CMOs Ride Continuing Strength of Small-Molecule Drug Sector

It has been the general consensus among bio/pharmaceutical industry participants, investors, and observers that small-molecule drugs are becoming obsolete as the industry focuses on biologics. To paraphrase what Mark Twain allegedly said about his own situation, reports of the death of small-molecule drugs are greatly exaggerated.

Small-molecule pharmaceuticals accounted for 82% of all new drug application (NDA) approvals in 2014 and 60% of all new molecular entities. Further, they represent two-thirds of the drug-development pipeline. While there can be no doubt that the number and share of large-molecule therapeutics is increasing, small-molecule drugs are an important and highly effective component of the bio/pharmaceutical portfolio. Many of the most important drugs introduced in recent years, including kinase inhibitors such as Gleevec and anti-retroviral products such as Sovaldi, are small molecules.

Small molecules have some considerable advantages over large molecules. They can be engineered to deliver a strong therapeutic effect with a small dose, often below 10 mgs and even into micrograms. The smaller amounts of API, combined with the maturity of chemical manufacturing technology, typically translate into a lower cost of goods relative to efficacy versus large-molecule therapeutics. Analytical technology for small molecules is highly refined, ensuring quality, efficacy, and reproducibility.

Further, small molecules can be formulated into orally delivered dose forms, which offer better compliance and a lower cost of administration than injectables, the principal delivery route for large molecules. There is a vast amount of formulation expertise and experience with small-molecule drugs, enabling highly controlled formulations that can be delivered to specific sites and released over specific time periods.

Clinical trials involving small-molecule therapeutics are often simpler and less expensive than those involving large-molecule drugs. Process development and manufacture of clinical-trial materials for small molecules are typically much less expensive for small-molecule candidates. Clinical supplies for small molecules must be handled carefully, but they often don’t require the cold chain assurance of large molecules, which makes shipment and storage of clinical supplies costly. Further, procuring comparators for biopharmaceutical candidates (i.e., drugs already on the market) can be extremely expensive. 

Outstanding performance
Small-molecule therapeutics have participated fully in the explosion of drug development activity of the past few years, which has been fueled by record amounts of fundraising and spending for research and development. Contract manufacturing revenues of publicly-traded “pure-play” small-molecule contract manufacturing organizations (CMOs) grew 15% in the first half of 2015, with some companies enjoying growth in excess of 20% (see Figure 1). 

Figure 1: Growth in custom manufacturing revenues of small-molecule API contract manufacturing organizations (CMOs) in the first half of 2015.

Within the small-molecule API world, certain segments appear to be especially strong, notably controlled drugs and highly potent APIs (i.e., cytotoxics, hormones, and very low-dose compounds). These products require specialized facilities that protect operators from exposure to the chemical and, as with controlled drugs, may have to meet special regulatory requirements. 

Demand for capacity to manufacture high-potency products has been so strong that CMOs with the capability have been expanding it while those lacking the capability have been adding it. CMOs that have recently completed or announced expansions include SAFC, Johnson-Matthey, Cambrex, Carbogen-Amcis, and Novasep.

On Sept. 1, 2015, Fareva (Luxembourg) announced that it is acquiring an API manufacturing site in La Vallée, France from Merck and will invest €25 million ($28.3 million) to build two units at the site with occupational exposure band 4 (OEB 4) containment. Fareva already has high-containment API manufacturing capability at its facility in Feucht, Germany, but needs to expand its capacity to meet market demand. 

M&A activity
Further speaking to the attractiveness of the small-molecule API space has been acquisition activity. There have been a number of significant deals with prices equating to multiples of two or more times the acquired company’s revenues. 

In March 2015, Patheon acquired Irix (Florence, SC), a mid-size API manufacturer with development and commercial capabilities. The acquisition added small-molecule capabilities to Patheon’s offerings in large-molecule API and dosage forms. In July 2015, AMRI announced it would acquire Gadea Pharmaceutical Group  (Valladolid, Spain), a specialist in hormone and steroid APIs. That followed its 2014 acquisition of Cedarburg Laboratories (Grafton, WI), which has controlled and high-potency drug capabilities. Also, Siegfried (Zofingen, Switzerland) announced in May 2015 that it will acquire the API business of BASF, giving it three additional manufacturing sites and considerable greater scale and presence in the industry. 

The level of business, acquisition, and capital investment activity in the small-molecule API market shows that the industry is taking full advantage of all of the technologies in its tool box to address the opportunities being revealed by the increased understanding of disease processes. New therapies like antibody drug conjugates are marrying the specific capabilities of large and small molecules to delivery highly effective drugs to specific sites, and the technology is expanding beyond its initial focus on delivering cytotoxic compounds to broader applications. 

In times like these, when investment activity reaches frenzied levels, investors and executives can be distracted by fads or the latest technologies no matter how untested they might be. Small-molecule APIs have performed well and cost effectively for patients and pharmaceutical companies for decades and there is every reason to believe that small-molecule API CMOs will participate in the bio/pharmaceutical industry’s success for decades to come.

About the Author
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, Twitter@JimPharmSource, info@pharmsource.com, www.pharmsource.com.