Will CMOs Provide Sufficient Capacity for Growing Biologics Demand?

The overall pharmaceutical market is shifting its focus from small molecule drugs to biologic compounds. At the same time, the patents on several existing biotherapeutics are likely to expire over the next five years. These two factors are contributing to greater demand for contract manufacturing services in the biopharmaceutical sector at a time when a gap already exists between available and needed capacity, according to Aiswariya Chidambaram, senior research analyst for life-sciences with market research firm Frost & Sullivan.

“While companies are making investments to increase capacity, it is very difficult to predict exactly how much capacity will be needed in the future. Biopharmaceutical manufacturers need to closely monitor the situation and establish strategic relationships with the contract manufacturing organizations (CMOs) that meet their performance requirements and have the expertise and capacity they expect to require,” Chidambaram notes.

Key changes in the biopharma market
The market for biopharmaceuticals is expected to experience very healthy growth in the coming years, according to Frost & Sullivan, as interest increases in large molecule actives. Currently, approximately 90% of big pharma revenues are based on small molecule APIs. In the next five to 10 years, however, that number will drop considerably, and as much as 25% of big pharma revenues is anticipated to be derived from biological actives by 2017, according to Chidambaram. In addition, blockbuster biologics worth over $100 billion are due to lose patent protection between 2012 and 2017. As a result, the global biosimilars market is projected to grow at a compound annual growth rate of approximately 60% between 2012 and 2017.

Be aware of challenges facing CMOs
Biopharmaceutical manufacturers looking to benefit from these growth trends and planning to do so with the use of CMOs must consider the challenges facing contract manufacturers. “While these trends are driving investments by CMOs in capacity and technology advances, one of the biggest challenges they face is anticipation of needed capacity due to the long development times for biopharmaceutical drugs and the uncertainty of success for any given biologic candidate,” Chidambaram says. In fact, she adds that one of the main reasons biopharmaceutical companies turn to CMOs is to avoid the very high capital expenditures and long times required to construct, equip, and validate manufacturing facilities.

Complying with complex regulatory requirements is another key challenge faced by CMOs and also a driver for their use by biopharmaceutical companies. There are a wide range of product types, and many times the regulatory requirements are different. In addition, CMOs are trying to grapple with the uncertainties in the regulatory framework for biosimilars. While the European Union has made significant progress, the United States falls slightly behind, and it is still unclear what the approval process will ultimately entail, according to Chidambaram.

Further down the road, biopharmaceutical CMOs, which are currently largely located in the EU and the US, will face new competition from CMOs in emerging markets, most notably India. “At this point, CMOs in these emerging markets have yet to develop the technical expertise for most biopharmaceutical processes, but they are making advances and are preparing to enter the biosimilars marketplace in the future,” Chidambaram explains.

Quality must remain top selection criteria
That time is still a ways off, however, because the most successful biopharmaceutical companies realize that there can be no compromise on quality when selecting CMOs. Adherence to timelines and price are the second and third most important factors after quality. Other criteria that are also important include technical expertise, reputation, previous working experience, regulatory expertise, and geographic proximity, according to Chidambaram. “These factors will become even more critical as demand for CMO services increases. There is already a slight shortage in biopharmaceutical contract manufacturing capacity, and we expect the capacity gap to remain going forward. Biopharmaceutical companies that will therefore be competing for CMO services and must be careful to ensure that they only use CMOs that meet the highest expectations for quality,” Chidambaram notes.

Alliances/consolidation to be expected
Given that biopharma contract manufacturing capacity is likely to fall behind demand, both CMOs and biopharmaceutical companies are developing strategic alliances and making acquisitions with the future in mind. Biopharmaceutical firms should be prepared to participate in such activities in order to remain competitive and fully leverage the growth of the market. Chidambaram points to four major types of strategic activities that are taking place.

First, larger CMOs are acquiring smaller CMOs that have complementary technical expertise, target a new end user segment, and/or serve a specific geographic market. They are also in some cases acquiring manufacturing sites from biopharmaceutical firms as a way to rapidly increase capacity. Second, large biopharmaceutical companies are acquiring CMOs to ensure access to capacity, particularly in emerging markets, where it is difficult to gain entry for international companies. Third, because the biopharmaceutical industry is a high-technology sector, CMOs are forming alliances with technology providers in order to be able to provide the services required for the large number of new products that are coming to market that are based on newer technologies. Finally, venture capital firms have taken an interest in the biopharmaceutical manufacturers and CMOs, and are investing in/acquiring companies with products in late stage clinical trials with a likelihood of being commercialized. Such investment is helping to fund capacity expansions and addition of the latest technological capabilities for these CMOs.

Demand growing for integrated CMOs
Biopharmaceutical companies looking to use integrated CMOs should take note that demand for such contract manufacturers is on the rise and competition may be stiff. “Biopharmaceutical firms are finding that CMOs that can offer services across the full product lifecycle—from medicinal chemistry through commercial-scale production, including product and process development, formulation, packaging, and testing—can help reduce the time to market,” Chidambaram says.

CMOs that have invested in advanced upstream and downstream technologies and achieved reduced quality variability and increased productivity will be of particular interest to biopharmaceutical firms. Those that have implemented single-use manufacturing systems, which enable significant cost reductions, particularly in multi-product manufacturing settings, will also be in high demand. CMOs with advanced lyophilization capabilities and those that have implemented process analytical technology can expect greater interest from biopharmaceutical customers as well, according to Chidambaram. She adds that strong growth for injectable formulations over the next five years will drive further demand for CMOs that can provide support for the production of prefilled syringes. As importantly, Chidambaram says, is the growth of the mammalian contract manufacturing segment, which is expected to witness significant investments and capacity expansions of as much as 60% in the medium-to-long term, propelled by the high success and growth rates of complex, glycosylated monoclonal antibodies, and recombinant proteins.