A Closer Look at the Capacity Glut
Most recent analyses of the supply and demand for mammalian cell culture manufacturing capacity confirm a global excess. However, with only ten companies controlling almost 80% of this capacity, the apparent glut may not be as large as it seems. If we look separately at those companies with manufacturing capacity for their products and those which rely on CMOs for some or all of their manufacturing, a very different picture emerges.
While plant closures, acquisitions, expansions, product approvals, and new products entering clinical trials all affect the overall supply-demand balance, their net effects on the aggregate market might be nil. In the aggregate market, plant closures obviously have a negative impact, but most of these recent supply contractions have resulted from mergers and acquisitions among big pharma. For example, Pfizer will close its Shanballey facility and cease some biomanufacturing operations in Pearl River as a result of its Wyeth acquisition. Similarly, Roche’s restructuring ended manufacturing in Nutley and mothballed Genentech’s Vacaville-2 plant. Eli Lilly will close one Erbitux manufacturing plant (BB-36) due to the age of the facility. Although these closings will reduce the global supply, they are likely to have little impact on the internal demand for manufacturing capacity at these companies and no effect on demand for CMO manufacturing capacity.
On the flip side, expansions in capacity will positively affect the aggregate supply-demand equation. The few recent major facility expansion announcements have been primarily in the CMO sector. DSM Biologics created a partnership with BioPharmaceuticals Australia to build a facility in Australia, scheduled to open in 2013. And CMC Biologics has announced an expansion of its Seattle, WA facility. CMC reports that this addition of another 10,000 L of capacity is based on recent increases in client demand, which may indicate that available CMO capacity may not be as plentiful as we thought. Supporting this thought is Lonza’s recent quarterly earnings announcement, showing increasing capacity utilization in its CMO business.
As for demand, new products entering clinical trials will absorb capacity while discontinued or withdrawn products will release capacity. In recent months, over ten products have advanced to Phase 2 clinical trials with more than half of these being developed by companies relying on CMOs for manufacturing capacity. Interestingly, GlaxoSmithKline does not appear to have enough of its own manufacturing capacity, having recently tapped Lonza for the production of five antibodies and also committing to work with Lonza to design a new biopharmaceutical manufacturing facility in the UK.
All this manufacturing-related activity makes us wonder where the industry will be in the coming years. What impact will the increasing use of single-use technologies have on the demand for traditional bioreactor capacity? And, for companies with large-scale biopharmaceutical manufacturing requirements, there are still relatively few outsourcing options available. Will the increasing demand for CMO capacity result in a return to the seller’s market of a few years ago?