The Evolving Biopharma Contract-Manufacturing Market

Once biopharma companies optimize operations in order to free up hidden capacity, they have four options: build, acquire, partner or face the realities of outsourcing

By Andrea Gennari, Martin Loesch, Alberto Santagostino and Ralf Otto, McKinsey & Co.

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Biopharma companies have depended on contract manufacturing organizations (CMOs) to provide capacity and capabilities as needed; in some cases, CMOs have provided a great deal of a company’s production. Yet the current market structure presents biopharmacos with a shortage of CMO capacity to produce biopharmaceuticals, especially in mammalian cell culture technology and new modalities, even as demand for outsourcing increases. As companies face today’s evolving industry economics, they should first optimize their operations in order to free up hidden capacity. Once this is done, they have four remaining options: build, acquire, partner or face the realities of outsourcing.

The large molecules that constitute biopharmaceuticals differ from small molecules not only in their size, but also in their behavior, their manufacture and the way they work in the human body. Manufacturing these molecules is significantly more complex than producing traditional pharmaceuticals.1 In fact, biopharma is a true high-tech industry, with complex processes that relatively few players have entirely mastered.

Perhaps as a result, the industry is more profitable than the pharmaceutical industry, with relatively little pressure on cost of goods sold (COGS). Biopharma has also grown steadily for a number of years, and the large pipeline of molecules in clinical trials promise continued growth.

Despite the industry’s high complexity, however, outsourcing is extremely popular. In fact, the market share of biopharma CMOs has risen steadily in the past decade, reaching 20 to 30 percent of the industry’s COGS in 2013, and is expected to grow to almost 70 percent for some companies over the next few years.2 Not surprisingly, global CMO sales are growing steadily, fed not only by increased outsourcing, but by overall growth in new and existing products including clinical-trial supply. Further growth of more than 5 percent per year is projected over the next three years, leading to a total biopharma CMO market of $7 billion in 2019 — of which up to 30 percent will come from trial supplies.

Five factors are primarily driving this growth:
• Hedge risk: Biopharmaceutical companies often outsource to balance their risk and buy time until key milestones in clinical trials or market uptake are met and they can justify investing in-house.

• Lack of capacity: Many new market entrants. and start-ups developing biopharmaceuticals lack existing manufacturing capabilities. The same is true of some large pharma companies switching over parts of their pipeline to biopharma.

• Invest hurdles: The biopharma industry has high investment requirements. For example, a new biopharma plant with large stainless-steel vessels designed to produce high-volume biopharmaceuticals (500-1000 kg of active pharmaceutical ingredients, or APIs, a year) would require more than $250 million and lead times of four or more years.

• Lack of capabilities: Several experienced CMOs have strong technical capabilities in cell line development, process development and scale-up. These CMOs are very well-suited to production process development, able to increase yields while reducing COGS. In fact, a CMO’s technical capabilities are one of the most important factors to consider when selecting an outsourcer, along with its track record of quality, compliance inspection and supply flexibility. Exhibit 1 illustrates one CMO’s success in increasing yields, or titers, after optimizing the manufacturing process for a range of six products (monoclonal antibodies, or mAbs).

• Technology shift: Two major trends impact existing mammalian cell culture facilities:
1)The production of large molecules moves to highly productive platforms composed of cell expression, media composition and process mode in up-and downstream processing (fed-batch vs. continuous, rise of single-use equipment). Not all existing plants are ready for disruptive productivity increase or use of disposables.

2)New biologics modalities in the pipeline like multispecific mAbs, viral vectors, oligonucleotides, peptides and other force biopharma plants into a multi-platform, multi-modality situation while most multi-product plants are still in a mono-modality and mono-platform setup.

Transfer complexity
Looking at the market drivers and the value proposition offered by leading CMOs, the advantages of outsourcing from a biopharmaco’s perspective seem clear. Yet biopharmaceutical outsourcing faces several challenges, one of the best-known — and most critical — is the molecules’ high transfer complexity. All large, complex biopharmaceuticals (such as mAbs, receptors and enzymes) require extremely sensitive production conditions given their complex structure and unpredictable post-translational modifications. As a result, transferring this type of biopharmaceutical to a new production environment is extremely complicated — whether transferring from R&D to manufacturing, or from the originator company to a CMO. In fact, more than a hundred input parameters must be adjusted to accommodate the living biopharmaceutical organism and the purification of large complex proteins, because duplicating the original environment is next to impossible. If transfers fail into highly utilized CMOs, the next slot available might be several months later, having a huge impact on the launch forecast and impacting the top-line, as such it is clear that an excellent process transfer track record is a critical success factor.

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