Our bioprocessing studies have tracked pharma outsourcing trends for several years. Drawing from our latest study, the 11th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production,  we identify key trends in outsourcing and CMO activity. Below is a review of the trends that will have the most impact on the industry in 2015.
Trend No. 7
Greater Outsourcing of Analytical Testing and Fill/Finish Operations
In our annual study, we asked industry decision-makers which activities they will be likely to outsource at “significantly higher levels” over the next 24 months. We found that the largest share of respondents—exactly one-third—plan to outsource more of their analytical testing bioassays, to a significantly greater degree. That marked the third consecutive year in which analytical testing/bioassays topped the list of activities projected to be outsourced at higher levels.
What’s interesting to note is that the vast majority of respondents were already outsourcing at least some analytical testing. Indeed, with 89% of respondents indicating this to be the case, this is the area with the broadest outsourcing activity. So the increase is likely the result of more pipeline products creating a greater volume of testing, rather than facilities shifting from in-house to outsourced testing.
Another activity we expect to see outsourced to a greater extent is fill/finish operations. This was the second-most cited activity, by 28% of respondents, in terms of areas projected to be outsourced at significantly higher levels. As with bioassay testing, this is already an area where outsourcing occurs, with about 8 in 10 respondents contracting this activity out to at least some degree last year. Moreover, this appears to be the area where the heaviest amount of outsourcing is currently occurring: Respondents estimated that, on average, 38% of the volume of their fill/finish operations last year was outsourced. (By comparison, they estimated that 31% of their bioassay testing operations were outsourced.)
Beyond these top two, special mention must be made for downstream process development. While fewer respondents said they would be outsourcing this core area to significantly greater degrees in the short-term, this is an area clearly on the upswing in recent years, with respondents estimating that they’re outsourcing twice as much activity now as they were two years ago. Some of this may involve pre-packed columns, and similar activities.
Trend No. 6
Outsourcing Budgets Will Continue to Rise
Budgets to support increasing outsourcing activities continue to rise, and since the economic downturn in 2008, this budget area has consistently grown faster than others. Perhaps more importantly, when budgets for outsourcing increase, it involves long-term strategic implications, and decisions like job and department elimination. So we expect these trends to create long-term effects.
In the current survey, biomanufacturers projected an average increase of 3.9% in budgets for outsourced biopharmaceutical manufacturing. This was greater than the increase in budgets for overall in-house biopharmaceutical manufacturing (3.3%), and it represented a strong increase from years past.
This strategic shift is also reflected in other areas of our report. When we separately asked industry experts how their spending outsourcing or R&D or manufacturing would change in the next 12 months, respondents estimated that budgets for outsourcing at individual facilities would increase by nearly 14%, up from the previous year’s estimate of 10%. In fact, just 7% of respondents expected any decline in their outsourcing budgets, while almost three times as many (17.1%) expected an increase of more than 25%.
Trend No. 5
CMOs May Face Capacity Constraints
With outsourcing activities on the increase, some CMOs expect to be confronted with significant bottlenecks in the years to come. In fact, almost one-third (31%) of CMOs we surveyed for our annual report believe their organization will experience “severe” (11%) or significant (20%) constraints in the next five years. The corresponding figure for biotherapeutic developers was 24%.
It may simply be the nature of CMOs that they more conservatively approach capacity expansion, only doing this when it truly becomes needed, while product developers with commercial manufacturing needs have much more exacting requirements for adding capacity but have a much longer period to address this, with products typically taking about a decade or more in development. As a result, twice as many developers (21%) as CMOs (11%) believe their organization will experience “no” constraints in five years.
However, these perceptions may not match reality, as CMOs reported that they were operating at about 55% of production capacity for mammalian cell culture (58%) and microbial fermentation (54%) last year. Both were lower figures than for biotherapeutic developers, with the gap larger for mammalian cell culture. CMOs, with their need to juggle scale-up and manufacture of more products can be expected to have lower capacity utilization rates than product manufacturers who need only plan for and manufacture at most a few products, and likely have developed standardized and optimized manufacturing operations for these.
Trend No. 4
CMOs’ Capacity Less Important than Relationship Concerns
CMOs ability to meet clients’ capacity demand is clearly important, but it’s much less critical than their ability to meet clients’ expectations for improved relationships. Virtually all (98.2%) of biomanufacturers surveyed say that establishing a good working relationship is either very important or important. Additionally, 94.5% of respondents consider a CMO’s ability to stick to a schedule important when choosing the right partner.
This suggests that the playing field for CMOs is leveling out for many technical aspects, like proper handling of cross-contamination issues and quality standards. But the importance placed on “softer” skills such as scheduling and relationships means that technical considerations are no longer the sole differentiator on which CMOs can hang their hats. A summary of the most critical considerations for clients when outsourcing shows the following factors near the top of the list:
- Establish a good working relationship;
- Comply with the company’s quality standards;
- Protect intellectual property; and
- Effectively handle cross-contamination issues.
Outsourcing Continues to Globalize
One of the least important factors to clients when evaluating CMOs is their geography, with just 21.8% of respondents to our survey noting that CMOs being local to them was important. And while it may be convenient to have one’s CMO nearby, the globalization of the biopharmaceutical industry, the ability to communicate virtually, improvements in project management, and the internationalization of the CMOs staff, have made locality of the CMO just an afterthought.
Even so, the industry does hold some markets in generally higher esteem than others. For example, U.S. respondents to our survey see Singapore as an attractive destination for their outsourcing needs, with a leading 39% citing it as at least a “possible” destination in the next five years. Outside of Asia, Germany is the leading European market in consideration by U.S. respondents.
For Western Europeans, though, China is the market with the most potential. In this past survey, 47% of respondents from Western Europe cited China as a potential outsourcing destination in the next five years, up from just 6% a year earlier. That puts China in a tie for the top spot with the U.S. among potential outsourcing destinations (we note that China has no legislation or regulatory mechanisms permitting domestic CMOs to actually produce drugs for their domestic market). Thus, expectations for Chinese outsourcing services likely involve earlier stage development projects rather than actual GMP manufacturing.
We also expect more outsourcing in most areas to be offshored over time. In our latest survey, 47% of respondents said they would off-shore at least some of their biomanufacturing over the next five years, up from 38% indicating this to be the case in 2013 and 30% in 2011.
Trend No. 2
Biosimilars Will Be A New and Lucrative Revenue Source For CMOs
The coming growth in the biosimilars pipeline will result in a different kind of globalization—the emergence of new entrants to the global biopharmaceutical market focused squarely on biosimilars. Many of these organizations will be international biosimilar/biobetter developers trying to gain product approval in the U.S. and other developed markets. This may also be a rational route to validate their business models and spur sales in lesser-regulated global markets.
The biosimilars market is likely to be a welcome opportunity for CMOs, who figure to manufacture up to 40% or more of the current pipeline for biosimilars and biobetters, according to our analysis.
Many established manufacturers have in recent years dialed back their in-house expertise and capacity, at the same time as outsourcing has become more attractive. Larger biopharmaceutical developers will prefer to devote their remaining capacity to innovative, higher-margin products rather than lower-priced follow-on biosimilars. As a result, we can expect to see many expecting to work with highly cost-effective CMOs. Anecdotally, CMOs are already reporting business increases of 15% resulting from various biosimilars-related projects.
Trend No. 1
CMOs Will Lead the Way in Innovation
Most biosimilar and biobetter manufacturers are already using advanced expressions systems and improved bioprocessing systems to lower costs and meet demand more efficiently. This dovetails with CMOs’ leading position as innovators: Time and again, our studies have demonstrated that CMOs are expressing interest in—and experimenting with—new technologies at a greater rate than biotherapeutic developers, who have already invested significantly in their current systems and therefore have fewer incentives to turn to newer systems.
For example, when we asked industry experts which top areas they wanted their suppliers to focus their development efforts on, CMOs were significantly more demanding in most areas than the biologics developers. This was particularly the case when it came to single-use/disposable applications; unsurprising given that these single-use applications provide the greater flexibility and rapid turnaround required by CMOs. Indeed, among disposables users, we noted that CMOs are more likely than developers to be using 12 of the 15 single-use applications we measured, with the gap most acute for membrane adsorbers and waste containers.
CMOs’ leadership in innovation extends to downstream processing. This a significant area of concern with CMOs, as they are more likely than developers to be facing bottlenecks as a result of their downstream processing. Asked which of various actions they had undertaken to improve their downstream purification operations, for example, CMOs were almost four times more likely to have actually switched to Protein A alternatives (18.2% vs. 4.9%). In other words, if developers are keeping abreast of new developments, it’s CMOs that are taking the lead in adopting them.
It’s a time of growth and maturation for biopharmaceutical outsourcing. Budgets are increasing, manufacturing activities are being outsourced to greater degrees, and international markets are being actively investigated. The resulting opportunities for CMOs are unlikely to abate this year, or in the near-term, as biosimilars will provide many with another source of new opportunities. As this year progresses, we will examine these and other outsourcing trends in more detail. Stay tuned.
- 11th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, April 2014, Rockville, MD www.bioplanassociates.com/11th
Survey Methodology: The 2013 Tenth Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production yields a composite view and trend analysis from 238 responsible individuals at biopharmaceutical manufacturers and contract manufacturing organizations (CMOs) in 30 countries. The methodology also included over 158 direct suppliers of materials, services and equipment to this industry. This year’s study covers such issues as: new product needs, facility budget changes, current capacity, future capacity constraints, expansions, use of disposables, trends and budgets in disposables, trends in downstream purification, quality management and control, hiring issues, and employment. The quantitative trend analysis provides details and comparisons of production by biotherapeutic developers and CMOs. It also evaluates trends over time, and assesses differences in the world’s major markets in the U.S. and Europe.
Eric S. Langer
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. firstname.lastname@example.org 301-921-5979. www.bioplanassociates.com
Jean-Claude “JC” Lupis, director of communications, BioPlan Associates, Inc., is a seasoned communicator, editor, and writer who has published hundreds of data-oriented articles across online and print media. An Ivy League master’s graduate with professional experience in science, political risk, and emerging market issues, he networks within and around the biopharmaceutical industry, and is an experienced researcher and interviewer.