Global Biopharmaceutical Contract Manufacturing Market – Qualitative and Quantitative Analysis

Aiswariya Chidambaram Senior Research Analyst - Life Sciences

24-10-2013

2

Focus Points

Focus Points

The Rise of Biopharmaceuticals

Comparative Analysis: Generics, Biosimilars and Biologics

Global Biopharmaceutical Market Overview

Biopharmaceutical Contract Outsourcing – Benefit Analysis

Biopharmaceutical Contract Manufacturing Market Overview

Biopharmaceutical Contract Manufacturing Segment Life Cycle Analysis

Key Market Drivers and Restraints

Technology – The Powerful Tool

Key Competitive Factors in the Selection of a CMO

Anticipating Capacity Demand – A Tricky Speculation

What can be Expected in the Future?

Facing the Change – Strategic Recommendations

3

The Rise of Biopharmaceuticals

“Biopharmaceuticals – The Length and Breadth of Healthcare in Future”

What are biopharmaceuticals? – Biopharmaceuticals are pharmaceutical drugs based on protein, therapeutic serum, virus, vaccine, blood components or derivatives or gene transfer products, directly administered into the blood stream by injection. They are complex macromolecules with

very high molecular weights compared to small molecules.

Biopharmaceutical Manufacturing – Biopharmaceuticals are generally expressed in mammalian cells (mice, rabbits, etc.) or micro-organisms (yeast, bacteria, etc.). Manufacturing involves highly sterile, aseptic conditions and highly sensitive to changes in environment. Formulations are

predominantly injectables – pre-filled syringes or cartridges.

Why Biopharmaceuticals?

Stronger focus on target diseases, more effective and potent action, potential to cure diseases rather than just treating symptoms, lesser side effects.

Technology Monoclonal Antibodies

Recombinant Proteins

Protein Therapeutics

Oligonucleotides

Gene Therapy

Applications Research

Therapeutics

Diagnostics

4

Comparative Analysis: Generics, Biosimilars and Biologics

Moderate (5075%)Low (~30%)

BiosimilarsGenerics Biologics

Mar

keti

ng

Oth

er

Dyn

amic

s

Probability of successProbability of success

TimeTime

CostCost

PricingPricing

Marketing investmentMarketing investment

Point of differentiationPoint of differentiation

Barriers to entryBarriers to entry

Product operational profit margins

Product operational profit margins

Decision makersDecision makers

CompetitorsCompetitors

Short (34 Yrs) Long (812)

Low (~$5 million)High

($350900 million)

Commodity pricing Premium (full pricing)

Low High

Group purchasing / Medical professional

OrganisationsPrescribers, patients

High, Less differentiated

Few, well differentiated

Price, breadth of portfolio

Product profile, marketing

Low (Cost efficiency)

High (development process)

Low (~20%) High (~40%)

High (~90%)

Moderate (78 Yrs)

$100200 million

Lower pricing value

Payers, prescribers

Moderate

Few, Partially differentiated

Price, Product profile & technology

High (capital and development)

Mixed (2530%)

Pro

du

ct

Dev

elo

pm

ent

5

Global Biopharmaceutical Market Overview

Recombinant Proteins

Monoclonal Antibodies

Vaccines Insulin

Monoclonal antibodies (mAbs) and recombinant proteins are the two largest segments, growing at rates of 11.8 and 8.2 per cent in 2011.

U.S. and Europe are the major markets for biopharmaceuticals; Asian markets are likely to present significant growth.

The future of Biopharmaceutical industry is promising, with biotech companies focusing more on innovation and technological advancements and increasing interest of pharmaceutical companies to enter into the biotech business.

Biopharmaceutical Market: Per cent Revenue Contribution by Therapeutic Segment (Global)

The European Biopharmaceutical Industry grew by 11 per cent from 2009 to 2010.

45%

40%

10%5%

U.S.Rest of World

Europe

Asia

Biopharmaceutical Market: Per cent Revenue Contribution by Region (Global)

48.9%

34.3%

10.3%6.5%

6

2012 2013 2014 2015 2016 20170%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Small Molecules mAbs Therapeutic Proteins Vaccines

Year

Pre

sc

rip

tio

n D

rug

Sa

les

Pharmaceutical Contract Manufacturing Market: Percent of Combined Prescription Sales for Big Pharmaceutical Companies by Molecule Type, Global, 2012–2017

Increasing Adoption of the “Large Molecules” Model by Big Pharma

Key Takeaway: As large molecules are commercially attractive and less competitive, big pharma companies will likely increase their focus on these segments in the future.

Note: Sales from generic drugs have been excluded.

7

Benefit Analysis

Cost-efficiency

Rationalization of assets

Focus on core competencies

Life-cycle management

Operational efficiency

Regulatory Expertise

Biopharmaceutical Contract Outsourcing – Benefit Analysis

8

65%

35%

Mammalian-based manufacturing Microbial-based manufacturing

Biopharmaceutical Contract Manufacturing Market: Per cent Revenue Contribution by Segments (Global)

Biopharmaceutical Contract Manufacturing Market - Segment Analysis

Mammalian-based manufacturing currently represents the largest segment, accounting for two-thirds of the Biopharmaceutical Contract Manufacturing Market and is likely to be the major growth

driver over the next five years.

Segment

Revenue

(%)

Revenue

Growth Rate

(%)

Mammalian-based

manufacturing

65 5-6

Microbial-based

manufacturing

35 2-3

Biopharmaceutical Contract Manufacturing Market: Per cent Revenue Contribution by Segments

(Global)

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Biopharmaceutical Contract Manufacturing Market - Segment Life Cycle Analysis

Time

MaturityDevelopment Growth Decline

Mar

ket

Val

ue

Microbial Contract Manufacturing Market is mature and stable, and experiencing minimal growth rates. It is a very old technology and

not suitable for complex, glycosylated molecules. Hence, most CMOs do not plan for

capacity expansions in this segment.

Microbial

Mammalian

Key:

The current period being the decade of monoclonal antibodies, significant growth is expected in this segment. The cutting-edge

technologies and remarkable success of mAbs in oncology presents a promising future for this segment. Capacity additions are expected to increase by 66 per cent in the next five years globally. The profit margins are also relatively

higher in this segment.

10

Drivers

Cost and time

saving benefits

CMOs have made huge

investments in infrastructure,

technology and personnel

Patent Cliff

Biologics worth $110

billion to lose patent protection between 2010 and

2020

Strong Biologics Pipeline

New product launches and

novel drug delivery

mechanisms to drive

outsourcing

Integrated/ Risk-sharing

Business Model

End-to-end service

providers offering value-added

services

Increasingly stringent

regulations

Increased over head costs and reduces time-to-market

Lack of VC Funding for early-stage companies

Greater preference for

companies with promising

late-stage candidates

Restraints

Biopharmaceutical Contract Manufacturing Market – Key Drivers and Restraints

11

Biopharmaceutical Manufacturing Costs Breakdown

30%

20%

40%

10%

Process Development Upstream Processing

Downstream Processing Others

Biopharmaceutical Contract Manufacturing Market: Manufacturing Cost Breakdown by Process (Global)

34.5%

16%28.5%

21%

Capital Labour Materials, Utilities & Wastes Overhead

Key Takeaway: The cost to build, equip, and validate a bio manufacturing facility ranges between $350 and $900 million, depending upon the product manufactured

Biopharmaceutical Contract Manufacturing Market: Manufacturing Cost Breakdown by Component (Global)

12

2012 2014 2016 20182010 2020

Patent Expirations

BeneFIX (Pfizer)

2011

Total Biologics Market: Patent Expirations, (Global), 2010–2020

Source: Frost & SullivanYear

Pro

du

ct

Enbrel (Amgen/ Pfizer)2012

Neupogen (Pfizer)2013

Humalog (Eli Lilly)2013

Avonex (Biogen Idec)2013

Cerezyme (Genzyme)

2013

Rebif (Merck KGaA)2013

Epogen (Amgen)2013

Procrit/ Eprex (J&J)2013

Prevnar (Pfizer)2015

Lantus (Sanofi-aventis)

2015

Actemra (Roche)2015

Gonal-F (Merck KGaA)2015

Neulasta (Amgen)2015

Nimotuzumab (YM Biosciences)

2015

Norditropin SimpleXx (Novo

Nordisk)2015

Tysabri (Elan/ Biogen Idec)

2017

Provenge (Dendreon)

2017

Victoza (Novo Nordisk)

2017

Cervarix (GSK)2017

Avastin (Roche)2018

Apidra (Sanofi-aventis)

2018

Gardasil (Merck & Co)2019

Rota Teq (Merck & Co)2019

Erbitux (Merck KGaA/ Bristol Myers Squibb)

2019

Levemir (Novo Nordisk)

2019

Elaprase (Shire)2019

Orencia (Bristol Myers Squibb)

2019

Herceptin (Roche)2019

13

2012 2014 2016 20182010 2020

Patent Expirations (continued)

Total Biologics Market: Patent Expirations, (Global), 2010–2020

Source: Frost & SullivanYear

Pro

du

ct

NovoMix (Novo Nordik)

2014

NovoRapid (Novo Nordisk)

2014

Rituxan (Roche)2014

Kogenate (Bayer)2014

Helixate (CSL Biotherapies)

2015

Humira (Abbott Laboratories)

2016

Zostavax (Merck & Co)2016

Forteo/ Forsteo (Eli Lilly)

2018

Remicade (J&J/ Merck & Co)

2018

Xolair (Roche/ Novartis)

2018

Pegasys (Roche)2019

PEGIntron (Merck & Co)2019

Vectibix (Amgen)2020

Lucentis (Roche/ Novartis)

2020

Botox (Allergan)2020

Synflorix (GSK)2020

Replagal (Shire)2020

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Biopharmaceutical R&D in Europe – What’s in the Pipeline?

0

50

100

150

200

250

Spain Italy France Germany UnitedKingdom

Number of drug candidates

Phase I Phase II Phase III

The biopharmaceutical R&D expenditure in Europe, grew by 5 per cent from 2010 to 2011.

As venture capital firms in Europe are interested to invest only in late stage biopharmaceutical companies, start-up biotech companies gain access to funding, predominantly through venture capital firms based at the U.S.

More than 50.0 per cent of the products in the European pipeline account for therapeutic monoclonal antibodies.

More than 1,200 biopharmaceuticals in the pipeline.

More than 50% drugs represented by the five major countries.

UK (over 230) and Germany (150 approximately) have the maximum number of drug candidates in the pipeline.

Spain has shown a significant increase of 30% in 2010 from its 2009 pipeline.

Biopharmaceutical Market: Number of Drugs in Various Stages of Clinical Pipeline, by Country (Europe)

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Venture Capitalist (VC) Funding Analysis

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

First Time VC Follow-on VC

Year

VC

In

ve

stm

en

t (m

illi

on

)

Overall greater interest from VC firms in the biopharmaceutical sector than small molecules.

Greater capital allocation to the U.S. than Europe.

Biopharmaceutical Contract Manufacturing Market: VC Investment in Biopharmaceutical Companies and CMOs, (Global), 2000 - 2011

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Technology – “The Powerful Tool”

• Customizable design• Enhanced Productivity• Significant operational benefits

• Optimized expression systems• Enhanced cell productivity & viability• Simplified purification process• Improved selectivity

• Minimizing human errors• Maximizing productivity• Improvised product quality

Single Use Technologies are specially designed for

• Muti-product contract manufacturing.

• Easy transfer of operations

• Busy facilities and lean operations.

Upstream technologies

• cell productivity - 2-4 g/L in established production processes

• 4-6 g/L in pre-clinical and clinical manufacturing processes,.

Downstream technologies

• mAbs – filtration & purification resins

• Recombinant proteins - higher selectivity and flow-through mode purification steps.

• Lyophilisation - protein based drugs, preservation and packaging.

• Process Analytical Technologies (PAT) - product driven approach to process based one.

• Standardization of processes.

• Reduced degree of variation.

Upstream & Downstream Lyophilisation & PATDisposables/ SUBs

Innovation

Funding

Expertise

Regulatory compliance

“Any sufficiently advanced technology is indistinguishable from magic” – Arthur C. Clarke

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Competitive Landscape

Tier 1

• Lonza Group Ltd• Boehringer Ingelheim

Tier 2

• Sandoz• Fujifilm Diosynth Biotechnology• Royal DSM• Rentschler Biotechnologie

Tier 3

• Celonic GmbH• BIOMEVA GmbH• ProBioGen AG• Others

Biopharmaceutical Contract Manufacturing Market: Key CMOs by Tiers of Competition

18

Capacity

Reputation/Credibility

Technical expertise

QualityLow

Low High

Low High

2 105 6 8

2 104 6 8

2 104 6 8

Low High

2 104 6 8

High

Personal relationship

Communication

Timely delivery/ Speed

Approved facilities/Regulatory support

Low

Low High

Low High

2 104 6 8

2 104 6 8

2 104 6 8

Low High

2 104 6 8

High

Cost LocationLow High

2 104 6 8Low High

2 104 6 8

Note: Above are the key competitive factors in the selection of a CMO by Pharmaceutical/Biotech companies for contract manufacturing services. The factors are rated on a scale of 1 to 10 with 1 = Low importance and 10 = High importance based on the end-user’s input.

Key Competitive Factors in the selection of a CMO

19

Anticipating Capacity Demand – A Tricky Speculation

2011

2015

2018

2020

Demand < Supply

Demand < Supply

Demand = Supply

Demand >Supply

Biopharmaceutical Contract Manufacturing Market: Capacity Supply-Demand Gap Analysis (Global)

2011 2012 2013 2014 2015 2016 2017 201815

15.5

16

16.5

17

17.5

15.9%

16.1%16.2%

16.5%

16.8%

17.0%

17.4%17.5%

Year

Demand for Outsourcing (%)

Biopharmaceutical Contract Manufacturing Market: Demand Rate for Outsourcing to CMOs (Global)

“It is highly essential that CMOs make cautious decisions regarding capacity expansions and choice of contract deals, lest they be hit by over capacity and witness a subsequent erosion of profit margins”.

The global biopharmaceutical industry has been alternating between cycles of excess and inadequate manufacturing capacity (including captive and contract).

Current scenario conforms to slightly surplus capacity supply than the actual demand. Captive manufacturers are increasingly shutting down plants or selling excess capacities.

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What Can Be Expected in the Future?

TechnologyDevelopment of Transgenic technologies

Stem cell technologiesCloning technologies

TherapeuticsDevelopment of RNA-i based therapeutics

Development of anti-sense based therapeutics Recombinant protein therapeutics

Monoclonal antibodies

GovernmentRegulatory bodies like EMEA to drive new

product and technology introduction

Increase in approval rates of new biopharmaceuticals and biosimilars.

GlobalizationConsolidations, mergers, acquisitions

Opening and expansion of Asian marketsGlobal capital markets

Transition from “small molecule blockbuster” model to “biopharmaceutical” model.

Increase in public awareness, acceptance and approval of biopharmaceuticals.

Increase in outsourcing of biopharmaceutical manufacturing by Big Pharma companies.

Development of “Virtual Pharma”

Differentiation and consolidation strategies adopted by Biotech companies and CMOs.

“A-one-stop-shop” offered by CMOs, promoting a complete portfolio of products and comprehensive range of services.

Large CMOs moving into niche areas of biopharmaceutical manufacturing.

Further development and implementation of transgenic technologies.

Establishment of regulatory pathways for biosimilars and transgenics.

“ The best way to predict the future is to create it” – Peter Drucker

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Facing the Change – Strategic Recommendations

Reacting to Change

Anticipating Change

Leading the

Change

• Develop biopharmaceuticals for key indications.

• Customize according to customer needs and preferences.

• Comply with new government policies.

• Analyze prospects for market globalization.

• Research customer needs, preferences and expectations.

• Monitor new technological developments to predict future. • Foresee capacity requirements.

• Pioneer new and better technologies.

• Introduce innovative products, that open new market opportunities and spur creation of whole new industries.

• Seek to set industry standards.

• React and respond as needed.

• Defend and protect company’s position in the market.

• Plan ahead for future changes.

• Invest in R&D.

• Instill competitive capabilities.

• Improve product line.

• Strengthen distribution.

• Seize the offensive.

• Be the agent of industry change.

• Influence rules of the game.

• Force rivals to follow.

Strategic Posture

Actions Strategy

“ Change is the law of life. And those who look only to the past or present are certain to miss the future.” – John F. Kennedy

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Related Market Research Reports

Global Pharmaceutical Contract Manufacturing Market

Global Next Generation Biosimilars Market

Global Contract Research Outsourcing Market

Questions

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AISWARIYA CHIDAMBARAMSenior Research Analyst – Life Sciences

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