A Period of Growth
The remarkable increase in life expectancy and the major achievements in medical care over the past several decades can be at least partially attributed to the biopharmaceutical and biotechnology sectors, which have seen exponential growth in terms of novel technology and applications in recent years.
Several revolutionary milestones have been surpassed in the development of new drugs, antibodies, recombinant proteins, gene editing technology, and much more to be explored in the future. This immense potential for growth in the biopharmaceutical market also means tougher competition both in terms of the race to launch new efficient blockbuster products as well as maintain a healthy pricing mechanism to ensure profits. A balanced approach has led companies to adopt the business strategy of optimizing manufacturing capacity through outsourcing.
Contract Manufacturing Organizations (CMO) have been filling this requirement by providing competitive services from drug manufacturing to aseptic filling, and have been a pivotal reason behind the success of the biopharmaceutical industry. The global biopharmaceuticals contract manufacturing market was estimated at 12.14 billion USD in 2017 and is projected to exhibit a compounded annual growth rate (CAGR) of 7.5% during the forecast period of a report from 2017-2025 (https://www.grandviewresearch.com/industry-analysis/biopharmaceuticals-contract-manufacturing-market) .
The Challenges in the Industry
Apart from factors associated with pricing and profits, the skill and complexity involved in drug manufacturing in the biopharma sector is an arena that has been mastered by relatively few players. The large molecules that constitute biopharmaceuticals, such as vaccines, antibodies, recombinant proteins, antibiotics, hormones, etc. differ from small molecules not only in their size, but also in their behavior with respect to the way they work in the human body. In addition, biopharma and biotech companies are also offering several novel revolutionary technologies such as adoptive cell transfer and gene therapy, which come with unique manufacturing challenges. Thus, when faced with the prospect of conceptualizing and assembling manufacturing lines from scratch, biopharma companies find it far more prudent, profitable, and reliable to outsource their synthesis to CMOs who have mastered this process. But a caveat that needs to be added is that some larger firms are averse to outsourcing due to loss of strategic control and limited management oversight. As a result, these select larger pharma companies opt to maintain their manufacturing operations in-house. This, in turn, may restrain the growth of CMOs to a certain extent in the foreseeable future.
Barriers to Entry
There are several reasons for the monopoly of a few players in the biopharma manufacturing niche, specifically when it comes to large molecules and novel technologies.
- Hedge Risk: The risk associated with new experimental molecules that must undergo clinical trial and safety validations before accruing FDA approval is very high and carries a long processing timeline. This is something only experienced and established setups can handle.
- Lack of capacity: Large molecule manufacturing needs massive production capacities in terms of bioreactor volumes, and its associated upstream and downstream processing, which new entrants find difficult to achieve. For example, active pharmaceutical ingredients (APIs) need to be produced at a scale of 500-1000kg a year to meet global demands for drug manufacturing and utilization. A new biopharma plant will need large capacity stainless-steel vessels to produce high-volume biopharmaceuticals, and would require more than $250 million with lead times of four or more years. Also, the biopharma manufacturing market can be broadly divided into mammalian and non-mammalian manufacturing methods. The mammalian-based segment dominated the market in 2017 owing to higher cost as well as adoption rate for biologics production. Even though this is the case, mammalian cell culture is crucial for production of vaccines, monoclonal antibodies, and recombinant proteins, and it requires specialized large-capacity bioreactors. These also need to be supplemented with adequate mixing and growth conditions to ensure cell viability and efficient production of the desired biomolecules, all of which is a forestay of the larger, more experienced biopharma CMOs. Non-mammalian methods primarily employ bacterial and yeast-based cultures, which are comparatively easier to maintain and thus are widely adopted by smaller players.
- Investment obstacles: The inherent risk associated with the biopharma industry in terms of putting experimental molecules into production and the associated approval times make investors wary of putting their money into inexperienced and new players.
- Lack of skills: As mentioned above, large molecules and novel technologies follow unique manufacturing and processing protocols, which most often need to be tailored to each product. Companies that usually manufacture generics and small molecules lack these skills.
- Technology restructuring: The characteristic manufacturing process needed for large molecules needs dedicated processing lines for each. Newer players face significant constraints regarding costs, skills, and capacity in this regard.
- Current Good Manufacturing Practices (cGMP): This is probably the most important criteria that needs to be met during outsourcing. Large molecules and novel technologies also have unique issues pertaining to sterility and quality assurances. This process should also preserve their stability and viability when administered into humans. This is particularly critical when dealing with adoptive cell transfer and gene therapy. This means extensive employment of single use technology (SUTs) and disposables, which can have significant effects on operational costs for small players.
There are several established biopharma CMOs such as Boehringer Ingelheim, Thermo Fisher, Lupin, Lonza, etc. which have made a name for themselves in the CMO marketplace. One notable competitor that has successfully entered this fray is Samsung. The South Korean conglomerate entered the biopharmaceutical CMO market as Samsung Biologics in 2011 and is expanding its bioreactor capacities for growth in the sector. This includes the massive 15,000 liter capacity bioreactor for mammalian cell culture, which was previously offered only by two other suppliers: Boehringer Ingelheim and Lonza. This has allowed Samsung Biologics to effectively compete within the important sphere of mammalian cell-based therapy. The company also owns three plants with a capacity of around 364,000 liters and is in the process of assessing a fourth manufacturing plant. Thus, its production capacity exceeds Swiss Lonza (260,000 liters) and Boehringer Ingelheim (240,000 liters). With this, Samsung Biologics has earned the title of the CMO with the largest single-site capacity as of 2018.