Small World

As is now apparent, the pharmaceutical and biotherapeutics ‘industries’ are not discrete at all, but simply one industry making drugs in different ways: chemical drugs in the mature pharma sector, and protein drugs in its sister sector, biotherapeutics. To any business strategist, recognising the similarities of these two industry sectors makes predicting the paradigms that will emerge in the stillnascent biopharm sector much less complex than if it were a standalone industry. However, even subtle differences can make predictions misleading: the devil is always hiding in the details.

For example, in defining its business, the pharmaceutical industry today has properly (in most cases) acknowledged that its core competencies lie in its vast distribution network and infrastructure. As a result, pharmaceutical manufacturing can be a commodity driven, cost-centred business that is ripe for outsourcing some of those non-core competencies, such as novel drug discovery and manufacturing, especially of products nearing generic status. Manufacturers who can fully utilise their plants will perform brilliantly (both for their customers and for owners). In pharma parlance, these are collectively known as the speciality chemical, bulk API, contract, or toll manufacturing niche. But, arguably, this developmental paradigm has evolved slowly and over a long period of time in the pharmaceutical sector. Biologics are different.

Biologics are much more costly to manufacture: we still speak of costs in terms of thousands or even tens of thousands of dollars per gram! Most of them are still in the clinic. Market sizes are largely uncertain and ultimate market shares illdefined. In early stages, production yields are unpredictable and, surprisingly, even somewhat unquantifiable, due to early stage assay variability. Product approval rates are low.

Construction of manufacturing facilities is hugely capital intensive and time consuming. Add uncertain approval and inestimable market share to years of construction required to design, build and validate a plant and the result is a recipe for disaster, and a costly one at that. Maintaining a compliant facility requires tremendous fixed costs (principally skilled employees, utilities and cost of capital), regardless of plant utilisation. As a result, cost of goods is very high, as are R&D and clinical development costs.

The end result is protein drugs that are very effective, tend to have fewer side effects than chemicals, and more often attack disease at the cellular or intracellular level – aiming for a cure, not just mitigation of symptoms. The biggest threat to the success of biotherapeutics is their cost of manufacture, which nearly destroys the advantages of their broad market viability and early promise of disease solutions to the global community.

BIOTHERAPEUTICS DEVELOPMENT: OUTSOURCE EARLY AND OFTEN

The pharmaceutical sector moved slowly towards outsourcing, as drugs became generic and the sector began to focus upon its core competencies of sales, marketing and formidable logistics. The difference in the sectors, therefore, is that biotechnology drugs hold forth with even more compelling reasons to outsource – even in early clinical development.

As stated previously, reasons to outsource include the high cost of goods, difficulty of manufacture, uncertainty of approvals, inestimable demand post approval, the cyclical unavailability of capital, and the high cost of capital even when it is available. Finally, the mix is further complicated by regulatory challenges. Until the promise of harmonisation is fulfilled, global regulatory one-up-manship will continue to cause corporate regulatory whiplash around the world.