In the early days of biopharmaceutical contract manufacturing, contractors typically served small biotechnology companies by producing clinical trial materials. Several contractors overbuilt capacity in the 1980s and 1990s, expecting to supply an anticipated surge in new biotechnology drugs coming on the market. That wave of bio-products was delayed by a series of regulatory setbacks, among other factors. Now, the biotechnology industry has clearly reached a successful era, with more than 100 biotechnology-based products on the U.S. market and hundreds more in the late-stage clinical pipeline. But a critical shortage of biomanufacturing capacity is looming ahead for commercialized products and clinical trial materials.


Capacity Needs Escalate
Several new blockbuster bio-drugs on the market now require such high volumes of biomanufacturing capacity that there is little available capacity left worldwide. For many of the new biotechnology therapeutics, especially monoclonal antibodies, the size of the recommended dose and the chronic nature of the diseases they treat require large amounts of product. In addition, the number of approvals of biotechnology-based drugs has been steadily rising since 1990. It is estimated that more than 14% of the products currently in pivotal stage clinical trials are biotechnology products; some analysts predict biotechnology drugs may comprise half of the total pharmaceutical marketplace within the next 10 to 20 years.

Figure 1: Average Percentage Capacity Utilization At Contract Facilities 1999-2001

Contract biomanufacturers now report they are almost completely booked. In the latest report by HighTech Business Decisions, Biopharmaceutical Contract Manufacturing: Meeting Increased Demand for Capacity, contract biomanufacturers reveal that, on average, they are pushing 90% capacity utilization rates for both mammalian cell culture and microbial fermentation capacity. This compares to the 1999 report in which contractors reported an average capacity utilization rate of only 49% for mammalian cell culture and 70% for microbial fermentation.

The pharmaceutical and biotechnology companies must now redesign their manufacturing strategies to meet the new capacity challenges. Most companies are forming an integrated strategy for maximum flexibility that involves building in-house capacity while also developing strong relationships and long-term commitments with contract biomanufacturers.

One strategy at major pharmaceutical companies, as described by the directors of biomanufacturing who were interviewed for this study, is to outsource now while capacity is being built and then manufacture in-house those drugs that make it to the commercial markets. Several directors with this strategy, however, also remark that they will keep their outsourcing partners to share some of this load, as well as to maintain the flexibility of prioritizing multiple products for in-house manufacturing and outsourced manufacturing. Some of the smaller companies plan to build capacity for producing clinical trial material and then outsource commercial production. In addition, there are many companies with no capacity and no resources for building that must rely solely on contract biomanufacturers.

To meet these increasing demands, more than 89% of the contract biomanufacturers surveyed for the study are planning expansions of equipment and/or facilities.

Photo courtesy of Avecia, Ltd.

Risks Abound
How can the industry build capacity while avoiding the risks of over-building or under-building? In the past, the primary risk seemed to be over-building as several facilities that were built for drugs that did not win FDA approval sat idle. But now there is a tremendous risk of under-building for the industry. Together, both the pharmaceutical and biotechnology companies, along with their contractors, must strike that delicate balance between over-building and under-building. Both carry severe consequences:

The Risks of Over-Building
• A tremendous investment, often between $250 million to $450 million per facility,   that provides no return.
• An idle facility requires substantial overhead to support.
• The excess capacity is often sold to others to cover overhead, which requires   management of a different business entirely
• The manufacturing plant may eventually have to be sold, often at a loss.


The Risks of Under-Building
• Millions of dollars in sales may be lost and competitive forces may gain the   advantage.
• Some smaller biotechnology companies may not survive.
• The price of products will rise.
• Products will be in short supply.
• Time to market will be increased.
• Some products might be dropped from the commercialization path and never reach the market.


The risks can be mitigated in several ways. In many industries, outsourcing of manufacturing to contractors serves as a pressure relief valve, a safety net of flexibility that provides capacity when demand is high or access to a special expertise is required. Contractors are better able to weather the ebbs and flows of demand by having multiple customers with products in various stages of success. They are also in a better position to develop multiple areas of manufacturing expertise and manufacturing efficiencies. Although the ideal would be to have biomanufacturing capacity available at the contract biomanufacturing company as needed, this may not be the case (at least not in the next few years) because of the shortage of capacity. Therefore, contractors currently are working closely with pharmaceutical and biotechnology companies to forge long-term commitments and co-investment plans so biomanufacturing capacity will be there for clients when needed.



Benefits of a Mature Outsourcing Industry
The contract biomanufacturing industry is a relatively new one and it is currently in a difficult period when significant investments must be made to ensure its future success. Once the needed investments have been made, however, contractors will be able to serve the pharmaceutical and biotechnology industries in significant ways. Over time, as the industry matures, contractors will be able to:

• Fully utilize manufacturing capacities by serving numerous customers, thus   lowering overhead costs for all customers;
• Build up important levels of expertise in using complex manufacturing technologies   to increase efficiencies and lower costs;
• Offer customers economies of scale given the large facilities they will be running;
• Negotiate with suppliers more efficiently and make cost-effective supplier   agreements based on purchasing volumes that individual companies could not   obtain;
• Make contracting easier as the major contractors develop one-stop shopping   capabilities with the needed expertise levels clients are seeking;
• Provide customers with a way to avoid large investments in brick and mortar and
  in-house personnel while also avoiding the risk of having a plant sitting idle and not   running at full capacity;
• Provide customers with a flexible way to handle increases and decreases in   demand efficiently and quickly to ensure no sales opportunities are missed.

To get to this point and realize these benefits, contractors and their clients will have to work together creatively to generate the investments that will pay off for both parties.

Photo courtesy of Boehringer-Ingelheim

Finding Capacity and Mitigating Risks
To mitigate the risks, most pharmaceutical and biotechnology companies plan to build some capacity in-house while forging strategic relationships with contractors, including transgenic suppliers. It has been suggested that pharmaceutical companies co-invest in facilities with contractors, help purchase equipment in exchange for guaranteed slots or the first right of refusal on slots, or make long-term commitments with contractors so loans for construction can be secured by the contractor. All of these things will help move the industry forward. In such shared-risk agreements, neither the contractor nor the customer will shoulder the entire risk of building capacity alone.

For contractors, the best plan of action will be to invest in expandable sites with land or buildings available as the demand grows. Expansion can be done cautiously but quickly, based on long-term agreements and co-investment plans with clients. During the course of our recent study, contract biomanufacturers provided many suggestions for solving the capacity crunch, which include not only building wisely, but also improving production technologies, developing alternative technologies and forging stronger contractor/client alliances.

Dr. Monika Henninger, Business Support Biotech for Boehringer Ingelheim GmbH, suggested improvement on multiple levels: “The best ways to solve the capacity problems include more investment, the development of low-dose therapeutics, an increase in productivity, the use of enabling technologies and the formation of strategic manufacturing alliances.”

Dr. Claude Chassin, head of Business Development Biotechnology at Lonza Group, Ltd., identified some of the problems in the past that have led to the shortages seen today. “Contractors and their customers should play with open cards and try to share risks and rewards in a more efficient way,” he said. “There is an urgent need for an efficient interface and transparent dialog between contractors and their client base to avoid the capacity bottlenecks we are now witnessing. All involved parties have been taken by surprise and overwhelmed by the sudden success of the latest wave of biopharmaceuticals, and this is certainly due in part to insufficient communication. Contractors, in conjunction with the market players and institutions, must explore creative business models for dealing with exploratory, early-stage manufacturing projects for start-ups. This, too, would contribute to the forecast of potential future demand. Let us try our best to be ready for the next wave of biopharmaceuticals.”

Dr. Roger Lias, vice president, Business Development at Diosynth RTP, Inc. (formerly Covance Biotechnology Services) mentioned a host of suggestions for easing the capacity shortage: “Contract biomanufacturers can design, build and validate new buildings. Those companies that have the financial capabilities must look at developing new technologies, such as transgenics. The industry also needs to invest in technologies related to the production process such as improved bioreactor tanks and media development for cell cultures. I believe purification is a major bottleneck that can be improved and made more efficient as well. Finally, customers need to move toward more partnerships and secure space for future production.”

Several contractors voiced the need for contractors and clients to work in partnership to solve capacity issues. At Avecia Biotechnology, Strategy Manager Dr. Iain Crowder discussed the consequences of the capacity shortage and concluded with recommendations for partnership to lessen the impact of these problems. “The present mismatch between contract biomanufacturing capacity and product demand is becoming an industry bottleneck and it is causing (1) substantial in-house investment in new capacity by some pharmaceutical and big biotechnology companies, (2) an adverse effect on drug development for emerging biotechnology companies because it is a critical path activity, and (3) long-term damage to the potential of the biotechnology sector as a whole by slowing product commercialization. In order to sustain growth of the contract biomanufacturing sector, contractors need to be breaking ground for new capacity quickly, especially at scales suitable for Phase III and product launch.”

However, he added, “The capa-city/demand balance can only be restored by the contractors and drug developers working together. There are a number of business models for these relationships. Given the time it takes to build and validate new plants and the fact that expenses are incurred from day one of design, drug developers must recognize that commitments to using these new facilities must be made ahead of need to ensure that capacity is available.”

Photo courtesy of Boehringer

Finally, vice president and general manager at Marathon Biopharmaceuticals, LLC, Anthony Rotunno, predicted the future success of the industry if capacity challenges can be met: “The available capacity will not sustain new production needs for about 7 to 10 years. It is difficult. You have to build new facilities and staff them. Contract biomanufacturers should quickly add capacity. Pharmaceutical and biotechnology companies should begin making commitments three and four years in advance. They should start reserving space and forming partnerships to secure capacity. I envision 10 years of solid growth for the contract biomanufacturing industry if we can deliver.”

The pharmaceutical and biotechnology company respondents in this study made it clear that they do not want to be in the biomanufacturing business, but they will build if they have to. Several expect to build enough capacity to handle commercial products, although most do not plan to handle all commercial products in-house. A popular scenario is to have enough in-house capacity to maintain manufacturing flexibility, while outsourcing some or all of the high-volume biomanufacturing needs. The impending shortage of capacity will require that the pharmaceutical and biotechnology companies:

• Fully utilize current in-house capacities and/or invest in building in-house capacity;
• Improve expression levels and productivity of current processes or work with   contractors to do so;
• Plan ahead and make long-term commitments with contract biomanufacturers to   secure needed future capacity;
• Creatively participate in the development of biomanufacturing consortia and/or
  co-investment in contract biomanufacturing organizations;
• Investigate alternative technologies such as transgenics for large-volume products.



When Will Capacity Meet Demand?
The issue of how much capacity will be lacking and when available capacity will meet demand cannot exactly be known, given that the requirement for capacity is a function of (1) the success rate of the current biotechnology products in the pipeline, (2) the number of companies building capacity, (3) the speed with which capacity is built, (4) the viability of alternatives such as transgenics, (5) the possibility of improving yields and production methodologies and (6) reducing dose levels.

Nevertheless, contract biomanufacturers in the study were asked to predict when available capacity will meet demand for biomanufacturing. Some contractors believe capacity needs will never be met by the industry, saying investment will always be behind success, while others believe capacity will meet demand in a few years. The responses from 22 contractors are shown in Figure 2. Check back in a few years to see who is right.

Sandra Fox, MBA, is president, and Lynne Sopchak, Ph.D., and Richard Khoury, Ph.D, are analysts at HighTech Business Decisions, of Moraga, CA. The company recently produced the report, Biopharmaceutical Contract Manufacturing: Meeting Increased Demand for Capacity, which is based on interviews with 43 biomanufacturing directors at pharmaceutical and biotechnology companies, 36 interviews with biopharmaceutical contract manufacturers, and includes profiles of 71 contractors.