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Strategies Shift In Contract Biologics

Some fine chemicals makers pull back, while others push ahead on commercial production

by Rick Mullin
February 13, 2006 | A version of this story appeared in Volume 84, Issue 7

Work in Progress
Credit: Centocor Photo
Centocor is among the companies building large biopharmaceutical plants in Ireland.
Credit: Centocor Photo
Centocor is among the companies building large biopharmaceutical plants in Ireland.

When DSM revealed in late December that it was planning to mothball its biologics facility in Montreal and shift its biopharmaceutical focus away from commercial manufacturing "hardware" to technological "software," the announcement had a familiar ring. Dow Chemical's Dowpharma business unit had made a similar move a year earlier, emphasizing development of its Pseudomonas-based Pfenex technology for producing biopharmaceuticals over its previous commercial-scale contract manufacturing plans.

Both companies' decisions were made in the wake of an overhauled supply-and-demand forecast in biologics: a significant toning down of predictions of a severe capacity shortfall made about four years ago. Most analyses now describe a near balance between supply and demand, a balance made precarious with big investments under way by drug and biopharmaceutical companies that are likely to produce their own materials.

Market estimates have varied sharply for years, sparking heated debate, but Enrico T. Polastro, a market analyst with Arthur D. Little in Brussels, says the general consensus during 1999 and 2000 was that demand for biologics would far outstrip capacity for several years.

Those perceptions turned in 2002. Polastro cites the buildup of production capacity by both contract manufacturers and drugmakers and the fact that fewer drugs than expected reached the market as factors contributing to the changed outlook.

The consultant adds that the forecasts were also skewed by assumptions regarding the Amgen/Wyeth arthritis treatment Enbrel, an early biopharmaceutical that required what turned out to be an inordinately large volume of biologic precursor. "That was a very special product, and the process was not efficient," Polastro says.

Contract biologics will, nonetheless, remain a growth market, and some fine chemicals players are staying the course or upping their activity. Most companies investing in new manufacturing capacity emphasize that they are doing so in response to increased demand from existing customers. They acknowledge that the business is extremely risky, given the potential for failed products and the uncertainty over how drugmakers will answer the "make or buy" question.

Many big pharmaceutical companies are signaling that they intend to make their own. Wyeth is building a $1.5 billion facility in Grange Castle, Ireland, for example. Centocor is also building in Ireland, and Amgen has announced a major expansion in global biopharmaceutical production, inclucing a $1 billion investment in Puerto Rico.

John Dingerdissen, vice president of global services at Centocor, says biopharma is a new endeavor at most large drug companies. Many firms are using contract manufacturers, but only while they build their own manufacturing infrastructure, he says. "If they are going out to get contract manufacturing, it's only to hold them over."

Credit: Centocor Photo
Credit: Centocor Photo

Dingerdissen points out that contract manufacture of biologics is also new to some of the fine chemicals companies that are getting into the business, and some are learning that the investment and technical challenges are steep. He notes that the 20-40% price premium for contract manufacturing versus in-house production is a major incentive for drug companies to limit the amount of work they let out.

Centocor, which currently has manufacturing operations in Leiden, the Netherlands, and Malverne, Pa., is trying to bring production in-house and recently stopped using DSM as a contract manufacturer.

Indeed, DSM and Dowpharma both cited investment risk as a reason they dropped commercial-scale production ambitions. "Supply into the pharmaceutical industry is not easy to predict in the best of times," says Nick Hyde, global business director at Dowpharma. He says his firm's strategic trajectory was informed by the realization of this risk. "In biologics, you dig a deep hole in fixed costs," he says. "Filling it can be a constant battle."

According to Hyde, Dow acquired the small contract producer Collaborative BioAlliance in 2000 in order to "get a foothold" in the biologics market. "They were a microbial technology company that we could have taken to large scale. We could have leveraged it into mammalian cell production, but in the end we closed it down."

Instead, the company shifted its emphasis to Pfenex, a technology it obtained with its $324 million acquisition of Mycogen in 1998. Its main thrust will be licensing the expression system to established biopharmaceutical manufacturers, be they drug companies or contract producers. Dow recently struck just such a deal with the contract manufacturer Cambrex.

DSM, before its strategy shift, was building up an infrastructure in both microbial and mammalian cell manufacturing. The data are conflicting, but Leendert Staal, president of DSM Pharmaceutical Products, says the market for custom-manufactured biopharmaceuticals will grow at double-digit rates for at least 10 years. But that doesn't mitigate the risk for contract producers.

Staal says a combination of uncertainty about drugs in development and the amount of new capacity coming on-line dissuaded DSM from pursuing large-scale biologics manufacturing. "There is nobody who can, with any certainty, forecast demand," he says. "But there is definitely not a need for increased capacity for custom manufacturing. Speculative investment of several hundred million dollars is not the wisest move."

As part of its technology or "software" push, the company also announced an acceleration of its two-year-old human-cell-based protein and monoclonal antibody licensing alliance with the Dutch biotech firm Crucell. The pact is centered on developing Crucell's PER.C6 cell line for use by biopharmaceutical manufacturers. Here, DSM has big aspirations.

"We see the potential for a production vehicle with tremendous flexibility, which is a real alternative to Chinese hamster ovaries, the current industry standard," Staal says. "We have set ourselves a target of 25% of all new proteins and monoclonal antibodies. For anything in development and reaching the market between 2015 and 2020, we want 25% of the production platform to be PER.C6."

Other contract manufacturing companies say they remain committed to the biologics sector. Lonza, already one of the largest such firms, recently announced that it will expand biologics production at its Portsmouth, N.H., facility by installing 5,000-L reactors to complement the 20,000-L reactors already at the site (C&EN, Jan. 30, page 23). And the company is building a brand-new biologics plant in Singapore.

Avecia, after a series of divestitures, including its active pharmaceutical ingredients business, says it will push forward with contract biologics manufacturing plans, and Cambrex, in the midst of a significant reorganization, says it is staying the course as well.

"In general, we found microbials to be a fairly robust market in 2005," says Steven M. Klosk, chief operating officer of Cambrex's biopharmaceuticals division. "We've doubled the number of projects we're working on." Klosk says the division's 2005 revenues will be a little over $40 million. Cambrex sees 10-15% annual growth in microbe-expressed biologics, which it produces in Hopkinton, Mass., and Baltimore, and 15-20% growth in mammalian cell products, made in Baltimore.

The keys to success, he says, are cultivating process development skill and a balanced portfolio of products throughout the development pipeline. Klosk says Cambrex is aware of the risks from firsthand experience: The company lost a client when Transkaryotic Therapies failed to get U.S. approval for Replagel, a drug that it markets in Europe for treating Fabry disease. Cambrex has spent two years refilling current Good Manufacturing Practices capacity that was dedicated to that project.

But the market is undeniably risky, Klosk acknowledges. "It is a very lumpy market and a very lumpy business model," he says, because of the need to maintain a mix of projects under development. "You are making material, you're sending it to the client, they're putting it in humans, and they don't know and you don't know if they are coming back. So you do put in capacity without having it locked up."

Recently Cambrex lost two other projects when Nabi Biopharmaceuticals and another customer, a large drug company, experienced disappointing clinical trial results on drug candidates. Cambrex said earlier this month that an $85 million to $100 million impairment charge recorded in the fourth quarter of 2005 is mostly the result of lower profitability projections for its biopharmaceuticals division. Klosk says the loss of the contracts illustrates the need to keep an adequate amount of early-stage work in the portfolio to take up the slack.

Klosk adds that large drug and biotech companies may be contracting out biologics manufacturing for clinical trials with the intent of bringing the product in-house if their product is commercialized. But, he says, smaller companies can't afford to build their own manufacturing plants, and these companies are a key market for Cambrex.

Cambrex has invested between $20 million and $25 million in its biopharmaceutical division over the past two years, recently installing a 750-L reactor for mammalian cell production in Baltimore.

Avecia's biopharmaceutical operation dates back to fermentation work done at ICI in the 1970s. More recently, the company established its Advanced Biologics Centre in Billingham, England, with 1,100 L of small-scale-capacity and 10,000 L of large-scale-capacity microbial production. The firm also launched a small-scale mammalian cell operation to gain experience and establish a base on which to build if the opportunity arises, says Kevin Cox, vice president of biotechnology at Avecia.

Like Cambrex, Avecia is targeting smaller companies that do not have the resources to manufacture at commercial scale. Cox adds that business will also come from large companies acting to mitigate risk by setting up a second source of supply. Some larger companies will also go to the contract market for production outside their core area of technology.

"Our next major expansion won't occur until there is real live need: a customer project that justifies further expansion," Cox says. Our expectation is that in the not-too-distant future, we will have to do it."

Boehringer Ingelheim, the world's largest contract biopharmaceutical producer, has a different take on the business. It has a unique position with 25 years of experience manufacturing finished biopharmaceuticals for itself and for clients on a contract basis. Contract work makes up 62% of the company's total business in biologics, which amounts to $800 million in annual revenue, according to Rolf Werner, head of BI's biopharmaceuticals division.

In the past two years, BI has doubled capacity for microbial production, to 80,000 L, and mammalian cell production, to 180,000 L, according to Werner. He sees no reason to adjust the go-go market forecasts of five years ago.

Or does he? "We still think there will be a shortfall in capacity beyond 2009," Werner says. "But you can say we will never have shortfalls, because there will always be investments."


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