In June of last year, South Korean investment group SK Holdings announced that it was to acquire AMPAC Fine Chemicals (AFC), a US-based CDMO formerly owned by global private equity firm H.I.G. Capital. Under H.I.G.’s ownership, AFC expanded the manufacturing footprint at its Rancho Cordova, California facility, started up the AMPAC Analytical business, acquired a state-of-the art plant in Petersburg, Virgina, expanded its product pipeline, and achieved significant growth every year since the acquisition was made. SK purchased AFC because of its particular capabilities, its facilities, its reputation and its growth potential. AFC is now SK’s sole CDMO operation in the US and specialises in process development, scale-up and cGMP commercial production of active pharmaceutical ingredients (APIs) and registered intermediates for pharmaceutical and biotechnology customers, including the production of highly energetic compounds at commercial scale. Other technology platforms include the production of highly potent compounds, continuous processes and industrial-scale chromatographic separations using simulated moving bed chromatography. The AMPAC Analytical business provides testing services for the pharmaceutical industry.
SK Holdings also owns Ireland-based SK biotek, a company specialising in custom chemical development, advanced intermediates and commercial API production. With its Swords API facility in Dublin, and the four US-based AMPAC sites (Rancho Cordova and El Dorado Hills, California; La Porte, Texas; and Petersburg, Virgina), SK is now a top-ten CDMO with the ambition of being a top-three CDMO within the next five years through a combination of organic and inorganic growth. The company says this may involve it moving further up the value chain into drug product as well as accessing new and innovative technologies.
The SK CDMO business primarily serves pharmaceutical customers in the US and the EU, however the company also has Japanese and South East Asian customers and has plans to extend its sales teams into these territories: “Within this customer base there is a good mix of large innovator companies as well as biotech and our intent for this segment would be to remain as a core business; however, we do remain open to opportunistic participation in other related fields,” says SK biotek’s VP European Business Development, Steve Barr, adding that the majority of the company’s sales reside in commercial API manufacture and that the custom chemical development and advanced intermediates businesses are essentially enablers to the API business itself. “We will continue to invest in all three aspects but with the clear strategic goal of being a world leader in the supply of commercial custom API,” he states.
New business for a balanced customer portfolio
Barr notes that SK’s large pharma customers have traditionally procured intermediates rather than final API but that there is now strong evidence that these customer business models are changing and that there are significant increases in demand for custom API: “We expect to see a shift toward custom API in comparison to being a supplier of advanced intermediates,” he says. “We continue to invest in the advanced intermediates area, particularly when it lends itself to one or more of our differential technologies, however, as SK brand recognition increases, we are starting to access a new set of customers across all areas, which brings a better balance to our customer portfolio.”
Barr continues: “Since the acquisition of AMPAC Fine Chemicals, we have now established a single market-facing team and are in the process of harmonising this team and our global business processes. We are also continuing to strengthen our technology toolbox globally; at Swords we are focusing on enhancements to our material science/particle engineering capabilities.”
Barr sates that SK is part of a very large organisation and has the potential to capitalise on the current fragmented nature of the supply side: “The direction of travel for the industry, increasingly driven by customer needs, is for larger, more fully-integrated suppliers,” he says. “SK is considering being involved in different parts of the value chain, however, size does not mean best-in-class, and the challenge is to effectively integrate diverse offerings with a focus on leading development and manufacturing methodology. Created investment in technology platforms, allied to world-class customer service, are likely key ingredients of our future success,” he says.
Increased pharma outsourcing
Barr also notes that the company’s customers’ main challenges of limited innovation, the high costs of medicines, and under-utilisation of their manufacturing assets still remain in place and that, for all three reasons, there are likely to be changes in the business model employed by pharmaceutical companies in terms of how they manage their API and drug product suppliers: “We would anticipate further divestment of large pharma assets, perhaps on a scale never before seen in the industry. This move from a fixed cost base to a variable cost base should ultimately allow these companies to reduce the cost associated with these value-chain activities through outsourcing to companies like SK.
“SK and other leading CDMOs have many years of experience of working in an environment where cost control is key to the success of the business and this may enable reductions in the cost of commercialising new medicines to be made. The challenge will be to have the right type of assets to allow the most efficient manufacture of small-volume medicines with more-targeted patient populations,” he concludes.
For further information about SK Holdings visit www.hc.sk.co.kr/en, for further information about SK biotek visit https://skbiotek.ie and for further information about AMPAC Fine Chemicals visit www.ampacfinechemicals.com
Meet Steve Barr of SK biotek
Steve Barr, VP European Business Development at SK biotek, has 26 years’ experience in the pharma and CDMO sector. Following completion of a PhD in Organic Chemistry at the University of Glasgow, he spent his early career working with large pharma in a range of technical and operational roles. He then moved into strategic sourcing and procurement before moving into business development. Over the past 15 years, he has worked with a number of leading CDMOs, taking progressively senior commercial responsibilities. He joined SK in June 2018.
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