Trends in Biologics Outsourcing

BioPharm: Over the years, outsourcing has grown from being a short-term tactic into a long-term strategic alternative. What are the two or three key factors that have contributed to this change?

Hancock: This is an obvious trend that we have observed. [Companies] really want to get fixed costs off of their balance sheets; they don't want to continue investing in bricks and mortar any more. They want to focus their resources on their R&D pipeline, especially as blockbusters are coming off patent. The outsourcing world has grown up tremendously in the last 10 years for biologics and pharmaceuticals in general, so companies have a lot more outsourcing options. So, I think [the factors are] moving fixed costs off of their balance sheets, focusing their energy on building their pipeline, marketing their existing products, and that there are many more good options for outsourcing.

BioPharm: Are certain types of companies—start-ups versus established companies, for example—more likely to have long-term outsourcing contracts?

Hancock: Thirty years ago, the model followed by many small companies was to raise as much money as possible, and then attempt to become a fully integrated pharmaceutical company, with in-house development and manufacturing capabilities. That model is no longer an option for small companies. Investors aren't willing to invest in infrastructure; they want to invest in technology. Most small companies that we work with have research capability, but frequently they outsource all development activities. They'll come up with a molecule, do some early animal work, then outsource everything else; process development, analytical, manufacturing, and regulatory and clinical. What's changed is that the larger companies are beginning to adopt this model, outsourcing more and more. We have observed a 20–40% increase in outsourcing development and manufacturing among our larger clients, and believe the trend is continuing. There are challenges with this model also, in that they're giving up a lot of control and they need to mitigate that risk the best they can, by working with CMOs they can trust.

BioPharm: There has been movement among manufacturers towards consolidating their contract services and securing strategic relationships with a single or so-called preferred provider. Has your company increased its offerings to accommodate this trend, or does it plan to?

Hancock: In the past, we offered only clinical manufacturing, for Phase I, Phase II, and a bit of Phase III. We now have everything in place to support commercial manufacturing projects as of April [2011], when we completed our first FDA pre-approval inspection. We'll continue to support early development products, but now we're working with both our existing client base and new clients, to assist in the commercialization of several exciting therapeutic products. We have in place all the commercial capabilities to do fill-finish projects in either syringes or vials. And we're moving towards commercial production with some of our biologics clients, as well.

To further complement our expanded production capabilities, we've added additional development resources. About a year and a half ago, we partnered with a company called WindRose Analytica, in Camarillo, California. They provide analytical services from early development through commercial validation. The collaboration has allowed us to quickly expand our capacity and our service offering for product release testing as well as for process development of biologics.

Another area we needed to add as we moved into commercial [manufacturing] was packaging. Again, we decided that was not one of our core competencies. Rather than starting from scratch internally, we partnered with a company called Sherpa, that located their packaging and labelling facility right next to our campus. We've also really expanded our process development capabilities. We can now take a molecule that a company has made on bench scale, and scale it up to commercial manufacturing scale, do all the process validation involved, and support the regulatory submissions as well.

We've continued to focus on biologics manufacturing, which for us is in microbial systems as opposed to mammalian [systems]. We decided not to go into mammalian production, but to focus on microbial and do it very well and at larger scale. We used to be at 100-L scale for fermentation, but are now at 1000-L, which gets us to commercial manufacturing scale. On the fill-finish side, we had a very nice clinical business that we've expanded to commercial production for both vials and syringes. We can fill batches up to 100,000 units per batch in either vials or syringes.

BioPharm: As industry increases its focus on biologics, has the complexity or scope of your projects changed, and if so, in what ways?

Hancock: Yes, they have. On one hand, we have seen larger companies that have increased the number of projects that they outsource and on the other we're seeing virtual companies that outsource everything. With the virtual clients, we have contracts now where we're performing all the development work including the very early stage work. A typical company in this category is a small biotech company that has some laboratory capacity and a maybe a small vivarium. A number of biogeneric and biobetters [companies] have a few people in offices and no laboratories at all. They're asking us to do the entire development: generating the gene of interest, the cell banking, all the process development and stability, and container compatibility studies. These projects move very quickly. The timelines are very aggressive, and the projects call on all the resources that we've developed.

They're also looking for an edge. Some are happy to have a molecule that's the same as what's already marketed, while some are really looking for a biobetter. For example, if the innovator is in a vial, perhaps they want to market it in a single-use syringe, or they want a formulation change so that instead of daily injections, the patient can get weekly or monthly injections. And we have some technology around that space. One of our former clients, Altus Technologies, developed a process for crystallizing a wide variety of proteins. They developed a crystallized form of human growth hormone that allowed patients to get injections once a week [instead of once a day]. We were able to acquire that portfolio of products and IP, and we're now offering that to clients who want a formulation change that will give their product an advantage in the clinic. Several CMOs have unique, proprietary technologies. In addition to the standard contract manufacturing offerings, they may have a proprietary cell bank or purification technology. On the formulation side, we have this crystallization technology, which has been of interest to a number of our clients who are looking for delivery advantages or solutions.

BioPharm: As manufacturers are increasingly adopting a QbD paradigm in their internal manufacturing operations, have you seen an expectation that their outsourcing providers will also implement QbD?

Hancock: We had QbD in place for several years before our customers started regularly asking for it. What we like about it is we have some clients who want us to go from a small-scale process as quickly as possible to making GMP material for a clinical trial. Some are resource constrained and are willing to take risks to try and move as fast as they can. We try to accommodate them as much as possible. The challenges are, if you get lucky and it works, great, but if not, you have to figure out why. QbD is really developing a rational process so that by the time you get to GMP production you've had a chance to do some engineering runs that allow you to identify the variables and specifications you need in place. You've had a chance to do a shakedown of the process and find out what it's able to deliver before you begin the critical manufacturing runs. We're big proponents of QbD and are happy to see more and more industry leaders adopting it.

BioPharm: What specific adaptations have you made to implement QbD?

Hancock: We've built up our process development group and integrated it as completely as possible with our analytical development group. One of the first things we do before we start process development is to make sure we have assays in place that are reliable and rugged enough to detect the purified product and impurities along the way. We'll do an initial qualification of those assays so that when we start process development and we begin generating a lot of samples we know that we have a reliable, quantitative assay for testing them., As we're going through the process development and comparing different process steps we have procedures in place that allow us to do a rigorous mass balance and a thorough evaluation. This way, when we come to a decision point in the process, we have very reliable data we can share with our client which allow us to make a well-informed decision together on how to proceed.

BioPharm: As you know, drug shortages are on the rise, especially for many crucial drugs, such as those targeted to treat cancer. Reports blame uncertain supply chains and inadequate capacity. Would you agree with this assessment?

Hancock: To me, the biggest issue is that a number of these products are older products, and some are very low margin. I think that a number of companies in these challenging economic times are focusing on the highest return products when they look at their portfolio. For products that are extremely low margin and very competitive, companies may be forced to drop product lines and focus more on higher margin products. A whole lot of people dropping these product lines at once have created shortages, so the prices will likely increase. The markets are very fluid and I think they'll adapt, but it will be some period of time before it happens.

Another factor to consider is that there are inherent manufacturing and supply chain challenges associated with some of these products, such as with high potency products. Historically, a company may have been able to [manufacture these products] fairly easily, but as occupational safety and containment regulations have become more stringent, some companies have realized that they need to make a large investment to comply with the newer standards or they may have decided that that's not a direction they want to go, or they don't have access to capital.

BioPharm: Is it a fair characterization to say that there is overcapacity in biologics outsourcing? How do you see this issue playing out in the next few years?

Hancock: [In microbial manufacturing] in the US, we have not observed an excess of capacity. There may be at the small scale. When we did a survey a while ago, we found that if you wanted to do microbial fermentation at 100-L scale, there were about 30 companies you could go to. When you get to the 1000-L scale, that number goes down by a factor of 10. At the small scale, there is plenty of capacity, perhaps over capacity. At the larger scale, based on what we're seeing, there is a lack of capacity.

Our estimates are that for all biotech products, 35–40 percent are produced in microbial systems (E. coli, yeast, any other microbe) and the rest are produced in mammalian systems. As Althea has expanded, we have considered adding mammalian production several times. However, in watching all the new plants coming on line, I always thought there would be a bit of a glut. For mammalian production, a new facility can be accomplished with very little capital by using a WAVE or other disposable system, which really lowers the barriers to entry. For microbial production, stainless steel tanks are required and represent a much higher capital investment. When I talked with larger and more established friendly competitors in that area [mammalian-cell manufacturing], it seems like many of them are really busy. A lot of their facilities are booked for the next year to 18 months. Again, I believe there to be plenty of capacity for early stage or small-scale projects. However, at large scale or for commercial projects, there is a limited pool of companies that can really do it well, have approval produce commercial products, and that have robust quality and regulatory systems required to support these programs. As with most things, the companies that execute well are very busy, so it seems like there really isn't an excess of capacity at that scale and level of performance.

I can look out as far as 18 months or so. Similar to how companies are now accustomed to producing many of their small molecule APIs in China or India, I think many companies will become more comfortable producing their large molecules in those countries as well. Many of the concerns are IP related and recently the governments have taken steps to address these concerns. Also, they haven't made a lot of these types of products so their quality systems are not as robust as many clients will require and there are not as many FDA-inspected facilities from which to choose. They're building a lot of very large facilities so if you combine that with a very well-trained and relatively inexpensive workforce, Asia could become an attractive option for biologics manufacturing very quickly. The flip side is that there are a lot of biotech drugs in the pipeline, and with biogenerics, instead of one facility producing the world's supply of a product there will be 2–8 major players who will each have their own facility. I don't see shortages in capacity because of all the new facilities coming on line in the US and Europe, but [I don't see overcapacity because] there are enough products to support that capacity.