The biopharmaceutical contract manufacturing market continues its upward trajectory as pharmaceutical and biotechnology companies increase their spending for outsourced services. This growth results from the expanded use of biopharmaceuticals, new biopharmaceutical approvals and new biopharmaceutical development programs. This article reviews the biopharmaceutical contract manufacturing market, capacity utilization and additions, outsourcing decision factors, and selected industry trends.

The information presented in this article draws from HighTech Business Decisions’ latest report, “Biopharmaceutical Contract Manufacturing 2020: New Demand and Expanded Services.”¹ This report is based on primary research from senior-level executives and scientists at pharmaceutical and biotechnology companies plus executives at contract manufacturing organizations. For purposes of our article, HighTech Business Decisions defines biopharmaceuticals as complex molecules expressed through the genetically manipulated living cells or organisms used for therapeutics or vaccines.

Market growth
The biopharmaceutical contract manufacturing market will reach $6.3 billion in 2020. The market will continue to grow as pharmaceutical and biotechnology companies increase their spending for outsourced services. The expected increase in outsourced spending is consistent with the biopharmaceutical contract manufacturing organizations’ expectations. The biopharmaceutical contract manufacturing organizations (CMOs) expect double-digit market growth over the next three years, with smaller CMOs expecting higher growth rates compared to larger CMOs. The CMOs gave several reasons for their optimistic outlook. These reasons include an increase in small, well-funded virtual biotechnology companies, higher demand for production services supporting cell and gene therapies, and higher growth in Asia. The market to support cell and gene therapies is expected to grow at twice the overall industry growth rate. Over the next few years, monoclonal antibodies (mAbs) will account for half the molecules entering the clinical pipeline, including standard mAbs and multi-specific mAbs. Molecules related to cell and gene therapies, including viral vectors, will account for 23% of the molecules entering the clinical pipeline. All CMOs offer production, development and ancillary services. Overall, production accounts for 80% of the market. Development and ancillary services (e.g., testing, cell banking, and regulatory support) account for roughly 20% of the market. The mix between production and all other services has remained steady over the past several years.
Below are selected comments from CMOs regarding the demand for biopharmaceutical contract manufacturing:

• “The demand in the industry for microbial fermentation and mammalian cell culture outsourced services has seen both increases in the last year: demand is up, but is due only to existing clients who are growing business.”  —CMO Respondent
• “For mammalian cell culture outsourced services, industry demand has increased by approximately 10% in the last 12 months.”  —CMO Respondent
• “Within the past 12 months, speaking only of mammalian cell culture outsourced services, the industry has seen an increase in demand for capacity from an increasing number of small virtual companies.”  —CMO Respondent
• “I’m not aware of specific numbers for microbial, but mammalian is growing more than microbial. Capacity needs for mammalian has gone up 20-30% in the last year.”  —CMO Respondent
• “[Demand] has changed, there are more microbial projects. Microbial is increasing for nucleic acid projects but for recombinant proteins too. Recombinant proteins were all mammalian, now they are going back to microbial.”  —CMO Respondent
• “In the brave new world of gene therapy, I think we’ll see the two starting to meet. Anything you plan to do with e.g., AAV or Lentivirus will require several batches of microbial fermentation to get GMP plasmids. That is currently eating a significant amount of microbial fermentation capacity. In the past, people were trying to be more efficient and switch into prokaryotic systems products that had been made in eukaryotic systems. But now, the main driver for microbial growth is plasmids for gene therapy applications.”  —CMO Respondent

Capacity utilization rates
In 2020, the industry capacity utilization rate is 76%. In a reverse from earlier trends, industry capacity utilization is slightly lower this year (see Figure A). While this is a decrease from prior years, it is higher than the historical average, and slightly higher than the normal manufacturing capacity utilization rate of 75%.

Although this year’s capacity utilization is lower, capacity utilization varies between individual CMOs and production processes. This results in a bimodal distribution of CMO capacity utilization rates (see Figure B). From our study, 44% of the responses report capacity utilization at 80% or higher, while slightly more than one-third of the responses report capacity utilization below 50%. Capacity utilization among the CMOs varies depending on CMO size and process technology. As a group, capacity utilization is higher for the larger CMOs and lower for the smaller CMOs. The lower capacity utilization reported by the smaller CMOs is consistent with their expectations of higher than average growth over the next three years. In addition, capacity utilization is higher for mammalian cell culture processes compared to microbial fermentation processes.

Over the past three years, many CMOs have added capacity either by constructing new facilities or acquiring biomanufacturing facilities from pharmaceutical and biotechnology companies. Additionally, CMOs are also adding capacity at smaller scales through their investment in single-use bioreactors. Single-use bioreactor capacity is now widely accepted, and single-use bioreactors appear to be the preferred production mode for biopharmaceuticals that target smaller patient populations.

New capacity additions
Over the next three years, total capacity will increase 60% as CMOs invest to meet future demand. Most of this new capacity supports mammalian cell culture production. Given these expansion plans, capacity utilization will remain in the low 70% range throughout the forecast period. On top of adding production capacity, the CMOs are also investing in other services to meet future client needs. The CMOs are planning major investments in cell and gene therapy production capacity, analytic capabilities, new research centers, and productivity and quality enhancements. The productivity and quality enhancements include continuous manufacturing, perfusion systems, and tangential flow filtration and membrane technologies.

Decision factors to outsource
Collectively, the decisions made by the pharmaceutical and biotechnology companies to outsource production directly affect the biopharmaceutical contract manufacturing market. This analysis divides the CMOs’ customers between a) companies with no in-house biomanufacturing (“virtual companies”) and b) companies with in-house biomanufacturing. For virtual companies, the decision to outsource all production is generally part of its overall corporate strategy. Most virtual companies lack the resources or product offerings to justify owning a manufacturing facility. On the other hand, the companies with biomanufacturing sites or who have the resources to build in-house capacity have adopted various manufacturing strategies depending on their specific situation or strategy. These customers evaluate several factors when deciding to outsource production. From our discussions with the biomanufacturing director respondents, their companies consider the following factors in their outsourcing decisions: capacity, timeline, cost, capability, product strategy and supply chain security (see Figure C).

The majority of respondents consider capacity a key factor in their decision to outsource production. Many of these respondents outsource production to access more capacity when production requirements exceed in-house capacity. Many times, the factors in the outsourcing decision process are interrelated. For example, the customer may lack certain manufacturing capabilities (e.g., cGMP production), and will outsource production to access the CMOs capacity and capability. Furthermore, the decision to outsource for the purpose of accessing more capacity often results from a cost analysis. The cost analysis balances in-house capacity against production requirements to determine the most efficient resource use. Related to capacity availability are expected project timelines that will influence the outsourcing decision. Timelines have multiple aspects depending on the specific situation faced by the biotechnology company. If the biotechnology company’s in-house capacity is fully utilized, then CMOs may be able to ramp up production faster than the time required to install additional capacity. On the other hand, a few respondents noted that it is faster to make product in-house than to outsource production to a CMO.

Below are selected comments from pharmaceutical and biotechnology companies regarding the top three factors they consider when deciding to outsource:

• “We are a virtual company.  With our limited funds, it is more efficient to outsource than build our own facility. It helps that there is more CMO capacity available near us now than there has been in the past.  I don’t expect we would build in the future.  We are more likely to out-license our molecule.”  —Pharma/Biotech Respondent
• “The top three factors that we consider when deciding whether to outsource or produce in-house are flexibility in our manufacturing, cost and timeline of the project.”  —Pharma/Biotech Respondent
• “Capacity as in available slots, timeline, and volume as in how much final volume produced in kilograms per unit are the top three factors we consider when deciding whether to outsource or manufacture in-house.”  —Pharma/Biotech Respondent
• “We outsource to augment our current capacity.  It is less expensive for us to manufacture in-house, but expansion requires a long-term commitment and outsourcing to a CMO provides a stopgap until we are confident a product will be successful.”  —Pharma/Biotech Respondent
• “We outsource for capabilities we don’t have in-house.  Cost could be a factor; we want to make high quality protein, so it may be cheaper to outsource once we have a commercial product.  If we needed extra capacity we might outsource until we can build it in-house.”  —Pharma/Biotech Respondent
• “We’re developing new drugs, so the first consideration is IP.  The second is experience.  Speed to clinic is a consideration in whether to outsource and that depends on the CMO having the necessary experience.  Many CMOs don’t have industrial experience and know-how for commercial.  The third is cost.”  —Pharma/Biotech Respondent
• “Capacity, technical capabilities we don’t have internally (e.g., certain analytical testing technology), dual supply.  For late-stage products, another driver is strategic location to manufacture for certain markets and have a more easily managed supply chain.”  —Pharma/Biotech Respondent

Cell and gene therapy outsourcing
As mentioned previously, serving the cell and gene therapy market is a growth opportunity for CMOs. It is expected that cell and gene therapies will be a significant portion of the biopharmaceuticals entering the clinical pipeline in the near future. Along with these opportunities, cell and gene therapy production presents several challenges for CMOs. First, the production of cell and gene therapies differs from protein therapeutics. Manufacturing needs to be highly flexible to accommodate the small patient populations. The manufacturing processes require technology innovation and operational streamlining. Also, the industry currently lacks the capacity to support all the innovator companies entering this space. In addition, the respondents noted the need for improvements in cell technology such as increased cell viability, reproducibility, and stable cell lines. Other manufacturing hurdles are a) unclear regulations, b) scalability, and c) lack of manufacturing platform technology.

Besides production issues, the complexity of supply chain logistics and distribution with a short turnaround time present a critical business challenge to the CMOs. Furthermore, there is the high cost of manufacturing cell and gene therapies because the cost is not optimized due to its small scale. Finally, because the field is relatively new with diverse technologies, it is a challenge to recruit capable personnel with expertise and build training.

As with any new technology, there are plenty of exciting opportunities. The respondents expect innovations along with the application of existing technologies (e.g., automation, closed systems and disposable technologies) will help reduce manufacturing costs. In addition, the respondents believe that scale improvement through cell suspension process will increase batch size and reduce production costs. Furthermore, the development of off-the-shelf product (i.e., allogenic cell bank for multi patients) will help commoditize the process. Finally, because cell and gene therapy activities are currently fragmented and only a few CMOs have cell and gene therapy capabilities, there exists growth opportunities for CMOs. This is especially true for those CMOs able to provide full integrated services.

Overall industry trends
The biomanufacturing directors at pharmaceutical and biotechnology companies discussed biopharmaceutical contract manufacturing industry trends. Most respondents expect continuing industry growth. Some of the reasons for their assessment are a) the increase in the biopharmaceutical pipeline, b) the growth in cell and gene therapies, and c) the increase in small biotechnology companies with no in-house manufacturing.

Another reason for continuing industry growth is the use of CMOs by large pharmaceutical and biotechnology companies to meet variable demand and gain access to other capabilities. Other trends mentioned by the respondents include continuing industry consolidation. They also expect new CMOs to enter the market, and they expect CMOs to become more specialized. This specialization means CMOs may focus on certain product phase, customer size or technologies. Finally, the respondents noted the need for flexible manufacturing as more therapeutics are developed that target smaller patient populations. They anticipate CMOs will adopt new process technologies to help solve some of the challenges of managing multiple products requiring rapid changeovers to support faster timelines.

Closing
Both the supply and demand for biopharmaceutical contract manufacturing services have grown over the past three years. In response to the higher demand, the CMOs have added new capacity, and they will continue to invest in new capacity and new capabilities to support their customers’ growth plans. From our analysis, we expect the market will reach $6.3 billion in 2020, and it will continue to grow at robust rates over the next five years. 

References

1. http://www.hightechdecisions.com/reports.html

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William Downey is the president of HighTech Business Decisions, a market research and consulting company that has been publishing reports on the biopharmaceutical contract manufacturing market since 1997. For more information, visit www.hightechdecisions.com or call (408) 978-1035.