Outsourcing: Bio Building Boom

The first quarter of 2006 brought a wave of announcements of new investments in biomanufacturing capacity. Interestingly, it is companies that already have the most capacity available to them that are building even more. This dynamic reflects certain characteristics of the biopharmaceutical pipeline and the high cost of being a player in the biopharmaceutical business.

Jim Miller

The biggest investment was announced by Amgen (Thousand Oaks, CA), which will spend over $1 billion on a new facility near Cork, Ireland. The operation will include active pharmaceutical production (API) and fill and finish. It is expected to be completed in 2009 and will employ 1,100 people.

Amgen's manufacturing requirements are driven by the strong growth of Enbrel, its market-leading treatment for rheumatoid arthritis and other autoimmune diseases. Amgen manufactures Enbrel at its recently expanded biomanufacturing facility in West Greenwich, Rhode Island, and has a long-standing contract manufacturing relationship with Boehringer Ingelheim (BI) Biopharmaceuticals, which makes Enbrel at its biomanufacturing facility in Biberach, Germany. Amgen has also contracted Genentech to manufacture supplies of Enbrel under an arrangement that is due to end in 2006.

Amgen has previously announced manufacturing capacity expansions at its site in Juncos, Puerto Rico. The company opened a manufacturing facility for production of the API for Neupogen and Neulasta in 2005, and is building a facility for production of API for Epogen and Aranesp on the same site. In addition, as part of its acquisition of Abgenix (Fremont, CA), Amgen will gain control of a manufacturing site that has two 12,000 L bioreactor trains.

CENTOCOR, BMS FACILITIES

In January, the European Union approved a 48 million subsidy for Centocor's new biomanufacturing facility in Ringaskiddy, County Cork, Ireland. Work on the new site, which will cost 540 million ($650 million), actually began in September 2005, and production is expected to begin in 2010.

Like Amgen, Centocor's capacity requirements are driven by growing demand for a drug that treats autoimmune diseases, in this case Remicade. The company already has a number of manufacturing sites, including Malvern, Pennsylvania, St. Louis, Missouri, and Leiden, the Netherlands.

In March, Bristol-Myers Squibb (BMS, New York, NY) announced that it will build a new biomanufacturing facility in the US at a cost of $660 million. Final site selection had not yet occurred at the time of the announcement, but the competition is among sites in Massachusetts, Rhode Island, New York, and North Carolina. Construction for the new facility is expected to be completed in 2009, with first commercial production in 2011.

BMS's biomanufacturing requirements are being driven by several biopharmaceuticals in its pipeline, including Orencia, which was recently approved for rheumatoid arthritis. Like Amgen, BMS has access to biomanufacturing capacity through several contract manufacturing relationships, including deals with Lonza (Basel, Switzerland) for capacity at its Portsmouth, New Hampshire, facility and Celltrion (Incheon, South Korea), a new player on the contract manufacturing scene. It also has its own biomanufacturing facilities in Syracuse, New York.

LONZA BREAKS GROUND IN SINGAPORE

Contract manufacturer Lonza announced several substantial capacity developments in the first quarter. In January, it announced plans to install four to six new 5,000-L cell-culture bioreactors at its site in Portsmouth, New Hampshire. Lonza already has two 5,000 L bioreactors in Portsmouth, and is completing installation of its fourth 20,000 L bioreactor there.

Lonza also broke ground during the quarter on its new $250 million biomanufacturing facility in Singapore. The operation, a joint venture with Bio*One Capital, a Singapore government-affiliated investment firm, will have four 20,000 L bioreactor trains. The facility should be completed by 2009.

Lonza's commitment is based on its own analysis that shows that demand for biomanufacturing capacity is running well ahead of estimates it made a year ago, and may exceed supply before the end of this decade. The acceleration in demand is demonstrated by the fact that just two years ago, Lonza could not sell unused capacity in its two 5,000 L bioreactors at Portsmouth and mothballed its 2,000 L bioreactor there; now it is tripling the number of 5,000 L bioreactors and reactivating the 2,000 L unit. When the currently announced expansions are completed, Lonza will have 200,000 L of commercial-scale cell culture capacity and 30,000–45,000 L of microbial capacity, rivaling BI Biopharmaceuticals for total contract manufacturing capacity.

ALTERING THE BALANCE OF POWER

Lonza's big commitments to new biomanufacturing capacity stand at a time when most of its major competitors have shied away from the business. In the last year, Dowpharma (Midland, MI), DSM (Heerlen, the Netherlands) and Cambrex (East Rutherford, NJ) have all announced that they no longer intend to invest in large-scale biomanufacturing capacity. DSM and Dowpharma will focus their efforts on developing and promoting expression technologies, while Cambrex is still deciding what to do about its biomanufacturing business.

Why is it that the companies that already have so much capacity available are committing to build even more? Much of the explanation relates to the nature of the products the companies are bringing to market:

• Biopharmaceuticals targeted at autoimmune diseases and cancer have been very successful in gaining new indications. So commercially successful products need ever-growing amounts of capacity

• Many of the new drugs are monoclonal antibodies that are given in large doses. The large volumes required, and the fact that the production processes for these MAbs are often low-yielding, means the companies need a lot of biomanufacturing capacity to meet demand. Most are meeting the need with a combination of in-house and contract capacity

Another reason for the concentration of capacity is that biomanufacturing facilities are hugely expensive to build. Even the richest biopharmaceutical companies are willing to build in-house capacity only when they have some proof of commercial success. Among contract manufacturers, Lonza has been able to proceed because it is adept at managing its risk by getting clients to guarantee utilization or finding partners to underwrite part of the cost.

The concentration of capacity certainly bestows some market power on those companies that have capacity. It will help them gain market share over competitors that cannot expand production as rapidly (which is likely to be critical in hotly competitive indications like the autoimmune diseases). It will give them some advantages in negotiating alliance and in-licensing deals over companies that may not be able to bring new products to market as quickly. Biomanufacturing capacity may alter the balance of power in the biomanufacturing industry.

Jim Miller is president of PharmSource Information Services,Inc., Tel. 703.383.4903, Fax:703.383.4905, Jim.Miller@pharmsource.com