Vicky Qing Xia, BioPlan Associates07.15.19
In China, there are near daily trade news reports about the explosive growth in the pharmaceutical outsourcing industry, both for contract research organizations (CROs) and contract development and manufacturing organizations (CDMOs). The booming biopharma industry in China has created business opportunities for CRO/CDMO companies, which is why these suppliers have become hot targets for investors. In our recent addition of “Advances in Biopharmaceutical Technology in China, 2nd ed.,” we note this increased influx of growth for CDMOs in China, and their continued future development.1
Much of this interest in outsourcing to China has also been identified in our “16th Annual Report and Survey of Biopharmaceutical Manufacturing.”2a We asked global respondents to consider their five-year time horizon (up to 2024) and evaluate their facility’s plans for future international (not domestic) outsourcing. We identified two dozen countries as potential outsourcing destinations. Among all respondents, the U.S. ranked highest again as a potential outsourcing destination, with 41.1% indicating there was a likelihood or strong likelihood that they would outsource production to facilities there—up from 30.1% in 2018. Surprisingly, this year, China moved up to the number 2 spot, with 29%—up from 21.4% in 2018 and just 16.2% in 2017 (see Figure 1).
Figure 1: Destination for International Outsourcing of BioManufacturing (All Respondents), next five years, 2024 (Source: 16th Annual Report and Survey of Biopharmaceutical Manufacturing, BioPlan Associates, Inc. April 2019)
The fact that China is now being perceived globally as an outsourcing destination may have more to do with expectations that, in order to sell biologics into the rapidly growing Chinese market, U.S. and European producers may need to consider outsourced bioproduction to a Chinese partner or CMO.
New outsourcing growth and investments
The expansion of China’s CMO segment is continuing. For example:
The growth of the global biopharmaceutical outsourcing service market has been quite impressive in recent years. We predict the global biopharmaceutical outsourcing service market will grow at an annual of over 12%, which is faster than the growth of the industry as a whole, as more outsourcing is done.
China’s growth rate is even faster, nearing 20% according to our study. The establishment of GMP compatible R&D and manufacturing facilities requires huge investment in terms of time and capital. Some pharmaceutical companies use R&D service-outsourcing to help reduce costs, enhance efficiency, and improve flexibility. This is needed to focus R&D on priority drugs. For some emerging markets (e.g., China and Singapore), local CMOs not only can make up for the shortage of the big pharmaceutical companies’ resources but can also establish new production chains. Local preferential policies and support can also facilitate the approval process and marketing in local markets. Small biotechnology companies, which usually cannot afford to build the necessary manufacturing facilities with limited resources, would have to rely on outsourcing of manufacturing to CMOs, who have mature supply chains and the capacity for production of therapeutics.
In the past decade, China’s biopharmaceutical service market shows exceptionally strong growth potential though its history is relatively short. While ten years ago it was hard to find one competent biopharmaceutical service company in China that could meet the basic requirements for a Western client, now China is home to many excellent Chinese biopharmaceutical service companies including WuXi Biologics, MabPlex, CMab and JHL Biotech, Inc.
From 2012 to 2016, China’s biopharmaceutical service market grew rapidly at an annual growth rate of nearly 30%, with the market’s size growing from approximately $105 million in 2012 to $315 million in 2016. It is expected to reach over $1 billion in 2021.1
Driving force behind China’s rapid growth in outsourcing
There are several driving forces behind the robust growth of the outsourcing service sector. The most important being the booming biopharma industry in China. China is one of the most rapidly growing biopharmaceutical markets. As the most populous country in the world, it is home to the largest patient group in the world, and with a growing economy with GDP second only to the U.S., urbanization and greater access to national healthcare insurance have all contributed to double digit growth of the biopharma industry over the years.
Regulatory reforms are also brining growth opportunities to the outsourced service industry. With both global and domestic demands on the rise, Chinese regulatory authority has made strategic moves to boost the outsourcing sector. In 2016, China started a pilot program named Market Authorization Holder (MAH) program, under which Holders of a CFDA biologics approval number are required to market the therapeutic product and take the responsibility for them, while having the option to either manufacture the drug products on their own or use contract manufacturers instead. The MAH breakthrough first starts a pilot run in 10 provinces and municipalities which is then expected to be applied to the whole country afterwards.
In 2017 the China FDA made statements on further implementation of the reform, so it is widely expected that MAH will become applicable to the whole country in the near future and the regulatory hurdles for contract manufacturing of drugs in China finally removed. There is a total of 381 applications of MAH, and Shanghai alone has 16 applicants of MAH for 24 drug projects with 18 contract manufacturing partners.6
According to Boehringer Ingelheim’s contract manufacturing base in Shanghai, which is the first multinational biologics CMO in China and the company which has lobbied for the MAH reforms, even before it officially started operation in 2017, demands for services had been booked well into 2019.
Mr. Li Zhiliang, chief executive officer of Autek Bio, stated in the 2nd edition of Advances in China’s Biopharma that China has over 50% idle capacity in biomanufacturing while this percentage is below 30% in US/EU. He expected the implementation of MAH to significantly decrease idle capacity, leading to a cost reduction and increased productivity.1 Another strategic move, which gives green light to Phase I clinical trial for MNC Pharma, is also widely expected to bring growth opportunities for clinical trial CROs in China.
Another factor is the coming of age of biosimilar therapeutics, especially that of mAb therapeutics in China. While it is a global phenomenon that the prosperity of the biosimilar market is likely to advance the business of CMOs as developers tend to outsource the relevant R&D services to a greater extent due to a lower profit margin compared with that of innovative drugs, many of the venture capital (VC) backed Chinese biopharma companies have to use CMOs as they are too cash-strapped to build their own facilities. A country which launched its first made-in-China mAb therapeutics only in 2005, China is experiencing a spike in mAb drug development in recent years.
BioPlan’s Advances in Biopharmaceutical Technology in China study shows that over 250 mAb therapeutics are under clinical development in China, with CD20, HER2, EGFR, VEGF, TNF-alpha as the hottest targets (see Figure 2).1 This wave of mAb therapeutics development was initiated only around a decade ago, with the majority of developers starting their mAb development within the past 5 years or so. Regulatory authorities in China have just started approving this wave of mAb projects, as the last 7 months has witnessed three PD-1 mAb therapeutics made by domestic companies been approved, but the peak has certainly not arrived yet. New investments are still coming into this sector, and new companies are being founded in the past few years with a focus on mAb therapeutics.
Figure 2: Hottest Target for mAb Drugs Under Development in China.
BioPlan’s internal studies have shown industry consensus that in the next 5 years China will see double digit mAb therapeutics from domestic companies getting BLAs. In the next 5 years, demands for new capacity in bio-processing as well as R&D will certainly be higher than it is today. As a result, some CMOs are actively increasing their capacity to meet market demand. WuXi Biologics plans to have more than 220,000L manufacturing capacity by 2021,3 and BI Shanghai has also increased its capacity of contract biologics manufacturing by 2,000L in the spring of 2019.6
Local government support is also contributing to the growth of the outsourcing sector for biopharma industry. There have been multiple cases of municipal government providing cheap lease of land or other forms of subsidiary for CMO companies. For example, in November 2018, with local government support and subsidies, Wuxi Biologics started construction on a Biologics Manufacturing Center of excellence in Shijiazhuang, Hebei Province. The new Biologics Center with 48,000L bioreactor capacity, one of the largest global facilities using disposable bioreactors, will be built to meet cGMP standards of the U.S., the EU, and China.2
What will happen next?
Though China’s pharma outsourcing sector keeps attracting new investments, analysts expect that the current leaders will continue to dominate. Wuxi Biologics just started operation of a new facility, which is the largest mammalian cell culture manufacturing facility, as well as the largest biologics manufacturing facility in China.3 3S Guojian, which successfully launched the first made-in-China mAb therapeutics in China, also uses its idle capacity for contract manufacturing and has good reputation in the industry.
Since 2016, there are new CMOs starting their operations, and it is expected that with biopharmaceutical companies building new product lines now, many would like to conduct contract manufacturing using their idle capacity. Market demand may also cool over the next decade as many bio-similar drugs may not be as profitable as investors expect, leading to fierce competition along with mergers and acquisitions in the field.
We also expect that the quality standards for manufacturing will rise in China as the leading CMOs put forth great efforts to ensure GMP world-class manufacturing operations; they recognize that one failure may ruin the industry’s reputation. With the improvement and progress in contract bio-processing, some are projecting that contract manufacturing may help transform China’s biopharma industry, enabling outsourcing manufacturing to become a mainstream solution that allows biopharma companies to concentrate on innovation in drug development.
How far will it go?
While regulatory reforms bring good news to China’s biopharma outsourcing industry, a majority of domestic biopharma developers, aside from smaller startups, remain cautious about outsourcing all of their manufacturing.
BioPlan’s surveys of China’s biopharma companies have shown that over 90% already have or are still building their own facilities. For example, BeiGene, a company already using a CMO as its manufacturing partner, is also building a bio-manufacturing facility in Guangzhou. Major concerns regarding outsourcing, however, remain, and include quality issues/loss of control, lack of reliable contract manufacturing companies, no commercial insurance for risk sharing, as well as little experience in manufacturing partnership management and auditing.
Industry insiders also have concerns over how to clearly define the MAH holder, and one’s manufacturing partner’s responsibility in legal contracts. Some have suggested that a certification system might be necessary for contract manufacturing organizations. As far as providing service for multi-national pharma companies, concerns about cGMP compliance remains the biggest issue. These issues, are, however, being sorted out. For example, Wuxi Biologics received EMA GMP certificates for the production of Trogarzo at its cGMP drug substance (DS) and drug product (DP) manufacturing facilities in Wuxi city and its cGMP cell banking facilities in Shanghai on March 2019. This is a milestone for China’s service providers and a good sign as domestic CMOs struggle to win commercial manufacturing projects from Western pharmaceutical clients.
References
1. Advances in Biopharmaceutical Technology in China, Soc. Ind. Microbiology, and BioPlan Associates, Inc. 2018
2a. 16th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity, BioPlan Associates, Inc. April 2019
2. MabPlex Company Website.
3. Wuxi Biologics Website
4. “Just Biotherapeutics, Inc. Secures $14M Series A2 Funding to Build Laboratory, Pilot Plant and GMP Capabilities”. Business Wire, July 25, 2016
5. Du, Chewei. Liberation Daily, Oct 10, 2017.
6. Boehringer-Ingelheim Shanghai Website.
Vicky Qing Xia
BioPlan Associates
Vicky Qing Xia, Project Director, BioPlan Associates has her MS in biology from University of Texas-Houston, MBA from University of Pittsburgh. She has experience in consulting, business development, as well as alliance management in China’s bio-pharmaceutical industry. Her expertise includes developing research and analysis on multiple global market segments, and has managed a team of industry experts and projects.
Much of this interest in outsourcing to China has also been identified in our “16th Annual Report and Survey of Biopharmaceutical Manufacturing.”2a We asked global respondents to consider their five-year time horizon (up to 2024) and evaluate their facility’s plans for future international (not domestic) outsourcing. We identified two dozen countries as potential outsourcing destinations. Among all respondents, the U.S. ranked highest again as a potential outsourcing destination, with 41.1% indicating there was a likelihood or strong likelihood that they would outsource production to facilities there—up from 30.1% in 2018. Surprisingly, this year, China moved up to the number 2 spot, with 29%—up from 21.4% in 2018 and just 16.2% in 2017 (see Figure 1).
Figure 1: Destination for International Outsourcing of BioManufacturing (All Respondents), next five years, 2024 (Source: 16th Annual Report and Survey of Biopharmaceutical Manufacturing, BioPlan Associates, Inc. April 2019)
The fact that China is now being perceived globally as an outsourcing destination may have more to do with expectations that, in order to sell biologics into the rapidly growing Chinese market, U.S. and European producers may need to consider outsourced bioproduction to a Chinese partner or CMO.
New outsourcing growth and investments
The expansion of China’s CMO segment is continuing. For example:
- MabPlex recently announced the opening of its newest subsidiary in Zhangjiang, Shanghai, to serve outsourcing needs for process development in Zhangjiang, a hub of dozens of biotech companies in China.2
- WuXi Biologics, a leading global biologics technology platform company offering solutions for biologics discovery, development and manufacturing, announced in May 2019 the construction of a new 1.3 million square foot integrated manufacturing center for innovative biologics in Chengdu, one of the largest cities in Southwest China.3
- In July, 2016, Just Biotherapeutics, Inc., a CMO, announced the closing of a $14M Series A2 financing round. The Bill & Melinda Gates Foundation led the financing with an $8M investment followed by $2M each from existing investors such as Merck, Lilly Asia Ventures and ARCH Venture Partners. The proceeds will support the completion of new lab space, pilot plant and GMP capabilities that will enable Just Bio to accelerate the development of biologics with reduced costs.4
- Wuxi Biologics raised HK$32 billion ($4.1 billion USD) in 2017 via an IPO through the Hong Kong Market. Some analysts say this is a growth period for China’s Pharma outsourcing industry.3
The growth of the global biopharmaceutical outsourcing service market has been quite impressive in recent years. We predict the global biopharmaceutical outsourcing service market will grow at an annual of over 12%, which is faster than the growth of the industry as a whole, as more outsourcing is done.
China’s growth rate is even faster, nearing 20% according to our study. The establishment of GMP compatible R&D and manufacturing facilities requires huge investment in terms of time and capital. Some pharmaceutical companies use R&D service-outsourcing to help reduce costs, enhance efficiency, and improve flexibility. This is needed to focus R&D on priority drugs. For some emerging markets (e.g., China and Singapore), local CMOs not only can make up for the shortage of the big pharmaceutical companies’ resources but can also establish new production chains. Local preferential policies and support can also facilitate the approval process and marketing in local markets. Small biotechnology companies, which usually cannot afford to build the necessary manufacturing facilities with limited resources, would have to rely on outsourcing of manufacturing to CMOs, who have mature supply chains and the capacity for production of therapeutics.
In the past decade, China’s biopharmaceutical service market shows exceptionally strong growth potential though its history is relatively short. While ten years ago it was hard to find one competent biopharmaceutical service company in China that could meet the basic requirements for a Western client, now China is home to many excellent Chinese biopharmaceutical service companies including WuXi Biologics, MabPlex, CMab and JHL Biotech, Inc.
From 2012 to 2016, China’s biopharmaceutical service market grew rapidly at an annual growth rate of nearly 30%, with the market’s size growing from approximately $105 million in 2012 to $315 million in 2016. It is expected to reach over $1 billion in 2021.1
Driving force behind China’s rapid growth in outsourcing
There are several driving forces behind the robust growth of the outsourcing service sector. The most important being the booming biopharma industry in China. China is one of the most rapidly growing biopharmaceutical markets. As the most populous country in the world, it is home to the largest patient group in the world, and with a growing economy with GDP second only to the U.S., urbanization and greater access to national healthcare insurance have all contributed to double digit growth of the biopharma industry over the years.
Regulatory reforms are also brining growth opportunities to the outsourced service industry. With both global and domestic demands on the rise, Chinese regulatory authority has made strategic moves to boost the outsourcing sector. In 2016, China started a pilot program named Market Authorization Holder (MAH) program, under which Holders of a CFDA biologics approval number are required to market the therapeutic product and take the responsibility for them, while having the option to either manufacture the drug products on their own or use contract manufacturers instead. The MAH breakthrough first starts a pilot run in 10 provinces and municipalities which is then expected to be applied to the whole country afterwards.
In 2017 the China FDA made statements on further implementation of the reform, so it is widely expected that MAH will become applicable to the whole country in the near future and the regulatory hurdles for contract manufacturing of drugs in China finally removed. There is a total of 381 applications of MAH, and Shanghai alone has 16 applicants of MAH for 24 drug projects with 18 contract manufacturing partners.6
According to Boehringer Ingelheim’s contract manufacturing base in Shanghai, which is the first multinational biologics CMO in China and the company which has lobbied for the MAH reforms, even before it officially started operation in 2017, demands for services had been booked well into 2019.
Mr. Li Zhiliang, chief executive officer of Autek Bio, stated in the 2nd edition of Advances in China’s Biopharma that China has over 50% idle capacity in biomanufacturing while this percentage is below 30% in US/EU. He expected the implementation of MAH to significantly decrease idle capacity, leading to a cost reduction and increased productivity.1 Another strategic move, which gives green light to Phase I clinical trial for MNC Pharma, is also widely expected to bring growth opportunities for clinical trial CROs in China.
Another factor is the coming of age of biosimilar therapeutics, especially that of mAb therapeutics in China. While it is a global phenomenon that the prosperity of the biosimilar market is likely to advance the business of CMOs as developers tend to outsource the relevant R&D services to a greater extent due to a lower profit margin compared with that of innovative drugs, many of the venture capital (VC) backed Chinese biopharma companies have to use CMOs as they are too cash-strapped to build their own facilities. A country which launched its first made-in-China mAb therapeutics only in 2005, China is experiencing a spike in mAb drug development in recent years.
BioPlan’s Advances in Biopharmaceutical Technology in China study shows that over 250 mAb therapeutics are under clinical development in China, with CD20, HER2, EGFR, VEGF, TNF-alpha as the hottest targets (see Figure 2).1 This wave of mAb therapeutics development was initiated only around a decade ago, with the majority of developers starting their mAb development within the past 5 years or so. Regulatory authorities in China have just started approving this wave of mAb projects, as the last 7 months has witnessed three PD-1 mAb therapeutics made by domestic companies been approved, but the peak has certainly not arrived yet. New investments are still coming into this sector, and new companies are being founded in the past few years with a focus on mAb therapeutics.
Figure 2: Hottest Target for mAb Drugs Under Development in China.
BioPlan’s internal studies have shown industry consensus that in the next 5 years China will see double digit mAb therapeutics from domestic companies getting BLAs. In the next 5 years, demands for new capacity in bio-processing as well as R&D will certainly be higher than it is today. As a result, some CMOs are actively increasing their capacity to meet market demand. WuXi Biologics plans to have more than 220,000L manufacturing capacity by 2021,3 and BI Shanghai has also increased its capacity of contract biologics manufacturing by 2,000L in the spring of 2019.6
Local government support is also contributing to the growth of the outsourcing sector for biopharma industry. There have been multiple cases of municipal government providing cheap lease of land or other forms of subsidiary for CMO companies. For example, in November 2018, with local government support and subsidies, Wuxi Biologics started construction on a Biologics Manufacturing Center of excellence in Shijiazhuang, Hebei Province. The new Biologics Center with 48,000L bioreactor capacity, one of the largest global facilities using disposable bioreactors, will be built to meet cGMP standards of the U.S., the EU, and China.2
What will happen next?
Though China’s pharma outsourcing sector keeps attracting new investments, analysts expect that the current leaders will continue to dominate. Wuxi Biologics just started operation of a new facility, which is the largest mammalian cell culture manufacturing facility, as well as the largest biologics manufacturing facility in China.3 3S Guojian, which successfully launched the first made-in-China mAb therapeutics in China, also uses its idle capacity for contract manufacturing and has good reputation in the industry.
Since 2016, there are new CMOs starting their operations, and it is expected that with biopharmaceutical companies building new product lines now, many would like to conduct contract manufacturing using their idle capacity. Market demand may also cool over the next decade as many bio-similar drugs may not be as profitable as investors expect, leading to fierce competition along with mergers and acquisitions in the field.
We also expect that the quality standards for manufacturing will rise in China as the leading CMOs put forth great efforts to ensure GMP world-class manufacturing operations; they recognize that one failure may ruin the industry’s reputation. With the improvement and progress in contract bio-processing, some are projecting that contract manufacturing may help transform China’s biopharma industry, enabling outsourcing manufacturing to become a mainstream solution that allows biopharma companies to concentrate on innovation in drug development.
How far will it go?
While regulatory reforms bring good news to China’s biopharma outsourcing industry, a majority of domestic biopharma developers, aside from smaller startups, remain cautious about outsourcing all of their manufacturing.
BioPlan’s surveys of China’s biopharma companies have shown that over 90% already have or are still building their own facilities. For example, BeiGene, a company already using a CMO as its manufacturing partner, is also building a bio-manufacturing facility in Guangzhou. Major concerns regarding outsourcing, however, remain, and include quality issues/loss of control, lack of reliable contract manufacturing companies, no commercial insurance for risk sharing, as well as little experience in manufacturing partnership management and auditing.
Industry insiders also have concerns over how to clearly define the MAH holder, and one’s manufacturing partner’s responsibility in legal contracts. Some have suggested that a certification system might be necessary for contract manufacturing organizations. As far as providing service for multi-national pharma companies, concerns about cGMP compliance remains the biggest issue. These issues, are, however, being sorted out. For example, Wuxi Biologics received EMA GMP certificates for the production of Trogarzo at its cGMP drug substance (DS) and drug product (DP) manufacturing facilities in Wuxi city and its cGMP cell banking facilities in Shanghai on March 2019. This is a milestone for China’s service providers and a good sign as domestic CMOs struggle to win commercial manufacturing projects from Western pharmaceutical clients.
References
1. Advances in Biopharmaceutical Technology in China, Soc. Ind. Microbiology, and BioPlan Associates, Inc. 2018
2a. 16th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity, BioPlan Associates, Inc. April 2019
2. MabPlex Company Website.
3. Wuxi Biologics Website
4. “Just Biotherapeutics, Inc. Secures $14M Series A2 Funding to Build Laboratory, Pilot Plant and GMP Capabilities”. Business Wire, July 25, 2016
5. Du, Chewei. Liberation Daily, Oct 10, 2017.
6. Boehringer-Ingelheim Shanghai Website.
Vicky Qing Xia
BioPlan Associates
Vicky Qing Xia, Project Director, BioPlan Associates has her MS in biology from University of Texas-Houston, MBA from University of Pittsburgh. She has experience in consulting, business development, as well as alliance management in China’s bio-pharmaceutical industry. Her expertise includes developing research and analysis on multiple global market segments, and has managed a team of industry experts and projects.
