an end-to-end solution provider of chemistry-related services to the pharmaceutical industry. It has some 1,000 employees and its core competency lies in the application of strong process chemistry to manufacturing in a regulatory environment. The company’s philosophy has always been to deliver high quality which is reflected in the fact that the company’s plants all meet EU and US FDA quality standards and requirements.
It faces increased competition in emerging markets for its existing commodity products. Saharsh Davuluri, President of Neuland Laboratories, explains, “If it’s a large volume product like the antibiotic Ciprofloxacin, for which we are the world’s largest manufacturer, then we cannot really compete in India despite having almost a 70 per cent market share in Europe and North America combined. We have a negligible market share in India for Ciprofloxacin because it is produced by several companies in India we really can’t compete on the pricing.”
Consequently, the business is changing as the company looks to manufacture more complex products. One such example is Neuland’s decision to move up the global value chain and start manufacturing peptides, which are more complex with lower competition and consequently higher margins. The company’s existing plants were ideal for their manufacture and capital was available to fund the move, but the key, qualified people required to make the business work were not readily available.
Peptide specialists are a small subset of scientists and there was no one in India who could fill the role. A specialised recruitment firm eventually found the ideal candidate; an Indian with about 30 years of experience, working in the US, who was happy to be repatriated to India. A team of 25 people – a mixture of peptide specialists and organic scientists – were placed in positions reporting to him and have been delivering great results.
Looking ahead, Davuluri believes that this model may well be the way forward for the company, as organisations look to outsource more and more complex products. “India has an economic advantage over Switzerland in terms of costs, but the scientific skills and talent pool lies in the West and is still working for Big Pharma. Strategic recruitment may well be the key to unlocking a more profitable future based around more complex products.”
Competing in Brazil
Abhishek Banerjee is Director General of Accord Farmaceutica Ltda of Brazil, which operates both through contract manufacturing and direct presence. One of the fastest growing pharma marketing companies in regulated markets, Accord boasts a wide product portfolio in oncology, biologicals, immunosuppression, cardiovascular, central nervous system, anti-diabetic, nausea, osteoporosis and gastrointestinal drugs. Getting the right people on board to make the business successful does mean overcoming a skills challenge, as Banerjee explains: “For the local direct presence, recruitment is not such a difficult exercise because you’re basically modelling yourself like any other Brazilian company. So we can find the talent, in terms of sales force, logistics, regulatory and medical affairs. However when it comes to contract manufacturing, you need different skills. Looking at business development you need a person who understands the entire value chain. I think that is one area where there is a huge lack of talent, because of the simple reason that you just don’t traditionally have cross-functional managers within Latin America. That becomes a huge limiting factor for staff who are extremely good at one thing but who don’t know anything about regulatory requirements for example.”
Language skills are a key necessity for staff operating in a global market, rather than just a local one. For Portuguese-speaking Brazilian staff, this means learning Spanish to communicate within Latin America but, more importantly, also learning English as it is the de facto business language of the global pharma industry. The cost of learning a language is still high in Brazil, but many companies, including Accord, have invested in English courses to retain and develop staff at specific levels.
In an emerging market where regulators such as the Brazilian equivalent of the US FDA are only 10 years old and there is very active government intervention in the market, other skills are in great demand. A group that Banerjee describes as ‘positive, businessorientated regulatory managers’ has the knowledge and experience to help companies become more flexible in reacting to changing regulatory conditions.
Government intervention is also geared to developing local pharmaceutical capabilities. For example, the Brazilian government is offering long-term, low interest loans to help local companies strike licensing deals, buy technology products or to help clinical trials, in a bid to create a selfsustaining pharmaceutical sector. This can affect CMOs compared to direct to market companies. According to Banerjee, “The Brazilian government is now offering a 25 per cent incentive in the tender process. So if you are quoting 100 and I’m Brazilian and I’m quoting 125, then the government is ready to pay 125. This has an impact on a lot of things including talent and manufacturing.” According to Banerjee, the key to success for Brazilian CMOs is developing positive company cultures that encourage staff to learn new, cross-sector skills, improve their English and reward them through performance-linked incentives.
Turkey: Adding Skills to the Workforce
Fatma Taman is General Manager at PharmaVision Pharmaceutical. The company produces around 102 million packs of pharmaceuticals per year, which is about 9.5 per cent of local pharmaceutical production. The company exports to over 20 countries, including some members of the EU. One of the major changes in Turkey, common to many emerging markets, is the government’s desire to develop local manufacturing capabilities, rather than relying on importing key materials. In the case of Turkey this means that carbon molecules will have to be produced locally and this affects the skills that are needed. Managers must have a combination of good technical knowledge backed up by an understanding of analytical and product processes in order to successfully transfer production to other countries – skills that are in short supply, according to Fatma Taman. “Even when transferring a product from one company in Turkey to your research plant, it is diffi cult to fi nd the correct person. They need to have a view of the whole picture, otherwise you would need a production person, an analytical person, a regulatory person, a supply chain person and everybody would speak another language. I’ve had to train them by myself, on the job, in order to meet our needs.”
Added to this is the fact that regulatory requirements are becoming tighter in each country; while they may be broadly similar across emerging markets, there are specific differences from country to country. So for a CMO such as PharmaVision, this means either investing in regulatory skills or partnering with a local licence holder to handle this area.
Across the Turkish pharmaceutical sector there is also a pressing need for good, experienced production managers. Many entering the industry prefer to work in quality assurance, R&D or even open their own pharmacies, which has led Taman to reach out directly to students. “I’ve been going to universities to meet pharmaceutical and chemical engineering students to give them advice at careers days, explaining what people do in pharmaceutical production. They know what people do in the registration department, they know what they do in the laboratory, in quality assurance because this is a common thing, but in production this information is missing and the industry needs to fill in the gaps.
Critical to retaining staff at PharmaVision is the company’s strategy of empowering them and giving recognition for success. This means assigning staff to project teams where every member has a vital role, rather than in hierarchies which can demotivate staff.
Looking to the Future
While conditions in India, Brazil and Turkey are all very different, CMOs are facing similar talent management issues that potentially hold back their ability to grow. Many governments have identified developing the pharmaceutical sector as a key strategic goal meaning there is capital available for expansion to target both growing local and international markets. Talent management is the missing link that needs to be addressed through training, education, language skills, new ways of working and recruiting international staff if CMOs in the pharmerging economies are to realise their potential.