After several years of capacity crunch, the market for contract biopharmaceutical manufacturing came more into balance last year. Although the biotech sector as a whole was under pressure in 2003, its prospects and those of contract biopharmaceutical manufacturing appear strong. Buoyed by a healthy pipeline of biotech-based products, the leading contract players are proceeding with investment.
The market for biopharmaceutical contract manufacturing is set to grow at a robust clip of 20 percent annually in the next three years driven by continuing growth in the pipeline of biopharmaceutical products and increasing use of ap-proved biotechnology-based drugs. Spending on contract production of biopharmaceutical compounds reached an estimated $1.4 billion worldwide in 2003 and is expected to nearly double by 2006.
The average percentage of outsourcing by pharmaceutical and bio-technology companies was 45 percent in 2003, which is projected to rise to 51 percent in the 2005 to 2008 period, with smaller companies increasing their percentage of outsourcing by much more, according to a report published in August 2003 by HighTech Business Decisions, a Moraga, Calif.-based research group.
The volume of material outsourced, which includes both new and currently marketed products, is expected to jump in the next few years based on increasing demand for these products. Those pharmaceutical and biotechnology companies that currently outsource to contract manufacturing organizations (CMOs) and that participated in the new study conducted by HighTech Business De-cisions reported a 37 percent increase in their outsourcing budget between 2002 and 2003.
"Contract biomanufacturers are predicting tremendous growth in their business and are currently building ca-pacity to meet customers' growing needs," says Sandra Fox, president of HighTech Business Decisions. "A slowdown in the economy and in the number of biopharmaceutical approvals in 2002 resulted in a smaller market that year. However, the size of the pipeline, the percentage that is expected to be outsourced, and the improving financial environment for biotechnology companies indicate that steady growth is ahead," she says.
Major drivers of growth include pipe-line development of new biologicals and a growing number of approved biotechnology-based drugs on the market. In 2002 in the US market alone, the Food and Drug Administration approved 20 new biopharmaceuticals and 15 new indications for already marketed therapeutics.
"More than 600 biopharmaceuticals are currently in development and at least 370 are in clinical trials. From such a pipeline, at least 50 to 60 new biotechnology products will reach the market by 2008 to 2010," says Ms. Fox. Biotechnology products in development are primarily focused on cancer and related conditions, infectious diseases, autoimmune disorders, AIDS/ HIV in-fection, neurological disorders, and respiratory disorders.
Despite the negative impact that unfavorable factors had on the biotechnology industry in 2002, such as a string of product failures and the economic downturn, sales of commercialized biopharmaceuticals reached $24 billion in 2002, representing 6 percent of the $395 billion worldwide pharmaceutical market. Overall, analysts ex-pect biopharmaceutical sales to double by 2006, reaching $45 billion to $50 billion. Of this, monoclonal antibodies (MAbs) are expected to account for $8 billion, double its size in 2002.
By sector, mammalian cell culture, particularly MAbs, dominates the market, accounting for 54 percent, while microbial fermentation accounts for 38 percent, according to HighTech Busi-ness Decisions. Transgenics, support services, and related manufacturing services make up the remaining 8 percent of the overall contract market for biopharmaceutical production.
Growth in the two leading sectors is healthy, with growth in mammalian cell culture manufacturing estimated at 20 to 25 percent annually and growth in microbial fermentation manufacturing estimated at 10 to 15 percent annually.
In response to the healthy demand for biotech-derived drugs and the subsequent growth of outsourcing contracts, biopharmaceutical CMOs have recently expanded, or are currently ex-panding, their capacity and are im-proving methods for production. In the process they are countering the supply crunch that only recently plagued the market. Supply and demand are nearer to being balanced, manufacturers say, although they caution that the supply and demand dynamic operates in this industry much differently than in the traditional small-molecule pharmaceuticals industry.
"Predicting supply or demand in this industry is very difficult because there are so many variables that can each have a significant effect on de-mand, causing it to fluctuate unexpectedly," says Nick Hyde, business director for Dowpharma, the pharmaceu- tical contract manufacturing arm of Dow Chemical Company. "Market conditions seemed to be heading to-wards an oversupply situation during the first two quarters of 2003. In recent quarters investors began to put increasing capital into biotechnology causing R&D dollars to flow, which translates into product development, process de-velopment and clinical manufacturing. As a CMO, we can only respond to the demands that are placed on us. We have a good idea of what those demands are in the near term, which allows us to plan our capacity accordingly. However, the difficulty lies in trying to plan for capacity on a longer-term basis."
For Dowpharma, the biggest opportunity in the biopharmaceutical contract manufacturing business lies in the planned launch of the company's new advantaged microbial expression system early this year. "We think this expression system has significant advantages over the systems that have been traditionally used, and it is a part of our efforts to improve our overall productivity," Mr. Hyde adds.
Others agree that the market is be-coming more balanced. "There is more or less a balanced situation in the market today in terms of capacity. New facilities are going up and some plants are being scaled down or idled," says Peter van Hoorn, president of Cambrex's biopharmaceutical business unit. "Cambrex itself is building up capacity and has new plants on the drawing board for yet further extension in the future as required by our clients," he adds.
Cambrex is expanding both its mam-malian cell culture and microbial fermentation capabilities, which it expects to have on line early this year and in the middle of 2005, respectively. The company is adding a 750-liter tank for mammalian cell culture manufacturing in its Baltimore, Md., facility and a 2,500-liter fermentation train with downstream processing capability for microbial production in its Hopkinton, Mass., facility.
"Typically, the industry goes through cycles of too little capacity versus too much. In 2000, 2001 and 2002, capacity shortages drove contractors and pharmaceutical and biotechnology companies to build at an unprecedented rate. As the new capacity comes on line, more capacity is available and the shortage problem is being alleviated," says HighTech Business Decision's Ms. Fox. "In 2003, the industry was in a balance of capacity and needs, with some excess capacity forecast for the next few years as more new capacity continues to come on line. By 2008, based on the number of drugs in the pipeline and the amount of new capacity, shortages may again begin to occur," she adds.
Capacity utilization rates have been high, resulting in the shortages. It has only been recently with the introduction of new capacity that these rates have come down. "Ideal capacity utilization rates in this industry are in the range of 70 to 80 percent to allow for schedule flexibility, failed batches, regular maintenance and project change-overs," Ms. Fox adds.
"Given the current expansions by primarily large-cap biotech companies, there is unlikely to be [another] 'capacity crunch' over the foreseeable future, [although] the emergence of third-world manufacturers, as well as of biogenerics, will be interesting to follow," states Magnus Persmark, director of marketing and business development at Diosynth Biotechnology. "We are currently running at about 75 percent capacity," he adds.
"Effectively, for these types of facilities, running at 100 percent capacity utilization is just not feasible. In actuality, utilization reaches its maximum at about 80 percent in a multi-product facility. If you are manufacturing only one product in a dedicated facility, you can feasibly reach maximum utilization at a higher percentage, but this is not the usual case. Cambrex runs multi-product facilities and is looking to debottleneck certain production lines which are near full capacity, but at the same time is looking to fit in new projects in other areas where there is capacity available, so it is a mixed situation for us," says Cam-brex's Mr. van Hoorn.
Despite the industry's response to create significant new capacity, there still are some projected shortages in the near future. This is due in part to fluctuations in demand, which remain unpredictable and significantly affected by simple factors.
"The average CAGR for the five [lead] products Enbrel, Rituxan, Remi-cade, Herceptin and Synagis was about 50 percent over the 1999 to 2002 period. This growth represents a significant driver for future capacity demand," states Howard Levine, president and founder of Acton, Mass.-based BioProcess Tech-nology Consultants Inc. "Future capacity requirements [for these existing products] could change based on new indi- cations, competition from new products, improved manufacturing methods, and other factors."
In addition, the capacity demand for current clinical products, excluding those that just entered clinical development after 2002, will not be significant until 2005, but by 2007, this demand will most likely equal that of current commercial products, Mr. Levine predicts.
Based on industry presence and indications of revenue, Boehringer Ingel-heim (BI), Lonza Custom Manufactur-ing, Diosynth, Sandoz GmbH and DSM Biologics lead the CMO pack, making up the top five biopharmaceutical manufacturers with microbial fermentation and mammalian cell culture technologies, Ms. Fox remarks.
In September 2003, BI opened its new biopharmaceutical production plant in Biberach, Germany, in which it has invested over 255 million ($325 million). The new plant doubles the company's capacity at that site, enabling the use of 12 new 15,000-liter fermentors. BI is also doubling its capacity at a second biopharmaceutical production facility in Vienna, Austria, where it invested more than 60 million ($76.6 million). The company expects to have two new 6,000-liter fermentors operational in 2005 at this site. BI's Ben Venue La-boratories Inc. facility in Bedford, Ohio, complements the two European biopharmaceutical production sites with fill and finish as well as lyophilization operations. BI also expects to increase production capacity at Ben Venue Laboratories during this year.
Lonza is also undergoing major expansions in its biopharmaceutical production lines in Kourim, Czech Repub-lic, Visp, Switzerland, and Portsmouth, N.H. At the Kourim plant, Lonza is expanding its microbial fermentation services with two 75,000-liter fermentors and two 15 cubic-meter trains for highly active potent ingredients, scheduled for completion this year. In Visp, the company is on track with a new 1,000-liter biopharmaceutical plant ex-pected to come onstream early this year and a 15,000-liter expansion slated for completion in the first quarter of 2005. In the US, Lonza is increasing capacity at its Portsmouth site with an additional 60,000 liters, which will be completed this year.
Diosynth operates multi-product fa-cilities in the US at Research Triangle Park, N.C., and in Europe at Oss, the Netherlands, and Gisors, France. The company is currently undergoing capacity expansion at its two Oss sites where it will feature large-scale commercial fermentation up to 10,000 liters and cell culture capacity up to 18,000 liters. In anticipation of future expansion, the company also acquired land adjacent to its Research Triangle Park facility.
Following a recent six-month delay, DSM is back on track with the expansion of its Montreal, Canada, site where it is building a new large-scale biopharmaceutical plant that will ultimately feature four fermentors with a combined capacity of over 60,000 liters. The new plant will also feature full downstream processing capabilities and all necessary infrastructure. The first phase of construction, worth roughly 100 million ($128 million) and originally slated for a mid-2005 completion, will now be on stream by the end of 2005 with the first 30,000-liter half of capacity operational. The company does not yet have a timeline for completion of the second phase of the project. DSM also has biopharmaceutical manufacturing operations in Gron-ingen, the Netherlands.
Sandoz has manufacturing sites mainly in Europe at Kundl and Schaf-tenau, Austria, and Menges, Slovenia. The company offers microbial fermentation capacity from 100 liters to 40,000 liters in Kundl and mammalian cell culture capacity from 100 liters to 13,000 liters at Schaftenau and Menges.
Meanwhile, Avecia Biotechnology is about ready to begin manufacturing in the first stage of its new large scale Advanced Biologics Center, ABC 5000, at its Billinghan, UK, facility. The new plant has two 5,000-liter microbial fermentation-based production streams and built-in capability for fast track expansion as needed.
Other companies are getting in-volved in the mix. For example, Kyowa Hakko Kogyo Co. Ltd., a leading Japanese biotechnology and pharmaceutical company, formed a new start-up company last year, BioWa Inc., based in Princeton, N.J., to pursue development and commercialization of its biological technologies and businesses, particularly those relating to monoclonal antibodies.