Large Molecule API Outsourcing: Lots of sizzle but where’s the steak?

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The rise of biologics should be positive for the CMO sector. With the cost of a commercial large molecule manufacturing facility north of $200m, the rationale to outsource API manufacture to a third party could be viewed as compelling. Actual experience indicates that it isn’t any more compelling than for any other manufacturing activity.

PharmSource collected data on API manufacturing arrangements for therapeutic biologics as part of the research on our Trend Report CMO Scorecard: Outsourcing of NDA Approvals and CMO Performance. Our analysis shows that over the past 5 years, the active ingredient (API) for just 37% of the 49 FDA approved large molecule drugs (mostly monoclonal antibodies and recombinant proteins but excluding vaccines) has been outsourced. That’s below the propensity to outsource drug product manufacture, including injectables.

The global biopharma companies, which have been responsible for half of the therapeutic biologics approvals in the past five years, outsourced API production for 20% of those large molecule products, while small commercial biopharma companies outsourced the API for 73%. In both cases the rate of outsourcing is consistent with their propensity to outsource small molecule APIs and drug product manufacture.

More surprising is the fact mid-size companies outsourced only 25% of their biologics approvals. In the former case, the propensity to outsource the biologics API was well below the propensity to outsource drug product manufacture.

One factor in the outsourcing rate for mid-size and small companies is licensing arrangements. For instance, among the mid-size companies two of the six not-outsourced products are actually manufactured by the licensor and not by the sponsor receiving the BLA approval. For small commercial companies, one product is solely manufactured by the licensor while two others are split between the licensor and the outsourcing company.

Other factors in the preference for in-house manufacture among small and mid-size companies are the small volumes and the need for schedule flexibility. Shire, for instance, has traditionally outsourced nearly all of the manufacture of its small volume products. However, the company has stated that it built a commercial large molecule API facility because CMOs were unable to fulfil its requirements for flexibility and small volume products. Similarly Genzyme, whose products are generally orphan drugs or otherwise targeted at niche indications, has generally preferred in-house manufacture to outsourcing.

Another factor could be the relatively small number of financially-stable CMOs with strong approval records for manufacture of large molecule APIs. The range of choices available is less than five dedicated CMOs (including Lonza, Boehringer-Ingelheim, Fujifilm Diosynth, Rentschler and Cook Pharmica), although several more companies do offer excess capacity when it is available. Given the paucity of choices, the in-house option may look more attractive from both operational and financial viewpoints than is typical for small molecules.

The real opportunity for the biologics API sector remains the emerging biopharma companies that have traditionally outsourced much of their clinical development (including CMC) and commercial manufacturing. The evolution in their manufacturing strategy is instructive; most recent IPOs do not expect manufacturing to be a critical competency and companies typically emerge from their IPO armed with a series of clinical supply agreements with outsourcers.

Yet during a period of relative capital abundance, improving titres and niche products, the in-house option may be more appealing than ever. With the next-generation of large molecule technologies (cell therapy, gene therapy and antibody-drug conjugates) now maturing, the biologics CMO industry may need to make changes to its business model to ensure that it continues to offer a preferable option to in-house manufacture.

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Saul is PharmSource’s Director of Market Intelligence. He brings over 15 years of experience in market analysis, having worked in business intelligence roles at Evaluate Pharma, Cardinal Health (now Catalent) and Abbott Laboratories. Prior to that, he was a Post-doctoral fellow in Neuropharmacology at the Universities of Birmingham and Bristol.  Saul holds an MSc (Neuroscience) from the Institute of Psychiatry (King’s College London) and a D.Phil in Neuropharmacology from the University of Oxford.

More posts by Saul Richmond