Biopharmaceutical companies take on a lot of risk developing new large molecule drugs. With more complex molecules in development, changing capacity needs, uncertain forecasts and increased competition, the market demands flexibility and innovative approaches to address new challenges.
The biopharmaceutical pipeline is currently growing at double (2) the rate of the small-molecule market, and represents the fastest-growing sector of the pharmaceutical industry. Analysts forecast that by the end of 2016, 50% of the top 100 drugs on the market will be biologics. Currently more than 900 biologic drugs are in development (3). The number of new biological approvals is increasing, with 13 new therapeutic biologics approved in 2015, up by two from 2014(4), and 16 new biologics approved by the FDA in 2016, accounting for 35% of all approvals. While the outlook for the growth of biologics market looks promising, the industry continues to need improved productivity and efficiency.
This significant increase in complex large molecules in the industry brings changes in pipeline composition, size and production requirements. Increasing numbers of biologics are competing to be first to market for narrower therapeutic classes, such as orphan indications, specialized medicines and personalized treatments. These niche and targeted therapies call for smaller-scale, more diverse types of production. Advances in cell lines continue to drive different capacity demands than those with blockbuster biologics. It's estimated that 60% to 90% of all new compounds entering development will need specialized manufacturing and/or molecular profile modification5.
The significant growth of complex large molecules in the industry pipeline and advances in cell lines are driving new capacity demands for biopharmaceutical companies and their CDMOs. The attractiveness of marketed biologics, advances in manufacturing technologies and increased productivity due to significantly higher titers have led to significant changes in capacity requirements. Innovative, highly efficient, flexible approaches and facilities to meet challenging capacity demands have become imperative.
The shift in capacity needs is based on changes in therapeutic targets in the pipeline, which have been narrowing to orphan indications, specialized and personalized medicines. Narrower indication targets are driving increasing numbers of biologics competing to be first to market for certain therapeutic classes. Advances in upstream and downstream processing have also driven changes in capacity requirements and facility designs.
The single most important factor that influences pharmaceutical and bio-pharmaceutical manufacturing decisions is demand forecasting. Drug forecasts influence decisions regarding capital cost, outsourcing for product commercialization, and other critical aspects of production. Achieving accurate forecasts remains extremely challenging, with countless factors influencing product demand. As demand forecasts are made during the initial phase of drug development, there is little information on which to base sales projections. Companies must build capacity and inform manufacturing commitments as many as 4-5 years before launch, while the label may arrive only 6-9 months prelaunch (6). The larger the scale, the longer it will take. In that time span, variables and market conditions change, and competing products may enter the market. As a result, two thirds of forecasts are incorrect, with high rates of significant over or underestimation.
Outsourcing provides greater flexibility and ability to achieve forecasts. Many companies use a mix of in-house and outsourced production to maximize their options. Often, companies outsource for products that would have too many associated costs to begin production or they simply lack capacity in-house.
Accurate forecasting involves cost-saving decisions on taxes, intellectual property strategy and insurance of capacity. Moving manufacturing outside the U.S. typically results in tax breaks, credits and avoidance of high corporate taxes. Certain countries — such as Switzerland, Ireland, the Netherlands, Denmark and Luxembourg will negotiate tax rates and offer tax incentives. In some regions, regulatory agencies offer tax advantages for producing smaller volumes in certain geographic areas rather than running larger batches at a single site.
As biologics surpass small molecule drugs in the pipeline, demand for specialized biomanufacturing services, technologies and expertise from CMOs and CDMOs has never been greater. More biologics targeting narrower therapeutic classes, such as orphan indications and specialized medicines, are competing to be first to market, driving a heightened need for improved efficiency, productivity and capacity, as well as advanced, integrated expertise and versatile services.
According to a Nice Insight survey, the year 2015 saw a big jump in expenditure for outsourcing services. The majority of pharmaceutical and biotech companies (43%) spent $51 million to $100 million on outsourcing and 28% spent more than $100 million. Three quarters said this is likely to increase in the next five years. In the previous year, most companies spent only $10 million to $50 million (7).
As the demand for CDMO services for biomanufacturing continues to increase, companies are becoming more selective when choosing a service provider. They are increasingly seeking fully integrated strategic partners who can demonstrate reliability, flexibility, expertise and the capacity to react to their biomanufacturing needs and market trends.