July 31, 2024
The journey for biotechnology companies and contract development and manufacturing organizations (CDMOs) from research and development (R&D) to market commercialization is marked by both opportunities and challenges. Biotechnology companies can rely on outsourced partners to improve efficiencies and speed up development. Those CDMOs must ensure process control and quality excellence and move nimbly to raise capital and drive success.
Stages in Developing a Biologic Product
In the tough capital market, biotechnology companies often struggle to raise enough funds to develop new candidates efficiently. Such difficulties also hinder biologics developers and CDMOs from raising the money needed for manufacturing optimization and scale-up.
Capital raising in the biologics sector is characterized by formidable challenges. The development costs associated with biologics are staggering. Such costs encompass R&D, clinical trials, current good manufacturing practice (CGMP), and regulatory compliance, making biologic development capital-intensive. Securing funds can be daunting, particularly for start-ups and smaller biotechnology companies. Genetic Engineering and Biotechnology News places the average cost of drug development for the top 20 global biopharmaceutical companies at US$2.3 billion (1). That figure includes the cost of developing a candidate from discovery to market and considers the cost of failed drugs along with successful ones.
Biologic development is fraught with uncertainties, and investors often are reticent to commit capital to projects with prolonged timelines and considerable risks of failure, particularly when capital markets sour, such as they did in 2023.
The annual attrition for companies in the biotechnology industry is significant, with start-ups experiencing a failure rate of 90% (2). That high rate underscores the inherent risks in biologic development that make it difficult for companies to raise capital.
The shifting regulatory landscape introduces another layer of uncertainty. Regulatory changes can affect development and approval processes for new products profoundly, leading to unforeseen delays and escalating costs. Fierce competition within the biotechnology sector compounds challenges in raising capital. Many companies vie for a limited pool of investment dollars, necessitating a compelling value proposition and adept networking for fundraising to be successful.
Estimates suggest that in 2023, early investments in biotechnology companies fell by 40% compared with 2022 and by 55% compared with 2021 (3). The volatile nature of biotechnology stocks presents another hurdle, as market fluctuations can affect fundraising efforts and valuation, significantly adding a layer of unpredictability to the capital-raising process.
Risks of Overcapacity in Biologics Manufacturing
Overcapacity is a frequent concern in biologics manufacturing. It can affect the latter stages of a commercial cycle. Excess supply can lead to idle capacity, high costs, and at worst, excessive overhead expenses that could lead to project shutdown.
Establishing biomanufacturing facilities entails substantial fixed costs. When overcapacity occurs, manufacturers underuse their facilities, which limits profitability. That is especially true for companies that internalize key manufacturing steps. Such companies can struggle with inflexible, internally integrated supply chains that are closely linked to the success of their product pipelines. Effective capacity management in the biologics industry is contingent on the type of biologic being produced and the individual requirements of each product. Some projects have special production needs that only a few CDMOs can accommodate. Consequently, the balance between overcapacity and undercapacity can shift rapidly and affect every stage of production. That shifting dynamic creates a matrix that can be difficult to navigate.
For example, process improvements in the production of monoclonal antibodies (mAbs) over the past 40 years have significantly reduced the cost of goods sold (CoGS). The CoGS for commercial mAbs dropped from $1000–10,000 per gram in the 1980s and 1990s to $10–100 per gram in 2024 (4). However, failure to optimize a mAb formulation early in clinical development can have a snowball effect, resulting in program termination due to low profitability if a manufacturer can’t control costs during scale up. Although optimizing a process is easier said than done, choosing the right outsourcing partner can help.
Some of the large investments that stakeholders made in captive capacity for biologic candidates during the COVID-19 pandemic might have led to overcapacity and resulted in the underuse of biomanufacturing facilities postpandemic. Such problems have a pronounced effect on cost control, especially when coupled with large investments. That combination can present a significant hindrance to a CDMO’s success.
Overcapacity also can introduce vulnerabilities into a supply chain. To reduce costs, manufacturers might cut corners or otherwise compromise quality, potentially jeopardizing the safety and efficacy of biologic products. Outsourcing storage of raw materials can improve efficiency and reduce CoGS. Storing materials in-house can lead to increased waste when products expire because of faltering demand and poor logistics standards.
Overcapacity can increase regulatory burden and the risk of noncompliance. Regulatory scrutiny is heightened in situations of overcapacity because agencies monitor manufacturing facilities closely.
Mitigating Risks and Ensuring Sustainability
To navigate challenges successfully, biotechnology developers and CDMOs must enact the right strategies. Companies should diversify funding sources, engage in robust risk management, and carefully assess capacity needs based on market demand. Developers can explore alternative funding options, such as partnerships with large biopharmaceutical organizations, to share expertise and costs. Collaboration and partnerships with established companies can provide financial stability and access to internal processes and relationships in key geographies.
Biotechnology companies and CDMOs also can access public markets through initial public offerings (IPOs). IPOs can provide prolonged capital availability and resources for companies seeking to optimize production. However, companies should consider the inherent risk of downturns and prevent overdependency on public capital markets.
For biotechnology companies, transitioning from dependence on captive capacity to partnering with outsourced CDMOs can offer an efficient and potentially transformative solution to addressing problems with rising costs and overcapacity. Such partnerships can transcend the conventional service-provider model by offering valuable insights and access to outsourcing opportunities, particularly in crucial aspects of drug development such as chemistry, manufacturing, and controls (CMC) and regulatory affairs.
Such a strategy empowers companies to mitigate development risks by preventing critical errors. Outsourcing, especially when coupled with third-party CMC consulting, is particularly advantageous because it reduces the costs associated with acquiring and exploiting specialized knowledge. Ultimately, by collaborating with CDMOs, developers can benefit from competitive pricing and enhanced quality standards. Companies also can increase value creation by investing capital into expanding their R&D or clinical programs instead of into captive manufacturing assets.
For CDMOs, prioritizing rigorous quality control (QC) and efficient processes from early stages of a commercial cycle can enable competitive pricing, consistent production yields, and a broadened client base to minimize idle manufacturing capacity and fuel overall growth. CDMOs can enable their own success by offering services that go beyond CGMP production. Offerings such as cell-line, process, formulation, and assay development add value to service portfolios, particularly for small organizations. Such clients can become valuable assets, and their continued retention will fill future capacity and pave the way for growth.
The journey to commercial biologics manufacturing is arduous and fraught with financial and operational challenges. Yet, it is a path to delivering life-changing therapies to patients worldwide. By strategically addressing difficulties in raising capital and the perils of overcapacity, both sponsors and CDMOs can advance innovation and improve global healthcare.
References
1 The Unbearable Cost of Drug Development: Deloitte Report Shows 15% Jump in R&D to $2.3 Billion. Gen. Eng. Biotechnol. News, 23 February 2023; https://www.genengnews.com/gen-edge/the-unbearable-cost-of-drug-development-deloitte-report-shows-15-jump-in-rd-to-2-3-billion.
2 Reed T. Silicon Valley Bank Failure Spooks Digital Health, Biotech Industries. Axios, 13 March 2023; https://www.axios.com/2023/03/13/silicon-valley-bank-failure-spooks-health.
3 Navigating the Biotech Landscape: Insights into Clinical Trials, Funding Trends, Challenges, and Transformations Amidst Covid-19 and Beyond (2023). Novotech, 30 October 2023; https://novotech-cro.com/whitepapers/navigating-biotech-landscape-insights-clinical-trials-funding-trends-challenges.
4 Five Factors To Consider When Scaling Up Biologics Production To Meet Global Commercial Output. Thermo Fisher Scientific, 2021; https://assets.thermofisher.com/TFS-Assets/BPD/Reference-Materials/five-factors-consider-scaling-biologics-production-meet-global-commercial-output-article.pdf.
Filippo Pendin is principal, transaction advisory services at Alira Health; [email protected].
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