The role that pharmerging countries are playing in the manufacture of generics and drug ingredients as well as the ‘flight to quality’ is a constant source of discussion, but Newton asserts that there is more that needs to be said.
Certain organizations have used talks of the growth of contract manufacturing in pharmerging economies as a means to push for regulation change within Europe and to encourage investments in the region.
Meanwhile, growth is often played against the issue of ‘quality’ in the manufacturing taking place in the Eastern hemisphere countries, leading to discussions of ‘flight to quality’ or the return of manufacturing to Europe and the US.
However, Lee Newton (LN), VP, business unit head of API development & Manufacturing at Lonza, told In-PharmaTechnologist (IPT) that the reality sees fewer companies sourcing active pharmaceutical ingredients (APIs) from India and China than previously thought.
Newton also suggests that this perception of outsourced manufacturing has been used as a bargaining tool by Western contract development and manufacturing organizations (CDMOs).
IPT: Why is the ‘flight to quality’ discussion a constant in the industry?
LN: It has been one of the big topics in this industry since around 2006, since the acquisitions that were made in the early- to mid-2000s of mostly European CMOs. In terms of taking manufacturing to lower cost economies, there's always going to be pressure to do that where it's appropriate, and what's appropriate can change.
IPT: So, why has the point of ‘quality’ emerged?
LN: I think the backlash on quality is something that is more spoken about than real, in some cases. Then again, the proportion of manufacturing moving to lower cost economies was not as high as some people would like to believe in the first place.
If you ask a lot of the pharma companies what proportion of your API, for example, do you buy in India or China – if they're honest, it was never as high as you might think, and a lesser threat than sometimes communicated. I think ‘quality’ was used as a tool to try and drive price-based negotiations for lower pricing from Western CDMOs.
IPT: If topics like ‘quality’ are talked about as larger issues than they are, what are some reasons for that?
LN: I think it depends on what level you're talking about. In the beginning, the director general of the Indian regulator is on record as saying that Indian GMP is not the same as the European Union’s. To some extent, you have to respect that different regulatory agencies have different opinions. For example, Anvisa in Brazil is famous for having different opinions of the FDA. The Chinese FDA does not have the same requirements. We don't have full harmonization and some of the perceived difficulty stems simply from that.
The other thing I would say is that the level of enforcement has changed remarkably in the last few years. I don't think the quality levels have changed that much, I think the enforcement of the quality levels has changed. We're finding more of the problems that already existed and we’re seeing continued movement toward a global quality standard for pharmaceuticals.
IPT: Are there any other factors involved?
LN: There is a degree of sensationalism in the media. You have one or two scandals and, suddenly, every Chinese company can't be trusted. There are good companies in China and good companies in India, you have to know which ones are which. There are also very badly run manufacturing sites in the West. I find, almost, a biased overtone to some of the manufacturing quality discussions right now. Our Nansha plant is operated to the same global quality standard as our Visp (CH) facility to service a global customer base.
IPT: But there have been notable stories in China and India that warranted coverage.
LN: Of course, there are some pretty horrific, high profile cases of quality issues, but some of those are not really quality problems, they're criminal fraud. I think we have to be a little bit careful about generalizations when it comes to talking about 'flight to quality' because there are points made in there that are implied from many sources, which are not necessarily true.
IPT: Would you say there's an uneven level of scrutiny between the reaction to issues in Europe and the US, compared with markets like China and India?
LN: Yes, exactly. If you read some of the warning letters that are given to sites in the US, for example, when they inspect domestically, you'll see some pretty negative things too. However, they don't make front page news as often compared to when it happens in China.
IPT: Has there been a movement back to Western manufacturing as a result?
LN: We do see people moving back because there are IP and are compliance concerns and different types of integrity concerns. The level of pricing incentive that formerly existed has also changed given the rising labor costs and increased focus on pollution controls. I think it's quite different depending on the customer I talk to, to discover which of these concerns are the greatest.
For the last 50 years, you have pharma companies who source from India and won't touch China, and you have others who will source from China and will not touch India. You've also got some that will source from either, and many that will source neither. So, there's no one industry view on this. My own observation, having worked in India extensively, and then in China, is that the challenges are different. This stems from culture, partly, from the way that the local regulator works, and also the expertise that they have available.
IPT: With business moving away, why haven’t the relevant countries reacted faster?
LN: What we can see is that, particularly in India, some of the leaders didn't really appreciate the scale of the risk they were sitting on – not having fully Western quality standards, yet, having a very high proportion of their sales into the West.
IPT: How are the manufacturers responding, in turn?
LN: What we're seeing is a kind of two-tiered system emerging in some of these economies. There are domestic players who are either less concerned or only concerned about meeting local standards, and there the other ones that are saying, ‘We want to continue to do business in the West and we're going to have to up our game.’ They're not just going to sit around and assume that we will just keep buying from them because they're cheap. I think this raising of quality and security standards is in progress at the better players.
IPT: Are there any other trends you have observed in the relationship with emerging markets?
LN: A third trend that is often seen, is China taking on the role of a market for selling services into -- which is a relatively new phenomenon. China is now a major market for pharmaceuticals globally, second only to the US – with the market including higher-value medicines, not just generics and traditional Chinese medicines.
If you look at the patent filings that have been going on, and the number of pharmaceutical products in development, you could predict that the Chinese will become the second largest market for CDMO services within 10 years.
IPT: How quickly is regulation changing in China?
LN: There's been quite a lot of changes in regulations in recent years that are designed to stimulate growth in the healthcare sector in general, and I wouldn't limit that to manufacturing. When you look at the revenues of some of the big pharma companies, you can see that the proportion of the revenue made in China has grown massively over the last few years. A lot of that is not due to volume generics, it's due to very innovative medicines.
If you look at the reimbursement lists from China, you've got therapies gaining approval that previously would have taken many years – China would have been low on the list of launch countries, it's now one of the first countries big pharma is launching products into because they have huge revenue potential. Patient demand is there – e.g., the geriatric population in China is greater than the entire US population, and there continues to be a growing ability to afford innovative and more patient-centric therapies. I think that's quite a big change just over the last few years, really, and the sort of highly priced oncology medicines, for example, that now get reimbursed. Pharma companies can create strong revenue in China. This underlines that the central government has set itself a goal of creating better access to medicine.
Lee Newton is responsible for chemical manufacturing of small molecule API and intermediates including out of Lonza's facilities in Visp, Switzerland and Nansha, China. Newton holds the position of VP, Business Unit Head, API Development & Manufacturing.