Asian contractors aim for growth in biologics

An emerging opportunity

20 January 2009 00:00  [Source: ICB]

A few Asian contractors can offer large-scale biologics manufacturing, but most are small firms and no immediate threat to Western suppliers

MANY ASIAN firms have built a strong position in the contract manufacturing of small-molecule active pharmaceutical ingredients (APIs), but only a few have made headway in therapeutic proteins, also known as biologics.

Even in the West, the supplier base remains heavily concentrated. Commercial-scale manufacturing facilities cost over $100m, the number of contracts is relatively small, and just two companies - Switzerland's Lonza, and Germany-based Boehringer Ingelheim (BI) - hold over half of the market for outsourced protein APIs.

The opportunity is growing quickly, however. Companies in Asia intend to tap this promising market by taking advantage of low costs, just as they did for the manufacture of small molecules, a development that forced widespread closures and consolidation in the West.

In the case of biologics, the outcome is unlikely to be the same. The element of surprise is absent, the cost of entry is high, capacity is not in excess and the dynamics of establishing a low-cost outpost in the region are today much better understood by Western players than 10 years ago.

Asian contract manufacturing organizations (CMOs) will probably complement, rather than replace, Western contractors entrenched in biologics.

SUCCESS STORIES

A few Asian companies have already made a name for themselves, Celltrion being perhaps the most prominent. Founded in 2002, this Seoul, South Korea-based contractor has filled a 50,000 liter cell culture facility with a long-term contract from US-based pharmaceutical giant Bristol-Myers Squibb, and 90,000 liters more are in the works.

Deep pockets allowed Celltrion to make such a leap. VaxGen, the biotech start-up that originated the project, did not have the funds to erect its own commercial-scale facility, but the firm, assisted by South Korea's Ministry of Commerce, Industry and Energy, found sponsors in South Korea who did - Nexol, a venture capital firm Korea Tobacco & Ginseng, a large manufacturer and J. Stephen & Co. Ventures, a private equity firm.

VaxGen's developmental vaccine for HIV failed, however, and Celltrion was forced to scramble for customers. Fortunately, US pharma major Bristol-Myers Squibb was just then scouring the globe to find additional capacity for a blockbuster monoclonal antibody, Orencia (abatacept). The two struck a deal in 2005, and Celltrion has since announced developmental deals with Sanofi-Aventis, MediGene and CSL.

Two other well-resourced Asian players - Biocon and Reliance Life Sciences (RLS) - provide contract manufacturing as a sideline to their own product development efforts.

Founded in 1978, Bangalore, India-based Biocon leveraged expertise in fermentation to move into biopharmaceuticals in the mid-1990s. It also began subsidiaries for contract drug discovery (Syngene) and clinical research (Clinigene). The business has since grown to a staff of 3,000, and it numbers among the top 20 biotechnology companies in the world.

Biocon's capabilities include 400,000 liters of fermentation capacity and 1,000 liters of cell culture capacity. Syngene's smaller capacity (225 liters for fermentation, 300 liters for cell culture) is suited for Phase I and II clinical trial materials.

Mumbai, India-based Reliance Life Sciences was founded in 2001 by petrochemical giant Reliance Industries to develop stem cell products. In 2006 the company expanded into biopharmaceuticals and acquired a majority share in GeneMedix, a UK company with a pipeline of biosimilars. An API manufacturing facility in Jamnagar with 1,000 liters of fermentation capacity and 7,500 liters of cell culture capacity is expected on line this year.

Like Biocon, RLS has emphasized the development of its own biologics. The company's initial ambition was a portfolio of 75 products, but the economic slowdown has forced RLS to pare back to about 25, a move that would release additional capacity for contract manufacturing.

Celltrion, Biocon and RLS are unusual cases, however. Most contractors in the region are modest operations hopeful that a client's product will near commercialization and provide the impetus to install larger-scale capacity, notes Scott M. Wheelwright, president and CEO of Strategic Manufacturing Worldwide, a consultancy based in the San Francisco Bay Area.

"Most of the smaller CMOs focus on Phase I and II clinical testing materials," he says. "They also serve as an in-country resource for local companies, so they often get government money."

A move into the big time is no certainty. "To attract the overseas work is a challenge for the Phase I and II facilities because [their clients] will be the smaller companies that don't have their own pilot plants," says Wheelwright. Such customers "will be much more nervous about going overseas, given the long distance and communication challenges." Regional contracts, though easier to obtain, are unlikely to provide similar revenues.

LOCATION, LOCATION

Defensive moves by the major Western players complicate the CMOs' task. For example, companies willing to consider Asia could go with a relative unknown having no large-scale capacity in place or they could turn to pacesetter Lonza, which is building an 80,000 liter cell culture facility in Singapore that will go online in 2011. The fine chemicals giant is also building an 80,000 liter cell culture facility in Singapore for US-based biopharmaceutical company Genentech.

However, Singapore does not offer the deep discounts available elsewhere in Asia. In India and China, labor rates are about one-sixth those of the US and Europe, Wheelwright points out. "But they're not as efficient," he adds, "so I tell my clients to figure about one-third the cost because it will take more people to do it." Capital costs are also low because of the labor component.

"I'd guess that you're looking at half the cost of operations," Wheelwright concludes, "depending on where you put the facility and the import taxes you pay on materials." Raw material imports to India, for example, can carry a 35% tariff unless they are bound for a Special Economic Zone. However, such cost advantages are largely theoretical in the absence of a commercial-scale facility, and unless a customer's product enters Phase III trials, financing for scale up is hard to come by.

Three firms in the region have addressed scale up by partnering with BI. The contractors are able to use the relationship as a selling point: an audit by BI attests to their reliability, and if a project goes commercial, it has preferred access to BI's production capacity and expertise.

The deal could be a devil's bargain, however. As long as customers scale up with BI, small partners may not have the opportunity to expand their own operations.

"BI is one of the most clever companies in this industry," says Wheelwright. "BI is using [the partner program] as a feeder to their large-scale in order to garner some of this market, so the large-scale doesn't all go to Asia."

Companies throughout the region remain optimistic, however, and eager to grow. For example, Bangalore, India-based Kemwell intends to build a rupees 2.5bn ($51m) biopharmaceutical production facility that will feature a 2,500 liter vessel for cell culture, another for fermentation, and room to add another 2,500 liter vessel for cell culture. Completion is targeted for 2010.

"We have completed a substantial part of the design and will commence construction activities shortly," says Anurag Bagaria, vice president of business development. "In addition to the biopharma production facility, there will also be a fill-and-finish facility for vial filling and lyophilization, and also a process development lab for microbial and cell culture work."

INTELLECTUAL HORSEPOWER

Indian companies lead Chinese companies in meeting the standards of current Good Manufacturing Practice (cGMPs) required by the US Food and Drug Administration (FDA), but the situation is in flux, says Bikash Chatterjee, president of San Francisco-based consultancy Pharmatech Associates.

"While China has the intellectual horsepower to grasp the nuances of cGMPs, it still has some way to go in gaining the necessary experience to make it part of their normal operating culture," Chatterjee observes. "The cGMPs are hard to grasp when you are developing a market and a business simultaneously."

Chatterjee's firm has been hired by San Diego-based biotech Pacific Biopharma to provide the Basis of Design for the first biopharmaceutical manufacturing facility in China to be approved by both the FDA and EMEA (European Medicines Agency). The 181,000 square-foot (16,800m3) facility, located in Jiangsu province, will employ single-use (disposable) technology.

"There is real challenge in harmonizing the EMEA, FDA and SFDA [Chinese FDA] requirements for facility design," Chatterjee notes. Disposable technology simplifies the infrastructure and support requirements, he adds. "It does make it easier in some aspects to meet Western cGMPs. It also reduces the cost of the facility and the ongoing operational utility costs, since the extensive process piping and cleaning operations are greatly reduced."

China and India are not the only Asian nations with biopharmaceutical ambitions, as Celltrion shows. Malaysia, for example, set up the government-run Malaysian Biotech Corp. (MBC), to promote biotech research and development in 2005, and brought the Penang Biotech Park online in 2007. One tenant is Alpha Biologics, a small-scale contract biologics manufacturer established in 2003 with assistance from the Penang Development Corporation and the Malaysian Industrial Development Authority. Another is Progenix, a contract research organization.

They may soon have a neighbor. In June 2008, the MBC signed a memorandum of understanding with Trusgen, a New Jersey, US-based biotech firm, to establish a $250m manufacturing facility with 90,000 liters of capacity.

"We are currently in the process of finalizing financial arrangements and optimistic that the basis of design should be available by the third or fourth quarter of this year," says Bruce Register, Trusgen's CEO and president.

Three 15,000 liter vessels will be dedicated to cell culture, and three more will be convertible between cell culture and fermentation, he says. "The plant is designed for ultimate flexibility to ensure that as new technologies are developed the facility can be modified to accommodate the changes."

The outlook for such ventures is generally positive, says Wheelwright.

"Things are going very well over there, relatively speaking, and I expect a fair amount of growth in these areas. There are a lot of great people," he adds, "and I've focused on this because I think there's a real opportunity for them."

BIOLOGICS CONTRACT MANUFACTURERS IN ASIA

China: Autek Bio, Wison
India: Biocon, Intas, Kemwell, Reliance Life Sciences
South Korea: Celltrion, Korea Biotechnology Commercialization Center
Malaysia: Inno Biologics, AlphaBio
Singapore: A-Bio, Lonza
Taiwan: Development Center for Biotechnology

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By: Clay Boswell
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