Evaluating Supply and Demand Patterns for Contract Biologics Manufacturing

The market for contract-manufacturing services for biopharmaceuticals continues to expand, mirroring the growth of biopharmaceuticals. As in the recent past, biopharmaceutical products are expected to provide most of the future growth for the large pharmaceutical companies (1). In 2007, worldwide revenues for biopharmaceutical products are projected to exceed $65 billion, and the proportion of pharmaceutical revenues from biotechnology drugs is expected to surpass 10% of the total market (1). This increasing growth in biologics continues to stimulate the contract-manufacturing services industry.

A recent study by HighTech Business Decisions, Biopharmaceutical Contract Manufacturing 2007: Quality, Capacities and Emerging Technologies, analyzed the trends in the biopharmaceutical contract-manufacturing industry based on a worldwide survey of 41 biomanufacturing directors at pharmaceutical and biotechnology companies and 27 biopharmaceutical contract manufacturers (1).

Supply of contract-manufacturing capacity has fluctuated from shortages to oversupply during the past five years. Currently, the supply of outsourced-manufacturing capacity has overtaken demand. Most respondents in the study stated that supply is available. During the last five years, biopharmaceutical contract manufacturers and pharmaceutical companies have made major investments in biopharmaceutical production capacity to meet growing demand for biologics. In addition to increases in physical capacity, new technologies and improved process technologies have increased production efficiencies and further contributed to more available capacity.

Demand for biopharmaceutical outsourcing services

To meet the expected growth in demand, biopharmaceutical contract manufacturers have been aggressively installing capacity during the last several years and continue to plan for more new capacity. During 2004–2008, worldwide contract-manufacturing capacity for biopharmaceuticals is expected to grow by approximately 40% (1).

In macro terms, measuring capacity in tank liters under the two broad categories of microbial fermentation and mammalian cell culture, the study shows that biopharmaceutical contract manufacturers' installed capacity for microbial fermentation will reach 300,000 tank liters by 2008, an increase of 15% from two years ago. Biopharmaceutical contract manufacturers also plan additional follow-on capacity expansions throughout the next five years. (This estimate includes capacity for biopharmaceutical production only; microbial capacity that is used for microbially produced small molecules or products such as antibiotics is not included.)

The expansion plans of biopharmaceutical contract manufacturers for mammalian cell-culture capacity are even more aggressive. Worldwide outsourced mammalian cell-culture capacity is expected to reach 670,000 tank liters by 2008, a 21% increase from two years ago. As with microbial-fermentation capacity, the biopharmaceutical contract manufacturers plan follow-on capacity expansions during the next five years.

Biopharmaceutical contract-manufacturing expansions have kept up with demand. Most of the biomanufacturing directors at pharmaceutical and biotechnology companies that participated in the study stated that they had no problems finding capacity for their projects in 2006. As one biomanufacturing director noted: "For the last couple of years, it has been easy to find the capacity for microbial fermentation at all scales. This was not true four years ago."

Although capacity has been readily available in the recent past, capacity utilization rates are currently beginning to increase as demand catches up with earlier expansions. Biopharmaceutical contract manufacturers reported average capacity-utilization rates of 72–87% for microbial fermentation production capacity. Average capacity utilization rates for mammalian cell-culture production capacity vary from 65% to more than 90%. In both instances, capacity utilization rates are expected to increase during the next two years and then drop slightly as current and planned capacity expansions come on line. An interesting point from the study is that smaller biopharmaceutical contract manufacturers report higher utilization rates compared with larger biopharmaceutical contract manufacturers (1).

Spending on biopharmaceutical contract production, and therefore revenues earned by biopharmaceutical contractors, was estimated to be $2.1 billion worldwide in 2006. This global market estimate and forecast, shown in Figure 1, is based on outsourcing expenditures for the production of biopharmaceuticals, as reported in the survey by pharmaceutical and biotechnology companies, and on revenues recognized and capacity expansions by contract biomanufacturers, as reported in the survey. The growth in the biopharmaceutical contract-manufacturing market results from both higher levels of product production and expanded service offerings by biopharmaceutical contract manufacturers.

Figure 1. (HIGHTECH BUSINESS DECISIONS)

Outsourcing strategies

The demand for outsourcing services is dependent upon the outsourcing strategies of the pharmaceutical and biotechnology companies. The biomanufacturing directors participating in the study were asked to describe their overall biomanufacturing strategy from clinical to commercial production by asking them what they outsource and what are the drivers behind their strategic decisions. For the most part, biomanufacturing strategies are driven by the overall business strategy of the biotechnology companies. For companies that primarily outsource their bioproduction, the strategies followed are either to outsource all production or outsource production when good manufacturing practices (GMPs) are required. Biotechnology companies with GMP capacity in-house stated that they outsource on a case-by-case basis. Those respondents that do not outsource stated that their products were of a specialty or complexity that required technologies not easily transferred to an outside contractor.

Each company's outsourcing strategy and plan of execution is unique, so the outsourcing strategies shown in Figure 2 should be considered as a general overview. Details of the differences in strategies may be found in select comments from the biomanufacturing directors further described in this article.

Figure 2. (HIGHTECH BUSINESS DECISIONS)

Almost all biomanufacturing outsourced. The following are comments from pharmaceutical or biotechnology companies that outsourced almost all of their biomanufacturing:

• "Our business model and strategy is to outsource 100% of the manufacturing."

• "We always outsource. If we had a partnership (either in-licensing or out licensing), we would use the capacity of our partner instead of paying for outsourcing. One of the driving factors behind our decision to limit our internal manufacturing capacity is that our capital-equipment needs are very diverse. We make everything from small molecules to large biomolecules and use mammalian and microbial technologies. So, in order for us to manufacture in-house, we would need a very large variety of equipment."

• "We outsource 100%. It is cheaper and more efficient. Rent the facility; rent the expertise. Our business model doesn't support bricks and mortar; we won't be building a biomanufacturing facility."

• "It is a technology-risk issue. We will always look to outsource. There are not enough biological products in our pipeline to do production in-house."

Almost all biomanufacturing in-house. The following are comments from pharmaceutical or biotechnology companies that keep almost all of their biomanufacturing in-house:

• "We truly are beginning to weigh all options. Should we expand microbial or go to a biopharmaceutical contract manufacturer? Literally, just this week, we started to weigh the pluses and minuses. It is starting to gel. Within the next year, we will make the call on what we are going to do. On the mammalian side, we have a good-sized clinical-trials production capacity. We are bringing it up to speed in our first GMP suite ... In 2005, we were manufacturing Phase III at a CMO [contract manufacturing organization]."

• "Our outsourcing decisions are based on cost and the difficulty of making the product. Our company is focused on immunotherapy in which we manufacture a recombinant protein."

Early clinical biomanufacturing done in-house and commercial outsourced. The other scenario for outsourcing involved keeping early-stage or clinical biomanufacturing in-house and outsourcing commercial production. Select comments from biomanufacturing directors using this strategy follow:

• "We manufacture [in-house] for Phase I and II; we will go elsewhere for finishing the material needed for clinical work. We would not do our own manufacturing for commercial product. For late-stage or larger Phase II trials and Phase III, we will go to a CMO."

• "We do all preclinical and Phase I–II production in-house. We will continue to do that until it impacts our ability to take on new projects. We outsource Phase III and commercial production, and this will not change for the next five years."

• "Anything that requires GMP manufacturing, we outsource. We do all non-GMP production ourselves. Venture capitalists don't want to pay fixed capital costs for manufacturing facilities. For Phase III and commercial production, we are looking for a strategic alliance with a pharmaceutical company or CMO. We are also looking at regions outside of the United States for more cost-effective manufacturing."

• "Our goal is to keep the machines running 24/7. If we lacked capacity, we would go outside, and we won't go beyond Phase II internally, so we'll outsource after that. We want to keep our in-house manufacturing focused on the development phase."

Outsourcing mixed: case-by-case decisions. Feedback from biomanufacturing directors also showed that the decision to outsource is made on a case-by-case basis as opposed to an overall strategic leaning toward outsourcing or keeping manufacturing in-house. Select comments are outlined below:

• "Whether we outsource or not would be driven by our pipeline. Two sources contribute to our pipeline: our in-house R&D and molecules we acquire in early phases of development. We plan to expand our facilities, but we are conservative in our investments in GMP facilities. If we have a big project that requires more capacity than we have in-house, we would consider outsourcing GMP production."

• "Our strategy is a balanced approach between in-house production and outsourcing. In this way we can minimize our risk, and it gives us maximum flexibility."

• "Up to now, we have been trying to develop the processes ourselves. Now we have identified a few CMOs that can do process development better than us, and so we are in the process of changing our strategy. We would like to go backwards and let these CMOs do some process development. Our decision to outsource used to be based solely on volume and demand. Now we also include quality, technology, and previous experience with that CMO when we decide to farm something out."

• "Cost and time are our main drivers in our biomanufacturing strategy. Our philosophy is to keep flexible. We want to bring our products into manufacture as soon as possible, so we shuffle what we do in-house, versus outsourcing based on capacity and time."

Demand for expanded outsourcing services

To understand what biopharmaceutical manufacturing directors believe are the most important services to outsource, the survey asked the directors to list the services that they plan to outsource within the next three years (see Table I). Many of the biopharmaceutical manufacturing directors would prefer to have their contract manufacturer offer a complete set of services, rather than dealing with several contractors for individual services. As might be expected, smaller biopharmaceutical companies with fewer employees and resources and less expertise are especially concerned about the burden of coordinating various service providers. In addition, some of the larger biopharmaceutical companies recognize that many of the biopharmaceutical contract manufacturers have areas of expertise that they do not have and are looking to contract manufacturers to provide.

Table I: Services planned to be outsourced during the next three years (1).

The majority of biopharmaceutical contract manufacturers are expanding their service offerings to meet demand for additional service offerings. Table II shows a list of expanded offerings by the biopharmaceutical contract manufacturers. This list includes some of the service offerings that were added during the past two years and those that biopharmaceutical contract manufacturers plan to add in the next two years.

Table II: Select new or planned service offerings of biopharmaceutical contract manufacturers (1) .

Disposables. One of the areas where the biomanufacturing directors and contract manufacturers expect to see a significant impact to their operations in the coming years is in the adoption of disposable technologies for the manufacture of biologics. Below are a few of the comments made by the biomanufacturing directors about the impact that the use of disposables on their operations and the improvements that they expect from the use of disposable technologies:

• "Disposables will come more into use. They cut down on time and cost, so there are dual savings."

• "Disposable technologies for tissue culture and buffer bags are the newest products to have an impact on our operation."

• "Only the implementation of additional disposables will decrease our contamination rate. Our success rate was really low when I first started here. Now it is up to 50%."

• Disposable technologies can be applied in our operations, which will reduce our validation requirements."

Further analysis of the use of disposable technologies in the manufacture of biologics, shows that over half the biomanufacturing directors in the survey are currently using disposable reactor technology and almost one-third of the biomanufacturing directors are planning to adopt this technology in the near future. Most of the biomanufacturing directors state that their companies primarily use disposable technology for small-scale and preclinical production. While a majority of the biomanufacturing directors in the study use disposable technology, very few of the biomanufacturing directors require their contract manufacturer to use disposable technologies in the production of their biologic products.

The decision to manufacture using disposable technologies or stainless steel by the contract manufacturer is driven more by production volume, phase of production, or the specifics of the project. The advantages of disposable technologies most often stated by the biomanufacturing directors are easier validation, avoidance of cleaning processes, and flexibility. The biomanufacturing directors' concerns with the adoption of disposable technologies for the production of their biologic products include issues involving scalability, profitability, and compatibility with certain production technologies. Overall though, the biomanufacturing directors are optimistic about the use of disposable technologies for their production processes. Below are select comments by the biomanufacturing directors about the advantages in using disposable technologies in the production of biologics:

• "We want to focus our effort on the task at hand rather than cleaning."

• "Disposable technologies are the way to go. They provide more flexibility."

• "Disposables have the advantage of cheaper validation and the disadvantage of more upfront expense. However, the advantages and disadvantages may balance out. They are beneficial in that they save time and reduce cleaning. Overall they are a good move, and we are going in that direction."

• "Disposable bioreactors are great for the production of small batches during development because you eliminate the cleaning of bioreactors. However, for scale-up it is questionable how good they are."

• "We see a big advantage to going with disposable technologies. It improves our compliance process, no cleaning is required, and validation is simpler. On the other hand, there is an upfront cost disadvantage."

Process development

Process-development is one of the key services biopharmaceutical manufacturing directors seek from biopharmaceutical contract manufacturers with the emphasis on improving yields and productivity. In the survey, a plurality of biopharmaceutical manufacturing directors states that they outsource process development. The rest of the biopharmaceutical manufacturing directors either keep process development in-house or outsource on a case-by-case basis.

Almost all process development outsourced. Below are select comments from biopharmaceutical manufacturing directors about their decisions to outsource process development:

• "We outsource 100% of our process development. We will decide to outsource process development on a project basis. In addition, we will outsource cell-line development."

• "Ninety percent of our process development is outsourced. Our decision to outsource most of our process development is based on our limited internal capacity. We look to our CMO to provide nearly all stages of process development."

• "We do about 25% of our process development in-house. Our decision to outsource most of our process development comes from a combination of not having the required facility infrastructure, so that the real manufacturing must be outsourced. We want a CMO to provide improvements in yield and cost, reliability of production upstream, and downstream processing. Basically, we want the CMO to improve on our technology and thereby improve the cost of production."

Almost all process development done in-house. Another strategy is to keep process development work in-house. Feedback from manufacturing directors using this approach is below:

• "We always play a big role in process development. We know a lot about cell-line development and purification."

• "Process development is all done internally. This is sort of our specialty. We don't want to build cell banking, regulatory, etc., since we wouldn't use them to capacity."

• "Presently, we do not outsource process development, but if a CMO has any capability that is superior to our in-house capabilities, we would consider outsourcing. We are looking at outsourcing formulation now."

• "One hundred percent of our process development is done internally. We like to maintain control of process development."

Biopharmaceutical contract manufacturers

In the final analysis, the biopharmaceutical contract manufacturers were asked about their observations concerning the contract-manufacturing business model. The key observations are shown in Table III. Most of the biopharmaceutical contract manufacturers observe that the fee-for-service business model for contract manufacturing, with its large up-front investments coupled with high fixed operating costs, require high capacity-utilization rates to make the business model financially attractive.

Table III: Select business models of contract manufacturers (1).

To mitigate financial and commercial variation inherent in the contract-manufacturing business model, most biopharmaceutical contract manufacturers are expanding their service offerings and are providing more value-added services. Other strategies of biopharmaceutical contract manufacturers include stronger relationships with their biopharmaceutical customers, a better balance of capacity with demand, and the mixed use of in-house and outsourced biopharmaceutical manufacturing capacity.

Looking forward

The increased development of biologic-based drugs will fuel growth in the biopharmaceutical contract manufacturing market. The manufacturing strategies of many pharmaceutical and biotechnology companies involve using outside contractors to manufacture their products. As the market matures and seeks increased efficiencies and lower costs, pharmaceutical and biotechnology companies are looking for biopharmaceutical contract manufacturers to provide additional services.

In turn, biopharmaceutical contract manufacturers see the expansion of their service offerings as a strategy to make the contract manufacturing business model more sustainable while providing needed services to their customers.

William Downey* is president, and Lynne Sopchak, PhD, is a science market analyst at HighTech Business Decisions, 3159 Almaden Expressway, Suite 223, San Jose, CA, tel. 408.978.1035, fax: 408.978.8753, wdowney@hightechdecisions.com.

*To whom all correspondence should be addressed.

References

1. "Biopharmaceutical Contract Manufacturing 2007: Quality, Capacities and Emerging Technologies," HighTech Business Decisions (San Jose, CA, 2007).