On the other hand, mammalian cell culture technologies are still less developed, and most technologies and processes involved
are proprietary. A large portion of manufacturing is still controlled by the product companies (Figure 4). At the same time,
significant expected growth (Figure 5) suggests that opportunities for process improvements are abundant and additional capacity
may be needed. This additional capacity could be built internally or outsourced to a CMO. The following sections discuss how
both alternatives can be pursued.
CMOS ARE CRITICAL TO THE BIOTECH ECOSYSTEM
Since the late 1990s, the overall CMO market has grown significantly, to around $2 billion. CMOs now represent 66% of total
microbial manufacturing capacity and 25% of overall mammalian cell culture capacity.4 As shown in Figure 4, CMOs play a dominant role in microbial manufacturing, with the three largest CMOs—Sandoz, Akzo, and
Avecia—representing 40% of the market. On the other hand, mammalian cell culture manufacturing is still largely dominated
by in-house capabilities.
As the biologics manufacturing market matures, we believe that CMOs will continue to grow and provide compelling value propositions
to biotech companies, both small and large, for the following reasons:
1. CMOs can provide access to capacity with lower investments. For small-to-medium-sized biotech companies, or large biologics companies that prefer to focus on drug development rather
than manufacturing, CMOs can provide access to capacity without having to invest in a plant. Significant investment is usually
still required for upfront fees, contract management, and technology transfer, but these expenses generally amount to about
$40 million—considerably less than the cost of setting up a plant, which is typically about $400 million (Figure 6). Contracting
with a CMO can help a biotech company share the risks of building manufacturing capabilities for an unproven product. If the
product does not pass Phase 3 clinical trials, the company has lost only its initial investment with the CMO, not an investment
in an entire manufacturing plant.
We believe that outsourcing to a CMO can be particularly attractive for small biotech companies that don't have the capital
or access to capital required to make the investments required to build a plant. Currently, there are more than 650 biopharmaceuticals
in development, with two-thirds coming from small companies that have revenues below $1 billion. The large majority of these
companies are unlikely to have the cash reserves required to build a manufacturing plant. To illustrate this point, out of
41 companies in a representative biotech company portfolio assembled by CIBC, a North American financial institution, only
eight have cash reserves of greater than $400 million, the estimated cost of building a manufacturing plant (Figure 6).5 And more than 50% have cash reserves of less than $100 million. Further, debt and equity financing often are not viable
for these companies. Based on our experience and observations, the public markets view inexperienced biologics companies that
lack sufficient manufacturing experience as too risky for such financing.
Without the option to partner with a CMO, many of these small companies will likely be forced to form alliances or become
acquired by large biopharmaceutical interests to realize product commercialization. We believe that partnering with a CMO
can provide an option that could help biologics companies retain greater control of their products. By maintaining their autonomy,
companies would have more control over their future as well, whether they mature into a fully integrated biotech company,
better position themselves for later acquisition, or pursue other options.
Table 1. Assumptions made in the economic modela