BUSINESS turing strategy" Case in point: In the days before C P h I Japan, Jackson and other Avecia executives met with at least one Japanese drug company that in the past would not have looked outside Japan for pharmaceutical ingredients. Matthias Kottenhahn, vice president of pharmaceutical business development for Degussa Fine Chemicals, tells a similar story lcWt are being made aware ofthe changes MICHAEL MCCOY, C&EN NORTHEAST NEWS BUREAU from Japanese pharmaceutical companies that approach us. In the past 12 months, we have seen an increase in inquiries for HARMACEUTICAL FINE CHEMIit will spend some $72 million on a bulk late-stage intermediates and even APIs." cals outsourcing is on the inpharmaceutical plant in Ireland that makes crease in Japan, and regulatory Still, Kottenhahn sees the Japanese opthe diabetes treatment pioglitazone and changes being enacted there portunity as a medium- to long-term one other drugs for clinical trials. will only heighten the pace. Yet that requires patience and resources, inPeterJackson, pharmaceutical products Japan is still a tough market for fine chemcluding local marketing and technical perbusiness manager at the specialty chemiicals makers to crack, and new business sonnel. "There's a network of small fine cals company Avecia, says the early impact from Japanese drug companies won't be chemicals producers inJapan that depends of the new law will largely be on older, won easily strongly on its customers there," he says. generic drugs. He expects production of "I don't expect pharmaceutical companies APIs for many of these drugs to be outThose were two key themes at CPhI will say 'Starting tomorrow, I will outsource sourced to low-cost producers in China Japan, the Japanese version of the wellin Europe or the U.S.' Because of the phiand India—a change that doesn't do much known Conference on Pharmaceutical Inlosophy and culture in Japan, this will not for Western and Japanese fine chemicals gredients, held for the first time in Tokyo happen." companies that focus on synthesis of inlast month. termediates for new drugs. Akira Hosoki, fine chemicals business T h e new regulations —changes to manager with Avecia's Japanese unit, adds Japan's Pharmaceutical Affairs Law—are intended to helpJapanese drug companies "THE IMMEDIATE effect of the law will be that it's not easy for newcomers to earn the trust ofJapan's drug companies. Hosobetter compete in the global pharmaceuon older products," he says, "but it is part ki has the advantage of longevity, having tical arena. Among their provisions is a of a reassessment by the Japanese pharworked with ICI, then Zeneca, and then shift from manufacturing- to marketingmaceutical industry of its whole manufacAvecia, since 1987. But he admits to based new-drug approvals. T h e spending three years in his early change will lift restrictions on drug fine chemicals days without signifcompanies that made it difficult for icant sales—merely building conthem to outsource manufacturing tacts at drug manufacturers. of intermediates and active ingredients to third-party companies. Hosoki's patience seems to be paying off today Jackson says AveAlthough the outsourcing-recia's fine chemicals sales in Japan lated aspects of the law won't take grew 3 0 0 % last year, and he exeffect until next year, drug compapects they will double this year, nies are already reacting to the new thanks in part to a boom in sales of flexibility biotechnology products—such as Takeda Chemical Industries, the D N A medicine ingredients Japan's largest drug company, said Avecia is selling to new biotech recently that it plans to increase the companies in Japan. portion of its drug production that Although Western companies is outsourced from 30% currently such as Avecia and Degussa see opto 70% by 2 0 0 6 . In March, Yaportunity in the regulatory changes, manouchi Pharmaceutical closed local companies have the same two smaller drug formulation plants idea—and they have the advantage in Japan. The company said it unof knowing the ropes. dertook the closures "anticipating One of them is Sumika Fine amendment of the Pharmaceutical Chemicals, a subsidiary of SumiAffairs Law in the near future." tomo Chemical that operates U.S. The new regulations are far from Food & Drug Administration-apa windfall. Takeda, for example, says proved plants at three sites injapan. it will start to outsource manufacNaruhito Masai, general manager ture of pharmaceutical intermediof Sumika's international business ates but continue in-house producdivision, says Sumika isJapan's leadtion of bulk active pharmaceutical LAUNCHPAD Outsourcing by Japanese drug ing custom pharmaceutical chemingredients, or APIs. In fact, the companies was the theme of the inaugural CPhI icals maker. Annual sales are about company announced in March that Japan trade show.
JAPAN BECKONS FOR FINE CHEMICALS FIRMS
New laws mean drug companies will be outsourcing more of their chemical production
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panies that make up Beta-Chem are often able to get samples to customers faster than the big Western companies can. While Beta-Chem is new, Shinkai is well known in the Western drug industry, having spent many years with Merck & Co. in the U.S. His last job with the company was as senior vice president for process R&D from 1992 to 1996. Already, he says, U.S. firms such as Pfizer, Merck, Eli Lilly, and Schering-Plough have approached BetaChem for synthesis of advanced pharmaWITH THE regulatory change looming, Maceutical intermediates. sai says inquiries already are starting to Sources at some Western companies come in from Japanese companies, especlaim that the Japanese fine chemicals incially those developing products they hope dustry is hampered by a lack of curto sell worldwide. Masai anticipates rent Good Manufacturing Pracone specific windfall from the new tices (cGMP) capacity, but Shinkai law: more business from Japanese says the reality is that the ranks of firms seeking compounds made at firms that have passed FDApreapthe development scale of 10 to 20 proval inspection have increased in kg. He claims that a shortage of the past few years. small-scale capacity has been limiting theJapanese pharmaceutical inHe ticks off Sumikajuzen, Asahi dustry's ability to evaluate new drug Glass, Central Glass, Daicel, Nipcandidates. pon Soda, and Daiichi Fine Chemical as having crossed this hurdle. To meet this need, Sumika reIn addition, he says, some of Betacently entered an alliance with the Chem's manufacturing partners U.S. drug development company have been approved by FDAas API Ricerca that calls for small-scale manufacturers without receiving products made at Ricerca to be the notice of compliance issues transferred to and scaled up at Sumi- SCALE Sumika Fine Chemicals' plant in Okayama, ka. Masai expects that some of these Japan, operates 800- to 20,000-L reaction vessels for known as Form 483. products will originate in Japan, go large-volume production. But even Japanese companies to Ricerca for development, and without significant cGMP capabilthen eventually return to Sumika for largeity expect to benefit from the new regulaThe relations worked, but it was cumscale production. tions. An example is Mitsui Chemicals, bersome: Mitsui would buy an intermediwhich carries out basic reactions like fluoate from one company, transfer it to anAnother Japanese firm, Mitsubishi rination and phosgenation and has speother firm for subsequent reaction steps, Chemical, is reorganizing to better take cialized pharmaceutical technology such as and so on. None of the companies knew advantage of the new outsourcing regulaamino acid and nucleoside chemistry Mitwhat the other was doing, and each would tions. In March, the company decided to sui Chemicals is scheduled to merge with want its cut of the profits, Shinkai explains. transfer its API business and some of its Sumitomo Chemical by October 2003. As a result, the end product was often fine chemicals operations into Ifoshitomi uncompetitive. Fine Chemicals, a unit ofMitsubishi's 42%ShinichirouTawaki, manager of Mitsui owned subsidiary Mitsubishi Pharma. Chemicals' pharmaceutical chemicals diNow a group of these firms are united vision, acknowledges that his company has as Beta-Chem. As added glue, Mitlimited cGMP capabilities. However, he sui has acquired minority ownersays there's still an outsourcing opportunity ship stakes in some of them, inin the earlier steps of pharmaceutical syncluding Tama Chemical; the chiral thesis where cGMP production isn't respecialist "Yamakawa Chemical; and quired. "Our target is intermediates, not Juzen Chemical, an FDA-inspectAPIs," he says. ed API manufacturer. PP Together, Shinkai says, t h e BetaTawaki estimates that theJapanese drug industry's overall outsourcing rate is 20 to C h e m partners cooperate closely sit25% today, versus 30 to 4 0 % for the Euting down to study a customer's deropean industry and 50 to 60% in the U.S. sired product, map out the best Beta-Chem's Shinkai agrees, but he sees The company says the move, to take efproduction route, and set a target manuthings changing as Japanese drug compafect in October, will give ^Vbshitomi annufacturing price. Profits are divided afterward nies, aided by the new regulations, begin to al sales of $300 million. Yasukazu Ogino, according to contribution to the synthesis. follow their Western counterparts in foMitsubishi's head of API business devel"We believe that their expertise can comopment, adds that the changes are aimed cusing on discovery and marketing and leavpete with giant outsourcing companies such at better integrating the various API busiing development and manufacturing to othas Lonza, DSM, Avecia, and Clariant," nesses within the Mitsubishi Chemical ers. "The outsourcing ratio will increase Shinkai says of the partners. In fact, he group. More details will be revealed after drastically in the near future," he says. • claims that the small, entrepreneurial com-
$200 million, split into roughly one-third APIs and two-thirds intermediates. According to Masai, most of Sumika's production is for non-Japanese companies. For example, he says it has several contracts with American firms to produce pharmaceuticals that are in Phase III clinical trials and are being readied for the filing ofnew-drug applications later this year or early next year.
the firm's annual meeting in June, he says. Beta-Chem, a six-month-old subsidiary of the trading house Mitsui & Co., is also planning to capitalize on the Pharmaceutical Affairs Law update. According to Ichiro Shinkai, BetaChem's chief scientific officer, Mitsui has long participated in the pharmaceutical chemicals business by acting as a liaison between major drug companies and small to midsized fine chemicals firms. Such firms generally have annual sales in the range of $50 million to $100 million and expertise in a specific field such as hydrogenation or low-temperature reactions.
New law is "part of a reassessment by the Japanese pharmaceutical industry of its whole manufacturing strategy."
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