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Key Outsourcing Trends to Watch This Year

Wed, 01/08/2014 - 8:54am
Eric S. Langer, President and Managing Partner at BioPlan Associates, Inc.

Outsourcing of biopharmaceutical manufacturing has been growing for several years, to the point where contract manufacturing has become a common strategic decision for developers, extending beyond simple non-core activities and into more high-value, technical ones that leverage offerings from contract manufacturing organizations (CMOs) that some developers do not have in-house.
BioPlan Associates has been keeping track of outsourcing trends over the past decade now through our annual survey of the industry. Taking a look at some multi-year trends revealed in our latest study – our 10th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production [1] – offers some insight into what the industry might expect on the outsourcing front this year.

Budgets for Outsourcing Set to Increase Again
The healthcare sector has traditionally been fairly insulated from adverse financial events, and last year, we continued to see evidence that the state of the biopharmaceutical manufacturing market is improving. This has resulted in a comparatively quick rise in budgets in the post-recession years, particularly in areas that improve performance for manufacturing activities, and other areas involving productivity and cost-savings.
While budgets for outsourcing have tended to show smaller shifts over the years than budgets for other areas such as process development, new technologies, and capital equipment, our studies show that funding for outsourcing projects is beginning to pick up steam after some tightening during the recent recession.
As might have been expected, budgets for outsourced biopharmaceutical manufacturing were squeezed somewhat during 2009 and 2010, contracting by 1.3% and 1.2%, respectively. Since then, the data have trended more positive, with respondents to our studies projecting a marginal decrease of 0.4% in 2012, and a 1.7% increase this past year. The results from 2013 include about 1 in 7 respondents (14.6%) indicating that they would grow their outsourcing budgets by at least 10%. 
Barring any significant financial event, it’s reasonable to expect that budgets for outsourced manufacturing will expand again this year, perhaps by upwards of 2%. Granted, that’s not a fast rate of growth, it’s a significant reversal from earlier years and an indicator of more outsourcing to come.
When we expand the question to outsourcing for R&D or manufacturing, the estimates are more enthusiastic. Indeed, asked how their spending on outsourcing of R&D or manufacturing would change in the coming 12 months, 44% of respondents indicated that budgets would increase at least to some degree – include about 1 in 6 forecasting an increase of more than 25%. Overall, respondents indicated that, on average, budgets for outsourcing at individual facilities would grow by 10.4% over the next 12 months, up from the 9.3% estimate from a year earlier.


Outsourcing Expectations Likely to Remain Bullish Regarding non-Standard Production Systems
Outsourcing strategies for production by biotherapeutic developers have been almost uniformly on the rise for the past years, and those trends have been most pronounced when looking at systems like plant and insect cell platforms.  For example, last year, the data showed that among respondents involved in plant cell systems, just 29% kept all of their manufacturing in-house. The same applied with respect to insect cells: only 38% of respondents involved in these systems claimed to keep all their manufacturing in-house. We note that because there are relatively few biomanufacturers involved in these systems the data can vary quite significantly from year to year. Last year’s results may prove to be an outlier, but separate data from our study indicates that this might not be the case. That’s because when we asked respondents their expectations regarding future outsourcing, we found a fairly steady trend towards outsourcing in these areas in future years.
The data shows a trend towards increased outsourcing of production in these newer systems. But it’s not only those that will be outsourced more: the percentage of respondents keeping their production operations 100% in-house has also shrunk over the years for traditional systems -  mammalian cell culture, microbial fermentation, and yeast.

Outsourcing of Analytical Testing Services to Rise
Another trend which seems likely to continue this year is increased outsourcing of testing areas associated with analytical testing.  As part of our annual studies, we ask the industry to estimate the approximate percentage of outsourcing done by biomanufacturers today across a variety of activities. This past year, we found that the heaviest area for outsourcing was analytical testing for bioassays – with respondents estimating that they outsource almost one-third (32.3%) of their activities in this area. Next on the list was fill/finish operations (31.8%), followed by toxicity testing (28.5%), and API biologics manufacturing (19%).
What’s interesting to see is the growth in some of these top areas in recent years. The 32.3% of analytical testing being outsourced represents not only a step above the 2012 estimate of 27.6%, but a significant distance from the ~19% estimate in 2010 and 2011.
The other big gainer from those top 5 areas is API biologics manufacturing. Just a few short years ago, in 2010, only 7.9% of these operations on average were being outsourced. That figure rose to 13.6% in 2011, before climbing again to 17.4% in 2012 and 19.4% last year. Given the burgeoning market for biosimilars, we would expect increases in this area to continue.



The Outsourcing Market Continue to Globalize
In recent years the outsourcing market has become more internationalized, and with developing countries likely ramping up their internal capacities to meet growing local demand, there’s good reason to believe that biomanufacturing hubs will develop in a number of regions around the world. Currently, according to our WIKI resource (www.top1000bio.com) on global biopharmaceutical facilities, traditional hubs in Western Europe and North America together account for nearly two-thirds of global biopharmaceutical manufacturing capacity. But other regions are coming on strong: China itself holds an estimated 8.6% of capacity, with India (8.1%) close behind.
Despite anecdotal comments from end-users about liking their CMOs to be local, our studies indicate that clients don’t actually put a high value on the proximity to their service suppliers. This apparently is not an important consideration when looking to enter a service contract.  In fact, location was the last in a list of 19 factors, at just 7% of biomanufacturers considering this to be a ‘very important’ factor, down from 10% in 2006. This suggests that the industry is not requiring their service suppliers to be in the vicinity.

Future Outsourcing Trends
In last year’s results, we found a contraction in expected, future international outsourcing. When considering their plans over the next 5 years, respondents noted they are expecting less than 10% of operations in all areas (clinical trials, biomanufacturing, process development and others) to be outsourced. That was a significant pull back from expectations in prior years.
Some of this is to be expected, as clients anticipate problems with technology transfer and intellectual property challenges – and with regulatory issues seeming more of a concern this past year. But with that said, clients will likely follow the path that proves most efficient, and organizations outside traditional hubs will grow to provide stiffer competition to the big Western players in the years to come.

References:
1. 10th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, April 2013, Rockville, MD www.bioplanassociates.com/10th
2. See BioPlan’s Top 1000 Global Biopharmaceutical Facilities Index™, http://www.top1000bio.com. Accessed November 27, 2013

About the Author: 
Eric S. Langer is president and managing partner at BioPlan Associates, Inc., a biotechnology and life sciences marketing research and publishing firm established in Rockville, MD in 1989. He is editor of numerous studies, including “Biopharmaceutical Technology in China,” “Advances in Large-scale Biopharmaceutical Manufacturing”, and many other industry reports.  elanger@bioplanassociates.com  301-921-5979.  www.bioplanassociates.com

Survey Methodology: The 2013 Tenth Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production yields a composite view and trend analysis from 238 responsible individuals at biopharmaceutical manufacturers and contract manufacturing organizations (CMOs) in 30 countries. The methodology also included over 158 direct suppliers of materials, services and equipment to this industry. This year’s study 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.

 

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