Trend Overview

It has been well documented that the Contract Development and Manufacturing Organisation (CDMO) market continues to do extremely well and is growing significantly in all regions of the world. In fact, Research and Markets data² predicts the market will reach USD 236.61 billion by 2026, registering a CAGR of 6.5% during the forecast period.

The COVID-19 pandemic and the consequential need to develop and manufacture new drugs, vaccines, and delivery platforms has further accelerated this growth – with the largest CDMOs in particular reporting tremendously profitable periods. Lonza recorded 20% sales growth in 2021, taking CHF 5.4 billion⁴, while US-based Catalent's revenue was USD 3.998 billion, a year-on-year increase of 29%⁵. Other large CDMOs that reported considerable profits include China’s WuXi AppTec and WuXi Biologics, South Korea’s Samsung Biologics, and Sweden’s Recipharm.

Yet running alongside COVID-driven growth we are also seeing record numbers of new drugs entering development – with a massive acceleration seen from 2020 onwards, as was reported in a CPHI report last year⁸.

What is less well reported is how both large pharma companies and, perhaps more importantly, the rising number of smaller innovators are now approaching their outsourcing strategies. This is further complicated by the plethora of options, not only in terms of the sheer numbers of CDMOs, but in the types of services and specialisms they offer.

Putting aside the option of in-house development, innovators must consider whether it is better to go for a two-CDMO strategy (i.e. one for drug substance and one for drug product), a larger full service provider, or to work with a specialist integrated development partner earlier before re-reviewing their options in Phase I or II.

² https://www.globenewswire.com/news-release/2021/12/15/2352634/28124/en/Global-236-6B-Pharmaceutical-CDMO-Market-Outlook-2026-Leading-Players-are-Catalent-Recipharm-and-Jubilant-Life-Sciences.html
⁴ https://www.lonza.com/-/media/Lonza/Lonzacom/investor-relations/Financial%20Reports/2021_FY_Report.pdf
⁵ https://s23.q4cdn.com/220277989/files/doc_financials/2021/ar/2021-Catalent-Annual-Report-(final).pdf
⁸ https://www.cphi-online.com/this-special-cphi-report-is-split-into-two-halves-file113613.html

He adds: ‘A lot of that duplicate work could be avoided if you're thinking ahead of the game and you know what your ultimate goal is - what the anticipated volumes are, what markets you're trying to launch in.’

Valdas Jurkauskas, Senior Vice President at Pardes Biosciences, agrees that failures in long-term planning can lead to Phase II issues and ultimately result in costly delays.

He says: ‘The redoes are the killers of the programme timeline, there's no question about it. No matter how aggressive the timeline is, time is always secondary to doing things the right way. For example, in the oncology space, short Phase I studies with very few subjects often quickly expand into global Phase II studies, requiring much more comprehensive presentation of quality in the regulatory submissions.’

At this stage the quality presentation often becomes the sticking point. Jurkauskas continues: ‘So, in my view fit for purpose [phase-appropriate development] in accelerated development is a thing of the past.’

The redoes are the killers of the programme timeline, there's no question about it.

Valdas Jurkauskas, Senior Vice President at Pardes Biosciences

These are profound questions that will very likely decide an innovator’s ability to make it to market, as well as the timelines for reaching new milestones. Is it better to advance to Phase I faster and lose time later, or take a slow and steady approach? These are some of the questions this report will examine.

However, what is almost universally relevant to the situation biotechs encounter today is that they need to make and evaluate these decisions much earlier than before, as there is no guarantee there will be capacity immediately available when they need it. With CDMOs in such record demand, particularly those with the best approval and development histories, many biotechs are reporting simply ‘getting a place in the queue’ is their single biggest challenge.

Concurrently, for the last two years there has been a reduced ability to meet global partners, a problem which still persists in some regions of the world at the time of this report’s publication. For innovators, this has most often meant falling back on the people and companies they have worked with before. Yet, we are at a moment in time when it has never been more important to diversify options, explore contingencies and meet new partners.

⁹ https://www.pharmaceutical-technology.com/comment/phlow-corporation-grant-covid-19/

Phlow Corporation’s USD 812 million funding from the US government⁹ is just one high profile example of the shift towards supply chain resilience, and across the wider market we are seeing a desire to widen options and bring in contingencies.

Which brings us back to the million-dollar question: how do you go about sourcing the right partner? How do you know if your partner will be a good fit with your in-house team, or the right partner for your specific product? Even more challenging, how long and for what stages of development will your partner be needed? Innovators must consider these factors in a market where outsource partners are in incredibly high demand and are no longer looking for purely transactional relationships.

In this report, we will assess these options as well as the overall market to see how outsourcing strategies are now evolving. The main section of this report will discuss these challenges as they relate to the market for API and finished formulations of innovative solid dose drugs, with a separate section to review the added complexities of accelerated pathways.

Is phase-appropriate development yesterday’s model?

One of the most significant changes to be seen across discovery and development in recent years is a sector-wide tightening of timelines and increasing expectations around speed. This comes in light of the COVID-19 pandemic, which saw vaccines and therapeutics brought to market at breakneck pace, disrupting what the industry had previously thought possible.

And with innovators increasingly turning to compressed timelines, development methods are shifting in response. For example, phase-appropriate development – whereby an innovator seeks to advance to just the next key milestone as quickly as possible – is still seen in the marketing of the majority of CDMOs, but our experts in this report will strongly advise against taking this approach.

Traditionally, outsourcing strategies were designed to help secure next stage funding, but many biotechs and small pharma companies are now entering development with more robust cash flows and the ability to plan further downstream. This opens the door for innovators to plan more fully a product’s roadmap from discovery to commercial launch.

Reflecting the dilemma many face when picking a CDMO to get to IND, Bikash Chatterjee, CEO of Pharmatech Associates commented: ‘There are lots of strong chemistry houses out there that can get you to IND, if that’s your goal, but an IND is the where you lay the foundational CMC, quality, and clinical arguments for your ultimate submission. Developing an IND strategy with the end submission in mind is how a drug sponsor shrinks their time to market and lowers programme risk. For drug sponsors relying upon their CDMO partner for programme insight, an early-stage specialist may not be the best way to realise overall programme acceleration.’

Hajir Mokhtari, Senior Manager, Programme Management at Thermo Fisher Scientific, echoes these sentiments, advising biotechs to consider the bigger picture from the outset of development. He says: ‘If you can start thinking early on about the end goal, have that vision for your product and start planning during your early phase development, that positions you for success. So, instead of going through the short-term goals and objectives associated with the traditional phase-based approach, you start looking at it as end-to-end.’

Mokhtari notes that decisions made in early development have downstream implications and failing to plan for scale-up and commercialisation can lead to time-intensive redoes and revalidation work.

Asian strategies

Another approach to emerge in recent years could be referred to as a hybrid Asian strategy. This hybrid model entails not only completing API development in Asia and the finished product in the US or Europe, but also the API component as well. This means essentially bringing in some of the cost advantages of Asian chemistry services and manufacturing, while completing later intermediate or final API steps in western markets – thereby potentially having a product where both API and final form are ‘western made’. For example, this type of approach or variations of it could be utilised by a number of Indian and Asian headquartered CDMOs, such as Aragen and Asymchem.

A more traditional variant of the Asian model is to have discovery and integrated development until Phase I or II before transferring processes over. This approach has proved especially popular with Big Pharma looking to increase its probability of hit success (i.e. by developing more targets simultaneously or beyond available in-house resources), as well as with biotechs targeting a Phase II exit, at which point the buyer may want to implement its own preferred manufacturing solution either in-house or through a strategic partner network.

Biotechs go longer into development than before

Commenting in BioPharma Dive recently, Jason Rhodes, a partner at biotech startup creator Atlas Venture, stated: ‘You have to assume that you’re going to build these companies with private capital for longer than you did [before]…. the good news for startups is that, unlike in previous downturns, many life sciences venture investors recently raised new funds and have plenty of cash to put to use.¹⁰

Overall, biotechs are approaching CDMOs with a more fleshed-out roadmap and the intention of advancing further from the offset. Some are even bringing in CMC talent and looking towards building in-house manufacturing.

According to Valdas Jurkauskas: ‘The most critical thing for a biotech company is to develop its own technology and controls, and that takes time. So, once technology and controls are defined at least to some extent, it is much easier to identify the most suitable CDMO partner for registration, validation and commercial.’

¹⁰https://www.biopharmadive.com/news/biotech-startup-ipo-downturn-venture-financing/621855/

Alternative partnering strategies

The term CDMO covers quite a broad range of activities, with ‘D’ taking dominance from the offset before ‘M’ ultimately decides the long-term supply partner. One newer approach that is on the rise adds an additional process development partner, possibly a chemistry focused CRO, into this mix. Such a company might work with the innovator on chemistry and improvements, potentially even as far as commercial launch.

‘It’s an interesting idea we may see more of, whereby the biotech employs a specialist CRO partner, just focused on say, process chemistry and a parallel CDMO arm. So that’s introducing an extra partner, but if the relationship is collaborative and information is shared, this could be a very powerful triangle.

These partners offer incredible process chemistry development acumen and robust documentation, which could readily become a technology transfer documents library,’ adds Jurkauskas.

What is the impact on biotech valuations?

Investors are becoming more involved in their biotech’s development and outsourcing strategy, as this has fundamental implications for when and how they can exit. For example, a pharma-ready process at Phase II sale, with a clearly mapped out and ready-to-scale manufacturing strategy, will deliver much better validation than a promising target that may well need another year of ‘fine tuning’. What we therefore anticipate is that early-stage investors may start to bring in CMC consultants to map out the outsourcing approach as early as pre-clinical.

According to a US-based, early stage (pre-clinical) biotech investor that wants to remain anonymous: ‘We only fund a fraction of the start-ups that pitch to us. The most compelling ones can map the product’s or platform technology’s journey from basic science to commercialisation. That’s especially appealing, as we know we can map out the route to exit with much more confidence and we are less likely to see a failed product due to inappropriate development. It also means we will have a better package to sell on exit. The market is incredibly competitive right now and this will be the direction of travel in the next few years – an amazing target is not enough on its own, it needs to be backed up by a robust development plan.’

Biotech vs Big Pharma

Large pharmaceutical companies generally have in-house CMC experience and options in terms of how they approach their outsourcing. Consequently, the greatest difference in outsourcing strategy between Big Pharma and biotechs is the role outsourcing plays in the company’s business strategy. Where Big Pharma may only want to outsource a limited component, biotechs generally see outsourcing as a fundamental part of their business plan. Unsurprisingly, our experts believe the latter approach – which fosters deeper partnerships - will always garner the greatest value from CDMOs.

For Big Pharma companies with multi-target programmes, it is feasible to look at just the largest and most capable partners and select according to their needs. But for biotechs, securing the development capabilities they don’t have is the highest priority, at least initially. Surprisingly, an anonymous Director of External Manufacturing (DEM) at a Big Pharma company notes that the major players could take notes from the relationship-based approach employed by biotechs.

They tell us: ‘One of the things I would say having previously worked at a biotech undertaking a fast-track application, then in-house at the acquiring Big Pharma, before moving to another larger pharma innovator is that there are great discrepancies between how these companies approach outsourcing.

And the big guys could really learn from the partnering models taken by some of the more successful biotechs. It’s no coincidence when you see these partnerships making record times for approval. For example, your CDMO by its nature will work with many other partners, so you as a pharma partner need to stand out to them as a true collaborator. You don’t always realise it, but you’re competing against their other clients for time and expertise. At a basic level, that means not talking about cost when you meet a new CDMO. Instead, you explore the science and the timelines together – you need to see that they want and expect to advance as fast as you do.’

The anonymous DEM also notes that larger pharma companies tend to adopt a hands-off approach too quickly, allowing the relationship to become transactional and eroding oversight. To combat this, an innovator should station part of its development team on site at the CDMO, especially in the case of an accelerated development timeline. The DEM notes: ‘What you often get in a traditional large pharma approach is that the relationship becomes transactional far too quickly. So, they may simply send a ‘work package’ with a request for 50 kg by June, having seen that the first batch went ok.’

Herein lies the risk. For example, if the first batch was fortuitous and the second batch has a problem, there is going to be a delay and possibly even some data cleaning on the part of the CDMO.

‘In contrast, by being available in the plant you work real time to trouble shoot and you don’t need to be waiting until the following morning to get bad news. You can get back in there with the partner together. For instance, normally you would hold a batch for 12 or even 24 hours before a new plan of action is created, but we don’t know what that 12 hours is doing – you could be creating an impurity. So, the faster it’s back online the more you will ensure for GMP,’ explains the DEM.

‘My number one piece of advice for Big Pharma companies outsourcing is – yes, you are very likely to be considered by your perfect CDMO partner, but that’s only half of the solution. Remember, these CDMOs will be busy now with or without your work and the human side of the equation is vital, showing you value the partnership and co-developing processes. These CDMOs have a wealth of development and chemistry expertise and they only need a little encouragement to show that. If logistically it’s difficult to be in plant, then let’s get real time data exchanges and make sure we keep up the collaboration with the R&D and manufacturing daily. The one good thing out of COVID is we are, as a global community, much more attuned to this than before,’ concludes the DEM.

Big, small, cell and gene – is all capacity equal?

As this report has already noted, capacity in the contract services space is constrained and has been for some time. Before the COVID-19 pandemic hit, contract organisations were reporting long waiting lists for their services, particularly as clinical activity for cell and gene therapies surged¹¹. Now the industry is faced with pandemic-induced backlogs in addition to pre-existing constraints.

Bikash Chatterjee, CEO of Pharmatech Associates, notes the prevalence of certain drug types across the sector. He says: ‘What gets the buzz is the biologics. What pays the bills is the small molecules. 90 percent of all CDMOs worldwide are engaged in small molecule manufacturing. It’s usually cheaper and simpler to build a small molecule manufacturing facility than it is to build a biologics facility.

The small molecule market experienced unprecedented growth in 2020, exacerbating capacity issues. However, due to the sheer number of CDMOs that offer small molecule services, getting a place in the queue is generally easier than with other drug types.

¹¹ https://www.biopharma-reporter.com/Article/2019/11/25/Advanced-therapies-creates-CDMO-capacity-bottleneck
¹³ https://www.bdo.com/getattachment/5091b97d-f052-4951-ab84-d88e46244b0a/attachment.aspx?BPI-Mammalian-Biomanufacturing-Industry-Overview.pdf

Some of the major CDMO players in this segment include Lonza, Cambrex, Thermo Fisher Scientific, and Corden Pharma.

Turning to large molecule, it is worth noting that the majority of development and manufacturing falls under the mammalian category, which accounted for more than 55% of overall large molecule revenue in 2021. Outsourcing is common in this market segment, with contract manufacturers or hybrid firms expected to control almost half (44%) of mammalian biomanufacturing capacity by 2025¹³. In addition to industry-wide capacity constraints, large molecule projects have been impacted by shortages of glass vials, syringes and stoppers, caused by the global COVID-19 vaccine push. Some of the biggest CDMOs in this segment include Lonza, Samsung Biologics, WuXi Biologics, BI, Catalent, Thermo Fisher Scientific and FujiFilm Diosynth.

Finally, advanced therapy medicinal products (ATMPs) such as
cell and gene therapy represent a much smaller share of CDMO activities.

This is unlikely to be the case for long, however, as the FDA has authorised more than 20 cell and gene therapies since its first approval in 2017, most of which are cord blood¹⁴, and expects to approve 10 to 20 new therapies per year starting in 2025.

Contract organisations are immensely popular in this segment, with some reports showing a higher percentage of outsourcing in cell and gene therapy than any other field. In addition to industry giants such as Lonza, Catalent, Thermo Fisher Scientific, FUJIFILM Cellular Dynamics and WuXi Advanced Therapies, there are several specialty CDMOs carving out a niche in the cell and gene marketplace. One example is Helixmith, a biotech that expanded into CDMO services for early-stage CAR-T developers.

¹⁴https://www.cellandgene.com/doc/cell-gene-therapies-investment-outlook-in-beyond-0001

Capacity in the contract services space is constrained and has been for some time. Before the COVID-19 pandemic hit, contract organisations were reporting long waiting lists for their services, particularly as clinical activity for cell and gene therapies surged¹¹.