China continues its remarkable advance last year as the most likely outsourcing destination, edging out stalwarts U.S. and Germany. In our 9th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, research analysis from 302 biopharmaceutical manufacturers in 29 countries indicate that China is, by far, expected to be the most popular country, of the 25 countries identified as outsourcing partners, over the next five years . Survey results confirm other trends indicating likely growth in outsourcing to Asian CMOs and CROs.
Among the global biopharmaceutical industry professionals responding to this annual study, the largest proportion of respondents cited China, 26.2% (up from 17% last year) as a “Likelihood” or “Strong likelihood” to be a destination for their foreign outsourcing (offshoring) of manufacturing by 2017. This was followed by India, at 18.4% (up from 13.2% last year), and the U.S. in this international survey, at 16.9%, slightly outranking Germany at 16.7% (up from 12.3% last year). Korea ranked 8th at 15.6%, suggesting that the country’s concerted efforts to become a major CMO destination may be paying off. This includes access to government subsidies, multinational company investments, and large-capacity CMOs, such as Celltrion, moving forward. When evaluated by respondents’ region, we found that a high percentage of U.S. respondents, 34.4%, cited China as a likely destination.
Separately, when respondents were asked what percentage of operations will likely be offshored in five years, the average for manufacturing was 11.7%, clearly indicating that the majority of manufacturing, particularly commercial product manufacture, will remain in-house, but demonstrating a lot of room for growth in outsourcing. Fully 40% of respondents reported expecting some offshoring (contracting with non-domestic CMOs) for product manufacturing over the next five years (2017), with this approaching the percentage for clinical trials (46.4%). When asked about their facility’s international outsourcing over the next five years, depending on the area, respondents indicated between ~35%- 43% of manufacturing operations could be off-shored in five years.
While manufacturing tends to be the industry’s single highest outsourcing expense, the study indicates that outsourcing projects continue to be dominated by relatively lower cost and value-added services, such as fill-finish, product characterization, and other testing often involving the use of CROs (contract research (clinical) organizations) rather than CMOs (contract manufacturing organizations). The most commonly outsourced activity remains analytical testing/ bioassays, with over 80% of companies outsourcing at least some of this activity, with outsourcing to Asian CROs increasing, followed by tasks not amenable to foreign outsourcing - validation, plant maintenance and fill-finish services. The area with the largest growth in response this year was analytical testing/bioassays, with biosimilar development likely contributing to this.
Reducing Costs through Outsourcing
When asked about actions taken in the past year to reduce costs, the largest percentage will outsource manufacturing jobs to cut costs (14.4% this year, up from 11.8% last year). Figure 2 shows a few of the 21 areas measured in the study regarding cost reduction. Outsourcing of manufacturing activities to domestic and non-domestic CMOs was tied, at 9.4%, with non-domestic outsourcing increasing significantly from 7.1% last year. This further suggests the industry’s increasing willingness to outsource, including to foreign service providers.
Broad Trends Support Growth in Asian Outsourcing
A number of industry and broader trends are contributing to Asia becoming increasingly attractive for outsourcing of biopharmaceutical manufacture and a host of other tasks. Most important in the near-term, the biopharmaceutical industry has survived recent years’ economic downturn and has remained healthy. Despite global economic problems, the industry has continued to grow at a steady pace and now appears to be on a path for further recovery and growth. Survey data show that companies are now planning to spend and invest more in every budget area surveyed, including R&D and bioprocessing capacity, staff and other infrastructure. Companies, particularly the larger and more established ones, are continuing to aggressively look for opportunities to cut costs and increase efficiency through outsourcing, with this continuing to benefit contract manufacturing and research organizations (CMOs and CROs). Survey results clearly show that outsourcing is an accepted part of normal business and, thus, likely to increase as industry spending increases. Companies are also outsourcing more selectively and intelligently than in prior years. Prior common severe cuts in staff and divestment of facilities are decreasing, but this may simply reflect industry reaching the limits of eliminating in-house staff and facilities.
Our research shows the world market for biopharmaceuticals is now about >$145 billion and will continue to grow at ≥15% annually, a very healthy rate (see www.top1000bio.com). New products and markets, particularly internationally, continue to support market growth. The continued high growth rate in biopharmaceutical markets has and will continue to drive investment in the industry, including at the expense of traditional small molecule drug developers. Already, ≥40% of the overall pharmaceutical R&D pipeline is reported to involve biopharmaceuticals (vs. drugs); and this is expected to eventually reach 50%. Biopharmaceuticals have proven themselves to be more profitable than drugs, along with a higher likelihood of receiving approvals. Many of the largest international pharmaceutical (Big Pharma) companies, those collectively responsible for ≥90% of all industry R&D and sales, are now concentrating on development of biopharmaceuticals rather than small molecule drugs.
Outsourcing is also affected by trends in biosimilar developments (and related biobetters, i.e., follow-on products too unique to receive biosimilar approval). These are finally coming to the U.S. market, which will be the largest market for these products in revenue terms, with the European market developing around $300 million sales among over a dozen approved biosimilars. Other international markets continue to be fragmented. Contract manufacturer organizations (CMOs) will be among the recipients of benefits from biosimilars. As patents and data and market exclusivities expire on the majority of marketed recombinant proteins, there will likely be multiple, perhaps 5-10 or even more, biosimilar (and biobetter) versions of every successful product entering the U.S. and world markets. Asian countries are likely to be the leaders in ongoing development of biosimilars (and related biogenerics or copies sold in lesser-regulated international markets), while the U.S. leads in more innovative biobetters development . Survey data also indicate increasing outsourcing of analytical studies and bioassays, with much of this likely involving biosimilars development.
Biosimilars will have a positive impact on Asian CMOs. Biosimilars will result in decreased sales and manufacturing of many well-established reference products. Many of these manufacturers may shift their legacy off-patent products to CMOs, preferring to devote in-house manufacturing capacity to newer, innovative, higher-profit products. With most biosimilar developers being smaller companies, often lacking manufacturing facilities and expertise, and with biosimilar markets being smaller (compared to the established products they target), a large proportion, perhaps a majority, of biosimilar developers will likely be using the services of CMOs for product manufacture, initially for domestic/regional markets. Thus, biosimilars will result in a growing number of marketed products being manufactured by CMOs in coming years. With biosimilars expected to compete with each other on the basis of price, biosimilars need to be manufactured as cheaply as possible, and this will sooner or later result in increased use of Asian CMOs.
Domestic markets for biopharmaceuticals are growing in many developing countries with increased incomes, a new middle class and improved health care; and domestic manufacture of products for local/regional marketing is increasing. However, China, India, and other developing countries’ CMOs are some time away from assuming manufacture of commercial products for U.S., European and other highly regulated, major-market countries. In terms of commercial U.S./ EU-level cGMP manufacturing expertise and infrastructure, companies in developing countries, such as India and China, lack the needed critical mass of established institutional knowledge, business practices and culture, trained and experienced staff, facilities, information and quality systems, etc. needed to attain and maintain this level of quality. The majority of drugs (mostly generics) are now manufactured in China and India, but no Asian country yet manufactures biopharmaceutical products marketed in the U.S. or European Union. Eventually, biopharmaceutical manufacture for major Western markets will start to be outsourced to developing countries, but it will likely be many years, perhaps a decade, before a significant number of U.S./EU biopharmaceuticals are primarily manufactured in developing countries. A few more advanced countries, such as South Korea, will likely attain this goal in coming years. The Korean government is subsidizing domestic companies’ building of world class large-scale facilities, with biosimilars, particularly U.S. markets, being targeted.
Many Asian, particularly Chinese, Indian and Korean companies, are developing commercial-scale biopharmaceutical manufacturing facilities, initially to serve domestic and regional needs. This is already happening with many vaccines, with developing countries increasingly developing their own vaccine manufacturing capacity. While much ongoing Asian expansion involves biogeneric versions (copies) of innovator products, a few companies are developing their own fully innovative biopharmaceuticals. Eventually, commercial biopharmaceutical manufacture will start to be outsourced to Asian companies. But in the near term, we can expect increased use of developing country-based CROs and CMOs, primarily to support pre-commercial R&D.
The BioPlan survey also includes a separate module for vendors. Among vendors, the great majority, 90.7%, reported doing business in the U.S., followed by Europe, 81.5%; Canada, 66%; Japan, 48.8%; China, 48.1%, Australia/New Zealand, 46.9% and India, 45.1%. It is interesting that just as many vendors are operating in China as in Japan, and that more are operating in China than in Australia/New Zealand or India. As recently as three years ago, only 39% were active in India.
Overall, both in terms of biopharmaceutical industry outsourcing plans and vendor activity, China outranks India, despite India having an earlier start in biopharmaceuticals and as an outsourcing destination. With Chinese government bodies coordinating and even funding much industry expansion, we can expect China to further surpass India as a biopharmaceutical player and outsourcing destination in coming years. This will occur as the country addresses quality issues, and removes legislative/regulatory hurdles associated with commercial outsourced manufacture of drug products .
The biopharmaceutical industry is emerging from the world’s economic downturn healthy, vital and growing; with this on other trends favoring increasing outsourcing. Asian CMOs and CROs are well positioned for growth, including capturing increased business from U.S and European companies. U.S. and European biopharmaceutical companies will be increasing their outsourcing, with lesser-expensive Asian CMOs and CROs increasingly benefiting from this, particularly, as they grow and gain experience. With foreign biopharmaceutical investment in India slowing and lacking government coordination, China and South Korea look to be the future leaders in Asian biopharmaceutical outsourcing.
1. Langer, E., 9th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, BioPlan Associates, April 2012, 500 pages.
2. Rader, R.A., “Analysis of the Biosimilars and Biobetters Pipeline,” www.biosimilars.com/Biosimilars_Presentation_3.2012.pdf, March 2012.
3. Langer, E. Advances in Biopharmaceutical Technology in China, BioPlan Associates, 2007, 1290 pages.
Survey Methodology: The 2012 Ninth Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production (preliminary results) yields a composite view and trend analysis from 302 responsible individuals at biopharmaceutical manufacturers and contract manufacturing organizations (CMOs) in 29 countries. The methodology also encompassed an additional 180 direct suppliers of materials, services and equipment to this industry. This year's survey 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.
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 Largescale Biopharmaceutical Manufacturing,” and many other industry reports. email@example.com 301-921- 5979. www.bioplanassociates.com
This article was printed in the September/October 2012 issue of Pharmaceutical Outsourcing, Volume 13, Issue 5. Copyright rests with the publisher. For more information about Pharmaceutical Outsourcing and to read similar articles, visit www.pharmoutsourcing.com and subscribe for free.