CMOs Attack Biomanufacturing Market

Among contract manufacturers of active pharmaceutical ingredients (APIs), Lonza Group (Basel, Switzerland) stands out as an industry bellwether. The company has industry-leading positions in large-and small-molecule contract manufacturing, which generated revenues of CHF676 million in 2004, representing 31% of corporate revenues. Few other major contract manufacturing organizations (CMOs) are as dependent on, or exposed to, the volatility of the pharmaceutical industry pipeline and pharma company sourcing strategies. As the contract manufacturing industry has suffered through a prolonged down cycle during the first half of this decade, Lonza's revenues decreased 24% between 2001 and 2004, and its profits declined by 70%.

So when Lonza announces, in quick succession, a series of major investments in its biomanufacturing capabilities, it suggests that management is very encouraged about market trends and prospects for future business. In fact, the capacity expansions at its three major biomanufacturing sites reflect some important recent business wins and are highly visible indications that the company is moving aggressively to implement the business strategy it outlined at the beginning of the year.

Lonza is building two 15000 L microbial fermentation trains at its site in Visp (Switzerland) in conjunction with the signing of a manufacturing agreement with UCB Pharma (Brussels, Belgium). UCB has reserved capacity at the facility for recombinant microbial products through 2012 for the manufacture of its PEGylated antibody fragment products, including Cimzia (CDP870), which is undergoing a large Phase III programme in Crohn's disease and rheumatoid arthritis. UCB gained control of these products with its acquisition of Celltech last year. The microbial plant is expected to be operational at the end of 2006.

The facility represents a significant expansion of capabilities for Lonza, which has generally been known for its mammalian cell culture operations. The company has microbial capability in Kourim (Czech Republic), but that has been largely devoted to production of L-Carnitine for the merchant market. It also commissioned a small-scale microbial facility at Visp in 2004. The new 30000 L facility will allow Lonza to compete directly with CMOs such as Avecia and Boehringer Ingelheim, which have had commercial-scale microbial capability for some time. The size of the investment was not disclosed, but could easily approach CHF75 million, based on typical industry investment requirements.

Lonza will also expand its Slough (UK) biomanufacturing facility, to include a 500 L mammalian cell culture bioreactor and two purification suites. The company says the additional facilities are needed to serve the additional culture capacity and to process the additional production resulting from the improved yields being realized from its proprietary GS expression technology. The expansion will cost CHF14 million ($11 million), and the bioreactor and suites are expected to be operational in Q4 2006.

Lonza will also be enlarging its clinical-scale peptide and oligonucleotide manufacturing capacity at Visp. The CHF24 million ($20 million) investment will include high performance liquid chromatography (HPLC) purification and lyophilization capacity.

The new investments are in line with the strategy Lonza CEO Stephan Borgas announced this January. That strategy identified the exclusive synthesis and biomanufacturing businesses as the company's key growth drivers during the next 5 years. The biomanufacturing business has been targeted as the one where Lonza has the greatest competitive advantage, thanks to its substantial existing capital investment and accumulated technical expertise and experience. The company had $300 million invested in biomanufacturing facilities at the beginning of the year, including its commercial mammalian cell culture manufacturing facility in Portsmouth (NH, USA). The recently announced investments, along with the previously announced addition of a fourth 20000 L bioreactor at Portsmouth, will push the asset base to nearly $440 million. Borgas says the installed base of capacity gives Lonza a competitive advantage by enabling it to add new capacity through expansion in less than half the time a pharmaceutical company will require to build a green field site.

During the 2005 BIO meeting, Lonza representatives indicated the company is enjoying a strong year for new business signings, and the fresh investments are a reflection of this growth. Nevertheless, the company has been forced to rebut financial market concerns about its progress. Several analysts downgraded the company's stock following Genentech's announcement that it would buy the Biogen-Idec facility in Oceanside (CA, USA) for the manufacture of its Avastin oncology product. Analysts apparently assumed Genentech would turn to Lonza for additional supply of the drug as indications for its use were expanded, even though no announcements to that effect had been made. Lonza and Genentech have a commercial manufacturing agreement for the production of Rituxan at Portsmouth.

Lonza executives also had to reassure investors following Bristol Myers-Squibb's (BMS) report that it had signed a commercial manufacturing contract with Celltrion Inc. (Incheon, South Korea) for one of its biologics products. BMS and Lonza had previously reached a long-term agreement for capacity at Portsmouth, and Lonza issued a statement in which it and BMS reaffirmed that agreement.

Capacity will Grow

A recently released report indicates that Lonza's expansion plans are part of an industry trend. The study by BioProcess Technology Consultants Inc. (Acton, MA, USA) and BioPlan Associates Inc. (Rockville, MD, USA) indicates biomanufacturing capacity will continue to grow during the next 5 years despite a drop in utilization of existing capacity. The report, 3rd Annual Survey of Biopharmaceutical Manufacturing Capacity and Production, is based on a survey of 187 executives in biopharmaceutical manufacturing and CMOs, and provides preliminary benchmarking data on capacity supply and demand. According to estimates by survey respondents, average capacity utilization has decreased since 2003 from 79% to 70%. The analysis suggests this decrease is probably because of the recent industry-wide expansion of installed mammalian cell culture bioreactor capacity, as well as some unexpected product failures. Nevertheless, respondents expect manufacturing capacity will continue to expand during the next 5 years.

Vetter Broadens Capabilities

Another major player in the European contract manufacturing arena has announced expansion plans, this time for the fill-and-finish (sterile injectable manufacturing) segment of the business.

Vetter Pharma-Fertigung (Ravensburg, Germany) announced that it is adding two product lines: sterile, clean and ready-to-fill syringe (SCF) filling capacity, and liquid and lyophilized vial filling. Up to now, Vetter has specialized in bulk syringe processing, as well as prefilled cartridges. It also offers its proprietary Lyo-Ject dual-chamber syringe, which can contain a lyophilized powder and diluent in a single device. It is known to be the contract manufacturer of several high-profile biopharmaceuticals, including Abbott's Humira product for treating rheumatoid arthritis and other autoimmune diseases.

The addition of vials and SCF syringes is clearly targeted at the biopharmaceutical industry, particularly in North America. Many new biopharmaceuticals, especially those meant to be self-administered by the patient, are launched in a lyophilized vial presentation and then converted to a prefilled syringe presentation once a stable liquid formulation is developed and market acceptance is confirmed. Without the vial presentation, Vetter was often left out of a new product's launch plans and had to compete with the original manufacturer for the prefilled syringe version. By offering the vial presentation, Vetter can work on the launch presentation and work with the client through the product life cycle, moving it either to a liquid-filled syringe or its Lyo-Ject dual-chamber syringe.

The addition of SCF syringes is particularly important for the North American market, where SCF syringes are the preferred technology compared with bulk syringes.

The new capabilities signal Vetter's willingness to compete aggressively with other CMOs for the business of biopharmaceutical companies. Cardinal Health/Federa (Brussels and USA), Baxter BioPharma Solutions (USA) and Patheon (Swindon, UK, and Ferentino and Monza, Italy) all offer vial and prefilled syringe capabilities; other CMOs are expected to follow. The contract parenteral manufacturing sector has become very competitive, and Vetter management has realized that it must reach beyond its traditional competencies if the company is to grow.

Jim Miller is the president of PharmSource Information Services Inc., USA.