Pharmaceutical companies have turned to Asia, Africa, Latin America, and Eastern Europe for their top-line revenue growth and cost-effective clinical trials. The appeal of these emerging markets is well-known: rising healthcare expenditures by an expanding middle class, the large pool of treatment-naïve patients from which to recruit clinical-trial subjects, and the relatively low cost of conducting trials in those countries. 

As sales and research expand in these regions, so do the risks that the biotechnology company, pharmaceutical company, or contract service provider operating in them will face potentially compromising ethical business situations. In many countries, limited institutional and logistical capacity often leads to opportunities for government officials and business executives to demand bribes or engage in other corrupt practices to expedite a transaction like securing permission to conduct a clinical trial or getting clinical trial materials through customs. 

The degree of corruption risk can be estimated based on the Corruption Perceptions Index maintained by Transparency International, a Berlin, Germany-based nonprofit organization dedicated to fighting corruption worldwide. The index ranks countries based on the perceptions of businesspeople and country analysts. In the 2008 edition, China ranked 72nd, Brazil 80th, and India 85th out of 180 countries (by comparison, the United States ranked 18th and the United Kingdom ranked 16th, with the country ranked #1 being the least corrupt). 

Most Western countries have strict laws prohibiting companies headquartered in them from participating in improper business practices in other countries. In the United States, the applicable law is the Foreign Corrupt Practices Act (FCPA), which prohibits a US company from "directly or indirectly paying or giving a gift of any value to a foreign official in order to obtain or retain business, or secure any improper business advantage." The US and the 29 other member countries of the Organization for Economic Cooperation and Development (OECD) have signed a convention that makes bribery illegal and allows investigators to access bank account and tax records in member countries. 

My colleague at PharmSource, Laurie Pachter, recently wrote a series of articles about the FCPA focusing on government efforts to enforce the FCPA's anticorruption provisions The articles, based on interviews with leading experts in FCPA compliance, discuss the need for compliance efforts, what those compliance efforts should consist of, and the high costs for industry of failing to comply. 

When working in emerging markets, the potential for violating the FCPA and laws of other countries is considerable. Whether a biotechnology or pharmaceutical company is selling products or conducting clinical trials abroad, the risk exposure is substantial. Consider these examples:

1.  Much of the healthcare delivery system, especially hospitals and clinics, is government-owned and operated in emerging markets. Drug sales representatives seeking to place their products in the institutional pharmacy may be expected to provide inducements to procurement and pharmacy staff to make a sale. 

 2. Conducting a clinical trial abroad usually requires permissions from multiple government agencies and officials, including approval of the protocol by the relevant health or drug regulatory agency, permission to import clinical trial materials, and waiver or reimbursement of value-added taxes on clinical trial materials. 

3. Executives of institutions recruiting patients for clinical trials may take advantage of their position to demand special compensation for allowing access to patients. 

FCPA experts advise companies that assessing the risks posed by the number and nature of the interactions their employees have with government and business officials is the first step to establishing an effective compliance program. Key components of any compliance program include a clear corporate ethics policy, regular staff training, documentation of interactions with foreign officials, and regular audits of compliance activities. In many cases, extensive due diligence on the senior government officials with whom the company has regular contacts may be necessary, so that the biopharmaceutical or pharmaceutical company or contract research organization (CRO) fully understands who they are dealing with. Often, other relationships beyond that of the supplier-customer have to be clarified as well. For instance, what if the local CRO office head is married or related to the director of a hospital or a government official? 

Compliance with the FCPA and similar laws in other countries is expensive. It may require the appointment of a compliance officer to oversee the various compliance efforts and of outside auditors to affirm compliance, and compliance efforts are  expensive. An even bigger cost could be the loss of business to less scrupulous or local companies that would result from effective compliance efforts. 

On the other hand, the costs of failing to comply can be high as well. In her articles, Pachter cites a situation where a company was faced with millions of dollars in investigation and remediation costs for mishandling a $70,000 payment. Heavy fines are also a possibility: the US government has collected more than $4 billion in fines for FCPA violations to date. In this time of great pressure to cut costs, companies must be careful not to cut out muscle while trimming the fat in their compliance efforts. 

The risks of violating FCPA and similar laws should loom especially large for CROs and contract manufacturing organizations (CMOs) looking to expand their presence in emerging markets in response to the globalization of their clients' research and marketing strategies. A plan for creating a significant foreign presence must go beyond simply opening or acquiring offices and sites in target countries. Such a plan must include a carefully thought-out and properly funded ethics compliance program. The high cost of establishing and maintaining a program may create a significant barrier to small CROs and CMOs trying to expand their global footprint. 

Biotechnology and pharmaceutical companies need to be thinking about this issue as well. Even if a company is unaware of ethical violations committed by one of its CRO partners, the violations committed by a CRO acting on its behalf could come back to haunt it. At a minimum, it could jeopardize or invalidate trial results if the CRO conducting the trial were to be prosecuted for FCPA ethics violations. The CRO's actions could tarnish the pharmaceutical company's reputation, making it difficult to do business in that country again.  

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

Articles

Outsourcing

As the pharmaceutical industry looks to emerging markets, corruption becomes an important issue.

Step Carefully into Foreign Affairs

  An important tool for advancing green chemistry in pharmaceutical applications is sharing information on its use. Members of the American Chemical Society Green Chemistry Institute Pharmaceutical Roundtable (ACS GCISPR) recently provided a review of research from this field (1). The ACS GCIPR, which consists of several major pharmaceutical companies and suppliers, encourages the innovation and integration of green chemistry and green engineering in the pharmaceutical industry. The group reviewed 14 areas in assessing contributions in the applications of green chemistry in the pharmaceutical industry. 

 Given the complexity of the molecules that are used as active pharmaceutical ingredients (APIs) and the resulting complexity in the synthesis and purification needed to produce a given API, the pharmaceutical industry as a whole ranks low compared with other chemical sectors in its green practices. A widely used and established green metric is the E factor, developed by Roger Sheldon, professor emeritus at the Delft University of Technology in The Netherlands, which evaluates the "greenness” of a manufacturing route by its process efficiency. The E factor is simply the mass ratio of waste to desired product. A higher E factor means more waste and a more negative environmental impact. The pharmaceutical industry as a whole has a high E factor compared with other industrial chemical manufacturing segments. The E factor for bulk chemicals ranges from 1–5, and for fine chemicals, 5-50, but for the pharmaceuticals, the E factor ranges from 25-100 (2). 

 To improve the environmental profile of chemical processes, a widely used roadmap for green chemistry is encompassed in the 12 Principles of Green Chemistry (3, 4). These principles identify strategies for meeting goals of sustainability. These approaches include: waste reduction in chemical synthesis; using raw materials and feedstocks from renewable sources; employing catalysts, not stoichiometric reagents, to minimize waste and increase process efficiency; avoiding chemical derivatives by not using blocking or protecting groups or temporary modifications if possible; maximizing atom economy; replacing or reducing solvents; increasing energy efficiency of chemical reactions by running them at ambient temperature and pressure when possible; using in-process or real-time monitoring to reduce or eliminate byproduct formation; and other process safety and environmental considerations. 

 In its review, the ACS GCIPR reviewed work in the following areas: solvent reduction or replacement; amide formation; oxidations; asymmetric hydrogenations; carbon-hydrogen activation; fluorination; biocatalysis; alcohol activation for nucleophilic displacement; Friedel-Crafts chemistry; chemistry in water; continuous processing and process intensifcation; and supercritical fluid chromatography separations (1). Some highlights of their review are provided below. 

 Pfizer (New York) recently published its solvent-selection guide that the company uses in its medicinal-chemistry efforts. The solvents are evaluated using nine factors in several areas, which include worker-safety, process-safety, environmental, and regulatory assessments (1, 5). GlaxoSmithKline (GSK London) developed a tool to assist in the selection of the greenest solvent that is compatible with the reagents and reaction conditions used (1). GSK’s Eco-Design Toolkit provides bench-level chemists and engineers green-chemistry information and tools for process research and development and manufacturing (6). The toolkit has five modules: a green chemistry and technology guide; a materials guide to solvents and bases with related environmental, health, and safety data; a fast life-cycle assessment for synthetic chemistry that streamlines evaluations of the environmental life cycle and measures green metrics, including mass efficiency; a green packaging guide; and a guide that identifies legislation phasing out hazardous substances (6). 

 An important development relating to amide formation was reported from the process development group of AstraZeneca (London) regarding the utility of imidazole hydrochloride to speed up reactions by evaluating its applications for several aniline derivatives and heteroarenes (1, 7). 

 ′-carbonyldiimidazole (CDI) is a commonly used reagent for coupling carboxylic acids with aliphatic or aromatic amines to form amides. Woodman et al., however, point out that slow reaction rates between aromatic amines and the CDI intermediates have limited the scope of the reaction in the pharmaceutical and fine-chemicals industries. The group’s work showed that the rate of CDI-mediated amidation to be significantly enhanced upon introduction of imidazole hydrochloride as a proton source for acid catalysis (1, 7). 

 Asymmetric hydrogenation is an important reaction in pharmaceutical synthesis as many bioactive molecules are chiral compounds and strategies to produce a single enantiomer in high optical purity are valued. The ACS GCIPR review article reported that more than 150 articles relating to asymmetric hydrogenation were published in 2008, with the majority of articles relating to the modification of the catalyst and ligands (1). An important development that may lead to improving reaction conditions for asymmetric hydrogenation was the use of an iron-catalyst system for asymmetric hydrogenation at 50 °C and asymmetric transfer hydrogenation at room temperature that offered transfer hydrogenation activity similar to that of ruthenium-based catalysts (1, 8). 

 In the area of biocatalysis, researchers at Merck & Co. (Whitehouse Station, NJ) reported the pilot-scale asymmetric synthesis of 4,4-dimethoxytetrahydro-2H-pyran-3-ol with a ketone reductase and 

 cofactor recycling using glucose dehydrogenase in high yield and enantiomeric excess (1,9). 

 1. I. Andrews et al., “Green Chemistry Articles of Interest to the Pharmaceutical Industry,” 

 2. R. Sheldon, I. Arends, and U. Hanefield, 

 (Wiley-VCH Verlag GmbH & Co. KGaA, Weinheim, Germany, 2007), p 3.
 

 3. EPA, “An Introduction to the Concept of Green Chemistry” (Washington, DC), available at epa.gov/gcc/pubs/principles.html, accessed Aug. 17, 2009. 

(Oxford University Press, New York, 1998). 

 5. Kim Alfonsi et al., “Green Chemistry Tools to Influence a Medicinal Chemistry and Research Chemistry Based Organization,” 

 ′-Carbonyldiimidazole-Mediated Amide Coupling: Significant Rate Enhancement Achieved by Acid Catalysis with Imidazole HCl,” 

 8. C. Sui-Seng, “Highly Efficient Catalyst Systems Using Iron Complexes with a Tetradentate PNNP Ligand for the Asymmetric Hydrogenation of Polar Bonds,” 

 9. B. Kosjek et al., “Preparative Asymmetric Synthesis of 4,4-Dimethoxytetrahydro-2H-pyran-3-ol with a Ketone Reductase and In Situ Cofactor Recycling using Glucose Dehydrogenase,” 

APIs

A recent review highlights contributions in process research and development and manufacturing using the principles of green chemistry.

Green Chemistry in Pharmaceutical Applications

 As the globalization and complexity of the pharmaceutical supply chain increases, sourcing and procurement professionals face greater challenges in supplier selection and management. To gain a perspective, Patricia Van Arnum, editor of 

, discussed these issues with Terry Simmons, vice-president of global purchasing with Baxter International Inc. (Deerfield, IL). Simmons will be participating in the Senior Sourcing Executive Roundtable on Risk Mitigation at the 

, which will be held Nov. 4–5 in New Brunswick, New Jersey. The summit is presented by the Drug, Chemical, and Associated Technologies Association in partnership with the Pharmaceutical Forum and Chemical Group of the Institute of Supply Management. 

 Supply-chain integrity is of critical importance to pharmaceutical companies and their suppliers. What would you identify as key best practices or critical success factors in executing a sourcing strategy that secures the supply chain? 

 One of Baxter’s strengths is tremendous execution, and we align and integrate our critical functions to oversee and expedite potential sourcing options for commercial use. Although we have centralized our sourcing strategies, we execute these strategies through our regional sourcing/purchasing office, through reviewing and monitoring our active pharmaceutical ingredient business portfolio, and finally through our risk-assessment reviews in conjunction with the quality function. 

 To support our commercial strategies, we have formulated a significant sourcing review between our quality, manufacturing, and purchasing functions by region, based on the material availability, approval calendar, and supplier’s supply-chain capabilities. 

 Risk mitigation is an important focus in supply-chain management practices. What would you identify as the key elements in a risk-mitigation strategy? Can you be specific in terms of the process for supplier identification, supplier selection, and supplier performance? 

 Risk mitigation is extremely critical to our organization, and we’ve found that a simple, yet structured process with strong specifications and comprehensive planning helps to set us up for success. We follow a standard sourcing model of: (1) identify opportunity; (2) develop strategy; (3) source and negotiate; (4) process contract; and (5) monitor suppliers. In each step of the sourcing process, in addition to cost and quality, continuity of supply is a constant concern as we procure around the globe. All levels of risk are considered as we move product to market. The supplier’s supply chain continues to grow, and we continue our careful review and oversight every step of the way.

 The industry as a whole is evaluating tools, such as shared supplier audits, as a possible way to manage the costs and logistics in increasing the scope or extent of supplier audits. Do you think this is a viable option and what are the advantages or disadvantages of such an approach? 

 While the most important component of a supplier relationship is well-defined agreement terms, the audit process in a global supplier manufacturing community is essential to build confidence in the steps your supplier may be taking halfway around the world. The checks and balances of an audit process allows both parties to participate in the review process. And, as a member of Rx-360, we support shared supplier audits. 

 However, the most important part of the supplier-relationship process is to clearly outline terms and conditions in your agreement, which are understood and agreed upon by both parties from the beginning. 

 Track-and-trace capabilities (such as radiofrequency identification) are being considered and implemented as way to manage the supply chain for finished drug products. To what extent are such technologies currently used in raw material or pharmaceutical ingredient sourcing and supply? If used, what technologies are typically used? On an industry basis, where do you see opportunity to use such technology earlier in the supply chain (i.e, raw material, ingredient supply) and what specialized considerations or requirements would be needed to serve this part of the supply chain? Outside of track-and-trace, are there other technologies of growing significance in sourcing, inventory management, and supply-chain management? 

 Baxter’s supply-chain organization is looking at several systems and approaches in the area of track-and-trace capabilities to create a competitive advantage and monitor supply-chain activity. Traceability is a critical security application when working with supplier manufacturing systems around the world. We have not decided on any one application, but rather implement global, regional, and local approaches that best meet the needs of the business. 

 Currently, Baxter’s supply-chain function is examining several areas in data management, 

where produced, where shipped, where used 

.  These are three critical areas of oversight we must have in place in order to effectively manage this unique area of spend. 

 Looking ahead 5 or 10 years from now, how do you see the pharmaceutical supply chain evolving in terms of number of suppliers, location of suppliers, and the relationship between suppliers and customers (such as realizing more collaborative planning, i.e., demand forecasting, etc). Are there models used now in other industries that may have future application in the pharmaceutical industry? 

 : Industry supply-chain management will be impacted and evolve in parallel with the evolving regulatory guidance/oversight by authorities around the globe. In addition, 

 will grow in review and design in order to adapt to the speed of the market. Companies will have to apply a greater focus on negotiating and to dedicating the appropriate resources to sourcing and approving new materials and supplies. One item that is definitely impacting purchasing teams is competencies around working as an effective project manager in the growing global marketplace. 

Supply Chain

Thomas LaVake, manager, worldwide environment, health &safety at Johnson & Johnson, provides a perspective of sustainability practices for the pharmaceutical industry.

The Evolving Global Pharmaceutical Supply Chain

AAIPharma Services Corporation (Wilmington, NC) is beginning life as a standalone company with a strong commitment to build its pharmaceutical contract development and manufacturing business. In July 2009, the private-equity firm Water Street Healthcare Partners acquired the pharmaceutical development division of AAIPharma Inc. (Wilmington, NC). Water Street committed $75 million to the transaction, which includes the purchase price as well as equity reserved for future business development and growth. The new company, AAIPharma Services, is headed by CEO L. Lee Karras, who led the pharmaceutical development division of AAIPharma Inc. for the past three years. AAIPharma Services will retain its headquarters in Wilmington. 

Karras is optimistic about his new role and the future of the company. “The pharmaceutical development division of AAIPharma has been the bedrock of the company’s business for more than 30 years,” says Karras. “By partnering with Water Street Healthcare Partners to make the division a standalone company, we can focus exclusively on the CMC [chemistry, manufacturing, and controls] side of drug development and contract manufacturing. This focus and Water Street’s knowledge and experience in the pharmaceutical industry will catalyze our efforts to build our business into the leading CDMO [contract development and manufacturing organization] in the space.” 

AAIPharma Services’ primary capabilities include sterile and solid-dose formulation development and manufacturing for clinical trial materials and commercial products, a suite of oral drug-delivery technologies, analytical chemistry, clinical packaging and distribution, regulatory affairs and validation services. The sale to Water Street included all of the plant property and equipment at the Wilmington site, including the FDA- and EU-approved solid-dose manufacturing plant in Wilmington, laboratory facilities in Chapel Hill and Wilmington, North Carolina, a clinical packaging and distribution center in Wilmington, and a parenteral manufacturing facility in Charleston, South Carolina. The clinical research activities will remain with AAIPharma Services’ former parent company, AAIPharma Inc. 

With additional resources in hand with its new ownership, Karras says AAIPharma Services will be evaluating opportunities for further investment. “We are looking at a number of strategic acquisitions, all centered on our goal of becoming the leading provider of pharmaceutical development and contract manufacturing services in the industry,” he says. In addition to expansions in certain functional areas, the company is evaluating opportunities for geographic expansion, which could include strategic acquisitions in manufacturing and clinical packaging in the European Union.

In terms of functional growth, AAIPharma Services is interested in expanding in several areas. “Our expansion areas include broadening our analytical services business into inhalation, expanding our intelltectual property around our ProCR oral drug-delivery technology, additional manufacturing assets in both our sterile plant (prefilled syringes) and solid-dose plant (potent-compound handling), and adding additional assets and capabilities for clinical packaging and distribution for larger clinical trials (Phase III),” says Karras. 

These investments are in addition to recent expansion efforts already undertaken by the company. AAIPharma recently added the Xceldose 600S capsule-filling system (Capsugel, Peapack, NJ) at its solid-dose manufacturing facility in Wilmington, which provides additional capabilities in supplying preclinical and early-phase clinical GMP (good manufacturing practices) material. The Xcelodose system was brought on line in June 2009. The company also recently made additional investments in new analytical techniques such as Corona detection (CAD) and ultra-performance liquid chromatography systems, and is in the early stages of upgrading its sterile-filling line to have the ability to fill product 

 either piston or parastaltic pumps for more shear-sensitive large molecules. 

Karras says the company plans to make a total of $2 million in investments in the second half of 2009. These investments include the expansion of its syringe-filling capabilities in its Charleston plant, which is scheduled to be on line in the second quarter of 2010, and in analytical inhalation services at its Chapel Hill laboratories, scheduled to come on line in the fourth quarter of 2009. The company is also making investments in its infrastructure, which includes a new enterprise resource planning system (ERP), scheduled to come on line in the second quarter of 2010. The ERP system will support the company’s clinical distribution and commercial manufacturing businesses and the related inventory management needs of those businesses.

In evaluating the market for CDMOs as a whole, Karras sees a rebound in the biotechnology/emerging pharmaceutical sectors, opportunity in clinical-trial-materials supply, and growth in specialized areas such as high-potency manufacturing. “Overall demand appears to be up slightly in big and mid-tier pharma over last year,” says Karras, in speaking on overall industry trends in the CDMO sector. “The lack of venture-capital funding and the absence of initial public offerings in 2009 has hurt the biotech industry, including small/emerging pharma and affected its outsourcing needs. We remain bullish on biotech in the long run and do expect that segment to show signs of improvement in 2010.”

He also points out outsourcing trends in Big Pharma. “Large and mid-tier pharma companies are trying to accelerate their pipelines and are acquiring molecules from smaller companies,” says Karras. “Larger pharma companies do not have, nor do they appear to want to make, significant capital investments in clinical-scale manufacturing assets. We see clinical- and small-scale contract manufacturing as a growth area. The growth is in both sterile and solid-dose areas, and especially in potent and more toxic compounds. We are also seeing more requests for specialty analytical services in areas such as inhalation (i.e., metered-dose inhalers and dry-powder inhalers), microbiological testing, and large-molecule analysis.”

As market conditions evolve, Karras also sees increased consolidation in the CDMO space. “I believe that pharmaceutical development services will evolve into a segment where there will be fewer and stronger companies that will dominate the space,” says Karras. “This has already occurred in the large-scale pharmaceutical contract manufacturing segment and the clinical and preclinical segments.” 

In terms of AAIPharma Services, Karras is optimistic about the company’s near- and long-term prospects. “There has been an overwhelmingly positive response from our customers to the sale of the pharmaceutical development division of AAIPharma to Water Street,” says Karras. “Many of them, especially the large pharma customers, have expressed increased interest in placing more long-term projects with us. Our 30 years of drug-development expertise and our financial strength will enable us to continue to help our customers migrate the increasingly complex drug-development process.” 

Pharma Partner Focus

L. Lee Karras, CEO of AAIPharma Services, outlines the company’s growth strategy in contract pharmaceutical development and manufacturing.

PTSM: Pharmaceutical Technology Sourcing and Management-09-02-2009

Step Carefully into Foreign Affairs

Green Chemistry in Pharmaceutical Applications

The Evolving Global Pharmaceutical Supply Chain

AAIPharma Services Begins Anew as a Standalone Company