Higher Tech Outsourcing Repositions CMOs

CMOs are providing more advanced outsourcing services to remain competitive, as economic pressures drive demands for greater productivity.  In our current study, the  8th Annual Report and Survey of Biopharmaceutical Manufacturing [¹] we found this year that, while fill/finish activities continue to lead the list, upstream and downstream production take the next top slots, with both spiking significantly over the past year.  In fact, the number of respondents indicating that upstream production outsourcing will increase ‘significantly’ over the next 24 months nearly tripled, surging from 8.6% to 22.1%. Over the same timeframe, downstream grew some seven percentage points.

While many biomanufacturers continue to view outsourcing as part of their cost reduction approach, more are considering how they can incorporate outsourcing of the technical more complex upstream and downstream operations as part of their business strategy. If biopharma companies hold to these plans, the outsourcing arena may change considerably over the next few years.

Higher-end service offerings underline the importance of establishing a relationship with a CMO experienced in industry-standard GMP and quality procedures as well as in higher-level techniques and processes. Accordingly, CMOs willing to invest in the costly expertise required to deliver these technical capabilities may leverage new opportunities with biopharma clients. Although only 6.5% of companies last year actually outsourced or off-shored (higher-end) manufacturing activities, the 24-month projection for migration toward outsourcing technically challenging manufacturing jobs indicates potential near-term market expansion for these contract activities.  We measured 24 outsourcing categories in our study. Our query "Which activities will be done at significantly higher levels at your facility over next 24 months?" showed the greatest future changes in the following areas.    

Fig 1 Selected data: Outsourcing Activities Done at “Significantly Higher Levels” over 24 Months

Source: 8^th Annual Report and Survey of Biopharmaceutical Manufacturing, April 2011,  BioPlan Associates, Inc. www.bioplanassociates.com

The study also evaluates the percent of biomanufacturers outsourcing ‘at least some’ operations. In 2011, the primary outsourced activity continues to be product characterization testing.  Over 70% of biopharmaceutical companies are outsourcing at least some of this activity. “Validation services” was the next most common activity to be outsourced.

Other activities, such as API biologics operations, GMP training, upstream production operations, and project management services all showed significant increases in 2011 over 2010, showing from 10-15 percentage point jumps.  Today, many areas of R&D and manufacturing are at least being considered for outsourcing and the impact of this is being felt on a global basis. Emerging markets are showing increasingly favorably alongside established markets as potential outsourcing destinations. And while developing country destinations may not find substantial growth in the short term, their long term future is fairly clear. With huge domestic populations, for example, India and China will need to produce biologics for their local populations. Some of this experience, at some point in the near future will find outsourced operations making inroads into Western markets.

Cost-cutting: Original Outsourcing Drive

The recent global economic climate has tightened budgets and has been part of the stimulus for outsourcing trends. However, the situation has changed somewhat and outsourcing is being seen more as a strategic opportunity to increase overall productivity, and take advantage of externally available expertise.  In our Annual Survey we found that corroborated when we asked “During the past 12 months, which actions has your organisation undertaken to reduce overall costs at your facility?

Increasingly, contract management organisations are attempting to position themselves with capabilities in upstream production, downstream purification improvements, and other changes.  As a result, outsourcing itself is maturing and positioning itself to become an essential part of the modern company’s R&D and manufacturing strategies. Additionally, biopharmaceutical manufacturers are looking to outsourcing to address those chronic issues that have been growing in importance over nearly a decade, including the costs of downstream operations, the need for real-time process monitoring, and issues entailed by disposing of disposables.

Data from this study shows that biopharma CMOs are expanding their manufacturing competence through the use of novel technologies, single-use/disposable bioreactors and other differentiated bioprocessing services. Expansions are resulting in increased adaptability, lower costs, faster turnaround and higher yields. For clients, this means that more CMOs will likely meet their needs (more competition, more choice) and the costs for using CMOs for product manufacturing are becoming at least slightly more competitive.  Biologics manufacturing, noted above for its outsourcing gain 2011 over 2010, is inherently very complex, and companies are becoming more aware of the value of experienced CMOs as a provider of expertise, as well as a back-up manufacturer, with ‘flex’ capacity.

Summary

As pharmaceutical companies continue to define their core capabilities, at the same time they are attempting to establish deeper, more technical alliances. This is part of a trend where biomanufacturers are expecting to get more out of their outsourcing relationships than just pushing low-value work on external vendors. The CMOs able to adapt to the changing economic situation are continuing to keep busy, especially for larger companies that continue to cut back on hiring. Here, the need for greater external technical expertise to support biopharmaceutical development will expand. Establishing long-term relationships with CMOs may be slow in the near-term, but longer term this will allow companies to better manage their development plans and reduce internal expenses.

References:

[1] 8th Annual Report and Survey of Biopharmaceutical Manufacturing, April, 2011, BioPlan Associates, Inc. www.bioplanassociates.com

Survey Methodology: The 2011 eighth Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production in the series of annual evaluations by BioPlan Associates, Inc. yields a composite view and trend analysis from 352 responsible individuals at biopharmaceutical manufacturers and contract manufacturing organisations (CMOs) in 31 countries. The methodology also encompassed an additional 186 direct suppliers of materials, services and equipment to this industry. This year's survey covers such issues as: new product needs, facility budget changes, current capacity, future capacity constraints, expansions, use of disposables, trends and budgets in disposables, trends in downstream purification, quality management and control, hiring issues, and employment. The quantitative trend analysis provides details and comparisons of production by biotherapeutic developers and CMOs. It also evaluates trends over time, and assesses differences in the world's major markets in the U.S. and Europe.