by Nick Hutchinson
Once upon a time, this seemed like a very easy question to answer. Engineering companies designed facilities with stainless steel equipment to the user requirement specifications of their biomanufacturing customers. These biotech companies then operated the facilities, producing quantities of product to supply the market. They understood these products, having developed them in-house, and had designed, characterized and scaled-up the required bioprocess. They put in place the quality systems necessary to ensure the safety of their patients. In short, these biopharma companies were vertically integrated with competencies in developing, producing and marketing their products in a tightly regulated market. To better serve their customers they invested in manufacturing sciences leading to process innovations that lowered costs, increased throughput and improved product quality.
Leading biopharmaceutical firms still see biomanufacturing as a core competence. Amgen, to give one example, proudly states in its 2016 Annual Report that the company’s “long record of delivering reliable supplies of high-quality medicines with improving efficiency is a source of differentiated competitive advantage”.
Not all biotech companies have adopted this vertically integrated model. For a variety of motives, biopharmaceutical companies have outsourced both the development and production of their biologics to Contract Development and Manufacturing Organizations (CDMOs). Some companies, especially smaller ones, have focussed their efforts on drug discovery and outsourced production, not wanting to invest in the production assets or the competencies needed to operate them. Others have outsourced tactically to mitigate risks or manage fluctuations in demand. Some firms calculated that CDMOs could leverage greater economies of scale and expertise to produce biologics more cheaply and effectively than could be done within their own organizations.
The CDMO sector has developed into an important part of the biopharmaceutical industry. It has enabled many smaller biopharmaceutical companies to produce sufficient product for testing in the clinic and has reduced the cost and time for them to reach the market. CDMOs operating multi-product facilities were early adopters of single-use technology. This technology reduced their batch turnaround times, increased their facility throughput and reduced the risk of product cross contaminations. Initially, single-use technologies were used in a relatively small number of applications but are now frequently used throughout production plants. Firms can operate entirely single-use manufacturing lines from seed bioreactors through to fill and finish steps.
The widespread industry adoption of single-use technology has changed the dynamic of the biopharmaceutical value system once again. Single-use consumables are such an integral part of the production process that suppliers of the technology have become critically important. Their ability to supply consumables to the specified quality and with the required delivery performance can have a significant impact on whether patients receive the lifesaving drugs they so urgently need. If biopharmaceuticals were once supplied to the market by vertically integrated firms, they are now delivered through much more complex webs of value to which multiple stakeholder organizations contribute.
To compete effectively in the market, leading suppliers of bioprocessing technology have attempted to add value by finding solutions to their clients’ manufacturing and business problems. They have formed deeper relationships with customers that has engendered greater trust between firms. To contribute most fully, suppliers have developed significant bioprocessing ‘know-how’ of their own. Thus, they can integrate individual technologies to create solutions and then incorporate these into existing facilities. The leading suppliers in the industry promote end-to-end, single-use production platforms for a variety of different types of biologics. They provide a range of services for customers that help them develop processes more quickly, design better facilities and keep bioprocesses running once operational. These firms have moved from having a product-, then application-focus and are increasingly progressing through market-, relationship- and network-focussed stages.
More recently, suppliers have taken steps further downstream into the development and manufacturing services that used to be more commonly associated with CDMOs. They have opened ‘concept labs’ that allow biopharmaceutical companies to test the latest innovations and initiated discussions regarding the technology with regulators. They are promoting master cell banking and analytical services, building Bio Parks and producing GMP batches for clients within their own facilities. Perhaps the most obvious indicator of this trend has been the recent acquisition of a leading CDMO by one of the major suppliers. Interestingly, this move represents a forward vertical integration in the value system for the supplier.
The biopharmaceutical industry has enjoyed good profitability since its inception, but which firms capture a greater or lesser share of these profits continues to change with time. Theory suggests that those companies that support valuable, rare and inimitable resources should occupy strong positions within the sector. Bioproduction competencies may fall into this category of resource and it would appear that firms operating at the earlier stages of the value chain are increasingly holding them. Biopharmaceutical companies may make an active and strategic decision to allow partners to fund such competencies on their behalf. However, they should be wary of simply allowing such competencies to ebb away through a lack of investment in case it should undermine their own strategic positions within the industry.
Nick Hutchinson is a Technical Content Marketing Manager at Sartorius Stedim Biotech.