Outsourcing Report: Contract Biomanufacturers Turn Conservative, but New Players Add Options

Apr 01, 2004
Volume 17, Issue 4

Major active pharmaceutical ingredient manufacturers are cutting back on new capital investments in facilities in response to problems with their core chemical businesses, but biopharmaceutical companies shouldn't face capacity shortages in the foreseeable future. In the meantime, new outsourcing opportunities are opening up in clinical-scale contract manufacturing.

The biopharmaceutical product pipeline is moving again, backed by renewed funding from venture capitalists, public equity investors, and major pharmaceutical companies seeking licensing deals. However, the biomanufacturing industry is not necessarily responding with the same enthusiasm as investors, forcing biopharmaceutical company executives making key manufacturing decisions to monitor developments beyond their normal purview.

The issue stems from the fact that the fortunes of major contract biomanufacturers — such as Lonza, DSM, Diosynth, and Cambrex — are bound closely to developments in their core fine chemical businesses, including custom pharmaceutical chemicals manufacturing. The always-cyclical fine chemicals industry is in the midst of a difficult period. Pharmaceutical intermediates and actives have been impacted especially hard, with many major chemical companies experiencing revenue declines of 10 to 30% in 2003 and even more drastic declines in profits. The industry has been hit by a "perfect storm" of adverse events, including overcapacity, product failures and cancellations, weak new product pipelines, the rising value of the euro versus the dollar, Asian competition, and highly-leveraged balance sheets.

In response to the crisis, the chemical companies are moving to "rebase the business," in the words of Lonza chairman Sergio Marchionne, by selling or closing down facilities, halting capital investment, and reducing staff. As much as 20% of GMP chemical manufacturing capacity will be eliminated at many companies. Management attention has turned from driving rapid growth to carefully utilizing existing capacity as fully as possible.

Reduced Biomanufacturing Investment Despite signs of a re-energized biopharmaceutical market, biomanufacturing investments have not been spared from the conservative outlook that pervades the chemical industry's executive suites. Recent experience with chemical manufacturing has made industry executives more skeptical of rosy projections for biopharmaceutical production, and the skepticism is bolstered by major contract cancellations suffered by Lonza and Cambrex in 2003. That aversion to risk, coupled with their constrained financial capacity and the desire to fully utilize assets already on the ground, have led some companies to scale back their biomanufacturing investment plans.

A case in point is Lonza, which is completing a major expansion of its Portsmouth, NH, manufacturing facility, including the installation of three 20,000-L cell culture bioreactors. Thanks to its recently announced contract to manufacture Rituxan for Genentech, Lonza has virtually sold out its large-scale manufacturing capacity. Rather than commit to building more large-scale capacity, however, the company is looking into moving some production currently slated for the 20,000-L bioreactors to existing 5,000-L equipment. The 5,000-L bioreactors are more costly to operate on a per-gram basis, but Lonza's 5,000-L bioreactors are substantially underutilized owing to contract cancellations in 2003. Moving production to the smaller bioreactors will enable Lonza to more fully utilize existing assets while avoiding additional capital investment.

In addition, Lonza announced that it is reducing investment in its new microbial fermentation plant in Visp, Switzerland, primarily by planning to use existing downstream processing and purification capabilities rather than installing new equipment. Other companies are showing restraint in building new facilities. Industry sources report that DSM slowed its expansion of the DSM Biologics facility in Montreal, Canada, which includes installation of two 15,000-L bioreactors. Dowpharma has yet to proceed with expansion of its Smithfield, RI, facility, despite much talk of doing so in recent years.

Near-Term Capacity Sufficient Despite the reluctance to invest, there are no indications of a looming disastrous shortfall in biomanufacturing capacity. Merck KGaA is confident enough about capacity availability to announce it will rely on contract manufacturers to supply API for two monoclonal antibody products it is developing, including the European version of Erbitux.

And new capacity is still coming onstream. Sandoz recently opened a new cell culture manufacturing facility with 13,000-L and 3,000-L bioreactors. Avecia recently completed installation of two 5,000-L microbial fermentation tanks.

"On the aggregate, the supply and demand numbers look pretty well matched right now," notes Howard Levine, president of BioProcess Technology Consultants. However, Levine warns that some companies could have problems. "Access to capacity and overall facility utilization rates would suggest that some companies could have difficulty in obtaining capacity," he says.

Longer-term, the availability of commercial manufacturing capacity will depend on process improvements as much as investments in new facilities. "If expression levels routinely reach 1 g/L (several companies are already there) and overall yields increase to 60% (again some companies claim to be there already), a 5,000-L bioreactor now produces 3 kg per batch, making it a viable scale for production of 50 kg or more per year," says Levine. In addition, higher expression levels mean companies will need to run fewer batches in larger bioreactors, which will also increase capacity.

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