CPhI North America took place recently from August 10-12 after a lengthy pandemic affected hiatus. The event returned to the Philadelphia Convention Center at a particularly apt moment with U.S.-based manufactures reporting record deals, growth and perhaps the industry’s most promising ever long-term prospects. Ahead of North America’s largest pharma supply chain event, CPhI released a new report exploring both the immediate and long-term opportunities in the U.S.

This article provides a shortened summary of the main findings of the recent CPhI USA Report, reviewing the contributions from six leading CPhI experts—providing an essential guide to near-term priorities, medium-term capacity constraints and longer-term shifts underway in the U.S. pharma market supply chain.

CPhI’s expert contributors to this article include:

• Aurelio Arias, engagement manager, thought leadership, IQVIA
• Bikash Chatterjee, CEO, Pharmatech Associates
• Doug Hausner, senior manager, continuous manufacturing, Thermo Fisher Scientific
• Nielsen Hobbs, executive editor, policy and regulation, Informa Pharma Intelligence
• Peter Shapiro, senior director of drugs and business fundamentals, GlobalData
• Valdas Jurkauskas, VP technical operations, Black Diamond Therapeutics

Background
Key positives from the last year include the remarkable adaptability of private sector companies, increased global collaborations and the ability of governments to implement policies to meet pressing, real-time public health challenges. However, attention has also been drawn to issues within pharma, especially the U.S., that have been bubbling under the surface for some years. For example, how and where drugs are manufactured and how secure supply chains are in a time of crisis. During the last year there has been a wave of protectionist policies from several countries around the world and not least the previous administration in the White House. Yet, it is expected that with the Biden administration’s recent election, such concerns will still likely continue to guide policy to an appreciable extent.

Looked at holistically, the overall implication is that we are now entering something of a ‘golden era’ for U.S. pharma and manufacturing. These supply side trends have combined with an inflection point for new technologies and continuous manufacturing. Alongside this, biologics and cell and gene manufacturing are potentially entering a hugely profitable period, but one where greater capacity will be needed. In fact, with these new approaches now proliferating, our experts believe the U.S. is extremely well placed for surging growth as it continues to act as the global center of pharma innovation.

Acquisition environment
Understandably, with record levels of capital coming into the industry—from public sources for activities related to the pandemic and private sources including the usual venture capitalists, but also, many new market entrants—the merger and acquisition (M&A) environment for the best facilities in the U.S. is particularly hot. U.S.-based contract service providers with specialized capabilities continue to attract the greatest interest and highest prices.

By way of background, Mr. Shapiro’s research showed that of CDMO acquisitions, “25% of U.S. deals targeted biologics capabilities, however, 36% targeted specialized capabilities such as companies/facilities with containment or solubility enhancement.”

The excitement in the cell and gene therapy sector is best highlighted by Catalent’s $1.2 billion (2019) purchase of Paragon Biosciences, and Thermo Fischer Scientific Inc’s $1.7 billion (2019) acquisition of Brammer Bio. In fact, the GlobalData research shows a huge disparity in terms of manufacturing acquisitions, with the U.S. (55) seeing nearly the same number of acquisitions as the combined totals for India (22), China (19) and the UK (17).

Adding to opportunities for U.S. manufacturers, capital ($10 Bn) from Operation Warp Speed¹ was designated to increase development and manufacturing capacity within the U.S. This investment is likely to provide a good deal of stimulus to advanced therapy medicinal products (ATMPs) and the approval of the two mRNA vaccines has validated an entirely new approach to vaccine delivery.

“We expect to see the approval of mRNA-based cancer therapies in the next few years,” said Shapiro. “Furthermore, these mRNA therapies will be able to use the same manufacturing equipment as mRNA vaccines now that the industry has shelled out the high CapEx cost for this equipment, and trained more staff in sophisticated pharma manufacturing.”

Advances in manufacturing processes
CPhI’s experts predict that the U.S. is going to play a key role in the development of advanced manufacturing technologies improving the technology base in general and potentially lowering costs. While the U.S. cannot compete on labor costs alone, it has the scope to bring new efficiencies to advanced biologics manufacturing. Another area of U.S. leadership is continuous processing. Thanks in part to the guidance and flexibility provided by the FDA, this technology can reduce development timelines while also potentially lowering costs. In fact, U.S.-based CDMOs are helping bring continuous processes to market more quickly, building trust and providing guidance to biotech partners less familiar with the regulatory process.

Similarly, in the biologics space, the industry is continually looking for new innovations in upstream and downstream processing, with organizations like NIMBLE pushing continuous bioprocessing. This is potentially an even bigger breakthrough than in the small molecule space as production costs are significantly higher and any innovation that lowers this will potentially make US manufacturers more competitive domestically and internationally.

Another benefit for the production of innovative drugs in the U.S. is that many of these products require entirely new manufacturing processes. This is giving incentives to manufacturers and CDMOs to explore purpose-built facilities to meet the needs of these new drugs negating the cost-advantages of many overseas legacy sites. Additionally, advances in artificial intelligence (AI) and drug target development technologies are also opening up the potential for some discovery and early-stage development work to be undertaken in the U.S. These technologies potentially mean companies can review hundreds of targets simultaneously and come with the obvious advantages of closer collaboration between innovators and development teams. Therefore, what we’ll likely see over the next few years is the increase in biotechs using U.S. partners for computational processes to explore target options, chemistries and biologies—as opposed to the recent modus operandi of outsourcing chemistry services to Asia.

Innovation hubs
Unquestionably, the source of the U.S. pre-eminence in the pharma industry stems from its giant centers of innovation. These centers, coupled with centrally organized incubators, have helped knowledge dissemination and provide tremendous opportunities for new biotech start-ups. In fact, the country has been incredibly successful in rejuvenating and adding new hubs of pharmaceutical innovation. In addition to the traditional big four—San Diego, Philadelphia, San Francisco and Boston—globally significant hubs can be found in Texas, Los Angeles and Chicago as well as Washington and New York.² In fact, Philadelphia, which is the host city for CPhI North America, is home to innovators like Spark Therapeutics, who developed the first FDA-approved gene therapy for a genetic disease, LUXTURNA, and is well poised to become the globe’s leading cell and gene therapy manufacturing hub, with demand outstripping supply by 5 to 1.³

Most significantly, the pandemic has also seen an acceleration towards collaborative approaches and open innovation. Mr. Shapiro has suggested that people are collaborating in ways previously unimaginable in pharma and it’s bringing new money and new ideas. “In the future, we are going to see a combination of academia, incentivized by government spending, and private industry incentivized by contracts and production,” he said.

Shapiro also speculates that although it’s difficult to see what is behind private deal making—we can only confirm dual-sourcing arrangements once products go commercial—there is likely to be increasing alignment between larger CDMOs and pharma companies for development services.

“Over the next few years, it’s going to be a really positive environment in the U.S. with specialized skillsets, whether it’s for advanced dose technologies, advanced biologics technologies or cell and gene platforms,” said Mr. Shapiro. “That is where you really want to be, and we are seeing a large number of acquisitions in the U.S. confirming this trend.”

Conclusion
Looked at holistically, the U.S. pharma sector, and manufacturing supply chain and associated services are perhaps the biggest beneficiaries of macro changes accelerated by the pandemic. This recent trend reverses the drift away from U.S. pharma manufacturing and domestic contract services observed over the last two decades.

Looking deeper into the market, we see not only rising relative growth, but growth for high value manufacturing areas, such as high potent and complex APIs, biologicals and cell and gene therapies. For example, while small molecule CDMOs make up the bulk of the market, relative growth rates in advanced manufacturing will be significantly higher.

Globally, for example, Results Healthcare predicts that absolute growth across biologics, biosimilars and cell and gene technologies will amount to $133 billion between 2019 and 2023.⁴ Most significantly, this prediction pre-dates the pandemic, which has added billions of dollars-worth of contracts for fill-finish vaccines, adjuvants and, of course, viral vectors; adding further capacity pressure to an overstretched sector. Collectively, this means that U.S.
manufacturing sites for APIs, biologicals and, most pressingly, cell and gene therapy facilities will demand premiums—over 20 times EBITA in some cases. However, what we will also see, particularly with the convergence of recent manufacturing technologies and private equity capital, is a ‘buy’, ‘build’ and ‘add’ strategy across the North American region. Therefore, any available pre-existing facilities will be competed for fiercely.

Undoubtedly, both CDMO and innovators will look to expand capacity significantly, whether it’s now or in two to three years’ time. In fact, such are the potential constraints, particularly across biologics manufacturing that we will increasingly see a change in approach from biotech innovators, with capital raised earlier to build clinical and commercial manufacturing sites. Consequentially, this potentially means an increasing advantage for the largest CDMOs, who have the greatest access to capital. It allows them to stretch their capacity advantages—either through acquisition or construction—delivering even greater market penetration and the fastest overall growth rates. So, in the next few years, we would expect to see a growing market dominance from the top 30 CDMOs (by revenue), with the top 10 advancing fastest.

Another significant factor in the future growth of the U.S. market is the relatively small penetration of biosimilars within the country, which are anticipated to grow at a remarkable 35% over the next three years. In the short term—while capacity catches up with demand in the U.S.—European CDMOs and Asian giants like WuXi Biologics and Samsung Biologics, will likely continue to see high growth of exports to the U.S. Additionally, not only will access to manufacturing capacity continue to be a highly competitive space, but so will access to qualified pharma personnel. The industry is therefore expected to see a high growth in salaries for R&D scientists, as well as for manufacturing personnel both in-house and at outsourcing partners.

For large pharma, this increasingly competitive manufacturing landscape could mean that we will see not only the well documented strategic partnerships, but also, the pre-booking of reserve capacity in advance of any needs. From a contractual point of view, this means deeper supply chain partnerships for suppliers, as well as the ability to demand longer contracts and more favorable terms.

Another potential shift in the market is the drive for increased stability and resilience. We may see greater vertical integration by companies in the U.S., but also, regional sourcing strategies for starting materials and ingredients; particularly, for essential medicines or in response to governmental pressure and/or incentives for certain aspects of the supply chain. Chemistry and biology R&D and associated biotech support will also see rapid growth as new technologies and advances in targeting offset the previous cost advantages of partnering internationally. But in the short- and medium-term, as the engine of innovation, the U.S. market will still provide enormous contract opportunities for chemistry, analytical and early-stage discovery CRO services for competitive international companies.

For overseas multi-nationals focused on innovative drug manufacturing, particularly those without facilities in the country, the U.S. market still represents the largest opportunity for growth, but also a critical inflection point in strategy. Do they continue to rely on lower costs and operational advantages from existing overseas facilities trusting that any macro changes will be short lived and that there’s enough growth for all? Or, is the optimal approach to rapidly build or buy facilities, despite the current high valuations, so that they can ensure a regional supply chain for their U.S. customers that deem this a priority?

Overall, perhaps more than at any point in the last 20 years, the U.S. represents the single biggest economic opportunity for both domestic and international pharma companies to consolidate and grow. In fact, with the return of international travel and trade events, it is anticipated that over the next 12-18 months, the industry will see a ‘supercharged’ period for partnering, strategic alignment and contract agreements. The companies that establish supply and partnering networks earliest will undoubtedly see the best medium-term prospects, as well as capturing the majority of the growth from the expected post covid boom. 

References

1. Using the resources of the federal government and the U.S. private sector, Operation Warp Speed (OWS) will accelerate the testing, supply, development, and distribution of safe and effective vaccines, therapeutics, and diagnostics to counter COVID-19 by January 2021: https://www.defense.gov/Explore/ Spotlight/Coronavirus/Operation-Warp-Speed/
2. https://www.genengnews.com/a-lists/top-10-u-s- biopharma-clusters-8/
3. https://biobuzz.io/why-philadelphia-is-poised-to- become-a-top-cell-and-gene-therapy-cluster
4. Results Healthcare Outsourced Pharmaceutical Manufacturing 2020: Current Trends & Future Prospects: https://resultshealthcare.com/ wp-content/uploads/2019/11/Outsourced- Pharmaceutical-Manufacturing-2020-White-Paper_ Results-Healthcare.pdf