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The authors analyze the supply–demand trends for contract biologics manufacturing and the strategies of pharmaceutical and biotechnology companies and their suppliers in the value chain.
The market for contract-manufacturing services for biopharmaceuticals continues to expand, mirroring the growth of biopharmaceuticals. As in the recent past, biopharmaceutical products are expected to provide most of the future growth for the large pharmaceutical companies (1). In 2007, worldwide revenues for biopharmaceutical products are projected to exceed $65 billion, and the proportion of pharmaceutical revenues from biotechnology drugs is expected to surpass 10% of the total market (1). This increasing growth in biologics continues to stimulate the contract-manufacturing services industry.
A recent study by HighTech Business Decisions, Biopharmaceutical Contract Manufacturing 2007: Quality, Capacities and Emerging Technologies, analyzed the trends in the biopharmaceutical contract-manufacturing industry based on a worldwide survey of 41 biomanufacturing directors at pharmaceutical and biotechnology companies and 27 biopharmaceutical contract manufacturers (1).
Supply of contract-manufacturing capacity has fluctuated from shortages to oversupply during the past five years. Currently, the supply of outsourced-manufacturing capacity has overtaken demand. Most respondents in the study stated that supply is available. During the last five years, biopharmaceutical contract manufacturers and pharmaceutical companies have made major investments in biopharmaceutical production capacity to meet growing demand for biologics. In addition to increases in physical capacity, new technologies and improved process technologies have increased production efficiencies and further contributed to more available capacity.
Demand for biopharmaceutical outsourcing services
To meet the expected growth in demand, biopharmaceutical contract manufacturers have been aggressively installing capacity during the last several years and continue to plan for more new capacity. During 2004–2008, worldwide contract-manufacturing capacity for biopharmaceuticals is expected to grow by approximately 40% (1).
In macro terms, measuring capacity in tank liters under the two broad categories of microbial fermentation and mammalian cell culture, the study shows that biopharmaceutical contract manufacturers' installed capacity for microbial fermentation will reach 300,000 tank liters by 2008, an increase of 15% from two years ago. Biopharmaceutical contract manufacturers also plan additional follow-on capacity expansions throughout the next five years. (This estimate includes capacity for biopharmaceutical production only; microbial capacity that is used for microbially produced small molecules or products such as antibiotics is not included.)
The expansion plans of biopharmaceutical contract manufacturers for mammalian cell-culture capacity are even more aggressive. Worldwide outsourced mammalian cell-culture capacity is expected to reach 670,000 tank liters by 2008, a 21% increase from two years ago. As with microbial-fermentation capacity, the biopharmaceutical contract manufacturers plan follow-on capacity expansions during the next five years.
Biopharmaceutical contract-manufacturing expansions have kept up with demand. Most of the biomanufacturing directors at pharmaceutical and biotechnology companies that participated in the study stated that they had no problems finding capacity for their projects in 2006. As one biomanufacturing director noted: "For the last couple of years, it has been easy to find the capacity for microbial fermentation at all scales. This was not true four years ago."
Although capacity has been readily available in the recent past, capacity utilization rates are currently beginning to increase as demand catches up with earlier expansions. Biopharmaceutical contract manufacturers reported average capacity-utilization rates of 72–87% for microbial fermentation production capacity. Average capacity utilization rates for mammalian cell-culture production capacity vary from 65% to more than 90%. In both instances, capacity utilization rates are expected to increase during the next two years and then drop slightly as current and planned capacity expansions come on line. An interesting point from the study is that smaller biopharmaceutical contract manufacturers report higher utilization rates compared with larger biopharmaceutical contract manufacturers (1).
Spending on biopharmaceutical contract production, and therefore revenues earned by biopharmaceutical contractors, was estimated to be $2.1 billion worldwide in 2006. This global market estimate and forecast, shown in Figure 1, is based on outsourcing expenditures for the production of biopharmaceuticals, as reported in the survey by pharmaceutical and biotechnology companies, and on revenues recognized and capacity expansions by contract biomanufacturers, as reported in the survey. The growth in the biopharmaceutical contract-manufacturing market results from both higher levels of product production and expanded service offerings by biopharmaceutical contract manufacturers.
Figure 1. (HIGHTECH BUSINESS DECISIONS)
The demand for outsourcing services is dependent upon the outsourcing strategies of the pharmaceutical and biotechnology companies. The biomanufacturing directors participating in the study were asked to describe their overall biomanufacturing strategy from clinical to commercial production by asking them what they outsource and what are the drivers behind their strategic decisions. For the most part, biomanufacturing strategies are driven by the overall business strategy of the biotechnology companies. For companies that primarily outsource their bioproduction, the strategies followed are either to outsource all production or outsource production when good manufacturing practices (GMPs) are required. Biotechnology companies with GMP capacity in-house stated that they outsource on a case-by-case basis. Those respondents that do not outsource stated that their products were of a specialty or complexity that required technologies not easily transferred to an outside contractor.
Each company's outsourcing strategy and plan of execution is unique, so the outsourcing strategies shown in Figure 2 should be considered as a general overview. Details of the differences in strategies may be found in select comments from the biomanufacturing directors further described in this article.
Figure 2. (HIGHTECH BUSINESS DECISIONS)
Almost all biomanufacturing outsourced. The following are comments from pharmaceutical or biotechnology companies that outsourced almost all of their biomanufacturing:
Almost all biomanufacturing in-house. The following are comments from pharmaceutical or biotechnology companies that keep almost all of their biomanufacturing in-house:
Early clinical biomanufacturing done in-house and commercial outsourced. The other scenario for outsourcing involved keeping early-stage or clinical biomanufacturing in-house and outsourcing commercial production. Select comments from biomanufacturing directors using this strategy follow:
Outsourcing mixed: case-by-case decisions. Feedback from biomanufacturing directors also showed that the decision to outsource is made on a case-by-case basis as opposed to an overall strategic leaning toward outsourcing or keeping manufacturing in-house. Select comments are outlined below:
Demand for expanded outsourcing services
To understand what biopharmaceutical manufacturing directors believe are the most important services to outsource, the survey asked the directors to list the services that they plan to outsource within the next three years (see Table I). Many of the biopharmaceutical manufacturing directors would prefer to have their contract manufacturer offer a complete set of services, rather than dealing with several contractors for individual services. As might be expected, smaller biopharmaceutical companies with fewer employees and resources and less expertise are especially concerned about the burden of coordinating various service providers. In addition, some of the larger biopharmaceutical companies recognize that many of the biopharmaceutical contract manufacturers have areas of expertise that they do not have and are looking to contract manufacturers to provide.
Table I: Services planned to be outsourced during the next three years (1).
The majority of biopharmaceutical contract manufacturers are expanding their service offerings to meet demand for additional service offerings. Table II shows a list of expanded offerings by the biopharmaceutical contract manufacturers. This list includes some of the service offerings that were added during the past two years and those that biopharmaceutical contract manufacturers plan to add in the next two years.
Table II: Select new or planned service offerings of biopharmaceutical contract manufacturers (1) .
Disposables. One of the areas where the biomanufacturing directors and contract manufacturers expect to see a significant impact to their operations in the coming years is in the adoption of disposable technologies for the manufacture of biologics. Below are a few of the comments made by the biomanufacturing directors about the impact that the use of disposables on their operations and the improvements that they expect from the use of disposable technologies:
Further analysis of the use of disposable technologies in the manufacture of biologics, shows that over half the biomanufacturing directors in the survey are currently using disposable reactor technology and almost one-third of the biomanufacturing directors are planning to adopt this technology in the near future. Most of the biomanufacturing directors state that their companies primarily use disposable technology for small-scale and preclinical production. While a majority of the biomanufacturing directors in the study use disposable technology, very few of the biomanufacturing directors require their contract manufacturer to use disposable technologies in the production of their biologic products.
The decision to manufacture using disposable technologies or stainless steel by the contract manufacturer is driven more by production volume, phase of production, or the specifics of the project. The advantages of disposable technologies most often stated by the biomanufacturing directors are easier validation, avoidance of cleaning processes, and flexibility. The biomanufacturing directors' concerns with the adoption of disposable technologies for the production of their biologic products include issues involving scalability, profitability, and compatibility with certain production technologies. Overall though, the biomanufacturing directors are optimistic about the use of disposable technologies for their production processes. Below are select comments by the biomanufacturing directors about the advantages in using disposable technologies in the production of biologics:
Process-development is one of the key services biopharmaceutical manufacturing directors seek from biopharmaceutical contract manufacturers with the emphasis on improving yields and productivity. In the survey, a plurality of biopharmaceutical manufacturing directors states that they outsource process development. The rest of the biopharmaceutical manufacturing directors either keep process development in-house or outsource on a case-by-case basis.
Almost all process development outsourced. Below are select comments from biopharmaceutical manufacturing directors about their decisions to outsource process development:
Almost all process development done in-house. Another strategy is to keep process development work in-house. Feedback from manufacturing directors using this approach is below:
Biopharmaceutical contract manufacturers
In the final analysis, the biopharmaceutical contract manufacturers were asked about their observations concerning the contract-manufacturing business model. The key observations are shown in Table III. Most of the biopharmaceutical contract manufacturers observe that the fee-for-service business model for contract manufacturing, with its large up-front investments coupled with high fixed operating costs, require high capacity-utilization rates to make the business model financially attractive.
Table III: Select business models of contract manufacturers (1).
To mitigate financial and commercial variation inherent in the contract-manufacturing business model, most biopharmaceutical contract manufacturers are expanding their service offerings and are providing more value-added services. Other strategies of biopharmaceutical contract manufacturers include stronger relationships with their biopharmaceutical customers, a better balance of capacity with demand, and the mixed use of in-house and outsourced biopharmaceutical manufacturing capacity.
The increased development of biologic-based drugs will fuel growth in the biopharmaceutical contract manufacturing market. The manufacturing strategies of many pharmaceutical and biotechnology companies involve using outside contractors to manufacture their products. As the market matures and seeks increased efficiencies and lower costs, pharmaceutical and biotechnology companies are looking for biopharmaceutical contract manufacturers to provide additional services.
In turn, biopharmaceutical contract manufacturers see the expansion of their service offerings as a strategy to make the contract manufacturing business model more sustainable while providing needed services to their customers.
William Downey* is president, and Lynne Sopchak, PhD, is a science market analyst at HighTech Business Decisions, 3159 Almaden Expressway, Suite 223, San Jose, CA, tel. 408.978.1035, fax: 408.978.8753, email@example.com.
*To whom all correspondence should be addressed.
1. "Biopharmaceutical Contract Manufacturing 2007: Quality, Capacities and Emerging Technologies," HighTech Business Decisions (San Jose, CA, 2007).