2021 The State of Pharma OutsourcingHow the CMO/CDMO Capacity Shortage Impacts the Pharmaceutical Industry
According to an original investigation published in JAMA in 2020 using publicly available data, drug companies spend $1 billion on research and development to bring one new medicine to market.
Drug development is an inherently complicated business, made even more so by the advent of new therapeutics such as biologics, cell and gene therapies, antibody drug conjugates and cytotoxic/Highly Potent Active Pharmaceutical Ingredients (HPAPIs). Although the R&D spend is enormous, the return on investment has been declining for some time.
For many years, only small molecule drugs were being developed and manufactured. Small molecule drugs are based on chemical compounds and are less expensive to produce and copy as generics. Drugs made from complex molecules produced using some form of living microorganisms, animal or plant cells are known as biologics. These large molecule drugs are costly to develop, produce and copy, making generics (“biosimilars”) problematic to develop. As biologics have become increasingly popular, this has led to an escalation in the development of more new biologics. Examples of biologics include: Humira, Enbrel, Herceptin, Prevnar, Lantus and Remicade.
Another classification of drugs, antibody drug conjugates (ADCs), designed to target and eradicate cancer cells while leaving healthy cells unscathed, is gaining momentum as well. ADCs also require complex development, including stringent containment infrastructure, analytical capabilities, and expertise in numerous differing technologies for both small and large molecules.
The oncology field is accelerating the need for HPAPI development and manufacturing. In properly handle HPAPIs, facilities must be specially outfitted, an expensive, rather elaborate undertaking, especially for those facilities that do not have adequate in-house capabilities.
As compared to small molecule, simpler drug products, biologics are not merely characterized by science but rather in a manner which includes a characterization of the unique manufacturing process used to make the biologic. The manufacture of biologics as well as that of cell and gene therapies is one of the factors driving the demand for more high-tech development and manufacturing solutions. Manufacturing biologics, cell and gene therapies is unlike that of traditional small molecule drugs. The level of complexity, cost and sophistication has exacerbated the outsourcing of pharmaceutical manufacturing. Many biologics are temperature sensitive, making cold chain monitoring, storage, and distribution necessary. Cold chain logistics help to ensure product quality, integrity, and safety along every point in the supply chain.
The necessity for cold chain logistics services can add yet another layer of complexity to the shipping, handling, and warehouse storage of this valuable, at sometimes life-saving inventory. From temperature monitoring devices to warehouse management software designed specifically for cold storage and pharma, technology plays a vital role along the route from manufacturer to patient.
According to a 2016 market research study from Industry Standard Research (ISR), approximately two-thirds of pharmaceutical manufacturing is outsourced.
The Basics of Pharmaceutical Outsourcing to CMOs/CDMOs
What Motivates Pharma Companies to Outsource?
- Consumer and government pressure to reduce healthcare costs
- Huge R&D spend
- Decreasing return on investments
- Governmental regulatory bodies increasing pressure on pharma companies
- Need to improve efficiency and productivity across the pharma value chain
- Patent Cliffs
- Access to capacity and expertise
- Need for flexibility, speed, and risk reduction
How Does Outsourcing Help Pharma Companies?
- Enables pharmaceutical companies to remain competitive
- Extends geographic range and presence
- Helps to mitigate the risk of developing new drugs
- Enables expansion of R&D pipelines to facilitate a greater chance for a product to ultimately reach the product launch stage
- Ramps up therapeutic expertise as well as on demand services and capacity
- Helps to reduce resource costs as well as costs related to other types of overhead
- Improves product quality
- Decreases time-to-market and reduces development cycle time
- Enables companies to eradicate bottlenecks and streamline access to advanced technologies
- Helps improve the flexibility of pharma companies, providing additional options
- Eliminates the need to build new facilities or retrofit existing facilities as well as the associated ongoing operating costs
What are the Top 5 Activities That Pharma Companies Outsource?
- Drug product manufacturing
- Packaging and labeling
- Small-molecule manufacturing
- Holding and storage
What Other Outsourced Services are Commonly Offered?
- Formulation development
- Analytical and testing services
- Management of clinical trials
- Solid dose manufacturing
- API manufacturing
What Other Outsourcing Support is Often Sought by Pharma Companies?
- Aseptic fill and finish
- Product storage
- Regulatory support services
- Supply chain management services
- Quality assurance services
- Warehouse storage and logistics
- Validation services
What R&D Tasks are Frequently Outsourced by Pharma Companies?
- Basic research
- Late-stage development
- Genetic engineering
- Target validation
- Assay development
- Safety and efficacy tests in animal models
- Clinical trials involving humans
What is Going on Now in the CMO/CDMO Industry?
CMO/CDMO Capacity Shortage
The onset of the COVID19 pandemic created an “all hands-on deck” emergency. Fifty percent of the drug products for COVID19 were being produced via associated contract manufacturing agreements, including all COVID19 vaccines that were approved for use under Emergency Use Authorization (EUA).
Moving forward, the pharma industry remains concerned about the rapidity with which CDMO/CMO capacity dried up. Learning from the pandemic, drug companies are now hyper-aware that a similar incident would require the ability to respond swiftly to life-threatening situations and this may also require that manufacturing capacity be set aside for government entities or enterprises.
Looking ahead to the rest of the year, specific types of products such as injectable dose and viral-vector production may find it challenging to gain capacity due to an existing shortage in this field. Critical COVID-19 fighting areas including recombinant vector vaccines and cell and gene therapy have already soaked up much of the contract manufacturing capacity. With the advent of many young entrepreneurial pharma companies, the saturation of the CMO/CDMO market presents a huge challenge.
How acute is the shortage? Let’s put it this way. Manufacturing customers are paying now to wait in production lines literally for years before they can get service.
CMOs and CDMOs typically have long lead times in manufacturing schedules. This makes outsourcing especially problematic for fast-growing or early-stage companies that may be in the throes of developing and perfecting their science and production process. Having to wait for an extended period of time for manufacturing puts biotech companies at a distinct disadvantage,
New CMO/CDMO Facilities
Is the CDMO industry adding more facilities? Yes, but new facilities will only be able to close the gap on a 16–24-month backlog of work, not get ahead of the capacity issue. Construction of new facilities takes a bare minimum of two years, and according to the Pharmaceutical Research and Manufacturers of America, can easily exceed five years, even longer to onshore an entire manufacturing network.
R&D Spending Has Increased over the Past 20 Years
According to the Congressional Budget Office (CBO), the pharma industry is now spending nearly 10 times what it spent per year on research on development during the 1980s. In the period of 2010-2019, there was a 60 percent increase of new drugs approved as compared with that of the previous decade.
$83 billion was spent on drug research and development in 2019 alone. Pharma companies now tend to spend a higher proportion of their revenues on R&D, approximately twice as much as they spent two decades ago.
Over the years, new types of drugs have been developed and some categories have proven to be more effective in treating chronic conditions. Specialty drugs, those developed to treat complex, chronic, or rare health conditions, are now increasingly popular and make up a large share of the drugs approved by the FDA. Specialty drugs often require specialized handling and storage and include the category of biologics.
Other Related Pharmaceutical Industry Trends
- Increased staff shortages
- Increasing popularity and significance of the personalized medicine paradigm changes the perspective on “one-size-fits-all” research pipelines, product development, clinical trials, marketing strategies and more
- Continued increased collaboration in healthcare industry
- Scientific advancements in areas including cell and gene therapies and nanotechnology require new methodologies for the development, regulation, and distribution of these products, impacting manufacturing techniques and production processes.
- CDMO/CMO actively investing in biomanufacturing due to increased biologic-based drug development and pharma industry capacity needs. Numerous large-scale expansions are either underway or have been announced
- In terms of regulatory affairs, data integrity has taken center stage, requiring more proof. This is the most frequent reason for receiving a warning letter from the FDA. Ramped up enforcement of data management protocols includes violation notices to high-profile pharmaceutical companies.
- Movement towards enhanced investment in technological transformation and digital technologies
- Increased concern about challenges regarding cybersecurity, changing consumer behavior and the acceleration of advancements in technology
Pharma companies are increasing their use of external resources, namely contract manufacturing organizations (CMOs), contract development manufacturing organizations (CDMOs) and contract packaging organizations (CPOs). Although the trend is towards outsourcing, pharmaceutical companies have become keenly aware of the need to have visibility across the supply chain, quality assurance, and transparency of operations.
Early-Stage Pharma Companies Seek Alternative to CMO/CDMO, Build or Buy Cleanroom
As many newer or rapid growth pharma companies have found, having a third option, one which does not rely on either buying or building a cleanroom or outsourcing to a CMO/CDMO can provide distinct advantages. Both of those options can be very costly in terms of money and time.
Instead of waiting for years, tying up capital, some of the smaller, early-stage pharma companies are turning to new options: flexible hybrid cleanrooms, sometimes referred to cleanrooms on demand.
Here are some of the advantages of this alternative option:
- Retention of intellectual property. When outsourcing, most CMOs/CDMOs require access to the pharma company’s intellectual property to manufacture its products. Early-stage pharma companies often find this to be a special concern as at that point in the lifecycle of the business, that is their principal asset.
- GMP, quality management and other related experience. Often operators of flexible hybrid cleanrooms or cleanrooms on demand offer additional services, including GMP consulting services. As many young companies are highly focused on research, they may not yet have developed a core competency in materials management, supply chain, or facility/asset management and find this service invaluable.
- IT advisory services and/or support. Often young companies are not skilled or experienced in setting up infrastructure, software, systems, and cybersecurity. Taking advantage of a multi-tenant cleanroom operator’s wraparound services in this regard may prove crucial, saving time and money.
- Scale up at your own pace. Leveraging the savings and expertise of the wraparound service offering can enable young pharma companies to focus on their core business. This can help to expedite the timeline for determining if the drug product will fail or move forward towards clinical testing, FDA approval and eventual commercialization.
The Rise of Flexible Hybrid Cleanrooms as an Alternative to CDMOs and CMOs
What is a Cleanroom?
Cleanrooms are enclosed, classified spaces in which biopharmaceuticals are processed within a contained space. This helps to ensure that airborne particulates including microbes generally with a classification of ISO 5-9, are controlled.
Cleanrooms are separated into the following market segments, dependent on applications and design types:
- Drugs: small molecules; chemical manufacturing
- Biopharmaceuticals: large molecules; manufacturing biotechnology/living organisms
- Cell and gene therapies: relatively new, fast-growing segment of biopharmaceuticals
Cleanrooms are used in other industries, namely in the semiconductor, the largest market segment for this product.
Because cell and gene therapeutics entities begin to mature and require processing space, this sector is growing the fastest of all the biopharmaceutical entities. In the ISO 5-8 range, the total number of installed/in-use biopharmaceutical cleanrooms has been estimated to exceed 8,000 globally. This number is anticipated to increase to 11,000 by 2025 and 15,000 by 2030.
Approximately half of the drugs in development today are biopharmaceuticals. Because the manufacturing of biopharmaceuticals involves more complex processes, strict containment requirements as compared to that of the manufacture of synthetic drugs, nearly 55 percent of the cleanroom market revenue can be attributed to biopharma facilities. Cell and gene therapy (precision medicine) currently has the lowest share of this market as the technology is still considered new. North America, especially the United States has the largest share of the cleanroom market. The U.S. is home to the largest number of pharma/biopharma R&D manufacturing facilities.
New construction of cleanrooms has its own challenges. With facility procurement, qualification and construction issues, cleanroom construction can take two or more years to complete, and that timeline can even double.
What is a Flexible Hybrid Cleanroom?
The biopharmaceutical industry is awash in young entrepreneurial drug companies. Frequently focused on new therapeutic technologies, these companies 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 customized 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 consulting, IT support and/or advisory services, quality management systems and/or advisory services, warehouse, and materials storage and more.
Here are Two Examples of Flexible Hybrid Cleanrooms (Cleanrooms on Demand):
Cutting-Edge Technology Tools for CMO/CDMO Help Ensure Revenue Capture, Visibility, Efficiency and Productivity
Here are two other technological tools that CDMOs and CMOs find useful in managing their multi-tenant operations. These tools provide CDMOs/CMOs with pharma industry-specific functionality and top notch billing capabilities to ensure revenue capture of all the value-added services provided:
- Warehouse management software with specific functionality for pharma CMO, CPO and CDMO and 3PL businesses
- Multi-client billing module, designed for 3PLs, CMOS, CDMOs and CPOs helps ensure that each of your customers’ needs are met with respect to contracts, billing, invoicing and more
The life sciences sector is booming. Pharmaceutical outsourcing is being done on a grand scale with only one third of pharmaceutical companies manufacturing their own products. Pharma outsourcing is now the norm for pharma and biotech products.
By developing long-term partnerships with a limited number of vendors, pharma companies create strategic partnerships that help to trim costs while building new efficiencies in the value chain. Drug discovery and drug delivery timelines are enhanced, improving speed-to-market.
Outsourcing trends of pharma solutions to commercial manufacturing partners outside the core business have taken hold. This helps improve speed-to-market, cost reductions, risk management and expansion of markets. The popularity of outsourcing is anticipated to continue and even escalate for the foreseeable future.
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Pharmaceutical industry trends | Deloitte Insights