Cindy Liu and William Downey04.05.10
State of the Bio-CMO Market
A rebound year ahead?
By Cindy Liu and William Downey
The recent decline in the financial markets and economic contraction has adversely impacted the biopharmaceutical contract manufacturing market. In 2009, the worldwide market for biopharmaceutical contract manufacturing was $2.6 billion, a decline from the previous year. The lower demand for outsourced services mirrored the contractions in the world economy and financial markets; however, the long-term outlook for the market remains positive. The combination of new biologics progressing through the product pipeline and pharmaceutical and biotechnology companies outsourcing their production needs, continues to yield projections that the biopharma-CMO market will grow at a compounded annual growth rate of 15% to 20%.
Photo courtesy of Coldstream Laboratories |
The information for this article draws from recent interviews with 14 biopharmaceutical contract manufacturers (CMOs) and from HighTech Business Decisions’ latest report, Biopharmaceutical Contract Manufacturing: Expanding Markets, New Capacities and Improved Performance. This report is based on extensive interviews with 48 directors of biomanufacturing at pharmaceutical and biotechnology companies worldwide about their companies’ manufacturing strategies, product pipelines and contract manufacturing budgets. This report also includes interviews with 29 executives from CMOs about their companies’ plans for future production capacity and services to meet the needs of their clients.
Environmental Scan & Trends
Global R&D spending by the world’s top 500 pharmaceutical and biotechnology companies was flat in 2009 at $123.9 billion, and is expected to grow approximately 4% in 2010.1 The financial meltdown and the tough economic environment have no doubt caused a lot of biotechnology companies to reduce their demand for CMO services. According to Dr. David Kauffmann, chairman of the board at CMC Biologics A/S, “Big Pharma is reducing the number of compounds being developed, and they are pruning their portfolio of products. Small biotechnology firms are delaying or cutting projects to conserve cash until they have a better outlook on their available cash situation.”
The lack of venture capital funding in small and medium biotechnology companies has resulted in project cancellations and delayed commitments. Dr. Joanne McCudden, director marketing and sales at SynCo Bio Partners B.V. noted, “Small and medium biotech companies are finding it more difficult to raise money and that obviously impacts the product development progress they can make. It seems that fewer products are being moved into process development and clinical trials phases this year.”
Jeremy Caudill, vice president marketing & sales at DSM Biologics, remarked, “Many companies had to stretch their cash to survive the capital crisis which has exerted downward pricing pressure.” While the weaker dollar aids U.S.-based CMOs, it presents a challenge to European-based CMOs. Mr. Caudill noted, “The current unfavorable exchange rate between the Euro and U.S. dollar makes a European offering less competitive and unable to extract a decent profit margin.”
M&A Impact Assessment
While the economic environment may be difficult, it presents strategic business opportunities for large pharmaceutical companies. The biotechnology and pharmaceutical industry has seen an increase in mergers and acquisitions, with large pharmaceutical companies acquiring smaller biotechnology companies and CMOs. In general, CMOs expect more outsourcing and new business opportunities as a result of the M&A activities.
Daniel E. Leone, vice president, business development at Laureate Pharma, explained, “Once the shake-out is completed, there is a stronger company with a targeted therapeutic focus and specific products to bring to market.” He further noted, “The pharmaceutical and biotechnology companies review their internal strengths, core competencies and operational strategies, [and] we see a trend for such companies to consider outsourcing as a way of leveraging their post M&A resources.”
Richard Hetrick, business development director at Therapure Biopharma, Inc. echoes similar sentiments and says he has seen a significant number of independent consultants operating in the development and regulatory area to help the biotech companies navigate manufacturing and drug development outsourcing activities.
Increasing M&A activities are good for larger CMOs with deep pockets and global facilities. However, the acquisition of small and medium-sized biotech companies reduces the size of the target market for small CMOs. As Bansi Bhan, chief financial officer and interim chief executive officer at Goodwin Biotechnology, Inc. pointed out, “Acquisition of smaller biotechs by large pharmaceutical companies shrinks the customer base for smaller CMOs because large pharma have their own internal GMP manufacturing facility, and if they opt to outsource, they prefer to work with large CMOs that have commercial capability.”
A number of CMOs have been acquired by large pharmaceutical companies that will become in-house manufacturers. Many CMOs see this trend as positive development where there is more growth opportunity for remaining CMOs. Dr. Friedrich Nachtmann, head biotech cooperations at Sandoz GmbH, commented, “The acquisition of CMOs by big pharmaceutical companies helps to consolidate the highly fragmented CMO market to give new growth opportunity for established CMOs.”
According to DSM’s Mr. Caudill, “We are now seeing acquisitions by larger pharma of smaller CMO facilities. In the near term, this will reduce CMO capacity and hopefully push up the pricing of services and available third-party capacity.”
While having fewer CMOs in the market presents opportunities for growth, “This may also result in increased competition amongst the remaining [stronger] market participants,” said Tracey Pughe, director of commercial services at RecipharmCobra Biologics.
Growth Expectations
Figure A: Expected revenue growth in 2010 Source: HighTech Business Decisions |
The 14 CMO executives interviewed for this article are fairly optimistic about the future growth prospects and expect their revenue to recover in 2010 from the decline in 2009. Growth rate forecast varies by CMO firm size, with smaller CMOs expecting higher year-over-year revenue growth, compared with larger, more established CMOs. According to Julius Li, chief executive officer at Autekbio, Inc., in China where there are fewer major CMOs and the economic events have had limited impact, the revenue growth rate is expected to be 30% to 50%.
The distribution of revenue growth rate is shown in Figure A. Excluding the smaller CMOs and focusing on more established CMOs, revenue is expected to grow on average 16% in 2010, with similar growth rate expected in 2011.
Trends Influencing Changes
CMOs’ operations and business models have evolved and changed in response to external events. Some of the recent trends that have influenced the changes include the need to improve efficiency to increase competitiveness, pressure from financial constraints, increased use of disposable technologies, and FDA changes. Table 1 shows a summary of trends.
Responding to the current lower demand resulting from economic environment and immediate effect of mergers and acquisitions, CMOs are increasing efficiency, reducing cost, and offering value-added services to stay competitive. Michael Banks, head of sales & business development biological manufacturing at Lonza, commented, “Lonza has implemented a number of projects to increase flexibility, improve throughput, streamline our operations, reduce fixed costs, and strengthen our product and project pipelines.”
Table 1: Top trends influencing changes in contract manufacturing operations | |
Trends Leading to Changes | All Mentions |
Efforts to improve efficiency, including achieving higher yields and a trend toward smaller bioreactors | 11 |
Pressure from financial constraints, leading to cost conscious changes, large companies are outsourcing more and increased alliances with clients | 11 |
Disposables | 9 |
FDA changes, validation required earlier in the process, cGMP standards earlier | 6 |
Accommodating the client | 6 |
Increased demand for specific service | 5 |
Biosimilars | 4 |
Need for improved downstream processing | 4 |
Balancing the needs of internal and contracted projects | 2 |
Early stage screening growing | 1 |
Competition from Asia | 1 |
Source: HighTech Business Decisions |
Focusing on key growth areas is another approach CMOs are taking in response to the events. “The response to these events has been to reassess business plans and to focus on key growth areas such as mammalian and viral products, and to seek out manufacturing technologies such as single-use systems which have lower capital requirements, lower overhead and reduced time scales for return on investment,” said Ms. Pughe of RecipharmCobra Biologics.
Although the full impact of biosimilars is yet to be determined, there appears to be increased interest in biosimilars. Hiroko Tsukamoto, director of marketing at ASPEX, a division of Asahi Glass Co, Ltd., noted that biosimilar/follow-on biologics will expand compared to pervious years, remarking, “In Japan, the guideline for biosimilars was issued last March [2009], so some companies have started the projects.”
Another trend observed in the biopharmaceutical market is the development of niche products / personalized medicine leading to a highly fragmented market with smaller volume products. Dr. Barbara Esch, global marketing and business development industrial customer business at Boehringer Ingelheim GmbH, said, “The result is that in the future, many new mAb projects will likely account for a small portion of the new business sales.” She also noted that Boehringer Ingelheim’s response to these market trends is “an increased flexibility in development and manufacturing services for microbial and cell culture projects.”
Technologies and Services To Attract Customers
In the current economic environment, being a one-stop shop is increasingly important for CMOs to attract customers, as noted by Lisa Cozza, executive director manufacturing alliances at Human Genome Sciences, Inc., who said, “We offer all services related getting a clone to market.”
Sandoz offers a complete package from process development, scale-up, clinical and commercial manufacturing at one site. In addition, Sandoz has different scales in cGMP manufacturing, FDA approved facilities and products, and a track record in microbial and mammalian technology.
Laureate Pharma is another CMO with broad capabilities that can manage many services under one roof, from cell lines to vialed products of recombinant proteins ranging from antibodies and fusion proteins to enzymes and interleukins. Mr. Leone explained, “Our utilization of single-use bioreactors and stainless bioreactors in a variety of scales and formats, a fully disposable product-contact line in our filling operation, along with the ability to work with the full range of expression systems, bring a broad scope of process capabilities to meet our customers’ needs.”
Manufacturing technologies provide competitive edge and differentiation in attracting customers. According to Mr. Caudill at DSM, “The key factors to winning new business are differentiation via modern manufacturing technologies, e.g. disposables, cell line and process technology in combination with 20 years of experience.” He noted that the XD® process, which generates five- to 10-fold higher yields, “is an example of a clear differentiator for DSM Biologics’ service offering.”
CMC has state-of-the-art facilities in EU and U.S. and has a strong technology platform with its CHEF1® cell line expression system. Dr. Kauffmann explained, “The CHEF1® cell line expression system allows CMC to offer quicker development cycle times with available production cell lines in 12-14 weeks. CMC offers our customers very strong upstream and downstream platforms as well as excellent analytical and formulation capabilities which is important for the development and manufacturing of complex biopharmaceutical products.”
Extensive analytical and protein formulation capabilities offer an added competitive advantage as in the case of KBI Biopharma, Inc., according to Joseph T. McMahon, the company’s president and chief executive officer. “By applying our extensive biophysical characterization capabilities as an initial component of process and formulation development, we are able to gain fast insight into the structure and conformation of the protein,” Mr. McMahon explained. “This provides the understanding required for KBI to develop a robust, scalable process and optimized formulation to meet our clients’ process development and manufacturing objectives.”
Besides process innovation and strengthening manufacturing capabilities, Lonza also focuses on creative business models such as pipeline agreements, cutting-edge technologies such as Epibase™, AggreSolve™, microreactors, highly potent APIs, and antibody drug conjugates.
Flexibility and the ability to shorten lead times are also critical in attracting new business in a competitive environment. According to Dr. Esch, Boehringer Ingelheim has “increased flexibility in development and manufacturing services for microbial and cell culture projects, for example, flexible scales for market supply and disposable bioreactors for process development.” Dr. Esch also noted, “smart and fast process transfers shorten lead times by tech transfer directly from the customer into Boehringer Ingelheim’s commercial manufacturing facility.”
Quality assurance and compliance with multiple regulatory bodies offers yet another differentiation as in the case of Asahi Glass Co. According to Ms. Tsukamoto, AGC has a full set of quality systems to meet international regulatory requirements. “Our Yokohama plant was inspected by the PMDA (Japanese authorities) and has also been inspected and passed by foreign authority for GMP compliance,” she said. “In addition, our new plant in Chiba (fermentation up to 3000L) received the license for manufacturing drug from MHLW.”
New Projects, Collaborations and Funding
Despite the current tough economic environment, many of the biopharmaceutical contract manufacturers have announced new projects or collaborations with their pharmaceutical and biotechnology clients or received new funding. Below are selected projects and funding recently announced by some of the CMOs.
In November 2009, Cobra Biomanufacturing announced that the cGMP production of Scancell’s SCIB1 DNA-based cancer vaccine has been successfully completed ahead of the planned clinical trials that are expected to commence on schedule in 1H10.
In January 2010, Laureate Pharma and Iconic Therapeutics, a company focused on the development of treatments for wet adult macular degeneration (wet AMD) and other ophthalmic diseases, announced the completion of the manufacture of the first GMP lot of hI-con1™ recombinant Fc-Factor VII fusion protein.
In February 2010, Boehringer Ingelheim GmbH and Biomay, a new player in the field of contract manufacturing of GMP biopharmaceuticals at small scale, announced their collaboration in providing contract manufacturing services for GMP-grade plasmid DNA. The collaboration includes a transfer of Boehringer Ingelheim’s plasmid DNA manufacturing technology to Biomay facilities. Both partners will also coordinate the marketing activities of their complementary plasmid DNA services.
In February 2010, Therapure and LFB Biomedicaments entered a toll manufacturing agreement under which Therapure will manufacture key plasma proteins to support an expansion by LFB into global plasma derived medicinal markets. Therapure will be responsible for the manufacture of two major plasma proteins and LFB will remain respon-sible for global regulatory approvals and marketing of these products.
In February 2010, Goodwin Biotechnology and Macrocyclics, a manufacturer of customized chelating agents, launched a collaborative agreement on chelation and bioconjugation. The collaboration will strengthen joint customer projects in Nuclear Medicine involving chelation, bioconjugation and GMP manufacturing.
In February 2010, SynCo Bio Partners announced that it had signed two commercial manufacturing agreements with an undisclosed U.S. biopharmaceutical company. SynCo will provide both process validation and GMP commercial manufacturing services to support the launch of two separate biopharmaceutical products onto the U.S. market.
In February 2010, Lonza and Ehrfeld Mikrotechnik BTS (EMB), a Bayer Technology Services company, signed a worldwide manufacturing and distribution license agreement along with a cooperation and development agreement on the Lonza microreactor technology. Lonza microreactors are the most advanced reactor technology for numerous chemical syntheses based on micro-structured devices.
In March 2010, AutekBio, Inc., SUMA Ventures and Beijing E-Town Harvest International Capital Management Corp., a venture capital group from Beijing Municipal Government, announced a joint investment of more than $100 million to develop a new CMO for China’s biopharma industry.
Last year was a difficult one for many CMOs as the general economy and financial markets contracted. Despite these recent setbacks, CMO executives remain optimistic about the future of their companies and the industry as a whole. Recent M&A activity will lead to stronger firms and a better balance between CMO industry supply and demand. There continues to be strong interest in the use of contract manufacturers, and most CMO executives see growth rates returning to the double-digits.
Reference
1 EvaluatePharma® (6 April 2009)