Sourcing of APIs or intermediates has been a subject of interest in the pharmaceutical industry for decades now. Let us look at this subject from the perspective of an API supplier.
The importance of sourcing of API’s over time depends on pressures from the business and political environments. Currently, the most important of those pressures are:
API sourcing is being used in several ways to relieve one of the below pressures. The core competencies of pharmaceutical companies are generally considered to be (a) drug discovery & development and (b) sales & marketing. This creates an interesting dichotomy where manufacturing isn’t considered critically important but supply is a critical success factor. API sourcing is used to solve the supply problem and frees companies to invest capital in drug discovery, development and marketing.
The first two factors are frequently taken as given, and cost is the focus for decision-making - until one of the first two goes wrong! At present the API supply market is experiencing an excess of capacity relative to demand. The intense competition to fill available capacity results in deals that are, in the long-term, economically questionable for the API supplier. The productive result of this pressure on margins is that API companies are forced into a relentless quest for manufacturing cost improvements. The less productive outcome for some API companies and their customers is that the quest for cost improvements creeps into activities that compromise quality and security of supply.
Every pharmaceutical company has a duty to return a profit to its shareholders. Every dollar or euro saved in sourcing costs is transferred to the bottom line. Driving down the cost of sourced APIs is a responsibility. There comes a point in the cost reduction curve where incremental cost saving must be balanced with the profit margin generated by the product manufactured using the sourced APIs. Particularly for branded pharmaceutical companies, the cost saving can be dwarfed by the margins on lost sales if the security of API supply or quality is compromised. Generic pharmaceutical companies have the most delicate balancing act to manage between minimizing cost and protecting profits by virtue of their slim profit margins.
API Sourcing and API suppliers can make other contributions in addition to cost containment. Particularly important is the potential of API sourcing to improve speed to market. In the early days of the outsourcing trend, the decision of what to outsource was based on what in-house manufacturing could not or did not want to make. Now the decision is often based on what in-house manufacturing cannot make fast enough or what investment in manufacturing capability doesn’t add incremental value to the pharmaceutical firm. API supply is frequently on the critical path of the drug development schedule. The capability may exist in-house but it might be faster to outsource manufacturing. The capital may exist to fund the creation of manufacturing capability, but the pharmaceutical firm is increasingly likely to decide that capital is better deployed in discovery and development of new drugs or the acquisition of new drug development projects. The increasing complexity of synthetic molecules being developed as new drugs increases the range of chemical technologies required to manufacture the product. It’s not viable for one company to build in-house capabilities for the full range of technologies that might be required to make the next new drugs to emerge from its pipeline.
The flow of new drugs from the pipeline is not consistent from year to year. That’s the nature of R&D. It’s a wasteful use of capital to invest in the capacity and capabilities to accommodate the peaks in demand from the pipeline while leaving it to lie idle during the less productive periods in R&D. Outsourcing the peaks frees up capital for more productive uses. It can also reduce cost, because API companies are better able to come close to level loading their capacity and minimizing overheads per unit.
We should note that there’s an important contrast between API outsourcing and Clinical outsourcing. API sourcing is important before NDA approval and afterwards. Both API outsourcing and Clinical outsourcing may be necessary in order to meet aggressive schedules for NDA flings. The API Sourcing decisions made early in the development of the drug have long-term implications after the launch. The pharmaceutical developer is somewhat locked into the suppliers used in the NDA preparation phase. It’s a time-consuming process to qualify a new supplier and obtain approval for a supplemental filing requesting FDA approval to use the new supplier.
An important strategic sourcing decision is how many suppliers to qualify for a particular material. Qualifying larger numbers of suppliers increases leverage in price negotiations and in theory maximizes security of supply. Having multiple sources approved and buying small amounts from each (or none from some) can lend an opportunistic element to the relationships, which can lead to unpleasant surprises for either the pharmaceutical or API company.
We are here to address all these problems and give a swift and timely solution to them. TO best understand the situation, we are suggested to put ourselves into the suppliers’ shoes.
We can give the most pragmatic solution since we have an extensive background of manufacturing API’s. We use Our experience to make things easier for you and help you relieve all these uncertainties.