The information presented in this article draws from recent interviews with 10 biopharma CMOs and from HighTech Business Decisions’ (HTBD) latest study, Biopharmaceutical Contract Manufacturing: New Participants, Expanded Services and Emerging Markets. This study is based on primary research derived from extensive interviews and surveys with 70 industry thought leaders, including biomanufacturing directors from pharma and biotechnology companies, and executives from CMOs worldwide. This report documents the current and projected industry needs and practices, including market size, client-contractor relationships, and production practices.
Currently, HighTech Business Decisions projects the biopharmaceutical contract manufacturing market to grow 7% per year, reaching $3.1 billion by 2016. This outlook is a change from the recent past in which many industry participants experienced slow or no growth. As in the past, the industry has cycled from an under-supply to an over-supply situation in bio-CMO capacity. The current over-supply of contract production capacity results from a decline in the number of biotech projects in development, a slow-down in the number of approved biologics, and improved manufacturing performance. While recent economic events have adversely affected industry levels at the end of the last decade, the long-term underlying trend for outsourcing biopharma production remains positive, as both large and small biotech companies see the technical and economic advantage to outsource the production of their biologics. Also positively affecting CMO business levels are new biosimilars projects that are currently in development.
Eighty percent of the CMOs interviewed for this article report significant sales growth in 2011 compared to 2010 levels, with the majority of those CMOs stating that their sales growth was in the double digits. Last year’s business growth came from a combination of new customers, new markets, projects from later-phase clinical trials, and new services. After seeing such robust growth in 2011, most CMOs are optimistic about their business in 2012, and they see continued growth in demand for their products and services.
For this year, CMOs base their business growth expectations on both industry macro trends and their individual company experiences. The macro trends responsible for industry growth include products moving into late-phase clinical trials, greater reliance on CMOs by large pharma and biotech companies, and improvements in the financial environment — especially in the U.S. The lack of available funding for biotech companies over the past three years reduced the number of bio-projects in development, which in turn adversely affected the demand for outsource production. A positive effect on the demand for outsource production is the development of biosimilars and biobetters by pharma and biotech companies. Not surprisingly, the development and production of biosimilars is becoming an increasingly important business segment for CMOs. Although many biomanufacturing directors at pharma and biotech companies continue to express their concern over the regulatory and technical issues associated with the development and commercialization of biosimilars, the development and production of biosimilars already accounts for 8% of the biopharmaceutical contract manufacturing market. On the micro-level, many CMOs interviewed for this article report an increase in request-for-quotations and an increase in the number of signed confidential disclosure agreements from potential clients. In summary, CMOs continue to see positive macro business trends for their contract manufacturing services from both large pharma and smaller biotech companies. Large pharma and biotech companies continue to outsource manufacturing as they focus on accelerating product approvals and maximize investor returns. Similarly, smaller biotech companies continue to rely on CMOs for access to manufacturing expertise and capacity without large upfront investments. While most CMOs are optimistic about their business prospects this year, the industry continues to be in an over-capacity situation. CMOs expect their market to remain highly competitive this year as they continue to vie for new customers to keep their manufacturing sites full.
With optimistic growth prospects, bio-CMOs continue to plan and execute new initiatives to meet their customers’ current and future needs for capacity, quality and service. From our latest study, 80% of bio-CMOs plan to increase capacity, 50% of bio-CMOs will invest in operational improvements, and 22% of bio-CMOs will add new capabilities in the coming years. As this analysis demonstrates, many bio-CMOs are taking on multiple initiatives.
The CMOs interviewed for this article have undertaken initiatives to upgrade their existing facilities, invest in process technologies, and add small-scale production capacity. With the industry currently experiencing lower capacity utilization rates, many CMOs’ initiatives are focused on upgrades to existing facilities, and investments in new technologies and process development. Examples of bio-CMOs upgrading their facilities for improved product quality and customer service include Sandoz Biopharmaceuticals and Lonza.
Sandoz Biopharmaceuticals has upgraded two biopharma manufacturing suites with volumes of 1,300 L and 40,000 L. Friedrich Nachtmann, Ph.D., head Biotech Cooperations at Sandoz GmbH, noted, “We have started facilities upgrades at two production lines. These upgrades include better automation and additional downstream processing suites.” Dr. Nachtmann further explained, “The benefits of these investments are shorter cycle times in downstream processing, and increases in product quality, which will reduce the number of deviations per batch.”
Lonza continues to invest in new facilities and upgrades. One of the major initiatives undertaken by Lonza is a harmonization program at all mid- and large-scale mammalian manufacturing facilities. “Lonza’s harmonization program now allows us to provide tailor-made capacity offering from multiple sites,” said Michael Banks, head of Sales & Business Development, Biological Manufacturing at Lonza, Inc. Lonza has recently expanded its development labs and manufacturing capacity at its Slough, UK facility. “This expansion will enhance our mammalian manufacturing capabilities at the 200 L- through 2,000 L-scale,” added Mr. Banks.
Investments in Process Development
In addition to the initiatives to upgrade their manufacturing facilities, many bio-CMOs are making research and technology investments to improve their cell expression systems and expand their process development capabilities. Fujifilm Diosynth Biotechnologies is both expanding capacity and increasing its process development efforts. Dr. Stephen Taylor, senior vice president & commercial director at Fujifilm Diosynth Biotechnologies, noted, “We have made significant investments in innovation in R&D, including improvements to our pAVEway™ technologies and investment in new process development facilities.” In conjunction with an initial investment of $4.5 million to expand its process development facilities, Fujifilm Diosynth Biotechnologies continues to expand its R&D workforce. Over the past 12 months, the company has added 50 new employees in R&D at its Billingham site, an increase of 50%. Fujifilm Diosynth plans further increases in its R&D efforts this year. The company’s investment in process development includes eight new in-situ sterilizable 20 L Sartorius Stedim Biotech fermentors and a number of fully-instrumented DASGIP parallel high throughput units. The Sartorius Stedim equipment will permit increased process control and automation of microbial fermentation, while the DASGIP units are a multiplex system that allows for improved design of experiment. Effective use of these units results in a better understanding of the client’s product under various process conditions, leading to improved process optimization.
Boehringer Ingelheim has also made substantial investments in process development capabilities and capacities. Dr. Julia Knebel, director marketing and communications, Contract Business Biopharmaceuticals at Boehringer Ingelheim Pharma GmbH & Co. KG, noted, “Boehringer Ingelheim has invested an additional €17 million into its capabilities in process development at both its mammalian and microbial sites.” Dr. Knebel added that the recent expansions “will meet their customers’ demand for cell culture and microbial process science — especially for Boehringer Ingelheim’s rapidly expanding preclinical portfolio with biotechnology companies.” Another recent initiative at Boehringer Ingelheim includes expanding its technology portfolio through collaborations with Pfenex and ProBioGen. “Those technologies extend our contract manufacturing service offerings and further our strategy to offer our customers leading technologies by providing flexible solutions,” stated Dr. Knebel. Boehringer Ingelheim has also recently established a lean-to-clinic program that offers its clients significantly shorter timelines for cell line development, preclinical and Phase I production of mAbs using Boehringer Ingelheim’s BI-HEX® high expression system. On the commercial side, Boehringer Ingelheim now offers risk-sharing options with its customers. Recently, Boehringer Ingelheim entered into a contract with Xencor, Inc. in which both parties will share the financial risk in early preclinical and clinical development.
Another CMO also expanding its process development capabilities is Wacker Biotech GmbH. “We recently established a separate group that is exclusively dedicated to feasibility studies with our proprietary E. coli secretory system ESTEC®, which significantly reduces cost of goods,” stated Thomas Maier, Ph.D., managing director of Wacker Biotech. The company recently achieved high titers using this ESTEC technology for the development and production of an antibody fragment for Bayer Healthcare. Wacker has also made considerable investments in high throughput equipment that has increased its efficiency in selecting high-titer producer cells. Dr. Maier stated, “Wacker is continuously streamlining its operations and has established development and manufacturing programs to offer our clients fast and cost-effective supply of clinical phase materials.” Other initiatives undertaken by Wacker include investments in additional downstream capacity in response to entering commercial production and preparation for a preapproval inspection.
As their clients’ products move through the clinical studies pipeline, bio-CMOs have undertaken initiatives to meet the regulatory requirements for the commercial production of those products. For example, Eurogentec SA has also focused its efforts to gain approvals from regulatory agencies. “Eurogentec has allocated significant resources in the preparation for a U.S. FDA preapproval inspection. The successful completion of this inspection has had a strong positive impact on Eurogentec obtaining additional pharma and biotech customers,” said Pascal Bolon, Ph.D., biologics sales & marketing manager at Eurogentec SA.
Small-Scale Capacity Additions
While bio-CMOs continue to add capacity, new capacity additions will be at a moderate pace over the next several years. From our recent study, a majority of biomanufacturing directors see little need for new large-scale production capacity in the future (see Figure 1). The biomanufacturing directors mentioned several factors obviating the need for new large-scale production capacity including a) high expression cell lines, b) sufficient large-scale capacity already in place, c) improved process technologies (including the adoption of single-use bioreactors), and d) smaller available markets for new biologic therapeutics (see Figure 2). While most biomanufacturing directors do not see the need to build new large-scale biomanufacturing capacity, a few directors did note that this situation could change with the market introduction of new blockbuster biologics.
Figure 1: Opinions on the Future Need for Large-scale Production Capacity
Figure 2: Reasons New Large-Scale Production Capacity Is Not Needed
With the acceptance of single-use bioreactors and other disposables technologies, it is now economically feasible for bio-CMOs to add small-scale capacity in response to customer needs. The ability to add capacity in small increments allows bio-CMOs to meet upside demand from their customers without having to commit to larger investments and the associated risk of future underutilized capacity. The ability to add capacity in smaller increments allows a bio-CMO to better balance its supply with current demand. Single-use bioreactors are being installed by both large and small bio-CMOs. Recent examples of bio-CMOs adding new single-use, small-scale bioreactor capacity are Fujifilm Diosynth Biotechnologies, KBI Biopharma, Cytovance Biologics and Gallus Biologics.
Fujifilm Diosynth Biotechnologies expanded its mammalian cell culture GMP capacity with the installation of a new 1,000 L single-use bioreactor system at its Research Triangle Park facility in North Carolina.
KBI Biopharma has invested in both capacity and process development capabilities. “We have continued to invest in 16 additional bioreactors, at the 3 L, 10 L and 200 L scale,” said Joe McMahon, president and chief executive officer of KBI Biopharma, Inc. In addition to expanding its bioreactor capacity, KBI has also invested in its downstream process development services, including the hiring of additional staff. KBI recently expanded its scientific team to support its growth in process development and manufacturing services. Mr. McMahon stated, “We have continued to rapidly expand our scientific team including recent executive-level scientific hires such as Dr. Abhinav Shukla as vice president, Process Development.”
Cytovance Biologics recently installed a 1,000 L mammalian cell culture suite at its Oklahoma City facility. “Over the past 18 months, we have added bioreactor capacity, increased the level of experience through new senior leadership, raised private equity capital and moved into a new process and analytical development facility,” said Darren Head, president and chief executive officer at Cytovance. This capacity addition will support key clients as their biopharma products move through clinical trials.
“Gallus BioPharmaceuticals has committed $20 million in building out expanded development labs and a clinical services suite,” stated Mark R. Bamforth, President and CEO of Gallus BioPharmaceuticals. “The new capacity is built and will be producing cells in June 2012 at the 2,000 L scale in disposable bioreactors.”
Acquisitions and New Entrants
In addition to the new initiatives recently undertaken by CMOs, there have been new acquisitions that expanded CMO capacity over the past year. For example, Boehringer Ingelheim purchased Amgen’s Fremont California biomanufacturing facility and Fujifilm purchased Merck & Co. Inc.’s contract manufacturing business. Merck had formed its bio-CMO business a year earlier when it acquired and merged two industry veterans: Avecia Biotechnology and Diosynth Biotechnology.
A new entrant into the CMO industry is Gallus Biopharmaceuticals with manufacturing facilities located in St. Louis, Missouri. Gallus purchased Centocor’s manufacturing facility in May 2011. As part of the facilities acquisition, Gallus entered into a multi-year manufacturing agreement with Centocor. Also expanding into contract GMP manufacturing services is WuXi AppTec, Inc. WuXi AppTec is offering fully integrated biologics services for those companies who have an interest in marketing their biotherapeutic products in China. “The recognition that there is a need for fully integrated biologics services (i.e., discovery, testing, development and manufacturing) within China has led WuXi AppTec to expand into GMP manufacturing,” said David Fischer, business development manager, Protein Therapeutics at WuXi AppTec.
The biopharmaceutical contract manufacturing market continues to grow as pharma and biotech companies increasingly rely on contractors for the production of their biologics. With improving economic conditions, bio-CMOs have undertaken multiple initiatives to meet the growing demands from their clients. CMOs are upgrading their facilities, expanding their research and development budgets and investing in new cell line technologies. These new initiatives will improve manufacturing efficiencies and improve product quality. While market conditions are improving, industry utilization rates continue below historical averages, thus investments for new production capacity will primarily be limited to small-scale capacity additions over the next few years.
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 800 page report, Biopharmaceutical Contract Manufacturing: New Participants, Expanded Services and Emerging Markets. For more information, visit www.hightechdecisions.com or call 408-978-1035.