Outsource and intake

Pharmaceuticals was once a lonely business – at least when it came to outside help. Vast hordes of researchers and clinicians teamed up to develop new drugs, of course, but relationships tended to stop at the factory gates. No matter how ground-breaking the drug, firms rarely outsourced manufacturing or testing functions to external contractors. If nothing else, this is reflected in the stories of some of humanity’s most famous medications. In 1989, for instance, scientists at Pfizer synthesised sildenafil, more commonly known as Viagra. Even today, most of the drug’s active ingredient is created at a mammoth Pfizer facility in Ireland.

Yet much has changed over the last three decades, with pharma giants the world over ever more reliant on contract development and manufacturing companies (CDMOs). By one conservative estimate, the global CDMO industry has grown more than fivefold since the 1980s, reaching $100bn in 2020. Nor is this expansion especially surprising. Offering higher speeds at lower prices, CDMOs make sense in a world where bringing new drugs to market typically costs $1.3bn, and one where generic competition can cut retail prices by as much as 79%.

These partnerships have been strained over the past few years; as Pfizer and other pharmaceutical giants had to seek extra manufacturing capacity to meet worldwide vaccination demand, the supply of other important drugs has been increasingly squeezed. Combined with supply chain issues, and the vagaries of geopolitics, some pharmaceutical firms are looking inward once more, boosting their own manufacturing capabilities in an unstable world. What that means for the traditional CDMO model remains unclear – but change is undoubtedly on the horizon.

Supply strain

If anyone understands how CDMOs have shaped pharmaceuticals over the past four decades, it’s Joe Glajch. He began his career back in 1978, initially working at DuPont before moving to Bristol-Myers Squibb. From there, Glajch has dipped his toes everywhere from analytical development to non-radioactive drugs, and now consults from his home in New England. To put it another way, Glajch has seen it all, and is keen to reflect on just how vital CDMOs have been across his long career. In his final pre-consulting job, for instance, Glajch recalls that his team at Momenta Pharmaceuticals “essentially did no manufacturing at all” and instead outsourced production wholesale to China.

Glajch’s story isn’t unique. According to one recent study, the pharma CDMO market is expected to grow at a CAGR of over 7% between 2020 and 2027, with growth predictably marked across East Asia. As a report by Research and Markets notes, China’s CDMO market will soon enjoy compound annual growth approaching 20%, with gene therapy and other ground-breaking fields particularly buoyant.

Emily Thompson, US director for new process technology at DPS Group, says the complexity of many new therapies likely begins to explain these remarkable numbers. “The design, construction, and qualification of a new pharmaceutical manufacturing facility can be a multi-year process that requires a large upfront capital expenditure,” she says. “For immediate manufacturing needs, companies have come to rely on CDMOs to bridge the gap in their manufacturing capacity.” That’s doubly true, Thompson continues, given how unpredictable bringing a new drug to market can be. With specialisation being the order of the day, it makes sense to lean on experts in a specific field, whether that’s making plasmids or filling syringes. Glajch agrees, noting that he hired CDMOs while at DuPont to make lyophilised (freeze-dried) products at a time when the technology was still fairly unknown.

There are other advantages to CDMOs too. Given regulatory regimes differ across borders, it can be beneficial to manufacture drugs in the country within which they’ll eventually be sold. And in an emergency, external partners can be conscripted to quickly scale up production. That last point, at any rate, has been vividly borne out since 2020.

Once again, Pfizer offers a good case study here. As the American leviathan notes, it has partnered with BioNtech to recruit some 20 CDMOs for Covid-19 vaccine production. Scattered across four continents, these firms are helping to pump out four billion doses this year alone. Bigger contractors, for their part, are also supporting the anti-Covid fight in other ways. Catalent, a Boston-based CDMO, is researching antivirals and diagnostics – as well as having developed capacity to make a billion vaccine doses by the end of last year.

Taking back the house

With over half the global population fully vaccinated, it’s hard to begrudge all this activity. But as lockdowns ease, and life slinks back towards normality, the rush to exploit the immense power of CDMOs is now causing problems. With many contractors understandably hellbent on defeating Covid – both for the good of humanity and company profit margins – other priorities are slipping.

Methylprednisolone acetate, for instance, is a medicine used to treat pain and swelling across a range of conditions. But according to one December 2021 survey, the so-called ‘fill rate’ for the drug had dropped to just 80%. Put simply, that means suppliers are likely to soon suffer supply issues, while their clients risk shipping delays. Nor is methylprednisolone acetate alone. As the FDA warns, dozens of medications are currently in short supply. That covers everything from atropine sulphate (used to dilate pupils before eye exams) to digoxin (which battles heart failure).

To be fair, not all of this is the fault of CDMOs and their employers. As Thompson notes, shortages existed even before the pandemic, while insiders have long grumbled about a lack of clean rooms, the dust-free spaces vital for safe drug manufacturing. Broader supply chain issues matter too. China’s strict lockdown has slowed the flow of drugs into Western markets, while border clashes with India have also impacted supply. But whatever the cause, a more pressing question is what can be done to remedy the situation.

One solution is moving CDMOs back to producing other drugs, an increasingly attractive option as the pandemic relents. But some experts advocate more fundamental changes. NuvOx Pharma, for instance, is an Arizona firm that recently announced it was building a 900ft2 clean room for brain tumour and stroke medication. Bigger players are taking similar steps. Novartis, for instance, recently switched production for its drug PCSK9 inclisiran from Italian CDMO CordenPharma to its own facility in Austria. The company, which is awaiting approval for the cholesterol-lowering RNA therapeutic from the FDA, cited unresolved facility inspection-related conditions as the reason.

Of course, abandoning CDMOs sounds great in theory. In practice, though, how easy is it for a manufacturer to move in-house? Even for big firms, Glajch highlights a number of hurdles. “It can be a challenge,” he says. “First, you have to build a facility, and that probably takes a couple of years, depending on the size. Then you have to validate it, to get it up and running, to make sure you have regulatory approval. Then you’ve got to hire people that can run it.” As noted by Thompson, all of this can come at a hefty price, with the building cost alone for a smaller facility somewhere in the region of $10m, while 100,000ft2 sites are approximately $120m.

Shelling out

All the same, the situation is far from hopeless. As Novartis’s experience implies, the largest pharmaceutical firms have the clout to bring manufacturing in-house if the price is right, while smaller companies can manage it too with the right financial backing. For one thing, venture capitalists are normally eager to stump up cash in advance. For another, manufacturers are experimenting with so-called ‘phased’ construction.

This means building a ‘shell space’ early in a clinical trial, but not completing the facility until promising results emerge. Another tactic involves multi-modal production. Rather than focusing on a single therapeutic area – vaccines or active pharmaceutical ingredients – companies are instead building facilities that can do it all. Naturally, that means gambling on what the market will need five or ten years down the line, but that sort of risk-benefit calculation isn’t abnormal in this industry.

Where, then, does this leave long-established CDMOs? Thompson believes the direction of travel is clear. Though CDMOs will continue to be vital in the medium term, their importance may drop off as “pharma companies develop a long-term plan for in-house manufacturing.” Glajch isn’t so sure. With regulators being what they are, let alone the exigencies of closed plants or sick staff, he suggests having a broad manufacturing base will always be helpful. “There are so many things that happen in the supply chain – both in the US and around the world – that you cannot even begin to predict.” A fair point, even if the crisis of the last few years finally seems to be receding.

A hybrid approach

The biopharmaceutical industry is awash in young entrepreneurial drug companies. Frequently focused on new therapeutic technologies, these companies are often not well funded. Between the options of having to wait for a CMO/CDMO to which they can outsource their production or build their own facilities, a third option is needed.

A new business model has emerged and is in its formative stages. Flexible hybrid cleanrooms serve as an effective alternative to either building out a facility or outsourcing work to CMOs or CDMOs. Sometimes known as “cleanrooms on demand”, this option can help pharma companies to speed up the clinical lifecycle without having to build or maintain a facility or outsource. Using flexible hybrid cleanrooms, pharma companies retain control of production and intellectual property, enabling them to accelerate the clinical lifecycle and bring products to market faster. Cleanroom facilities can be customised to meet client needs and follow the standard practice of having unidirectional personnel and material flow. Usually, flexible hybrid cleanrooms are outfitted with equipment commonly used in biopharmaceutical manufacturing as a standard offering. Cleanrooms on demand often provide wraparound support services such as GMP (Good Manufacturing Practice) consulting, IT support and/or advisory services, quality management systems and/or advisory services, warehouse, and materials storage and more.

Source: Datexcorp