An important consideration for biotechnology companies in evaluating a contract manufacturer is price. Determining a fair price for the production of biologics is generally accomplished through extensive negotiations between the biotechnology company and the CMO. During the past two years, several factors have influenced the price for CMO services, including capacity utilization rates, new CMO entrants and biotechnology companies offering production services from internal excess capacity.

We shall review the change in prices for biopharmaceutical contract manufacturing services, typical price models used to price contract manufacturing services, and selected prices for small production runs.

The information presented in this article comes from HighTech Business Decisions’ (“HTBD”) latest report, Biopharmaceutical Contract Manufacturing: Best Practices Pricing Study 2011. This report is based on primary research from in-depth interviews and surveys with 27 directors of biomanufacturing at pharmaceutical and biotechnology companies (“Users”) worldwide and 15 CMOs. This report documents prices paid and prices charged for the production of large molecule API using recombinant processes. In addition, this report analyzes and documents prices and price structures of 60 outsourced biopharmaceutical production projects, plus the prices charged by CMOs for outsource services. Furthermore, this study includes prices paid and charged for other services provided by CMOs, including such services as cell line development, process development, regulatory support and documentation. 

Price Observations

Over the past two years, approximately half the biotechnology directors (“Users”) and contract manufacturers (“CMOs”) have observed stable prices for contract manufacturing services (Table 1). A few of the respondents who noted stable prices, also observed lower prices in certain circumstances. Those circumstances include projects for large production volumes and prices offered by new entrants into the CMO market. Overall, there is no significant difference between the Users’ and CMOs’ observations about price changes over the past two years. However, it is interesting to note that Users were more likely to report price increases than CMOs. Over the past two years, 35% of the Users observed higher prices, compared with only 15% of the CMOs. 

Preferred Pricing Models

In general, the agreements negotiated between Users and CMOs for the production of biopharmaceuticals are detailed and specific to the particulars of each project, and the needs and requirements of the two parties at the time of contract negotiations. In pricing their services, CMOs generally price the production of large molecule API on a per-batch basis, which is the most often used price model for contracting the manufacture of biopharmaceuticals. For most Users, per-batch pricing is also the most preferred price model, followed by per-milestone and per-gram pricing (Figure A). 

Further analysis of Users’ preferred pricing model for contract manufacturing services shows that their preferred price model depends on the development phase of the biopharmaceutical being produced. For example, most Users prefer per-gram pricing for biopharmaceuticals in commercial phase. This price model works best at this phase because processes are well defined with established process controls in place. Thus, both the CMO and the User are confident about the expected throughputs and yields when the processes are in control. From our study, more than half the Users prefer per-gram pricing for commercial production, while roughly two-thirds of the Users prefer per-batch pricing during clinical trials. Milestone pricing is the most preferred pricing model by Users for process development work. 


In parallel with User preferences, most CMOs price the production services of their clients’ biopharmaceutical on a per-batch basis (Figure B). However, CMOs use several different price models depending on the agreement negotiated with their client. Other price models used by CMOs include price per-milestone, price per gram produced, time and materials, suite time, best efforts, and various other price models. One price model used by a minority of CMOs is partnership pricing. In partnership pricing, the CMO obtains part ownership in a biopharmaceutical in exchange for providing its client with a significant service fee reduction.  It is interesting to note that while partnership pricing models have been discussed as a way to share risks between Users and CMOs, it is the least acceptable price model for Users.


Price Changes

In HTBD’s study, the biotechnology and pharmaceutical companies provided the prices they paid for the contract production of their biopharmaceuticals. In addition to reporting the prices paid for GMP production, the Users also provided project details such as a) the type of production technology used (e.g., microbial fermentation or mammalian), b) the clinical phase of the project, and c) the amount of grams produced. In our study, 58% of the biopharmaceutical projects are for Phase I/II clinical trials while 22% of the projects are for commercial products (Figure C). Data for 60 different projects are included in our study.

The percentage of projects in each clinical phase changed somewhat from 2008 to 2011. In 2011, there were more Phase III and commercial projects in our study compared with 2008; however, projects supporting Phase I/II clinical trials continued to be the most prevalent. An analysis of the shift in mix between the current and the past studies shows the change in project phase is not statistically significant different between the two studies, based on chi-square analysis. 

While 68% of the projects are priced on a per-batch basis, the balance of the production projects are priced using three different price models: per-gram, time-in-facility or milestone basis (Figure D).  In order to analyze prices, all project prices are standardized to dollars per gram produced for each manufacturing project.   


Actual Pricing for Very Small Quantities

The pricing trends show mixed results in 2011 compared to the prior period, based on actual price and production details from 39 production campaigns. For this analysis, the campaigns are limited to projects that produce 100 grams or less. The price details from these production campaigns come from HTBD’s current price study along with its past 2008 study. Historically, prices on a per-gram basis have shown steady declines, which most likely result from a combination of improved manufacturing productivity, changes in the types of services included in GMP manufacturing, and actual price changes. 


The median price per gram for mammalian cell culture and microbial fermentation production technology are shown in Figure E. The box shown in each year in this 
figure shows the inter-quartile range of prices, and the line inside each box plot shows median prices. While most respondents in our study prefer to price these projects on either a per-batch or milestone basis, we use the per-gram price analysis to standardize between the various pricing methods actually used. 

In 2011, the average price for a small mammalian cell culture project is $280,000 per gram, while the median price is $111,000 per gram. For microbial fermentation production projects, the average price in 2011 is $108,000 per gram, while the median price is $95,000 per gram. Overall, median per-gram prices have remained stable or declined slightly.

While the contract manufacturing agreements are detailed and specific to the particulars of each project, most projects for the production of biopharmaceuticals are priced on a per-batch basis. Batch pricing is the preferred price model for production of biopharmaceuticals used for clinical trials, while commercial production is priced by the gram. Over the past two years, most respondents have observed stable prices. However, a significant segment of biotechnology company respondents have observed higher prices over the past two years.
 
HighTech Business Decisions conducted the market research and wrote the report, Biopharmaceutical Contract Manufacturing: Best Practices Pricing 2011 to provide an analysis of the biopharmaceutical contract manufacturing market’s best practices in pricing and contract agreements. The research was specifically designed to understand pricing structures and actual prices, payment terms, and contractual agreements. In-depth data collected from both pharma and biotech company users as well as contract manufacturers allowed for an objective analysis of individual pricing practices while respondent names remain anonymous. For more information, visit www.hightechdecisions.com/reports.html. 
 
William Downey is the president of HighTech Business Decisions, a market research company that has been publishing reports on the biopharmaceutical contract manufacturing market since 1997.  This article is based on some of the findings from the recently released 300 page report, Biopharmaceutical Contract Manufacturing: Best Practices Pricing Study 2011.  For more information, visit www.hightechdecisions.com or call (408) 978-1035.