Eric S. Langer, BioPlan Associates11.17.15
Biopharmaceutical manufacturing outsourcing continues to expand, both domestically and globally. Contract manufacturing organizations (CMOs) are benefiting from expanding economies, increased client budgets, a proactive approach to innovation, and the emergence of fundamental trends like biosimilars.
Within this context, we expect to see continued growth for CMOs in the year ahead, perhaps even more rapid than the ~15% annual expansion of the industry as a whole. Data from our latest annual study, BioPlan Associates’ 12th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production [1], support analysis of some of the key trends relating to contract manufacturing.
Trend No. 1: Outsourcing Budgets Are on the Upswing
The clearest sign of a growing market is increasing budgets. And on this front, our annual studies have shown a strong turn of events in recent years.
This year, biopharmaceutical manufacturers indicated that they would increase their spending on outsourced biopharmaceutical manufacturing by an average of 3.8%, keeping steady from last year’s forecast increase of 3.9%. These are compound increases, such that this year’s planned growth of 3.8% came on top of last year’s planned increase.
To put this year’s budget increases in context, it’s roughly the same increase as manufacturers budgeted for operations for current products, new facility construction and hiring of new scientific staff. So while not in the top tier of budget expansions (those are reserved for new capital equipment, process development, innovation and operations staff), outsourcing growth is on par with other key budget items.
Biomanufacturing has generally been immune to wider economic trends, such that budget contractions back in 2009 were not being implemented across the board. Yet when companies were facing those harsh economic realities, outsourcing was one of the 5 areas (of 12 we tested) planned for budget cuts. And just a few short years ago, in 2012, outsourcing was the only area set for a budget contraction.
As outsourcing budgets grow, we have found fewer than 1 in 10 respondents expecting a decrease in these budgets, versus a majority predicting an increase. The overall average increase of 13% set for this year was on par with last year’s result (13.5%) and a step higher than 2013’s projected growth of 10.4%.
Along with budget growth, our study demonstrated an increased willingness to use outsourcing as a method to cut costs. This was most pronounced in the following areas:
Trend No. 2: CMOs Plan Capacity Expansions to Offset Current Crunches
More than one-third—36%—of CMOs surveyed for our report said that their facility was experiencing “significant” or “severe” production capacity constraints. In a sense, our data had foreseen this problem: Last year, we warned that CMOs might face capacity constraints based on research that showed a large proportion of CMOs forecasting problems on the horizon. The level of constraints reported this year, though, were beyond what we might have expected, with “significant” constraints faced by roughly twice as many this year as last.
What’s to blame? For one, CMOs are reaching the top of their capacity utilization rates. For example, in this year’s study CMOs were operating at 82% of mammalian cell culture operating capacity, versus 58% capacity utilization last year for that dominant paradigm. Further, facility constraints were in fact CMOs’ most commonly cited reason for capacity crunches this year, followed by the physical capacity of downstream purification equipment.
Not surprisingly, then, CMOs are squarely placing these constraints in their sights. And among CMOs, new capital equipment and new facility construction were the areas slated for the largest budget increases (>11%).
CMOs predict that their mammalian cell culture capacity will grow by an impressive 77% over the next 5 years. That’s almost double the level of expansion they forecast last year. As a result, there’s less handwringing about future capacity constraints: the 1 in 5 expecting to face significant or severe constraints in 2020 is an encouraging result in light of the currently reporting bottleneck problems.
In sum, our data show clearly that as the outsourcing market grows, CMOs are reaching critical levels of capacity utilization, and capacity constraints. To offset those constraints, CMOs are investing in new facilities and new capital equipment, and foresee some of their problems abating in the next few years. As a result, we might expect that next year’s data shows a slight lessening of capacity bottlenecks from this year, though it remains to be seen how quickly those investments pay off in this way.
Trend No. 3: CMOs Looking to SUS, Downstream Advances for Performance Boost
Facility upgrades and new capital equipment aren’t the only ways to avoid future capacity crunches: Improving downstream processing efficiency is also a key element. With downstream purification often blamed for bottlenecks, CMOs are hoping for downstream advances, and single-use equipment is often the area they first examine.
In fact, the implementation and integration of single-use equipment ranks as the single biggest biomanufacturing trend for CMOs this year. These applications are being credited by many CMOs with performance gains. For example, we asked respondents which factors had created “significant” or “some” performance improvements at their facilities during the prior year, 86.4% of CMOs cited the use of disposable/single-use devices.
Meanwhile, improved downstream production operations contributed to performance improvements for roughly two-thirds of CMOs. Single-use systems have a hand to play in downstream production operation improvements, too. Separately, when we asked CMOs about various measures they had taken to improve downstream purification operations, three-quarters (versus just 42% of biotherapeutic developers) reported investigating single-use disposable downstream technologies.
With single-use devices appearing to be so beneficial to CMOs, it’s little wonder that these applications are high on CMOs’ list of desired technological advances. In terms of new product development, CMOs listed the following as their areas of greatest interest:
Our study indicates that process development jobs are the most challenging for biomanufacturers to fill, and, correspondingly, that some companies are outsourcing these jobs not only to cut costs, but because in-house PD expertise is scarce. Nearly 40% of biomanufacturers are finding it difficult to fill positions in either up- or downstream process development. And the problem is most difficult among US respondents where nearly half of facilities are finding hiring a significant challenge.
As a result, process development outsourcing has become more popular over the past few years. This year, 43% of respondents reported outsourcing upstream process development activities to at least some degree, up from 17.1% in 2010. Further, the proportion of biomanufacturers who expect to outsource upstream and downstream process development activities at “significantly” higher levels in the near-term has been on the rise, reaching 17% of respondents for downstream and 12% for upstream process development. To be sure, these are still among the least-outsourced activities, both in breadth and depth. But the signs of growth are there.
In examining fill-finish services in more detail, we discovered that more outsourcing of these activities ranked as one of the top trends identified by respondents. Other CMO-related trends in fill-finish (anecdotally) include:
As CMOs compete to win new business across the above-mentioned (and other) areas, their physical location is ceasing to be a major selection factor. This year, just 1.5% of respondents indicated that a CMO being local to them was a “very important” issue to consider when considering outsourcing biomanufacturing. That was the lowest figure we’ve found to-date for a CMOs’ geographic proximity, and easily the lowest among the 19 criteria we measured. Anecdotally, clients may still prefer to outsource locally, but as CMOs improve their client management and customer service performance, being on-site is no longer a necessity.
Instead of location, CMOs are being evaluated increasingly on issues such as compliance with companies’ quality standards, their ability to establish good working relationships, IP protection and having enough capacity to meet sales demand. (No wonder they are investing in more capacity!)
Interestingly, as more companies consider off-shoring to be part of their future, US and European countries diverge when it comes to the international markets they consider appealing. For US companies, markets such as Singapore and China are among the top of the list as both potential outsourcing destinations and more positive “likely” destinations. But for Western European companies, the US and the UK appear to be hold the greatest appeal, with less consideration for emerging Asian markets.
Trend No. 6: Biosimilars, Other Advances Creating Opportunities
CMOs stand to benefit from the biosimilars pipeline as more than 40 blockbuster ($1 billion+) reference products see patent expirations over the next 5+ years. Competition will increase, as over 80 biosimilars (attempt to) hit the markets. While there are many large, marketing-capable biopharma companies intending to produce biosimilars, the majority are smaller R&D companies. CMOs will, of courses, be necessary for this latter group. CMOs capable of efficient production stand to benefit. Because U.S discounts are expected to reach at least 50%, with as many as 8 follow-ons per reference product, the competitive environment may be intense, and efficient manufacturing will be important.
Europe has more than 20 biosimilars on the market and its regulatory issues are mostly resolved; but there has been relatively little overall market impact so far, with discounts averaging less than 30%. In the US the first formal approval (Zarxio/filgrastim-sndz, Sandoz/Novartis) is out, and more filings are coming. The worldwide market is rapidly growing and we can expect $7-$10 billion in next 5 or more years of biosimilars and biobetters.
Biosimilars’ focus on efficiency will drive mainstream biologics innovation in efficiency and provide opportunities for savvy CMOs. Outsourcing biosimilars is a likely model (e.g., Baxalta’s Genmab sale). And even Big Pharma may outsource some of its ‘less critical’ biosimilar development and manufacturing. Biosimilars are a traditional fit for CMOs as they apply new technology to familiar products. CMOs have needed expertise, facilities, critical regulatory know-how and can develop, scale-up and manufacture better and quicker than most developers. They can potentially make biosimilar APIs cheaper than doing in-house development, with better products and documentation.
But biosimilars is a short term strategy, demanding more trials and more manufacturing. In the long-term it’s a zero-sum game, with essentially the same amount of drug product sold, in a given market. Further, smaller biosimilar developers will hit roadblocks with clinical trials and limited capacity. Biosimilars are creating disruptive US opportunities and will require a strong focus on efficiency that will also drive mainstream biologics innovation.
Looking Forward
These are just some of the trends affecting CMOs today, but they are broadly indicative of the direction that the outsourcing market is taking. Based on the results and trends identified in our study, we expect that the outsourcing market will continue to grow and benefit from increased budgets. More high-value operations such as process development, QbD and DoE are showing signs of increased outsourcing activity and are likely to be an ongoing trend.
Meanwhile, CMOs themselves will likely focus on process efficiencies and handle potential bottleneck problems. Disposable downstream applications—where available—ought to be in high demand among CMOs, who continue to demonstrate their affinity for single-use equipment. We should also expect CMOs to be on the forefront of other emerging industry trends, such as the manufacture of biosimilars and the move towards modular facilities.
Eric S. Langer
BioPlan Associates
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. elanger@bioplanassociates.com 301-921-5979. www.bioplanassociates.com
References
Within this context, we expect to see continued growth for CMOs in the year ahead, perhaps even more rapid than the ~15% annual expansion of the industry as a whole. Data from our latest annual study, BioPlan Associates’ 12th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production [1], support analysis of some of the key trends relating to contract manufacturing.
Trend No. 1: Outsourcing Budgets Are on the Upswing
The clearest sign of a growing market is increasing budgets. And on this front, our annual studies have shown a strong turn of events in recent years.
This year, biopharmaceutical manufacturers indicated that they would increase their spending on outsourced biopharmaceutical manufacturing by an average of 3.8%, keeping steady from last year’s forecast increase of 3.9%. These are compound increases, such that this year’s planned growth of 3.8% came on top of last year’s planned increase.
To put this year’s budget increases in context, it’s roughly the same increase as manufacturers budgeted for operations for current products, new facility construction and hiring of new scientific staff. So while not in the top tier of budget expansions (those are reserved for new capital equipment, process development, innovation and operations staff), outsourcing growth is on par with other key budget items.
Biomanufacturing has generally been immune to wider economic trends, such that budget contractions back in 2009 were not being implemented across the board. Yet when companies were facing those harsh economic realities, outsourcing was one of the 5 areas (of 12 we tested) planned for budget cuts. And just a few short years ago, in 2012, outsourcing was the only area set for a budget contraction.
As outsourcing budgets grow, we have found fewer than 1 in 10 respondents expecting a decrease in these budgets, versus a majority predicting an increase. The overall average increase of 13% set for this year was on par with last year’s result (13.5%) and a step higher than 2013’s projected growth of 10.4%.
Along with budget growth, our study demonstrated an increased willingness to use outsourcing as a method to cut costs. This was most pronounced in the following areas:
- Outsourcing jobs in process development;
- Outsourcing manufacturing to domestic service providers, more than double the proportion in 2011; and
- Outsourcing manufacturing to non-domestic service providers, almost triple the proportion in 2011.
Trend No. 2: CMOs Plan Capacity Expansions to Offset Current Crunches
More than one-third—36%—of CMOs surveyed for our report said that their facility was experiencing “significant” or “severe” production capacity constraints. In a sense, our data had foreseen this problem: Last year, we warned that CMOs might face capacity constraints based on research that showed a large proportion of CMOs forecasting problems on the horizon. The level of constraints reported this year, though, were beyond what we might have expected, with “significant” constraints faced by roughly twice as many this year as last.
What’s to blame? For one, CMOs are reaching the top of their capacity utilization rates. For example, in this year’s study CMOs were operating at 82% of mammalian cell culture operating capacity, versus 58% capacity utilization last year for that dominant paradigm. Further, facility constraints were in fact CMOs’ most commonly cited reason for capacity crunches this year, followed by the physical capacity of downstream purification equipment.
Not surprisingly, then, CMOs are squarely placing these constraints in their sights. And among CMOs, new capital equipment and new facility construction were the areas slated for the largest budget increases (>11%).
CMOs predict that their mammalian cell culture capacity will grow by an impressive 77% over the next 5 years. That’s almost double the level of expansion they forecast last year. As a result, there’s less handwringing about future capacity constraints: the 1 in 5 expecting to face significant or severe constraints in 2020 is an encouraging result in light of the currently reporting bottleneck problems.
In sum, our data show clearly that as the outsourcing market grows, CMOs are reaching critical levels of capacity utilization, and capacity constraints. To offset those constraints, CMOs are investing in new facilities and new capital equipment, and foresee some of their problems abating in the next few years. As a result, we might expect that next year’s data shows a slight lessening of capacity bottlenecks from this year, though it remains to be seen how quickly those investments pay off in this way.
Trend No. 3: CMOs Looking to SUS, Downstream Advances for Performance Boost
Facility upgrades and new capital equipment aren’t the only ways to avoid future capacity crunches: Improving downstream processing efficiency is also a key element. With downstream purification often blamed for bottlenecks, CMOs are hoping for downstream advances, and single-use equipment is often the area they first examine.
In fact, the implementation and integration of single-use equipment ranks as the single biggest biomanufacturing trend for CMOs this year. These applications are being credited by many CMOs with performance gains. For example, we asked respondents which factors had created “significant” or “some” performance improvements at their facilities during the prior year, 86.4% of CMOs cited the use of disposable/single-use devices.
Meanwhile, improved downstream production operations contributed to performance improvements for roughly two-thirds of CMOs. Single-use systems have a hand to play in downstream production operation improvements, too. Separately, when we asked CMOs about various measures they had taken to improve downstream purification operations, three-quarters (versus just 42% of biotherapeutic developers) reported investigating single-use disposable downstream technologies.
With single-use devices appearing to be so beneficial to CMOs, it’s little wonder that these applications are high on CMOs’ list of desired technological advances. In terms of new product development, CMOs listed the following as their areas of greatest interest:
- Disposable purification products (citing as a top-3 interest);
- Chromatography products;
- Disposable probes, sensors; and
- Disposable bags and connectors.
Our study indicates that process development jobs are the most challenging for biomanufacturers to fill, and, correspondingly, that some companies are outsourcing these jobs not only to cut costs, but because in-house PD expertise is scarce. Nearly 40% of biomanufacturers are finding it difficult to fill positions in either up- or downstream process development. And the problem is most difficult among US respondents where nearly half of facilities are finding hiring a significant challenge.
As a result, process development outsourcing has become more popular over the past few years. This year, 43% of respondents reported outsourcing upstream process development activities to at least some degree, up from 17.1% in 2010. Further, the proportion of biomanufacturers who expect to outsource upstream and downstream process development activities at “significantly” higher levels in the near-term has been on the rise, reaching 17% of respondents for downstream and 12% for upstream process development. To be sure, these are still among the least-outsourced activities, both in breadth and depth. But the signs of growth are there.
In examining fill-finish services in more detail, we discovered that more outsourcing of these activities ranked as one of the top trends identified by respondents. Other CMO-related trends in fill-finish (anecdotally) include:
- CMOs introducing smaller filling machines for syringes or vials, specifically for Phase I and II clinical study supply;
- CMOs using traditional RABs systems over isolators due to the need for flexibility and the high costs associated with isolator lines; and
- Fill-Finish CMOs becoming larger, through mergers and acquisitions.
As CMOs compete to win new business across the above-mentioned (and other) areas, their physical location is ceasing to be a major selection factor. This year, just 1.5% of respondents indicated that a CMO being local to them was a “very important” issue to consider when considering outsourcing biomanufacturing. That was the lowest figure we’ve found to-date for a CMOs’ geographic proximity, and easily the lowest among the 19 criteria we measured. Anecdotally, clients may still prefer to outsource locally, but as CMOs improve their client management and customer service performance, being on-site is no longer a necessity.
Instead of location, CMOs are being evaluated increasingly on issues such as compliance with companies’ quality standards, their ability to establish good working relationships, IP protection and having enough capacity to meet sales demand. (No wonder they are investing in more capacity!)
Interestingly, as more companies consider off-shoring to be part of their future, US and European countries diverge when it comes to the international markets they consider appealing. For US companies, markets such as Singapore and China are among the top of the list as both potential outsourcing destinations and more positive “likely” destinations. But for Western European companies, the US and the UK appear to be hold the greatest appeal, with less consideration for emerging Asian markets.
Trend No. 6: Biosimilars, Other Advances Creating Opportunities
CMOs stand to benefit from the biosimilars pipeline as more than 40 blockbuster ($1 billion+) reference products see patent expirations over the next 5+ years. Competition will increase, as over 80 biosimilars (attempt to) hit the markets. While there are many large, marketing-capable biopharma companies intending to produce biosimilars, the majority are smaller R&D companies. CMOs will, of courses, be necessary for this latter group. CMOs capable of efficient production stand to benefit. Because U.S discounts are expected to reach at least 50%, with as many as 8 follow-ons per reference product, the competitive environment may be intense, and efficient manufacturing will be important.
Europe has more than 20 biosimilars on the market and its regulatory issues are mostly resolved; but there has been relatively little overall market impact so far, with discounts averaging less than 30%. In the US the first formal approval (Zarxio/filgrastim-sndz, Sandoz/Novartis) is out, and more filings are coming. The worldwide market is rapidly growing and we can expect $7-$10 billion in next 5 or more years of biosimilars and biobetters.
Biosimilars’ focus on efficiency will drive mainstream biologics innovation in efficiency and provide opportunities for savvy CMOs. Outsourcing biosimilars is a likely model (e.g., Baxalta’s Genmab sale). And even Big Pharma may outsource some of its ‘less critical’ biosimilar development and manufacturing. Biosimilars are a traditional fit for CMOs as they apply new technology to familiar products. CMOs have needed expertise, facilities, critical regulatory know-how and can develop, scale-up and manufacture better and quicker than most developers. They can potentially make biosimilar APIs cheaper than doing in-house development, with better products and documentation.
But biosimilars is a short term strategy, demanding more trials and more manufacturing. In the long-term it’s a zero-sum game, with essentially the same amount of drug product sold, in a given market. Further, smaller biosimilar developers will hit roadblocks with clinical trials and limited capacity. Biosimilars are creating disruptive US opportunities and will require a strong focus on efficiency that will also drive mainstream biologics innovation.
Looking Forward
These are just some of the trends affecting CMOs today, but they are broadly indicative of the direction that the outsourcing market is taking. Based on the results and trends identified in our study, we expect that the outsourcing market will continue to grow and benefit from increased budgets. More high-value operations such as process development, QbD and DoE are showing signs of increased outsourcing activity and are likely to be an ongoing trend.
Meanwhile, CMOs themselves will likely focus on process efficiencies and handle potential bottleneck problems. Disposable downstream applications—where available—ought to be in high demand among CMOs, who continue to demonstrate their affinity for single-use equipment. We should also expect CMOs to be on the forefront of other emerging industry trends, such as the manufacture of biosimilars and the move towards modular facilities.
Eric S. Langer
BioPlan Associates
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. elanger@bioplanassociates.com 301-921-5979. www.bioplanassociates.com
References
- 12th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, BioPlan Associates, Inc. Rockville, MD., April 2015. www.bioplanassociates.com/12th
