Assessing Market Opportunities in Contract Biologics Manufacturing

Biopharmaceuticals, although now a niche area, are a growing segment in the global pharmaceutical market. The sector is projected to experience double-digit growth in the near term. Such positive expectations portend well for contract manufacturing organizations (CMOs) specializing in biologics manufacturing, although these sanguine views have to be balanced against concerns in pharmaceutical outsourcing as a whole such as overcapacity, the weakness of drug pipelines, and the attrition of commercial candidates.

(CHAD BAKER/GETTY IMAGES)

Crunching the numbers

Biopharmaceuticals account for approximately 10% of the global prescription drug market, based on a 2007 global prescription drug market of $712 billion, according to IMS Health. Global sales of prescription biotechnology drugs increased 12.5% to more than $75 billion in 2007. This rate of growth was nearly double the rate of growth of 6.4% for the overall global pharmaceutical market in 2007, and expectations remain high. Biologics are forecast to grow 11–12% in 2009, again surpassing projections for growth in the global pharmaceutical market, which is expected to increase 4.5–5.5% in 2009, according to IMS Health (1, 2).

Capacity utilization

Capacity utilization is a critical measure of supply–demand fundamentals for biologics manufacturers. "Capacity-utilization information is important for planners and investors as they determine whether capacity will be available for the production of pipeline drugs that may be reaching approvals," says Eric Langer, president and managing partner of BioPlan Associates. Capacity utilization of mammalian cell-culture systems has remained relatively flat over the past several years and is at 63%, according to the results of a recent survey of biopharmaceutical manufacturing capacity and production released by BioPlan Associates in April 2009 (3). The survey elicited data on 10 critical areas associated with biopharmaceutical production from 446 production executives at drug developers and contract manufacturing organizations in 35 countries (3).

Patricia Van Arnum (CHAD BAKER/GETTY IMAGES)

Over the past several years, capacity for mammalian cell-culture systems has dropped significantly—from 76.4% in 2003 to 63.2% in 2008, although during the past four years, the decline in capacity utilization has moderated, according to the BioPlan survey. Since 2005, the change in capacity utilization for mammalian cell-culture systems has decreased at a compound annual growth rate (CAGR) of –2.8% (3). Capacity utilization for microbial fermentation has declined as well—from 71.0% in 2003 to 53.3% in 2008. Since 2005, however, the decrease has slowed to a CAGR of –2.9% (3).

"In 2003, the biopharmaceutical industry's utilization rates exceeded 76%," explains Langer. "This period was a capacity-crunch time that led to facility build-outs by both biotherapeutic developers and contract manufacturers. The resulting expanded capacity brought the utilization rate down so that by 2006, it appeared that a stable capacity utilization rate would be around 63%."

These results are further supported by the perception of biotherapeutic developers and CMOs as they relate to capacity constraints. In the study released in 2008, although fewer than 2% of CMOs said that they were experiencing "severe" constraints, 13.4% of drug-developer respondents and 14.6% of CMO respondents said that they were experiencing more than just "minor" capacity constraints. In the study released this year, approximately 45% of developer respondents and 43% of CMO respondents said that they were experiencing "no constraints" (3). These findings indicate "a significant relaxation in CMO capacity constraints," says Langer.

Factors influencing outsourcing

In making the decision to outsource biologics manufacturing, the relationship between the CMO and drug developer is crucial. Approximately 93% of respondents in the BioPlan survey said that establishing a good working relationship is either "very important" or "important" when outsourcing biopharmaceutical manufacturing. Nearly 63% said it is "very important," and nearly 31% said it is "important" (3).

"This factor has been a major concern during the last six years, and the current high number suggests that the industry has work to do in developing effective client–vendor working relationships," says Langer. "Such soft managerial attributes are difficult to quantify, and sometimes harder to establish as business objectives. However, such long-lasting less-than-positive working climates are not conducive for anyone in the industry."

Other top considerations when outsourcing biopharmaceutical production include the following:

• Compliance with quality standards (58.7% of survey respondents ranked this factor as "very important")

• Protection of intellectual property (55.8% characterized this issue as "very important")

• Sufficient capacity to meet a sponsor company's demand (52.9% said it was "very important")

• Adherence to a schedule (52.9% classified this factor as "very important") (3).

China and India

Unlike the market for contract small-molecule manufacturing, the market for contract biologics manufacturing in China and India is still in its infancy. Western CMOs engaged in pharmaceutical chemical development, particularly early-stage intermediates and generic active pharmaceutical ingredients (APIs), face strong competition from suppliers in China and India and increased competition, particularly from Indian suppliers, in advanced intermediates and custom APIs (4). Findings from a recent member survey of the Society of Chemical Manufacturers and Affiliates (formerly the Synthetic Organic Chemical Manufacturers Association), the US-based trade association representing chemical custom and batch manufacturers, showed that competition from suppliers in emerging markets (i.e., India, China, Eastern Europe, and Latin America) is expected to rise. For 2009, the mean market share of suppliers from emerging markets is expected to be 30.8%, which is up from the 26.5% reported in 2008, 26.3% in 2007, and 22.2% in 2006 (5).

Big Pharma strengthens its pipeline and manufacturing in biologics

A different situation exists in China and India. "The market for contract biologics in both countries is growing, but the domestic regulatory, quality, and operations capabilities required for international approvals and distribution are still in relatively nascent stages," says Langer. "As such, large-scale contract manufacturing for biologics, as compared with domestic manufacturing for products such as enzymes, vaccines, and other domestically sold biosimilar products, may still be a few years off," he says.

There are more than 60 major biopharmaceutical manufacturers in China, but very few contract biologics manufacturers, according to a recent BioPlan analysis (6). One reason for this situation has been the Chinese government's reluctance to allow pharmaceutical outsourcing. China's pharmaceutical contract manufacturing industry began in 1992 after China's State Food and Drug Administration gradually lifted bans on contract manufacturing (6). "After 10-plus years of development, Chinese CMOs are now capable of providing a wide range of contract manufacturing services such as API synthesis, peptide synthesis, and recombinant production," says Langer.

However, it was only in 2006, that CMOs were provided an opportunity to work with non-domestic sponsor companies. Beginning Jan. 1, 2006, all GMP-certified (good manufacturing practices) Chinese manufacturers are legally permitted to conduct contract manufacturing for foreign companies provided the products will not be sold in China. Vaccines, blood products, and Chinese herbal products continue to be excluded from the list of drug products acceptable for contract manufacturing (6). One example of a CMO involved in contract biologics manufacturing is Autek Bio (Santa Clara, CA), which has operations in the US and China.

Unlike China, India has a more developed biologics manufacturing history (7). "There are a number of companies providing support services in India, but pure CMO services are still largely directed at support of the domestic market," says Langer.

As an example of India's progression in biopharmaceutical manufacturing, Langer points out that the country has moved from complete dependence on foreign multinationals to becoming a major supplier of vaccines, which is a important segment of India's biopharmaceutical market (8). The domestic vaccine market in India is estimated at $100 million and is growing at a rate of 10% per year (8). Langer, however, specifies that most of the major Indian companies involved in biopharmaceutical manufacturing are largely confined to traditional biotechnology areas such as vaccines and fermentation.

Patricia Van Arnum is a senior editor at Pharmaceutical Technology, 485 Route One South, Bldg F, First Floor, Iselin, NJ 08830, tel. 732.346.3072, pvanarnum@advanstar.com

References

1. P. Van Arnum, "Charting API Market Growth and Opportunity." Pharm. Technol. 32 (7), 58–61 (2008).

2. P. Van Arnum, "Global Pharmaceutical Growth Tempered by Lagging US Market," Pharm. Technol. Sourcing and Management , Nov. 2008, PharmTech.com, accessed Apr. 13, 2009.

3. E. Langer, 6th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production , BioPlan Associates (Rockville, MD, Apr. 2009).

4. E. Polastro, "Custom Synthesis and Custom Chemicals," Pharm. Technol . 30 "Outsourcing Resources" supp., 42–66 (2006).

5. P. Van Arnum, "Outlook for Custom Manufacturing Is Mixed," Pharm. Technol. Sourcing and Management , Mar. 2009, PharmTech.com, accessed Apr. 13, 2009.

6. E. Langer, Advances in Biopharmaceutical Technology in China , BioPlan Associates (Rockville, MD, 2007).

7. E. Langer, Top 60 Biopharmaceutical Manufacturers in India , BioPlan Associates (Rockville, MD, Nov. 2008).

8. E. Langer, Advances in Biopharmaceutical Technology in India , BioPlan Associates (Rockville, MD, 2007).