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Feature Articles : Jul 1, 2012 (Vol. 32, No. 13)

Changing Landscape for Contract Manufacturers

  • Angelo DePalma, Ph.D.
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  • Kenneth F. Ball
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  • Denis Geffroy
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  • Darren Head
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  • John McGrath
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  • Friedrich Nachtmann, Ph.D.
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  • Kent Payne, Ph.D.
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  • Kai Pohlmeyer, Ph.D.
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  • Michael Voss, Ph.D.
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  • Alexander R. Wessels

The business of outsourcing pharmaceutical and biopharmaceutical production has evolved during the past decade. When experts were warning of a manufacturing capacity crunch, outsourcing was viewed as a potential necessity to keep pipelines flowing. Today, farming out production and development has taken on more of a strategic flavor. GEN asked experts from top CMOs two questions: How has the CMO business changed, and what kinds of services are sponsors looking for?

The experts we interviewed are Kenneth F. Ball, senior manager, Pfizer CentreSource; Denis Geffroy, vp for business development, Almac; Darren Head, president and CEO, Cytovance Biologics; John McGrath, senior vp for biological operations, Lonza Biologics; Friedrich Nachtmann, Ph.D., head of biotech cooperations, Sandoz Biopharmaceuticals; Kent Payne, Ph.D., vp and GM, biologics, Catalent Pharma Solutions; Kai Pohlmeyer, Ph.D., head of business development, Richter-Helm BioTec; Michael Voss, Ph.D., director competitive intelligence, Boehringer Ingelheim Biopharmaceuticals; and Alexander R. Wessels, president and CEO, DSM Pharmaceutical Products.

How has the CMO business evolved over the past decade in broad terms?

Mr. Ball: Even as recently as the last decade, many firms wanted complete control over the manufacturing process of a bio-new chemical entity (NCE). This equates to risk because of the long lead time and capital commitment required for facility build-out and the uncertainty of clinical and commercial success of a molecule.

Biocontract manufacturing organizations have taken much of that capital risk away since the CMO has the infrastructure already in place. But in exchange for this decreased financial risk, the client does lose some control. I believe CMOs have helped mitigate client companies’ concerns over loss of control with more customized approaches and by engaging in longer-term strategic partnerships across a variety of projects with a client rather than a “one-and-done” approach.

Mr. Geffroy: One fundamental difference over the past 10 years is integrated services. A decade ago, the CMO market was much more fragmented than today, made up of many more companies that were smaller in size and specialized in niche areas.

As the pharma and biotech industry strived for continuous improvements in terms of efficiency and cost, the CMO market has consolidated and fewer players are offering a much broader range of services in an integrated fashion. The benefits are multiple: less time to manage CMOs, fewer audits and contracts, less travel, and above all a faster and leaner way to conduct drug development with a much clearer communication channel.

Mr. Head: A shift in corporate financing has contributed to changes in the CMO space. Ten years ago the venture capitalist markets supported many new startup drug discovery businesses. Now I see the money coming from licensing deals and government-supported grants.

In my opinion, this shift has made it difficult for companies to get started and has increased the challenges of how they handle projects. Venture capitalists, who at one time financed pre-IND companies, now require an IND to be filed and have a positive Phase I trial before they invest.

A paradigm shift is also occurring within large pharma, where we are seeing cuts in internal R&D efforts and a desire for strategic partnerships with small and mid-sized biotechs. Usually these biotech companies have to have at least proof of concept and often early clinical phase data before large pharma will invest.

I also see a much larger shift with biotech companies opting to outsource instead of making products in-house. As patents expire, a large number of pharmas have closed their pilot facilities in an effort to manage their budgets and offset the revenue streams that no longer exist.

Mr. McGrath: We have seen many changes and fluctuations in the CMO market. Most notably, under the increased cost pressures, large pharmaceutical companies have reduced their R&D investments, and outsourcing has now become a strategic aspect of their supply chain. The current shift in the R&D landscape also includes an increase in small biotechnology startups and increased funding from venture capitalists.

In fact, many of the molecules on the market today come from small companies, where the majority originated with large pharmaceutical companies a decade ago. However, the fierce competition for VC funding will continue to grow over the next 10 years with a focus being paid to late-phase development. In addition, there has been an increase in complexity to the standard outsourcing model due to tighter regulations from the FDA and increased cost pressures from governmental bodies.

Dr. Nachtmann: The CMO industry for recombinant proteins, for example, has experienced various changes in the last 10 years. It has grown, with an average CAGR of more than 10% due to an increasing number of molecules entering clinical trials and the increased need for outsourcing of process development and GMP manufacturing.

The industry has also experienced consolidation due to the high financial requirements for investments for the commercial manufacture of recombinant products, especially for mammalian cell culture. While this was occurring, new players have entered the market. Several originator companies such as Sanofi, GSK, and Baxter began offering their excess capacity for contract production. In addition, we saw the entry of the first Korean company, Celltrion, into contract manufacturing.

Dr. Payne: Innovators have recognized that there is value in working with integrated solutions providers that can solve complex development and formulation challenges. They are looking for more sophistication than the traditional contract manufacturer can provide. They are less interested in managing multiple narrowly focused providers who lack the financial staying power to inspire the confidence that they will be around for the long haul.

Much of the talent that used to be part of vertically integrated large pharma/biopharma companies are now applying their skills within contract solution providers. In many instances they are now supporting the same companies they used to work for from the outside along with the many small emerging companies who are the driving force for much of the innovation within the industry.

Some larger companies have begun to overcome the “not invented here” bias, and are actively looking to partner with integrated solution providers who can more cost effectively perform development activities and bring to bear a wide array of technologies to address drug delivery challenges.

Dr. Pohlmeyer: During the past decade CMOs experienced on the one hand significant improvements of the manufacturing technology and on the other the maturation and consolidation of the biotech industry.

The achievements in manufacturing technology, for example increases in expression yields, new optimized downstream technologies, and availability of a large variety of disposable equipment, have significantly improved production efficiency. In addition to increasing manufacturing yields we observed an increasing number of niche products (e.g., orphan drugs) and the reduction of dosages. In conclusion, production scales went down for clinical trial supply as well as for commercial manufacturing.

To keep up the optimization pace, CMOs need to constantly invest in the development and implementation of new manufacturing technologies and the corresponding equipment. Additionally, CMOs have to deal with the pressure on the costs of goods and prices as well as an increasing competitive environment, all the while achieving a high level of flexibility and regulatory compliance.

Dr. Voss: The biopharmaceuticals CMO business has been and still is a project-based business with high fixed cost base that is sensitive to changing utilization, especially in large-scale manufacturing. Historically, the high capital expenditure level has presented a significant entry barrier.

Today—with increasing yields and the use of disposable technologies—the CMO landscape is more competitive than 10 years ago. We have addressed these market changes by, for example, establishing new business models intended to build long-term relationships with customers rather than being a pure manufacturing partner.

Mr. Wessels: In the mammalian cell culture CMO space, the last 10 years have been marked by expansion. Participating CMOs have added capacity or capabilities and new players have entered the field. This aligns with the growth of the industry and the increase in number of products in R&D.

Mammalian cell culture processes themselves have improved over the last 10 years, gaining in efficiency and consistency starting from a very poor performance level overall. However, the manufacture of biologic compounds still represents a high-cost, high-capital expenditure, high scale-up risk proposition compared to small molecule chemical synthesis. One of the key changes occurring in the industry is a new view to reducing the costs of mammalian cell culture manufacturing.

What are the major issues or problems for which companies approach you for help?

Mr. Ball: First and foremost, prospective clients come to us with the problem of having a great idea, a concept that seems to have great therapeutic benefit, but no infrastructure to scaleup the process. Nearly as often, prospective clients come to us because they have a process that is not optimized and they need a partner with the experience to move up in scale.

Often times these are virtual or near virtual companies that may have a great relationship with a contract research organization, but that CRO doesn’t have the horsepower needed to perform the technical aspects of scale-up for analytics, validation, or support for chemistry, manufacturing, and control.

Mr. Geffroy: It very much depends on the type of client. Startups and small companies are looking for more than manufacturing, they expect a full-service offering that includes biomarkers, API, analytical support, preformulation and polymorph expertise, and drug product experience. They are also looking for advice and recommendation to take their clinical candidate to their key milestones in line with their funding strategy.

Clients come to us at various stages in the biomarker development pipeline, and we are able to assist them in progressing the biomarker into a clinically useful test. We then subsequently support our clients by running these tests in our CLIA laboratory for clinical trial enrichment strategies.

Mid-size and big pharma are looking for capacity, flexibility, and technologies. We have a strong reputation in biocatalysis, and our enzymes can create a lot of value for our clients. Recently, an eight-step API process was reduced to three steps using one of Almac’s Keto-reductase enzymes. This is especially attractive when the clinical candidate is in Phase IIb onward and cost of goods is becoming more important.

Finally, the most typical problem that all of our clients are facing—virtual, biotech, mid-size, and big pharma—are challenges with the physical form of their API or drug product. We have solved so many problems in this field, by screening and searching for all polymorphs and ensuring that the most stable form is taken forward to clinical development. It is also a nice opportunity to enhance IP for our client.

Mr. Head: In addition to its cGMP manufacturing services, Cytovance Biologics offers process development, cGMP cell banking, and support services for a number of clients. Underfunding and unrealistic timelines rank among the highest issues among companies seeking the services of a CMO.

Companies ask for help stretching their funds to move projects along, so they can reach the next round of funding. This can result in tight timelines. High pressure from investors getting through milestones to receive more funding can cause a rush through the development process. Cytovance understands the importance of setting realistic timeframes and expectations up front.

Mr. McGrath: One of the major issues customers face is the unpredictable behavior of launching a product. Risk mitigation becomes a key factor in outsourcing decisions. Customers from the large pharmaceutical arena are generally looking to mitigate their capital risk by allowing them to delay or avoid potential in-house investments/expansions.

Speed and time to market are at the forefront of our customers’ minds. Our process development and scaleup expertise allows customers to feel confident in their process as they progress through the pipeline to market. Smaller organizations are looking for a flexible and custom-tailored development program that will allow them to meet their early milestones and reach their IND filing as quickly as possible.

Dr. Nachtmann: From our perspective, clients are demanding process development, particularly for processes that are commercially not viable. Sandoz offers process development at all stages. Customers are also looking for flexibility in scale since predicting commercial requirements is difficult at early development stages.

Sandoz operates various scales in microbial (1,300 to 40,000 L) and mammalian (3,000 to 2x13,000 L) GMP manufacturing to fulfill these needs. Finally, customers are looking for regulatory assistance during the approval process, which Sandoz can provide based on the track record of various approvals in EU, U.S., Japan, and other countries.

Dr. Payne: Companies approach a CMO for breadth of integrated expert solutions to support customers in the transition from discovery to development, through the clinic, to commercialization and lifecycle management.

Specific expertise includes protein expression in mammalian cell lines through our GPEX expression system; preformulation (biophysical and physicochemical characterization); formulation and drug delivery technologies including oral, sterile, and inhalation; clinical and commercial packaging; and analytical support for API, components, and products.

Dr. Pohlmeyer: Next to experience in process/product development and manufacturing, customers request that CMOs provide regulatory support, qualified person support, preparation of INDs, IMPDs, and registration dossiers as well as participation in meetings with regulatory authorities. This is especially true for small biotech companies.

As a result of the reluctant investment climate, mainly driven by the lack of VC money, customers are asking for new business models for external manufacturing, for example co-development approaches or risk-sharing models. In any case, even in situations with a strict fee-for-service approach, the highest flexibility is requested to share the financial risks of biotechnology development projects.

Dr. Voss: Our customers approach us for our broad capability set covering the entire process chain from DNA to drug product (one-stop-shop), which is especially valued by small biotech customers. Furthermore we have high credibility as a strategic partner for large pharma/biotech companies, with an excellent track record for development, manufacturing, quality, and regulatory tasks. Recently we have further strengthened our global presence by the acquisition of Amgen’s Fremont, California, facility to even better serve our customers on a global base.

Mr. Wessels: We are being looked to more and more for our manufacturing expertise and technological solutions. For example, DSM offers technology solutions to significantly drive down the costs of biologics manufacturing including operating costs, capital requirements, and scaleup risks. To work with the shifting pharma model we offer our technologies through our CMO services and through licensing directly to biologics developers.

This is the same technology that DSM will install in the biomanufacturing facility currently under construction in Brisbane, Australia. The Federal Government of Australia and the Queensland Government recognized the benefits of this new “biologics plant of the future” concept and support the construction with grants. The facility will be operational by mid 2013.