Biomanufacturing Pendulum Swings Toward Overcapacity

One of the most pronounced trends in the bio/pharmaceutical industry in recent years has been the shift in Big Pharma development portfolios from small-molecule to large-molecule drug candidates. The top 15 bio/pharmaceutical companies are building up their portfolios of monoclonal antibodies, vaccines, and recombinant proteins through technology and candidate in-licensing and outright acquisitions.

Jim Miller

What hasn't been fully realized is that Big Pharma is building a network of biomanufacturing operations to support its new strategic priorities. As a result, Big Pharma's large molecule programs will be as vertically integrated as the small-molecule programs have been.

Figure 1 shows capital expenditures by the 15 largest bio/pharmaceutical companies in new manufacturing and laboratory facilities was $21.9 billion in 2007; that represents a 14% increase over the $19.6 million spent in 2006, and 23% more than 2005 expenditures.

Table 1. Capital expenditure by bio/pharmaceutical companies for different projects in various geographical areas

Much of this new investment is going into new or expanded biomanufacturing facilities (cell culture, microbial fermentation, or vaccine production) or parenteral fill and finish capacity. Table 1 highlights just a few of the major programs underway or recently completed.

Figure 1. Capital expenditures by the 15 largest bio/pharmaceutical companies in new manufacturing and laboratory facilities was $24.9 billion in 2007 that represents a whopping 27% increase over the $19.6 million spent in 2006, and 40% more than 2005 expenditures. (Source: Annual reports)

The manufacturing investment binge has been masked to some extent by the pronouncements from companies like Pfizer, Merck, and AstraZeneca that they will be increasing the share of their manufacturing requirements that will be outsourced. In fact, major bio/pharmaceutical companies aren't really giving up manufacturing. Rather, they are simply rationalizing their small-molecule infrastructure, for which they have less use, while they invest in new manufacturing infrastructure to support their expanding portfolio of large-molecule products. Big Pharma is not really embracing outsourcing so much as it is redeploying assets in conjunction with a wholesale strategy makeover.

So will contract manufacturing organizations (CMOs) really be big winners in the new Big Pharma business model? The move to divest small-molecule manufacturing operations will create new opportunities for CMOs to pick up the manufacture of older active pharmaceutical ingredients (APIs) and dosage forms, and undoubtedly some of the new small molecule launches as well. However, the decision by most companies to invest in vertically-integrated manufacturing operations for their new biologics strategies suggest that CMOs could be shut out of the most promising new opportunities.

OVERCAPACITY LOOMS

The biomanufacturing building boom is merging with several other industry trends to create a looming overcapacity situation in the industry.

"We've been seeing this development only very recently—over the last 3–6 months," according to Tom Ransohoff, vice president and senior consultant at BioProcess Technology Consultants. "It came through loud and clear in our most recent analysis."

According to Ransohoff, the primary drivers of the overcapacity problem include titers increasing faster and being incorporated into processes sooner than anticipated; slowing growth of the early blockbuster antibody products (Enbrel, Rituxan, Avastin, etc.); and a drop-off in the introduction of new volume-driver products.

"Most of the products approved in the last 2–3 years have either been for small-volume indications or have had relatively slow market penetration," Ransohoff notes.

The excess capacity at the major bio/pharmaceutical companies could be a real challenge to the contract biomanufacturers. We've heard of at least one major company that has recently begun selling its excess capacity in the contract market. We've also heard from some CMOs that clients are reducing production at their CMOs in order to fill underutilized internal capacity.

It's too early to tell whether the overcapacity situation is a long- or short-term phenomenon, and what impact it will ultimately have on the contract manufacturing market. The biomanufacturing industry isn't like the pharmaceutical chemical manufacturing industry 10 years ago, when dozens of fine chemical companies were building or expanding new commercial-scale good manufacturing practice (GMP) capacity. There is relatively little new large-scale biomanufacturing capacity being built, other than the cell culture capacity that Lonza is building in Singapore and New Hampshire, and some smaller microbial fermentation operations. Demand for clinical-scale biomanufacturing remains strong and appears unaffected by any overcapacity issues.

The current capacity situation and the speed with which it developed is a reminder that CMOs need to come up with business models and value propositions that are based on more than just selling capacity.

Jim Miller is president of PharmSource Information Services, Inc. , Springfield, VA, 703.383.4903,jim.miller@pharmsource.com