What noise does a drug make if it passes clinical trials but no one is around to manufacture it? This question might be less hypothetical than the Zen koan about the tree falling in the woods, if the demand for biomanufacturing continues to outstrip supply.

By all accounts, the biopharmaceutical industry is facing a major drought of manufacturing capacity, one which may have a serious impact on the marketing of a new wave of drugs. Regulatory issues, economics and shortsightedness have all contributed to this predicament. David Molowa, a managing director at JP Morgan, discussed the factors that kept many CMOs and pharma companies from committing to invest in biomanufacturing facilities during the 1990s. “The main reason we’re in this biocapacity crunch,” said Mr. Molowa, “is because too many people still remember the over-investment in capacity that led to the crash in the early 1990s.”

He continued, “The first generation of monoclonal antibodies failed, so you had a number of ‘white elephant’ plants. As the next generation of these drugs advanced, executives factored in a similar failure rate. To their surprise, these drugs performed better in clinical trials, raising the success rate.”

Mr. Molowa also believes that drug companies underestimated the scale of the product they would require. “For some of the early biological drugs, you could pretty much serve the world’s need with 3-10 kilos. That’s not the case anymore,” he said. Companies can be off by several times in their estimates of how much of a drug they will need, further complicating the supply crunch.

Another factor in the lack of capacity is the relaxing of FDA regulations. Until the FDA Modernization Act (FDAMA) in 1997, companies were required to qualify facilities for biologics when beginning Phase III trials, a requirement that could lead to financial disaster if the product failed that stage of clinical trials. With the passage of FDAMA, it appears that some drug companies and CMOs held back from committing to build new sites. In an interview last fall, former Genzyme Transgenics chief executive officer Sandra Lehrman remarked, “What we’re seeing now is a pendulum that has swung back too far. We needed and received more flexibility in the regulatory process and relief from early investments in manufacturing plants that resulted in white elephants.”



Shortfall
Some fear that Immunex’s experience with Enbrel could be-come commonplace for the biopharmaceutical industry in the years ahead. On January 1 of this year, Immunex began an “Enbrel Enrollment Program” to identify and enroll current users of the rheumatoid arthritis (RA) drug because demand for the drug was growing through the roof and was set to exceed the current supply. Pharmacies were restricted from replenishing their inventories, a move that would “help Immunex optimize the number of patients able to use Enbrel,” according to a press release. More than 77,000 patients enrolled in the program.

Immunex is on schedule with its plan to retrofit a manufacturing plant for the drug in Rhode Island, but Enbrel will remain in short supply until the middle of next year. For the overseas market, partner company Wyeth-Ayerst is building a manufacturing plant in Ireland, but it won’t be ready until 2005. Meanwhile, the company continues to perform clinical trials with Enbrel for other indications. Enbrel did not prove effective in treating chronic heart failure (the company aborted trials in March), but may prove worthwhile for other conditions, including psoriatic arthritis.

More clinical success for Enbrel (and other biopharmaceuticals) will only increase the demand for them, at a time when supply is already low. Immunex executives project Enbrel sales of $750 million this year, making it the most successful biopharmaceutical drug ever launched, but analysts contend that the company could sell more than $1 billion of Enbrel if that quantity were available. In addition, some remarked that the diminished supply of Enbrel will open the door for competitors to steal market share in the RA field.

Based on current and projected sales numbers, for Immu-nex to cover the shortfall in supply, the company would have needed to begin building a manufacturing plant in 1996, two years before the drug received FDA approval. But given the possibility of a Phase III failure, such an investment would have been unwise.

For a virtual biotech company, possessing only a few employees, there isn’t even an option to build in-house production; the capital expenditure is simply too high. But even larger biopharmaceutical companies are reticent about committing to facilities too early in the drug development chain. Dr. George Vlasuk, the chief scientific officer and executive vice president, head of R&D for Corvas, admitted that his company tries to keep from having a large infrastructure in place around a single product. “If the product fails at any point, you go down with it,” he warned, explaining his company’s decision to use CMOs. Corvas is putting rNAPc2, its injectable anticoagulant drug candidate, into Phase III clinical trials in the second half of 2001.

“Fear of failed trials can definitely curtail facility development,” said David Backer, Molecular Medicine’s director of sales and marketing. Mr. Backer’s company, which was founded in 1997 as a joint venture between Roche and University of California San Diego, offers services for the production of viral-based gene therapy reagents. “Our business is predicated on the success of gene therapy. To help counteract the risks we face, we have to think in terms of partnerships.”

The Second Wave
Peter van Hoorn, director of marketing and sales for DSM Biologics, cautioned that the regulatory hurdle is only part of the story, when it comes to biopharmaceuticals in the marketplace. “Plenty of people are talking about how there are more than 300 biopharma drugs in the pipeline, and how they will completely overtax the manufacturing supply if even a moderate percentage pass through Phase III,” Mr. van Hoorn said. “But while everyone is so enthused about the number of biopharmaceuticals in trials, no one is discussing how many of them treat the same set of indications.

“We should be concerned about the lack of manufacturing capacity that will be available, but drug companies should also be thinking of the size of the marketplace for these drugs, because there’s going to be a shakeout when these drugs reach the market,” he said, adding that clinical trials will comprise “only the first wave of attrition for biopharmaceuticals. Afterward, there’ll be marketplace attrition.”

Mr. Molowa agreed that there’s going to be a serious shakeout. “Given the lack of capacity, companies are really going to have to pick and choose. I think a lot of projects will get back-burnered in the years ahead.

Mr. van Hoorn’s company, DSM Biologics, recently brought on stream a new 2,000 L fermentation unit in its Montreal site. The new unit consists of clean rooms and a fermentor train, with two seed fermentors of 50 and 320 L, as well as the 2,000 L production fermentor. The plant is co-owned by DSM and the Societé générale de financement du Québec (SGF), an economic development group.

Drug companies aren’t sitting on their hands waiting for CMOs to build, validate and qualify plants: American Home Products (through Wyeth-Ayerst) is building the aforementioned Enbrel plant in Ireland; Eli Lilly is spending $250 million on a biomanufacturing facility in Puerto Rico to produce Humalog, a diabetes treatment; and Biogen has just announced plans to build a $350 million manufacturing site in Hillerod, Denmark for products in the development pipeline.

The Biogen site is located in the Copenhagen region near southern Sweden, which is evidently known as “Medicon Valley” for the size of its biopharmaceutical base. The region has the highest number of biotechnology companies in Europe, on a per capita basis. In a press statement, Biogen’s president and chief executive officer, James C. Mullen, said, “This new facility is an important step in the execution of our long-term global business strategy. It will give us greater flexibility and control of finished product, help us ensure capacity worldwide and enhance our presence outside the U.S.” Groundbreaking for the 60-acre site will begin early next year, which means the facility likely won’t be running until 2006. Similarly, the Lilly facility won’t be operational until 2005.

Cangene, a Canadian-based biopharmaceutical company with a contract manufacturing division, is in the process of validating a 2,000 L fermentation facility. David Young, the sales manager for Cangene’s CMO operations, said that the company always wanted to have a manufacturing infrastructure in place. Cangene has several biopharmaceuticals on the market (WinRho SDF, an immune globulin; VariZig, a purified and specialized antibody against the chicken pox virus), with more in clinical trials (anti hepatitis B and C immune globulins; human growth hormone).

“At Cangene, we could take the risk and build a facility for a product still in tests because we knew we could fill capacity with our contract manufacturing unit,” Mr. Young said. “With our combination strategy, we can strike a balance between in-house work and work for sponsors without making either one secondary.”



Mergers
Another way for companies to add capacity is through mergers/acquisitions. “We’re going to see consolidation in this industry because people are starting to view biologic contract manufacturing as a good business,” said Mr. Molowa. In the last month, two more acquisitions were announced, with Akzo Nobel’s Diosynth division buying Covance Biotechnology Services and Cambrex buying Bio Science Contract Production. For more about those transactions, see the sidebar beginning on p. 28.

In fact, it appears that the recent purchases signify an upping of the ante for biopharmaceuticals manufacturing. Last October, shortly after placing its biomanufaturing unit on the market (along with its packaging unit), Covance executives discussed the high cost of running a viable bio-CMO business. The price, they concluded, was too high to bring the unit to the next level. The company elected to move in a different direction, as noted in its annual report:

“[W]e are strategically repositioning Covance to:

• Leverage our clear leadership positions in Early Development and Central Laboratory services.

• Pursue Phase III clinical development contracts selectively, focusing on operational excellence, customer satisfaction and margin improvement.

• Invest in science and technology initiatives with the potential to improve access to high-quality drug development data and allow review in near real time.

To facilitate this repositioning effort, we are pursuing the divestiture of certain capital-intensive businesses that do not enable real-time access to data.”

Cangene chose the acquisition path with its purchase of Chesapeake Biological Laboratories (CBL) in February. CBL’s 71,000-square-foot manufacturing facility in Baltimore will “enhance our presence within the U.S. biopharmaceutical and investment communities,” according to Cangene’s chief executive officer and president, Dr. John Langstaff.

The CBL acquisition is intended to provide Cangene with a wider array of biomanufacturing services. “We can now go from fermentation to finished product,” said Mr. Young. “Not a lot of companies can do that.”

Mr. Backer at Molecular Medicine agreed that the trend is toward consolidation and integration. “We see a heavily fragmented industry, one that looks ready for consolidation. I’m pretty sure that someone will try to vertically integrate and put a massive set of services and capacity together. Usually, that doesn’t involve a single company, so we may see a few players trying to reach that next level.”

He added that such an integration could benefit Molecular Medicine, which presently offers two pilot facilities, but not commercial production capacity. “Manufacturing acumen is about having infrastructure in place,” Mr. Backer said. “With a consolidated infrastructure out there, we can transfer technology and processes more efficiently.”

Crisis = Opportunity
While large-scale capital is needed to reach the next level in the bio-CMO business, mid-sized and smaller companies, both on the sponsor and contractor sides, see major opportunities in the biopharmaceuticals arena. As Dr. Vlasuk of Corvas put it, “Big pharma has massive resources compared to the ‘little guys,’ but they also have cumbersome, slow structures. Pfizer is taking the initiative in changing its structure to allow for quick movement, but it’s a difficult process when you achieve a certain size.” He added that the big companies will generally stick with their core competencies in development, clinical/regulatory affairs and manufacturing, while relying on the smaller firms for innovation. “Conversely, the small guys have to stay innovative, not just try to become huge overnight,” he said.

Cangene’s David Young contends that smaller CMOs have a similar opportunity because of the very nature of these new drugs. “One of the big differences with biopharmaceuticals,” he remarked, “is that they tend to be value-added drugs, with low dosages. This means that manufacturers don’t need to produce as much volume as they would with a comparable small molecule drug.” This could mean that smaller players may be competitive with larger players such as DSM Biologics and Lonza. “The key is keeping capacity utilization high,” Mr. Young advised. “We take on new business, but have enough continuing business to keep overhead down.”

Alternatives
While many drug companies and CMOs are pursuing additional fermentation capacity to stave off the manufacturing crunch, some are looking to other methods of making biopharmaceuticals. The strongest alternative appears to be transgenics, the practice of transferring genes from one organism to another in order for bioproduction.

In the November/December issue of Contract Pharma, Stephanie Finnegan and Brandon Price, Ph.D., discussed the biocapacity crunch in “Biomanufacturing Strategies” (Nov./Dec., pp. 28-39). The writers stridently announced, “Survival in the wake of biotech’s latest crisis . . . will require corporate executives to throw off their blinders and embrace alternative vendors and leading edge technologies that have been shunned in the past.”

The writers continued, “Of the available solutions, we be-lieve that transgenic systems not only have the ability to mitigate against the current crisis but also the potential to provide long-term solutions to both manufacturing capacity and cost-of-goods issues.”

Tullis-Dickerson & Co., a health care venture capital firm, has cast its lot with the transgenics camp. General partner Lyle Hohnke said, “We foresaw the capacity crunch a few years ago, mainly as a result of observing the technologies for making monoclonal antibodies. We began investing in alternative technologies, and we think major companies are going to take a long, hard look at these alternatives.”

The firm has invested in several transgenics companies, including EpiCyte, Avigenics and Prodigene. “The up-front genetic engineering costs are much lower with the plant transgenic systems,” said Mr. Hohnke. “Purification is the biggest cost, but the infrastructure for that already exists.” Tullis-Dickerson hasn’t put all of its transgenic eggs in one basket. “In addition to our investment in plant transgenics, one company we’re involved in, Avigenics, uses chicken eggs as bioreactors, producing proteins in albumin.”

Mr. Hohnke admits there are limitations to transgenic systems at present, particularly with plant-based models. “The big problem is that plants only grow so fast, which leaves you with a lag waiting for volume. Bacteria, on the other hand, grow awfully quickly. But when we do get plant transgenics to work, the cost of production is absolutely going to plummet.”

He added, “Some of our companies are using plant antibody production to reach a large scale, opening new therapeutic markets. It’s really a matter of getting comfortable with alternative means of production.” He mentioned that a company in dire need of production, such as an Immunex, will have to make the choice to move into transgenics. “Someone at senior levels has to make a leap of faith, even though there’s a firm scientific foundation for transgenics,” said Mr. Hohnke.

The key obstacles, in Mr. Hohnke’s opinion, are purity and scale. “Biotech companies want to know: is the protein produced in a plant identical to that from other sources, and is it scaleable? The expression levels must be commercially acceptable and biologically active.”

Dr. Vlasuk at Corvas contended that transgenics still have a ways to go to satisfy his company’s needs. “Genzyme Trans-genics is getting good expression of large proteins, but we’re working on small proteins. The existing transgenic systems just don’t provide the expression we need.”

According to Mr. van Hoorn, transgenics may not be able to overcome the progress of fermentation technology. “Economy of scale is driven by proof of technology,” Mr. van Hoorn said. “Right now, the industry isn’t running on 10-15,000 L vat scales. It’s a slow-moving development, getting to that size. It’s quite gradual, so we’re sitting on a situation where scale benefits aren’t here yet, but the technology is improving yield. Once we begin to go to market with bigger volume biologicals, we’ll see a reduction in cost of goods, I believe.”

Because of these technoloigical improvements in fermentation, he contended, transgenics may not become more than a niche market. “I think fermentation is going to become better and better at delivering biopharmaceuticals,” Mr. van Hoorn concluded.

The biopharmaceutical industry is clearly at a critical juncture. Companies are facing a mirror-image of the last wave of biotech products. A decade ago, too many drug failures left the market all revved up with nowhere to go. Now, ironically enough, too many successes may leave the marketplace bereft of the best possible therapeutics.