Bio-outsourcing share to drop as Big Pharma invests heavily in-house, analyst

15-Feb-2017 - Last updated on 13-Dec-2023 at 14:15 GMT

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CMOs will struggle to compete with large in-house capacity investments, according to Results Healthcare which predicts a decline in outsourced biomanufacturing.

A report on outsourced pharma and biopharma manufacturing published by industry advisory group Results Healthcare has estimated that the global market for contract manufacturing organisations (CMOs) will reach $105bn (€100bn) by 2021, up from $71.5bn in 2015.

But almost 90% of this is small molecule manufacturing (rising to 92% for commercial production), and despite the large number of biologics in clinical development the gap between small and large molecule outsourcing is set to widen, according to Results Healthcare analyst Achim Newrzella.

“At first glance this indeed seems a little counter-intuitive, especially since CMOs are talking very bullishly about the increase in outsourced manufacturing,” he told Biopharma-Reporter.com.

“We are however seeing a preference by Big Pharma to keep the more complex (biologics) API manufacturing processes in-house in order to retain full control over product quality and certainty of supply. A blockbuster biologic can generate millions of profit per day, so security of supply for these high value products is the number one priority.”

Comments from drugmakers support this idea, with companies like Novartis, Eli Lilly and Janssen previously stating a preference to keep their more complex manufacturing in-house.

Capital investments

And while there have been some investments by CMOs to increase commercial biologics manufacturing capacity, this is much smaller than the capital being spent by Big Pharma. Just some of the capacity expansions include:

Abbvie: $320m in a biologics facility in Singapore due to become operational in 2019
Novartis: $700m in a biologics facility in Singapore due to become operational in 2017
Roche : approximately $2.1bn across its biologics manufacturing network between 2013 and 2018
Bristol-Myers Squibb: $900m in an Irish large-scale biologics facility due to be completed in 2019
Boehringer-Ingelheim: €500m in Austrian site for biologics API manufacturing due to be operational in 2021
Shire: $400m in an Irish manufacturing site, to be operational in 2019

“This list is by no means exhaustive and quickly shows that CMOs can’t compete with capacity expansion at such a massive scale,” Newrzella said. “As a result it is not that surprising that our model predicts that biologics outsourcing will decrease from 12.3% in 2017 to 11.2% in 2021.”

And while CMOs have cited demand from small biotechs and virtual biopharma as growth factors due to the lack of in-house expertise or capital to build their own manufacturing, “the value of these contracts, however, is relatively small when compared to the overall biologics market and can’t drive outsourcing growth at the same rate as big pharma contracts,” Newrzella added.

Cash rich Asia

Contrary to the trend, there has been a spout of heavy investments by Asian contract manufacturers over the past couple of years: a WuXi Biologics is opening a $150m facility in China later this year, Koreas’ Samsung Biologics has a $740m third plant set to come online in 2018, and Celltrion is investing $275m at a site nearby.

“Biologics manufacturing is a very capital intensive venture and Asian companies at the moment are quite cash rich,” Newrzella said.

“They have recognised the opportunity to grab market share in an attractive, fast growing sector and accordingly have invested aggressively in expanding capacity. The hope will be that increasing market share now, combined with growth of the biologics pharma market over the next decade, will position these companies strongly for the future.”