Biopharmaceutical contract manufacturing has been on the upswing for several years now, with client budgets growing and contract manufacturing organizations (CMOs) anecdotally reporting increased business. Part of the reason for this movement has been a more strategic approach to outsourcing that has gone beyond basic cost calculations and benefited from CMOs’ leading-edge approach to innovation.

Even so, 2016 has presented some new headwinds for outsourcing. Client budgets appear to be softening in favor of in-house strategies for some operations. The push toward more international outsourcing also seems to have stagnated to some degree. Below, we review some of the key outsourcing-related themes to emerge from our latest industry study, BioPlan Associates’ 13th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production.¹

Is the budget boom over?
In recent years, our study has demonstrated that outsourcing budgets have rebounded strongly. After small spending decreases in 2009, 2010 and 2012, respondents planned to increase their spending on outsourced biopharmaceutical manufacturing by 1.7% in 2013, 3.8% in 2014 and 3.7% in 2015.

That enthusiasm appears to have come back down to earth. This year, respondents to our study forecast a modest 2.4% increase for outsourced biopharmaceutical manufacturing.
While it’s true that these increases are compound from one year to the next—so presumably we won’t consistently see higher growth rates—this year’s more modest increase has taken place alongside a different trend: a jump in spending on in-house manufacturing.

This year, biopharmaceutical manufacturers signaled that they would increase their spending on in-house manufacturing by 4.9%, about double the growth rate set for outsourced manufacturing.

What this means is a potential return to the budget trends we saw from 2009 through 2013, when in-house manufacturing spending was growing at a faster rate than outsourced manufacturing spending. That trend reversed itself to the benefit of CMOs in 2014 and 2015, but it may be that those days were short-lived.
The slowdown in budget growth comes at a time when respondents are reporting slightly lower levels of outsourcing than they did last year. Specifically:

• For mammalian cell culture, 41% are keeping all of their manufacturing in-house this year, up from 35% doing so last year;
• For microbial fermentation, close to half (45%) are not outsourcing any production, up from 39% last year; and
• For yeast, plant and insect cells, while outsourcing is not common, it has become less so this year.

Outsourcing budgets may be directed more towards R&D than manufacturing. Separately in our report we asked respondents to indicate how their spending on outsourcing will change over the coming 12 months for R&D, and for manufacturing. The estimated 14% increase came in above the 13% increases from the past couple of years, as well as the 10% projected increase from 2013.

This potential trend could be the result of biosimilars bringing in new outsourcing players and new entrants based in Asia and other developing countries increasingly entering biopharmaceutical R&D. As biopharmaceuticals capture a larger share of the entire pharmaceutical drug pipeline—and with these biopharmaceuticals originating from more diverse sources—there may be greater occasion to outsource R&D activities to CMOs. Moreover, collaborations between large biopharmaceutical companies and local companies around the world often involve outsourcing of R&D and licensing of manufacturing rights. The use of CMOs can make product manufacturing—particularly for R&D—more efficient and often less costly. While globalization plans have taken a bit of a hit this year, we can expect more use of developing country-based CROs and CMOs, primarily to support pre-commercial R&D.

Another possible explanation for the slowdown in outsourced manufacturing budget growth this year is that companies are beginning to look more again at outsourcing specifically as a cost-cutting mechanism, wanting to squeeze more out of their existing budgets.

To that end, we note that 18% of respondents this year offshored manufacturing specifically in order to cut costs, with that figure almost double the share from 2012 (9.4%) and more than triple the share from 2011 (5.7%). Likewise, around 1 in 6 (16.7%) outsourced manufacturing to domestic service providers to cut costs, more than double the proportion from 2011 (7.1%). If outsourcing is going to be seen primarily as a way to cut costs, it’s unlikely that budgets will have the same buoyancy seen in recent years.

CMOs’ innovation focus continues
A key benefit provided by CMOs that has enabled them to move past simple cost considerations is their leading edge adoption of new technologies, particularly in areas such as single use applications. Whereas biotherapeutic developers are often tied to existing expensive platform processes, CMOs are expected to be more agile, as they have to work with several different client projects at the same time. This agility necessitates less reliance on established processes, which in turn allows CMOs to adopt newer technologies at a faster rate than biotherapeutic developers.

This pattern continues to be seen this year in our research. In terms of disposables, for example, we have found that CMOs are outpacing biotherapeutic developers in 15 of the 16 applications we tested for adoption. Perfusion devices are the only ones adopted by slightly more biotherapeutic developers than CMOs. Some of the biggest differences in adoption relate to:

• Tangential flow filtration devices, used by 93% of CMOs and 68% of developers; and
• Membrane adsorbers, used by two-thirds of CMOs as opposed to 4 in 10 developers.

Single-use applications’ appeal to CMOs is also evidenced when looking at their new product development areas of interest. Disposable purification products emerge as the leading area in which they want suppliers to focus their development efforts, while for biotherapeutic developers, continuous downstream bioprocessing is the top area of interest.

Not surprisingly, these top areas of interest relate to downstream purification. Our study indicates that CMOs are also embracing several new downstream purification technologies at a greater rate than biotherapeutic developers—although the tilt isn’t quite as heavy compared with single-use systems, many novel downstream applications are still in early commercialization stages. Some of the downstream technologies being considered by CMOs to a larger degree than biotherapeutic developers this year include the use of high-capacity resins, in-line buffer dilution systems, single-use disposable TFF membranes, disposable UF systems and the use of filters instead of resin chromatography.

Demand for additional testing services an area of opportunity
The majority of the outsourcing activities that we tested for current usage have remained relatively flat from last year, according to our report. This is true for heavily-outsourced activities such as fill-finish operations—74% outsourcing to at least some degree this year, compared to 73% last year—and those lower on the adoption scale, such as upstream process development—42% this year, compared to 43% last year.

So it’s interesting to see that the biggest year-over-year swings in adoption have been observed for testing services. There have been increases in adoption of roughly five percentage points or more for analytical testing of bioassays, toxicity testing, cell line stability testing, and host cell protein analysis testing. The last of these—host cell protein analysis testing—saw the biggest shift from last year, with 56% reporting outsourcing this activity to some degree, up from 42%.

To be fair, some other more routine testing services haven’t seen the same increases: the percentages outsourcing lot release testing, for example, is relatively stable from last year.

Globalization push stagnates
While we noted earlier that new entrants in Asian and other emerging economies could have an impact on outsourcing spending on R&D as opposed to manufacturing, our study at the same time finds that offshoring plans have muted somewhat from recent years.

Although more biopharmaceutical manufacturers this year report having offshored manufacturing specifically in order to cut costs, offshoring projections for the future have tempered relative to a couple of years ago.

Specifically, this year about one-third (35%) of biomanufacturers say they expect to offshore at least some process development activities in the next 5 years. This is well below the levels seen in 2011, 2012 and 2014, which ranged between 43% and 46% of respondents.

Likewise, the 43% of respondents expecting to outsource biomanufacturing operations in the coming 5 years is unchanged from last year and down from 47% in 2014. And the 57% predicting that they’ll offshore at least some clinical trials/operations by 2021 is squarely in the 56%-58% range from the 3 prior years.

When we averaged the data among all respondents, we found that the average percentage of operations to be offshored in the next 5 years is either trending down or flat from prior years:

• Process development for biomanufacturing: 3.9% of all operations to be offshored, down from 4.4% last year and a high of 8.8% in 2012;
• Clinical trials/operations: 10.2% to be offshored, in line with the previous 2 years and down from a high of 12.2% in 2011; and
• Biomanufacturing operations: 9.4% to be offshored, down from 11.3% in 2014 and 11.9% in 2011.

Looking forward
Results from this year’s study are interesting in that they present a deviation from some established trends we’ve observed in recent years. Namely, that budgets aren’t going to keep expanding indefinitely and that globalization might be a little bit bumpier than we might have previously envisioned. Still, we continue to see consistency in CMOs’ willingness to trial and adopt new technologies, most commonly in single-use systems and downstream processing.

With the advent of biosimilars, we could expect that next year our study will show a renewed focus on globalization. Spending on outsourced manufacturing will also likely increase again, though perhaps not to the same degree seen in prior years. Stay tuned to see how these developments play out. 

References

1. 13th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, BioPlan Associates, Inc. Rockville, MD., April 2016

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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