November 1, 2008 (Vol. 28, No. 19)
Eric S. S. Langer President and Managing Partner BioPlan Associates
Concern over Supply Stands Front and Center
Most CMOs and biopharmaceutical manufacturers can say from personal experience that current in-house manufacturing capacity is insufficient to meet expected demand for new biotherapeutics. Since the industry recognizes that its future depends on a secure supply, many are turning to CMOs to address future demands. This, in turn, has led to relationship problems as CMOs and clients learn the dance steps required for a successful, long-term committed relationship.
We quantified these critical factors in our “5th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production.” One of our major findings related to selection of CMOs was the percent of companies indicating that “Offering a secure supply,” was the preeminent CMO selection factor. Other important CMO selection issues included, “Establish a good working relationship,” and “Demonstrate a track record with products similar to mine.”
Surprisingly, respondents were unconcerned with their CMO being local. This may be a sleeper issue, however, in that it may not show as a conscious decision factor. According to Geoff Hodge, vp of process development at Xcellerex, “We have many customers who have stated that proximity is a major advantage. It may be something that is only realized after-the-fact. There may be an unconscious stigma against recognizing the importance of being local since we like to think of ourselves as a global industry.”
According to Hodge, contracts tend to go more smoothly when people can meet and transfer supplies and samples face to face on a regular basis. Despite these perceptions, the importance of location of the CMO continues to decrease (10.4% in 2005, 7.7% in 2006, and 4.5% today). This may be a function related to the off-shoring of greater numbers of R&D or process development projects.
Sticking to the Schedule
It is also surprising that “Being able to stick to a schedule” is far down the list this year (25.6% in 2007 vs. 58.7% in 2006). In fact, it declined in importance the most this year. The shift to a relatively low position on the list may indicate the industry is maturing in its expectations of CMOs and understands that there will be delays and tech transfer issues, as well as business issues as part of the package when outsourcing.
The fact that “Provide lead times sufficient to cover development processes/technology transfer” are also far down the list may indicate overconfidence, Hodge noted. “This is one area where customers routinely underestimate the importance of and time required for the work needed for a successful outsourcing relationship,” he says.
Trends tend to be more important in this industry than current data. So in evaluating the 17 factors affecting selection of biopharmaceutical CMOs over time, “Offering a secure supply” increased the most. The factor that declined most in importance over the year was a CMO’s ability to “Effectively handle cross-contamination issues,” which dropped from 30.8% to 20.3% of respondents.
“Establishing a good working relationship” moved from the number four spot last year to the number two spot place this year. There is a consistency over time in the importance of this relationship factor, and CMO managers should note whether their staff have the ability to maintain these positive relationships.
Much of the relationship issues hinge on whether a CMO can reserve capacity when it’s needed. When respondents were asked about current access to a CMO’s available capacity, 27.2% of biotherapeutic developers indicated that it is difficult to find a CMO with available capacity for microbial fermentation (strongly agree or agree).
For mammalian cell culture, 28% struggle to find a CMO and 55.8% of “Other Systems” indicated they have difficulty finding capacity. Interestingly, though, only 3.9% for microbial systems, and 5.6% for mammalian systems strongly agree that they are having difficulties finding available capacity.
The CMO business model is based on the need for additional flex capacity. That need continues, as this year 20.7% of respondents were experiencing severe or significant constraints at the commercial manufacturing level. In comparison, 17% of respondents were experiencing severe or significant constraints at “Later-stage clinical manufacturing.” Conversely, this year, only 8.2% of CMOs experienced “No capacity constraints”, while nearly a one-third, 32.4% of biotherapeutic developers, were able to say the same.
In 2007, 16.2% of respondents agreed that their organization is currently experiencing severe or significant constraints. This compares with 36.2% in 2006. When identifying respondents that experienced moderate or minor constraints, however, the total was 53.5% in 2007, 52.7% in 2006, and 54.6% in 2005. This suggests that, over time, more than half of the respondents consistently experience constraints; what changes is the perceived degree of constraint—generally moving from severe to moderate since 2005.
The decrease in the degree of constraint probably reflects better overall capacity management by the industry since overall product growth has continued to be constant. Better capacity management could come from better market and production forecasting; productivity enhancements; and improved access by product development companies to external sources of additional capacity such as CMOs’ or other biotherapeutic developers.
Last year, to control capacity constraints, CMOs appeared to be more concerned about manufacturing process performance and costs. This year, they appear to be more concerned about training, hiring, and the lack of financing for production expansion. In contrast, for biopharmaceutical manufacturers this year, issues of physical capacity of equipment as well as hiring were of more concern, compared to training and regulatory issues last year. Specifically, half of CMOs felt that “Optimizing systems to improve downstream purification performance” was the key.
Five-year projections put the percent of biomanufacturers outsourcing at least some of their mammalian production at over 60%. This bodes well for CMOs who are able to strike a relationship that works. Trend information is necessary for both CMOs and their clients to make informed strategic decisions. Because outsourcing and production strategies require long time horizons and substantial capital, facility, and human resource investments such trend data can be useful in establishing long-term relationships with suppliers.
Eric S. Langer ([email protected]) is president and
managing partner of BioPlan Associates, which recently released “The 5th Annual Report and Survey of Biopharmaceutical Manufacturing.”