The biopharmaceutical industry’s capacity pendulum has taken wide swings over the past decade—from shortfall to overcapacity—as companies built up production for projected pipeline products that failed to materialize. In the ramping-up process, the industry has made major investments in facilities, equipment, technology, and staff.
The economy has knocked many industries right out of their socks. Yet the biopharma industry has generally been relatively uninjured, according to BioPlan’s 6th Annual Report and Survey of Biopharmaceutical Manufacturing. Most budget line items decreased less than 3% and some actually increased. This year, budgets have begun to turn around and most areas have experienced a rebound.
Today, the question among many CMOs and drug innovators is whether we’re back to the “old normal” or whether the industry has established a “new normal.” According to Erik Laursen, vp of business development at CMC/ICOS Biologics, “most CMOs in this industry experienced a drop in business the first quarter of last year. As a result, CMOs became much more cost sensitive and competitive in their service delivery. There was also some minor price erosion. That has now been stabilized, and starting in Q4 of last year, we saw a lot more RFPs as business picked up.”
The recent financial pinch on CMOs appears to have been short-lived. Yet the lessons learned may be here to stay—continuously streamlined operations, keeping costs competitive, and ensuring service delivery is consistent with industry demands are signs of operational maturity. CMOs are increasing service quality; capacity gaps are being filled, including 2,000 L and 5,000 L; and customer needs are being considered more now than in the past as the economic crunch has compelled many to redouble efforts to operate more collaboratively and cost effectively.
Part of the reason for optimism is that virtually all biopharmaceutical developers sooner or later use the services of CMOs, whether for manufacture of clinical or commercial supplies, process development, testing, or for fill-finish operations. So, drug developers have a vested interest in the health of this sector.
CMOs, which tend not to be publicly traded, generally prefer not to air capacity problems. As a result, tracking the status of the biopharmaceutical CMO industry—its shortfalls, surpluses, and trends—can be challenging. Problems impacting this segment include economic uncertainty from slower than expected development pipelines, FDA regulatory concerns, and capacity problems resulting from blockbuster drugs reaching the market.
The Situation Today
Although some innovators and CMOs are experiencing excess capacity, biopharmaceutical manufacturing demands for available capacity, including that of CMOs, appear relatively balanced overall. Preliminary data from BioPlan’s 7th Annual Report and Survey show that only 18% of biomanufacturers today are experiencing anything greater than minor capacity bottlenecks at the clinical stage and 30% at the commercial scale. This compares with 32% for clinical stage and 39% for commercial scale last year.
Some of the larger biopharmaceutical companies are cutting back on the number of products they have in development, often resulting in idle manufacturing capacity. As a result, some of these innovator companies are now offering CMO services and joining the ranks of contract manufacturers.
So far, this has not caused any apparent market disruption for mainstream CMOs, with demand for CMO services remaining rather steady. Although innovators would like to see more idle CMO capacity (to drive down CMO prices), and CMOs would like even higher utilization rates and more demand (higher prices), the industry remains healthy and benefits from a relative lack of major capacity imbalances.
One common issue that CMOs appear to be having is that smaller companies are continuing to cancel contracts, due to problems with financing. But this loss of business is being offset by increased business from big pharmas. Chris Eso, vp of business operations at Avid Bioservices, confirms that there is a good balance between capacity and client demand. “We are seeing increased demands at the commercial 100 L scale, and we expect to add more at the 300–1,000 L scale.”
The biopharmaceutical CMO industry overall appears to be doing rather well. Growth has paralleled that of the biopharmaceutical industry. Many CMOs are now rather mature and many, if not most, offer a wide range of manufacturing, testing, discovery, screening, regulatory, and other services. Current annual industry revenues have been variously estimated at over $2 billion, with this projected to grow rapidly by 2014.
This assessment is consistent with the data on services segment growth from BioPlan’s 6th Annual Report, which recognized 14% annual growth in services over the past three years (since 2007). The biopharmaceutical CMO industry is likely now approaching $3 billion in revenue, taking in about 2.4% of all biopharmaceutical product sales revenue.