Parity or Parody?
Large and small molecule drugs are converging in other ways, too. As medicinal chemist Derek Lowe points out in this month’s Lowe Down column (see pp. 24-26), R&D for biologics may have reached an ignominious point of parity with that of small molecule drugs. Currently, they face the same sort of failure rates, and the same set of pressures from shareholders, the sales department, etc.

That said, successes in bio-trials still seem to have greater cachet. Just look at the recent Phase III success for Genentech’s Avastin monoclonal antibody. The company’s stock rocketed up 50% in one day (by almost $17 per share) when Genentech released findings that the drug may extend survival in colorectal cancer patients. The next day, articles appeared predicting a new wave of biopharmaceutical investment by venture capitalists. A few months earlier, however, investors were down on Avastin after it failed Phase III trials to treat breast cancer. It’s an industry that a lot of investors want to believe in, but that just makes the downswings much more drastic than they are for other sectors.

Investors overall have grown much more cautious since the bear market began in 2000, and biotech is no exception. With the lion’s share of venture capital pulling away from smaller startups and over to companies that either have a product on the market, or have a fairly solid pipeline, how have contract biomanufacturers been affected?

Terry Novak, senior vice president, marketing, sales & business development, for DSM Pharmaceuticals, remarked, “In the short term, the lack of VC money can obviously impinge our ability to gain new business, as many smaller biotech companies do not have the funds to proceed with all of their projects. However, in the long term I don’t see a real impact. There will always be money available for companies with a solid technology and/or product platforms, which will mean greater success in advancing the products through clinical trials and, ultimately, FDA approval. Therefore, the success rate and revenue impact for the contract biomanufacturers improves as the stronger companies survive.”

This sounds a bit Darwinian, but other biomanufacturers echo Mr. Novak’s sentiments. It may lots of fun during a bull market, when every boutique bio-company could snap its fingers and get tens of millions tossed its way, but the true health of a business is demonstrated by how it deals with tough times. Said one industry figure, “From a bulk manufacturing, purification or fill/finish standpoint, the movement of VC has eliminated some smaller, underfunded companies, which is not a bad thing. Those who have survived the last few years are more focused, with better plans. They should be the more successful ones, and that means less risk for their contract service providers.”

Rick LaPointe, Hollister-Stier’s vice president, operations, described a lack of perspective on the part of some small biopharmas. “There is a trend concerning clientele in the dosage delivery business, especially those having a very complex manufacturing process,” he said. “Start-up companies do not have the capital necessary to modify a contract manufacturer’s facility to incorporate their unique processes. These companies do not understand that the contract manufacturer is not willing to add facilities for a drug product that has a low percent chance of FDA approval three to five years from initial discussions with the company. The idea that a start-up company can use a contract manufacturer to avoid all capital expenditures is not reality.”

Large Molecule = Big Money
And the capital expenditure can be a doozy. A large capacity bulk bio-manufacturing facility can run $400-500 million and take years to get validated.
The most common systems for producing biopharmaceuticals are mammalian cell culture and microbial fermentation. The former system is used to produce the more complex proteins (Mabs and growth factors), while microbes can generate less involved ones.

However, transgenics may become a dark horse in the production race. This mode of production, in which animals or plants are engineered to produce the desired protein (after purification), is seen by some as an economically advantageous method of production. Dow Plant-Based Biopharmaceuticals, a subsidiary of The Dow Chemical Co., has been developing strains of corn that can produce therapeutic proteins. The company has been able to leverage the work of Dow Agrosciences, which developed a working genome for some plants, to engineer protein expression.

Several bio-manufacturers we spoke to have also been investigating the prospects of transgenics for production of bio-drugs. Peter van Hoorn, president of the Biopharmaceutical Business Unit at Cambrex Corp., commented, “Cambrex is involved in the downstream purification of a transgenically derived protein. Earlier this year we successfully completed a Phase III clinical supply production campaign. Though the overall market has eased somewhat, transgenics remains
of interest to Cambrex; we believe there is a future for the technology.”

Sigma-Aldrich has also worked on deriving proteins from transgenic sources.
The company has purified proteins from transgenic milk and is in the early stages of working on transgenic eggs. It’s also added capacity for purifying proteins from transgenic plants. Tom Gelineau, director, new business development, Sigma-Aldrich Fine Chemicals Division, commented, “I see significant opportunity for isolating and purifying transgenic proteins.” He added that the ‘tried and true’ methods (mammalian cell culture and bacterial fermentation) will likely grow at
the 15% levels that some analysts have projected.

If transgenically derived proteins pass muster with the FDA, they’ll definitely offer an advantage over the existing modes of production, which are capital intensive, with high operating costs. “The use of transgenic systems may offer significant benefits for very large volume protein production in the future, and it’s an area that my company will keep monitoring,” said one biomanufacturing executive. “Still, the regulatory road map to commercialization is unclear, and this is reflected in the lack of any transgenically derived drugs on the market.”

Good businessmen hedge their bets, and the transgenics proponents are no exception. Dow, for example, also owns Dowpharma, a provider of development and manufacturing services for pharma and biopharma firms. Dowpharma resulted from the consolidation of several Dow assets and acquisitions, including Dow Contract Manufacturing Services, Dow Biopharmaceutical CMS, Chirotech Technology, Mitchell Cotts Chemicals, and Hampshire Chemical. On the biomanufacturing side, the company can produce biologics at a pair of cGMP API plants in Stony Brook, NY and Smithfield, RI.

Fill not Finished
Because biologics are blocked from enteric delivery due to the effects of the liver
on large molecules (it’s not pretty), they require specialty lyophilization work in addition to complicated API manufacturing. So parenteral manufacturers like
Ben Venue and Hollister-Stier foresee high demand for their services as more biologics gain FDA approval.

Peter J. Hansbury, R.Ph., Ben Venue Laboratories’ general manager of contract manufacturing services, remarked, “All current signals are for strong growth for the next five to 10 years, especially in the fill/finish area. This includes both big pharma and small virtual companies bringing new demand to the fill/finish.”

Hollister-Stier’s Mr. LaPointe was more guarded in his optimism. Although his company is currently has more parenteral projects being brought to it than it has capacity, Mr. LaPointe expressed concerns about some industry trends. “I think there’s a problem with the typical model of start-up companies hoping to partner with large pharma before the initial capital burns up. With several companies that we’ve dealt with, the success rate has not been acceptable,” he said. “This trend is, of course, detrimental to the start-up as well as the contract manufacturer.

Commercial capacity planning is very difficult to forecast when the contract supplier has a number of Phase III products in its portfolio. As we have seen, the NDA sponsor is always optimistic at this stage and is quite frequently disappointed due to clinical trial failure.” Mr. LaPointe contended that the short-term market remains strong. But, he said, “The long-term opportunities will be available to the companies who are willing to adapt their services to meet the needs of a diverse clientele.”

No Name, Plenty of Potential
As the biopharmaceutical field matures, some marketers and biomanufacturers
are looking at bio-generics as a future growth field. For the moment, however,
bio-generics represents more of a mine field. The main problem, it appears, is
that no-one knows exactly how to make a generic version of a biological without violating process-related patents. “It’s one thing for the patent on a biologic’s API
to expire,” said one source, “but the bio-processes retain longer patent life. And you could argue that, when it comes to biologics, the process is the product.”

An example of this problem comes not from the world of bio-generics, but from
a bio-partnership. Late in 2001, the BLA for Xoma and Genentech’s psoriasis bio-drug Xanelim (subsequently renamed Raptiva) was delayed after Genentech’s Phase III quantities of the drug were not bioequivalent to Xoma’s earlier quantities. Genentech had modified the manufacturing process for scaleup, and pharmacokinetic studies showed that its process created slightly higher serum concentrations than in Xoma’s version of the drug (which was used in Phases I
and II). The FDA was unhappy about the lack of bioequivalence, and the companies were forced to delay the BLA for 18 months, until December 2002. And we all know how damaging delays can be on a company’s bottom line.

The concern for potential manufacturers of biogenerics is that, without a clear set
of guidelines for establishing bioequivalence, the drugmaker would be forced to conduct costly clinical trials to prove that the generic drug is comparable to the brand version. At that point, the generic’s manufacturing costs would skyrocket, eliminating most of the cost advantage it had against the branded drug. Said Dr. Onakunle, “With major biopharmaceuticals coming off patent, contract manufacturers can potentially look to a bio-generics market. However, there are significant regulatory issues to be considered. The matter of demonstrating bioequivalence between the generic molecule and the licensed product is complicated. To produce a protein identical to a branded drug and to comply with the regulations, a generic manufacturer must use the same protein expression systems, purification protocol and delivery technology as that used in the original patent. In addition, the production process and the source of raw materials are also strictly regulated.”

“There will be a market for bio-generics,” said Nick Hyde, Dowpharma’s business director, “but it’s going to be tough to get there. It’s much easier to demonstrate bioequivalence in a small molecule drug, and I’m not sure how they’re going to iron out this issue at CBER/CDER.”

Oracle
So what does the future hold for the biomanufacturing industry? There’s a pretty wide range of possibilities, but contract biomanufacturers are bullish. “We’ve made projections about the next five to 10 years,” said one industry executive, “and it’s very tough to find a scenario where bulk biomanufacturing comes out on the short end. Given the historic rate of drug approvals, average yield, and other factors, we’re facing a period where demand is very likely going to outstrip supply.”

The question is, how does the industry develop the flexibility to handle demand? Companies are working to generate contract bio-capacity. Diosynth, a division of Akzo Nobel, followed up its 2001 acquisition of Covance’s biotech facilities with the opening of a downstream purification and isolation unit (Diosite) in Oss, the Nether-lands. Now it’s finishing up work on Diosource, an upstream cGMP facility for cell culture (32,000L) and microbial fermentation (20,000L), with facilities for storage, small scale fermentation (as much as 300L), and dedicated recovery areas.

Is there some risk that massive increases will leave contract biomanufacturers holding the bag? Lonza’s Dr. Onakunle, commented, “Despite the significant amount of facility investment that is currently underway, we don’t feel that there will be a long-term capacity glut. What is key is the availability of capacity. A lot of the capacity that is talked about belongs to established biopharma and Pharma companies that may already have biologics on the market, or are expecting to bring such products to the market in the near future.” This sort of capacity will not be freely available for all companies to tap into, so smaller firms that can’t risk the massive capital investment in a bio-facility will still be searching for contract biomanufacturing services.

In the meantime, companies are trying to get around the massive cost of facility building by findind ways to tweak processes and enhance yields. However, improvements to bioprocesses have been postulated, but adoption of new technologies is very limited in this industry. Regulators comprise a tight bottleneck against process innovations. “No one wants to spend millions developing a method to improve yield, then find that the FDA won’t approve it,” said one industry source. In addition, the heavy cost in putting a new facility on the ground precludes risk-taking. “Both big Pharma/Biopharma and contract bio-manufacturers need to know that their capital is going to be spent on something that can legally produce a biologic.”

Another commented, “I haven’t seen much improvement with regard to mammalian cell culture. There has been a lot of talk about increasing expression levels, but so far it’s been just talk. A lot of energy is being spent on improving binding capacities and looking at alternative resins, but it’s still early on that.”

Despite (or because of) the massive barriers to entry in this market, contract biomanufacturers seem poised to thrive in the years ahead. As DSM’s Mr. Novak put it, “I see continued growth due to the number of biologic compounds in development, the continued improvements being made in manufacturing, and the market success of many new biologic products.”