Pricing pressures, primarily for large-scale production of biologics is causing the typically North American and European industry to now include Asia.
The biopharmaceutical contract manufacturing industry has long been established in North America and Western Europe, where contractors have been producing biologic clinical trial material and commercial products for biotechnology companies for more than a decade. As the industry matures, however, pricing pressures, primarily for large-scale production of biologics, are compelling some to consider outsourcing to contractors in lower-cost Asian regions. In addition, the prospect of producing low-cost generic biologics, now a possibility based on recent approvals from the EMEA and FDA of a generic recombinant human growth hormone, bodes well for companies capable of biologics production in low-cost Asian regions. Finally, having closer access to the Asian market for biopharmaceuticals will be, in itself, a compelling reason for manufacturing biologics there.
Pricing - A major issue
Currently, Asian contractors have a small percentage of the worldwide market for biopharmaceutical contract manufacturing, which reached USD 2.5 billion in 2006. Although small today, this percentage is expected to grow based on a number of factors. First and foremost, pricing pressures in biotechnology markets are causing companies to seek access to lower-cost Asian contractors.
In the latest report by HighTech Business Decisions, Biopharmaceutical Contract Manufacturing: Best Practices Pricing Study 2006, 30 directors of biomanufacturing at pharmaceutical and biotechnology companies worldwide were surveyed regarding pricing and production strategies. Outsourcing is part of the production strategy for all respondents in the study, and pricing is a top selection criterion when choosing a contractor. For example, a single mammalian cell culture batch run in a mid-scale tank size can cost more than USD 2 million. At this level, pricing is becoming a major issue.
The participants in the study were asked if they would use an Asian contractor if the price were dramatically lower than prices from a North American or European contractor. More than 90% of the respondent group said they might consider outsourcing to an Asian contractor if they could gain a price advantage and their principal concerns regarding IP protection, regulatory compliance, technical capability, and a proven track record were alleviated. Regions such as Singapore and South Korea were among the first to address these major concerns and roadblocks, and they are already attracting biopharmaceutical contract manufacturing business.
The biomanufacturing directors appear to be willing to tackle the problems of long distance and language barriers for the right pricing incentive.
Models for establishing contractor capabilities in Asia
There are several ways high-quality facilities for the contract production of biologics are being established in Asia:
(1) Use of existing facilities in Asia that are already used to produce biologics, or build?out of new facilities by established biotechnology companies in Asia
(2) Build-out of new facilities in Asia by an established contractor in North America or Europe
(3) Joint ventures and alliances between contractors in Asia and other regions
Some examples of these strategies are:
(1) Established biologics production expertise already in Asia
Companies in Asia with established biopharmaceutical production expertise such as A-Bio Pharma Pte Ltd., Aspex Division: Asahi Glass Company, Bharat Biotech, Dr. Reddy’s Laboratories, The Hong Kong Institute of Biotechnology, Shantha Biotech, and Syngene (Biocon) are ready for the business of outsourced biomanufacturing.
(2) Established worldwide biopharmaceutical contractor building in Asia
Lonza (Basel, Switzerland), one of the leading biopharmaceutical contract manufacturers worldwide, and Singapore’s Bio*One Capital, recently signed a joint venture agreement to build a large-scale mammalian cell culture plant for contract manufacturing in Singapore. This plant is being built to produce commercial-scale biologics, with four mammalian bioreactor trains, each with a flexible capacity up to 20,000 litres. This plant, located in Tuas Biomedical Park, will represent an investment of approximately USD 250 million. Although most of the biopharmaceutical contract manufacturers are currently not large enough to build and manage a worldwide network of facilities for the production of biologics, the larger contractors, such as Lonza, are. This will be Lonza’s second large-scale mammalian cell-culture facility.
(3) Alliances for biomanufacturing
Last year, Bristol-Myers Squibb (BMS) announced an outsourcing agreement with Celltrion, Inc. in Incheon, South Korea, for the manufacturing of biopharmaceutical products, including its abatacept and belatacept products. Celltrion was founded by VaxGen, a biotechnology company in California, and a group of Korean partners to access the growing pharmaceutical market and lower costs in Asia. The agreement helps BMS ensure that long-term biomanufacturing capacity for its products will be available as needed.
Celltrion has also secured an agreement with Aphton Corp. whereby Celltrion will have distribution rights in some Asian markets in exchange for production of clinical and commercial product for Aphton. Celltrion’s 50,000 litres of bioreactor capacity for mammalian cell culture is expected to be ready for commercial operation this year. Expansion to 150,000 litres of capacity is planned based on client needs.
Wallace Pharmaceuticals, Ltd., based in Goa, India, and its subsidiary Wallace USA invested in Goodwin Biotechnology, Inc. (Florida, USA), a biologics contract manufacturer. The investment allowed both Goodwin and Wallace to expand their capabilities and their global reach.
Wallace Pharmaceuticals, Ltd., based in Goa India, and its subsidiary Wallace USA invested in Goodwin Biotechnology, Inc. (Florida, USA), a biologics contract manufacturer. The investment allowed Goodwin to expand its mammalian cell culture and microbial fermentation capacity to a Phase III level, while the alliance allows Wallace to expand its capabilities and global reach. Ideally, clinical projects for North American clients will be conducted by Goodwin, and when capacity needs expand to commercial-scale, these projects can be seamlessly transferred to facilities in India to access lower costs for large-scale production.
Some insightful comments1 from the surveyed biomanufacturing directors are shown below regarding the precautions they would take before outsourcing to an unknown contractor in Asia to access lower prices.
“We would potentially consider working with an unproven Asian contractor, but they would have to build the expertise before we started production. For commercial supply, which would be the main reason we would be interested in an Asian supplier, we would need to see a good track record.”
“To outsource to Asia there would have to be serious incentives. The contractor would have to do small runs for free to show their reliability. It would take a lot to convince us. If one of their products was on the market for five years, maybe we would be convinced. If they are unproven, it is a big leap. Then you have the issue of IP protection, especially in China. You don’t want your precious drug pirated.”
“Cost would be a primary driver, and also the availability of space would be a consideration. We would only consider working with an unproven Asian supplier for an early stage product where we could afford a few delays, but not for a commercial product.”
“I would not want to use an unproven Asian contractor, but I would be interested if I knew it was a large international contractor who had a facility set up in Singapore, for instance. I would then have confidence. I would not trust a complete unknown in Asia. It would depend on who operates the contract facility.”
“At this point, we would not consider going with an unproven Asian contractor because it is too risky. However, if we had a product that needed a decreased cost of goods to be competitive, we might consider it.”
“If it was dramatically cheaper, we would definitely consider it for a well-defined small project, which we would use to evaluate them as a first step.”
“There is an inherent risk going to an unproven contractor. We would have to weigh the risk versus the cost savings or find some way to mitigate the risk. I wouldn't work with anyone just based on price.”
In the coming few years, contractors in Asia will have an impact on the biopharmaceutical contract manufacturing industry. How significant this impact will be depends on
(A) The ability of the countries in this region to handle IP issues appropriately,
(B) The ability of contractors in this region to meet strict quality and compliance requirements and provide excellent technical capabilities,
(C) The level of benefit that can be provided, primarily lower prices, but also access to Asian markets, a quality product, and tax advantages,
(D) The ability of clients and contractors to work together over long distances and communicate,
(E) The level of acceptance of Asian contractors by worldwide pharmaceutical and biotechnology companies.
1. The quotes illustrate the opinions of biomanufacturing directors at different pharmaceutical and biotechnology companies participating in the study, which includes a representation of large, small, and mid-sized companies worldwide. Because the respondents were promised anonymity, no individual company names are listed.