Biopharmaceutical manufacturing is continuing its shining star status as clients and investors begin to recognize the strategic significance of outsourcing. This is evidenced by the robust growth of service providers, from assay services to contract API manufacturers, to fill and finish/vialing companies. And the recent spate of high-profile acquisitions in these areas indicates how attractive these service suppliers have become.

Preliminary results from our latest annual industry survey, the 12th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, suggest that client companies continue to see value in outsourced manufacturing and are allocating budgets towards these partnerships. And as drug developers increasingly turn to contract manufacturing organizations (CMOs) for more complex tasks, for their valuable technical expertise no longer retained in-house, the increases in budgets for these tasks will continue to grow.

BioManufacturers’ Outsourcing Budgets Continue to Grow
Outsourcing is a long-term strategic decision for a company. So budget shifts can represent more long-term industry trends. We measured a variety of funding trends, asking respondents to estimate how their budgets will change over the next 12 months. Preliminary results from the 2015 survey indicate that outsourced manufacturing is one of the hottest budget areas today.

According to our early data, more than 4 in 10 biopharmaceutical manufacturers believe their budgets for outsourced manufacturing will increase over the next 12 months, including almost 3 in 10 overall who plan hikes of at least 10%. By comparison, just 1 in 10 expect decreases, with none so far planning cuts greater than 20%.

This builds upon increases we have seen in recent years. According to the preliminary data from our annual biomanufacturing study, respondents placed outsourcing toward the top of their budget trends list, estimating a 4.1% overall increase. To put that in context, estimated budget changes for process development, which topped the list, were 6.5%.

Perhaps more interestingly is the direction those budget changes have taken in recent years. The 3.9% estimated rise in outsourcing spending in last year’s budget was up from an indicated decreased budget of -1.2% in 2009. In other words, the budget trajectory for outsourcing has swung increasingly positive, more so than any other of the 15 budget areas we tested. This shift has occurred even as estimated budget increases for activities such as process development, new technologies and basic R&D have either stalled or even decreased, in some instances.

This year, we are seeing large budget increases of at least 10% for outsourcing, new capital equipment and new facility construction. Some 55% of respondents to-date estimate an increase in these budgets, a figure that includes almost one-quarter (24%) of respondents overall who expect an increase of more than 25%. Again, few see outsourcing budget cuts on the horizon. Overall, our preliminary results indicate that spending on outsourcing of both R&D and manufacturing will increase, as they have the past three years. This signals again that budget enthusiasm for outsourcing remains strong. 

What is driving this enthusiasm is complex. CMOs’ embrace of new technologies, for example, can create valuable partnerships. In addition, some biomanufacturers report having used outsourcing as a cost-cutting measure. For example:

• Some 24% of respondents say their organization outsourced manufacturing as a way to reduce overall costs; and
• Almost 1 in 5 (19%) outsourced their process development for cost-cutting reasons.

Despite these trends, companies are using other methods of cost cutting, such as implementing “lean manufacturing”, rather than considering outsourcing as a cost cutting tool. 

Most Heavily Outsourced Activities
Data from our annual study show that activities such as fill-finish operations are indeed the most commonly outsourced today. In many of these 24 outsourcing areas we measured, we find that the service providers are offering expertise or equipment that is not easily developed, or cost-effectively maintained in-house. The general findings this year are in line with prior years’ results, and the top outsourced areas include:

• Analytical testing of other bioassays (88% outsourcing to some degree);
• Fill/finish operations (76%);
• Validation services (75%); and
• Lot release testing (73%).

While these activities are the most commonly outsourced, they aren’t necessarily the most heavily outsourced. That distinction belongs to fill/finish operations, with many biomanufacturers indicating that they outsource upward 80% of this activity. This is not unexpected, especially as fill/finish operations for drug products are increasingly being done with more sophisticated, higher technology equipment, and costly isolator units that may not be justified as an in-house operation. 

Outsourcing activities, meanwhile, that haven’t yet seen the same kind of uptick in adoption include:

• QbD services;
• Design of experiments;
• Regulatory services; and
• Downstream production operations.

These lesser-outsourced activities are much the same as last year, with the exception of regulatory services. In fact, all respondents who indicated that they are outsourcing regulatory services are only doing so to a minor degree. Similarly, outsourcing of QbD services is mostly being performed only to a small degree.

Future Activities to be Outsourced
Perhaps more important than what is being outsourced, is what will be outsourced over the next two years. Outsourcing of bioassay testing, not unexpectedly, tops the list with 4 in 10 respondents indicating they will outsource at “significantly higher levels” over the next 24 months. This is the broadest level of agreement we’ve found so far.

The activity next-most planned for significant increases in outsourcing is API biologics manufacturing by 26% of respondents, despite that activity not being in the top 5 currently outsourced. The top areas of increased outsourcing include:

• Bioassay testing;
• API biologics manufacturing;
• Fill/finish operations;
• Validation services; and
• Cell line development.

The prevalence of most of these is not surprising given our previous research into outsourcing. In fact, analytical testing of bioassays has been the activity predicted for the greatest growth, by the most biomanufacturers, for the past 3 years. Fill/finish operations and validation services have been in the mix, too. Cell line development is cropping up as a potential area of outsourcing growth. And it’s worth noting that anecdotal comments surrounding cell-line development suggest that it may also  “go off-shore.”

Current State of Outsourcing
Our data indicate that outsourcing budgets are going up, and certain activities are likely to benefit from that growth. Increased spending on outsourcing is very likely also a reflection of the number of companies getting involved; few big pharma companies keep all manufacturing in-house anymore, with Novo Nordisk one of the few players to announce a strategy involving mostly in-house manufacturing, and with no apparent plans to change². 

As part of our annual study, we also explore outsourcing strategies for production, asking respondents what percentage of their biomanufacturing organization’s production is currently outsourced. This year, results indicate that almost 6 in 10 are outsourcing at least some of their mammalian cell culture production. In other words, only about 4 in 10 are keeping those production activities 100% in-house. If that figure holds true, it will be the lowest in a decade of this study.

Outsourcing as a Percent of In-house Manufacturing
Looking back over the past 10 years of study data, we note that ~58% of facilities in 2006 were keeping all their mammalian cell culture production fully in-house. It’s been a generally steady, slow downward trend for 100% in-house manufacturing. Over the past 10 years the percentage of respondents keeping all mammalian cell culture manufacturing in-house has declined by more than 15 percentage points, with 2006 representing a 10-year high.

The pattern appears similar for microbial manufacturing outsourcing, which has seen outsourcing gradually decrease since 2006. According to this year’s preliminary results, fewer than half (44%) of respondents say that their microbial manufacturing production takes place fully in-house. That figure is down roughly 20% from the decade-long high of 64.2% in 2010’s study, and represents a roughly 15% decline from 2006’s 58.1%.

In other words, outsourcing continues to become more prevalent for the two dominant forms of manufacturing: mammalian cell culture; and microbial fermentation. For yeast systems, outsourcing has declined as well, but not as dramatically. For insect and plant systems, the data are less comprehensive, but, as expected we continue to see relatively higher, stable levels of in-house production for these less-common platforms.

The study also broadly predicts the industry’s projected expectations of outsourcing by asking respondents’ plans for outsourcing least some of their production over the next five years. In this future casting, we continue to see facilities “living out” their plans to outsource. For example:

• In 2010, 63% projected they would be outsourcing mammalian cell culture manufacturing to some degree in 2015; this year’s early data suggests that 58% will actually be doing so; and
• In 2010, 53% predicted they would outsource at least some microbial fermentation production in 2015; and it looks like 56% will do so.

Given that respondents’ predictions from earlier studies have generally held true, this would suggest that towards the end of this decade, around 7 in 10 biotherapeutic developers will be outsourcing at least some of their mammalian cell culture and microbial fermentation production.

The Outlook
Preliminary results from our 12th annual survey suggest that this remains a promising time for biopharmaceutical manufacturing outsourcing. While Big Biopharma companies such as Amgen and Novartis continue to make major investments in biologics facilities—trends such as the expansion of biosimilars, the needs of smaller biotechnology companies to rely on CMOs, and the increasing need for high quality, cost-effective operations like fill/finish will continue to expand contract manufacturing and outsourcing. 

Our data show that the on-going trend towards greater spending on outsourcing is unlikely to abate this year, as contract manufacturers take on greater roles in the industry. The common lower-value outsourcing activities will continue to be outsourced by many, but that other, previously-considered core activities, will also see greater outsourcing this year.

What consideration will cost have in this equation? Our previous studies have demonstrated that outsourcing is not considered a key to cutting costs. This year’s study indicates that, although a larger percentage of the industry believes outsourcing of jobs and manufacturing could be considered a cost-cutting measure, these actions remain low on their list of cost-reduction methods that are actually being used.

Additionally, findings demonstrate that a CMO’s cost-competitiveness actually ranks relatively low as a selection attribute when client companies are considering outsourcing biopharmaceutical manufacturing. When we look back over the past decade, the cost-effectiveness of CMO services has gradually, but predictably, diminished as a critical attribute, signaling that clients continue to be more interested in the quality of their partnerships than just their cost. It’s this shifting mindset that allows for greater spending on outsourcing, a trend we continue to see this year.  
 
References

1. 11th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, April 2014, Rockville, MD www.bioplanassociates.com/11th
2. CMO free? Novo Nordisk investing $760m in homegrown network, February 3, 2015, http://www.biopharma-reporter.com/Bio-Developments/CMO-free-Novo-Nordisk-investing-760m-in-homegrown-network

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Eric S. Langer
BioPlan Associates

Eric S. Langer is president and managing partner at BioPlan Associates, Inc., a biotechnology and life sciences marketing research and publishing firm established in Rockville, MD in 1989. He is editor of numerous studies, including “Biopharmaceutical Technology in China,” “Advances in Large-scale Biopharmaceutical Manufacturing”, and many other industry reports.  elanger@bioplanassociates.com  301-921-5979.  www.bioplanassociates.com