Investigating Outsourcing

The outsourcing market can often be subject to the trends and whims of the greater pharma market. Consider, for instance, messenger RNA (mRNA) vaccines—following the success of both Moderna and Pfizer-BioNTech’s COVID-19 vaccines, mRNA vaccines have become a “new” technology of interest, 50 plus years of prior research notwithstanding (1). Numerous companies have thrown their hat into this ring, exploring mRNA as an avenue for future vaccines for anything from zika virus to cancer (2).

However, while there is significant buzz around mRNA technologies, the companies investigating this technology remain just a fraction of the larger biopharma market. In spite of this, these few companies may be having an outsized impact on the outsourcing industry, particularly among companies specializing in biologics, or those which claim to offer “one-stop-shop” services. mRNA technologies have unique manufacturing needs that need to be incorporated into facility design for commercial scale production (3). As a result, contract manufacturing and development organizations (CDMOs) and contract research organizations (CROs) aiming to capture this market may have to turn existing plans on a dime to satisfy the needs of these potential partners, ultimately breeding a culture of adaptability among outsourcing companies who strive to capture emerging markets.

Put simply, if the pharma market is the X axis, or independent variable, then the outsourcing market is the Y axis, or dependent variable. Consequently, if one can brush past the buzzwords and marketing speak, investigating where companies are turning to outsourcing can help illuminate trends in the undercurrent of the larger biopharma space.

What companies outsource

Before launching into integrated CDMOs, it’s important to get a firm footing on where outsourcing currently stands. According to John McDermott, vice-president of Scientific Consulting at Quotient Sciences, a pharmaceutical CDMO and CRO, historically pharmaceutical companies have favored outsourcing clinical activity and been less willing to outsource non-clinical activities like R&D, manufacturing, and commercialization.

“Outsourcing of clinical activity has been prominent in the pharmaceutical industry for a number of years, but it has taken longer for other drug development disciplines to outsource to the same extent,” says McDermott. “The reasons for this are clear; maintaining internal clinical capability carries a high fixed cost and invariably offers limited access to the wide range of patient groups required by the indications under investigation today, and so clinical absolutely rely on the outsourcing strategies. Pharma has found it easier to maintain internal resources in other disciplines, such as formulation development and clinical trial manufacturing, and therefore has been slower to fully outsource.”

However, according to McDermott, the emergence of biotechs and specialist formulation technology for solubility enhancement or even modified release has increased outsourcing of processes that were traditionally done in-house, particularly among startups and virtual companies with limited lab infrastructure in the small molecule space. Working with external suppliers, he says, allows for immediate access to ready-made and scalable capacity for these types of companies.

To some extent, this trend is borne out by recent developments in the biopharma business space; more than 100 biotech start-ups conducted initial public offerings (IPOs) in 2021(4), almost double that in 2018 (5). While that pace has significantly slowed—just 22 companies went public in 2022, with 2023 on pace for a similar number (6)—it nonetheless indicates that a number of companies have entered the space who may be seeking potential partners for more expansive types of CDMO services, including integrated services.

Eric Langer, president and managing partner at BioPlan Associates, a biopharmaceutical and life sciences consulting firm, noted that data collected by his company reflected an increased reliance in particular forms of outsourcing. In the 2023 edition of BioPlan Associates’ annual Biopharmaceutical Manufacturing Capacity and Production market report (7), just 29% of survey respondents indicated that they were doing all of their biomanufacturing for mammalian platforms in-house; this is half the number (58%) of companies who reported similarly in 2006, according to Langer.

“As the complexity of bioprocessing increases, and the need for highly specialized, experienced staff grows in areas like cell therapy, plasmid DNA production, gene therapy, and continuous bioprocessing, and so on, the demand for those unique skills has increased,” says Langer. “Further, many small and mid-sized companies simply do not have the manufacturing core competencies needed to move their clinical projects through the pipeline. For them, there may be no option but to outsource their product manufacturing.”

In addition to the increased types of complex tasks, Langer also noted that the global pandemic shifted the outsourcing models used by some in the market. For example, prior to COVID-19, certain basic operations, like cell culture media and buffer rehydration, were typically an in-house production. Like many other industries, the supply chain shortages caused by the pandemic necessitated consideration of new biomanufacturing channels, including outsourcing.

“The percent of the industry considering outsourced buffer and media services increased dramatically—from single-digit percentages, to a substantial share of the industry now actively outsourcing the production and shipping of buffers and media,” says Langer. “While today this is often done for more complex media and buffers, as the service becomes more common, it is likely to begin replacing some smaller facilities’ media and buffer kitchens.”

Examining the full-service model

Given the various types of expansions occurring in the outsourcing industry, it raises the question of whether potential pharma partners will turn to full-service outsourcing. For companies without existing laboratory or manufacturing services, who are more incentivized to consider outsourcing in some manner, it could make business sense to prioritize a provider who can offer various services. Furthermore, even if clients don’t wish to take advantage of the full “end-to-end” services, using one company for multiple
different tasks will nevertheless offer some level of convenience.

“Demand for companies, including those in the small molecule space, that are able to offer a range of streamlined and efficient integrated capabilities across the development journey is increasing,” says McDermott. “Developers are provided with a single point of contact, which makes it easier to keep track of production timelines. The need for tech transfers is also eliminated, saving time and reducing the risk of error. Silos are reduced and any information or insights gathered in earlier development stages can be quickly shared and actioned downstream, improving efficiency and optimizing the quality of the end product.”

McDermott views integrated CDMOs who can support various development functions, from candidate selection through early development and toward commercialization, as a crucial development for the future of the outsourcing industry. However, there is not a clear consensus on this; even if the industry is facilitating full-service models because of increasingly numerous outsourcing niches, that doesn’t necessarily mean there are clients lining up to take these companies up on said offer.

For instance, according to Langer, the convenience of streamlining development with a single partner needs to be balanced with getting the best value for one’s money in said services. “Sales staff and service suppliers can benefit from the one-stop-shop concepts,” he says. “This concept has been around for many decades, and while many end-users would like to have to deal with just one vendor, it is often unlikely that one vendor can provide the best service at the best price for every one of their services, from cell line development through fill/finish. Typically, a compromise will be seen between the convenience of dealing with one vendor, and the quality, speed, and price of dealing with multiple service providers.”

This type of consideration gets to the heart of what companies are looking for in potential outsourcing partners. In BioPlan Associates’ annual report, 64.2% of the industry valued “supplier’s consistently high products” as a “Most Important” attribute; 50.9% of respondents indicated the same for “performance on vendor audits” (7). In this vein, while convenience matters, it is inferior to broader cost-benefit calculations; a company being local, for instance, typically ranks low on the annual survey for those reasons.

McDermott similarly acknowledged that a company’s reputation was the most important consideration in standing out from the pack. “The main differentiator is whether the company is well established and reliable,” he says. “There are a lot of risks associated with drug development, so forming a partnership with a company that has the experience, specialist expertise, and scope to deliver what they promise helps to mitigate some of the potential issues.”

That said, while companies may not be racing to use the totality of end-to-end services, McDermott notes that they do present an opportunity for outsourcing companies to get their foot in the door. In this regard, offering more services naturally widens the amount of companies who may consider one’s services. In doing so, however, a company must not risk damaging the efficiency of any given service, ultimately inducing a balancing act between offering a breadth of services that attract customers and a quality of service that retains them.

The future of outsourcing

Many find it is difficult to firmly predict where the outsourcing industry will head in terms of integrated CDMOs, given the inherent variability of the pharmaceutical industry. Langer, on the one hand, noted that many CDMOs have adopted a “wait-and-see” approach that “balances the need for establishing expertise in this area against the future developments and demand for such services.”

McDermott, on the other hand, did have pointed predictions, firmly embracing the holistic CDMO model. He characterized traditional outsourcing models, which relied on multiple partners specializing in certain aspects of the development journey, as failing to integrate across drug development functions like drug substance manufacture, clinical trial manufacturing, and clinical testing. Integrated CDMO services, conversely, would provide “centralized program management and control of critical path steps such as the transition into first-in-human or proof of concept studies within a single supplier.”

“Given these benefits,” McDermott added. “It is expected that increasing numbers of companies will look to harness the efficiencies offered by integrated CDMO partners in the coming years.”

While there may be no consensus answer on the future of outsourcing, whether other prominent trends continue in the future may shift the tide one way or the other. Notably, while there is an existing surplus of young biotech start-ups, if venture capital dries up and IPOs continue to dramatically slow-down, the proportion of companies acutely reliant on outsourcing will decrease; this will weaken the prospects of integrated outsourcing companies who can pitch themselves as full-service partners to companies without facilities. If, however, the current state is a valley, the uptick in new start-ups will likely present a boon for companies adopting an integrated model.

Unfortunately for those looking for consensus, experts seem to be divided on the issue, a natural extension of market uncertainties. When discussing a finding from the 2023 Convention on Pharmaceutical Ingredients (CPHI) annual market report concerning biotech funding, Tara Dougal, content director—pharma, Informa Markets, noted that “the next 18 months to two years look extremely robust, and that’s with macro and inflation headwinds factored-in” (8). Whereas, John Stanford, executive director of the Incubate Coalition, a lobbying group focused on the pharmaceutical industry, said in an interview with BioPharm International that adjustments to patent exclusivities from the Inflation Reduction Act added further risk and barriers to entry for venture capitalists looking to invest in biopharma (9).

In this vein, it is pivotal to pay close attention to the market movements in the near future, especially because the outsourcing industry is so heavily predicated on the larger pharma market. While the sustained impacts may not seem evident on the surface, the downstream impact of broader pharma market movements will undoubtedly extend to the outsourcing industry.

References

1. National Institutes of Health. Decades in the Making: mRNA COVID-19 Vaccines. covid19.nih.gov, Jan. 10, 2023.

2. Billingsly, A. More Than COVID-19: 6 Other Promising mRNA Vaccines in the Pipeline. GoodRx Health, June 16, 2023.

3. Vickers, J. et al., Overcoming Engineering Challenges to Enable Commercial Scale mRNA Vaccine Manufacturing. Pharmaceutical Technology 46 2022 (8).

4. Brad Loncar. Biotech IPO’s Class of 2018. loncarblog.com, accessed July 12, 2023.

5. BDO USA. BDO Biotech Brief – Q1 2023. bdo.com, March 27, 2023.

6. BioPharm Catalyst. Biotech IPO Calendar. biopharmcatalyst.com, accessed July 12, 2023.

7. BioPlan Associates. Report and Survey of Biopharmaceutical Manufacturing Capacity and Production. 20th edition; BioPlan Associates, Spring 2023.

8. Playter, G. Predicting Pharma’s Future. PharmTech.com, Jan. 2, 2023

9. Playter, G. The United States and the Global BioPharma Market. PharmTech.com, May 28, 2023.

About the author

Grant Playter is associate editor at BioPharm International.

Article details

BioPharm International
Volume 36, No.8
August 2023
Pages 10-12

Citation

When referring to this article, please cite it as Playter, G. Investigating Outsourcing. BioPharm International 2023 36 (8) 10-12.