Rapid Growth of Domestic mAb Pipeline and Regulatory Reform is Creating Business Opportunities for Biologics CDMOs in China
Both multinational and domestic Contract Development and Manufacturing Organizations (CDMOs) are striving to enter this new segment in China. The recent regulatory reforms, and the potential opportunities are creating an upswell in investment and interest. BioPlan’s research for its Top 100 Biopharmaceutical Facilities in China Directory now show (http://www.top1000bio.com/top60china), there are well over 100 biopharma companies in China, both new and established, that have started mAb development projects.1 Many of these product innovators have limited experience in actually manufacturing a biologic, so, as with Western innovators, they are increasingly turning toward CDMOs.
Boehringer Ingelheim was the first multinational CDMO to test the water in China in 2016, and due to growth in demand, in 2019, it announced plans to expand its capacity. Lonza, the global giant in the CDMO industry, made a strategic move to enter China at the end of 2018. Korea-based Celltrion also announced plans to build a bioproduction facility in Wuhan in 2019. Dozens of domestic companies, existing CRO companies as well as brand new start-ups, kicked off their biologics CDMO business as more biosimilars and innovative mAb therapeutics began entering the clinical pipeline and reaching commercial scale.
Since the successful launch of Langmu in 2013, Chinese developers have submitted IND applications for 109 Class I biological therapeutics, including 61 therapeutic mAbs, nine ADCs, four bispecific antibodies and one PD-L1-Fc, as well as 26 recombinant proteins, 13 fusion proteins and a number of gene therapy products, therapeutic vaccines and oncolytic viruses.1
In Table 1 we can see the launch of mAbs into the China market has clearly picked up pace in recent years, with 2019 alone witnessing seven mAb therapeutics from domestic developers getting NMPA’s approval to be on the market, a record high number for a country which approved its first made-in-China mAb therapeutics beginning in 2005. Such a trend is likely to continue, as multiple industry insiders project that China may be home to five to ten new mAbs annually within the next five to ten years, creating greater demand for the biologics CDMO industry.
As most early-stage biologics developers in China lack manufacturing facilities, the need for contract manufacturing services would be certainly on the rise. As part of this market environment, total capacity in China has grown by over 10%, based on our analysis of facilities under active construction. BioPlan’s Top 100 Biopharmaceutical Manufacturers in China (http://www.top1000bio.com/top60china) directory shows continued capacity expansions and upgrades at a majority of biomanufacturer facilities through 2019.1 But growth of the biologics outsourcing services market is even more significant, with projected CAGR over 30% for the period 2016-2021 (Figure 1).2
Regulatory reforms are crucial for the growth of China’s biologics CDMO industry. With both global and domestic demand on the rise, Chinese regulatory authorities made the move to permit contract bio-manufacturing in China in 2016. That year, China started the pilot Market Authorization Holder (MAH) program, under which holders of a CFDA biologics approval number now have the option to either manufacture the drugs or use a CMO. The MAH breakthrough is a pilot running in ten provinces and municipalities, and at the end of 2019, the updated Drug Administration Law removed regulatory hurdles for contract manufacturing of drugs in China (vaccines excluded). Both domestic developers and CDMOs hope there will be future reforms which would make outsourcing of bioprocessing an easier decision.
At the current stage, it is still mandatory that DS (drug substance) and DP (drug products) have to be manufactured at the same place, which makes sub-contracting difficult to operate. In 2020 with the COVID-19 pandemic, some industry insiders also think it is possible that NMPA will make contract bioproduction of vaccines legal in China in the future in a move to speed up innovative vaccine development amid increased public awareness of public health issues.3
Commercial Scale Contract Bioprocessing Has High Growth Potential, But Developers Still Have Strong Preferences for In-House Facility
Many analysts are curious about whether commercial scale outsourcing of bio-production will be more mainstream in China, as it is the key factor for growth of the biologics CDMO industry with typical service revenue at dozens of times that of early stage clinical manufacturing (USD $50-100 million annually versus USD $4-6 million in 3 years)2 while most of China’s biologics CDMOs only have clinical scale bioprocessing deals at current stage.
Though China’s MAH reform since 2016 has opened doors for commercial scale contract manufacturing, domestic developers still have a strong preference for in-house commercial scale bio-facilities. The most important factor behind this preference is cost concern. As most of the mAb pipeline under development by domestic companies are of bio-similar/me-too nature, the projected profit margin would be significantly less than that of mAb therapeutics originated from MNC pharma. While outsourcing of clinical scale bioprocessing is a common strategy to speed up development by domestic companies, especially the start-up biotech companies, outsourcing of the whole manufacturing process is widely regarded as too expensive. The CDMOs prefer single-use technology while many biopharma developers use stainless steel bioreactors for commercial scale production as it costs less in the long-term.
Until recently only the industry leader WuXi Biologics has been widely accepted by the industry as fully capable of commercial scale bioprocessing, and many of the developers would not be able to use WuXi’s services at commercial scale. There is also concern of loss of control over the manufacturing process. The current regulatory system puts the market authorization holder as fully responsible for the products over the whole life cycle, so developers tend to be very cautious in outsourcing the whole of bio-manufacturing work to a CDMO due to quality concerns. Many of the VC/PE groups behind the mAb developers would need the company to go public as an exit route, and Chinese investors are known for their preference for fixed assets such as land, factories over intellectual property such as pipeline, patents, etc. Such a preference has made many domestic developers to view building an in-house bio-production facility as a strategy to get high evaluation via IPO.
Up until 2019 it has also been relatively easy for mAb developers in China to get resources for building an in-house facility. Enthusiasm of investors give high evaluation of companies while municipal governments can help developers with access to bank loans and cheap land. As a result, few domestic developers have turned to external partners for commercial scale bio-manufacturing. Even BeiGene, the first partner with Boehringer-Ingelheim’s facility in Shanghai, the pushing hands behind the MAH reform, in bio-production of its PD-1 mAb, started its own commercial scale bioprocessing facility in Guangzhou. Up till now BioPlan’s internal studies only find four commercial scale contract manufacturing deals with China-based CDMO, among which three are with WuXi Biologics.2
WuXi Biologics financial statement also shows that late-phase (phase III) and commercial manufacturing is only ~7% of its projects, with only one product in commercial manufacturing in 2018. While in the first half of 2019 we witnessed the number of late-phase (phase III) projects of WuXi Biologics increasing by 50% from ten as at same period last year to fifteen as of June 30, 2019, commercial manufacturing deal shows no growth (only 1 deal).4
Some industry insiders think a made-in-China mAb will most likely remain a low profit margin product which would make outsourcing of commercial manufacturing a very difficult decision, as the most recent NRDL (national reimbursement drug list) negotiation shows that policy makers want to force mAb developers to increase revenue at the expense of profit margin. Sintilimab from Innovent Bio, the only PD-1 mAb to get listed into the NRDL, had to reduce its price by ~64%.2
However, not everyone is that pessimistic. Some CDMOs think the current slow growth of commercial scale outsourcing may be simply due to the fact that the wave of BLAs for mAb therapeutics is just beginning to arrive in China and there are few commercial scale bio-manufacturing projects of mAbs to begin with. With the newly updated Drug Administration Law which gives a higher penalty to developers who violate quality requirements, developers of mAbs which do not have enough technical expertise in bio-manufacturing may have to seek help of an external partner for commercial scale production. There is also a trend of investment in mAb therapeutics cooling down in China, as witnessed by less deals in 2019 than in previous years. Municipal governments are also running out of funds to support every mAb developer in their region to build in-house facilities. Instead they may turn to the strategy of supporting a commercial scale manufacturing platform which can provide contract manufacturing services to multiple developers. Chinese investors’ preference for fixed assets over intellectual property may also change and if the pipeline itself can translate to a high evaluation investors would not insist on building in-house facilities, giving more growth opportunities for commercial scale contract bioprocessing. As over 30 mAbs from domestic developers are already at the Phase III stage, it is safe to project that China will need an additional capacity of 100,000L or more annually in the near future, which could translate to more business opportunities for biologics CDMOs.
References
- Top 100 Biopharmaceutical Facilities in China, BioPlan Associates, Inc., Rockville, MD USA, updated Feb 2020.
- Growth of Biopharmaceutical Contract Manufacturing Organizations in China: An In-depth Study of Emerging Opportunities, Bioplan Associates, 2020.
- COVID-19’s Impact on Bioprocessing Industry White Paper. June 2020. BioPlan Associates.
- WuXi Biologics, 2019 Financial statement.
Author Biographies
Vicky Qing Xia, Project Director, BioPlan Associates has her MS in biology from University of Texas-Houston, MBA from University of Pittsburgh. She has experience in consulting, business development, as well as alliance management in China’s biopharmaceutical industry. Her expertise includes developing research and analysis on multiple global market segments, and she has managed a team of industry experts, and projects.
Leo Cai Yang, Project Manager, BioPlan Associates, has business development experience in biotech and pharma segments and 10 years in market research. He graduated from East China Normal University with a bachelor’s degree in Biotechnology in 2006, and has worked with equipment manufacturers in pharmaceutical and medical device industries, in Switzerland, Austria and Germany. He has also project managed studies involving new biopharmaceutical technology applications in China including analysis and strategy development.