AAIPharma Services Begins Anew as a Standalone Company

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.”

Charting expansion

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 via 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.

Assessing the industry

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.”

Looking ahead

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.”