Rapid
growth in biopharma:
Challenges and opportunities
Biopharmaceuticals could become the core of the pharmaceutical industry, but not without significant transformation in the laboratory and in strategy, technology, and operations.
Biopharmaceuticals
are among the
most sophisticated and elegant achievements of modern science. The
huge, complex structures of these drugs don’t just look
extraordinary in the 3-D modeling systems used to design them; they
also perform their jobs remarkably well, offering high efficacy and
few side effects. And there is much more to come: existing treatment
archetypes are evolving and becoming more sophisticated all the time,
and continuing research is yielding entirely new types of products.
Radically new concepts are making it to the market, such as the cell
therapy Provenge, which is used to treat cancer, and, somewhat
further out, gene therapies, which offer even more amazing promises
of regenerative medicine or disease remission.
Yet
there are operational and technological challenges. Reproducing large
molecules reliably at an industrial scale requires manufacturing
capabilities of a previously unknown sophistication. Consider this: a
molecule of aspirin consists of 21 atoms. A biopharmaceutical
molecule might contain anything from 2,000 to 25,000 atoms. The “machines” that produce recombinant therapeutics are
genetically modified living cells that must be frozen for storage,
thawed without damage, and made to thrive in the unusual environment
of a reaction vessel. The molecules must then be separated from the
cells that made them and the media in which they were produced, all
without destroying their complex, fragile structures.
This
sophistication comes at great cost. Large-scale biotech-manufacturing
facilities require $200 million to $500 million or more to build,
compared with similar-scale small-molecule facilities that may cost
just $30 million to $100 million, and they can take four to five
years to build. These facilities are costly to run, too, with long
process durations, low yields, expensive raw materials, and, not
least, the need for a team of highly skilled experts to operate them.
There are myriad reasons the rapid growth and increasing importance
of the industry is producing new challenges and opportunities. To
keep pace, biopharma players must revisit and fundamentally reassess
many of the strategies, technologies, and operational approaches they
currently use.
The opportunity: Biopharma goes mainstream
The
opportunity in biopharmaceuticals is big and growing too rapidly to
ignore. Today, biopharmaceuticals generate global revenues of $163
billion, making up about 20 percent of the pharma market. It’s by
far the fastest-growing part of the industry: biopharma’s current
annual growth rate of more than 8 percent is double that of
conventional pharma, and growth is expected to continue at that rate
for the foreseeable future.
The
efficacy and safety of biopharmaceutical products, combined with
their ability to address previously untreatable conditions, allows
pharma companies to command high prices for innovative drugs. Strong
demand has driven significant profits, despite the high cost of goods
sold. Biopharmaceuticals have set new standards for blockbuster drugs
as well. Blockbusters are traditionally defined as drugs that have $1
billion or more in annual sales; the top 15 biopharma products each
enjoy annual revenue of more than $2 billion, with some, such as the
antiinflammatory drug Humira, generating sales of more than $10
billion a year. For many players, the biggest challenge has been
simply making enough product to sell. It’s no surprise that major
pharmaceutical companies around the world are increasingly shifting
their R&D and sourcing focus to large-molecule products
Investing
in biotech R&D has yielded better returns than the
pharma-industry average. The current biologics-development pipeline
supports an outlook of continued healthy growth. The number of
biotech patents applied for every year has been growing at 25 percent
annually since 1995. There are currently more than 1,500 biomolecules
undergoing clinical trials, and the success rate for biologics has so
far been over twice that of small-molecule products, with 13 percent
of biopharma products that enter the Phase I trial stage going on to
launch.
The
success of the clinical pipeline will lead to an unprecedented number
of new molecule launches, rising from a handful a few years ago to 10
to 15 annually, as biopharma products make up an increasing share of
new approvals from the US Food and Drug Administration in the future.
A further steep increase is to be expected as multiple players begin
to receive approval for the production of biosimilars after 2015.
If
anything, the emerging long-term picture is even more exciting, with
disruptive innovations such as immunotherapies, antibody drug
conjugates, and gene and cell therapies all making progress toward
commercial launch in the next few years. Biopharma looks poised to
transform the industry once more, as increasing understanding of the
interaction between drugs and the genetic makeup of patients helps to
improve the targeting of therapies. Combined with robust, low-cost
genetic profiling, this knowledge will improve treatment outcomes and
serve to accelerate and improve the outcomes of clinical trials,
helping to reduce the cost of drug development.
The challenge: Cost, complexity, and regulatory scrutiny
As
biopharma moves from the scientific frontier to the business
mainstream, the industry will increasingly be forced to confront the
same challenges faced by other businesses: maintaining
competitiveness by ensuring affordability, quality, and delivery
performance.
Demand for affordability and improved access
Downward
cost pressure will intensify as healthcare systems struggle to
balance rising demand with flat or declining budgets. In this
environment, payors may find it difficult to justify the annual
treatment costs of $50,000 to $100,000 that some biopharma products
currently demand. It is hard to imagine that these price premiums
will be sustainable for any but the most innovative drugs.
Furthermore, governments in emerging markets understand the critical
role that biopharma will play in boosting healthcare outcomes, and
they are aggressively supporting alternative ways to fulfill demand
for these products.
The
result of these pressures will be the inevitable development of the
biosimilars industry. The availability of biosimilar versions of
human-growth hormones and interferons has already opened access to
these products to a far larger number of patients. As patent
protection on more complex biopharmaceuticals expires, biosimilars
will surely follow the same path.
Early
regulatory and customer concern is already being overcome. In June
2013, for example, the European Union approved Remsima, Celltrion’s
biosimilar version of the monoclonal antibody Remicade. In emerging
markets, where consumers are able to access products only if they are
available at considerably lower prices, enthusiasm for biosimilars is
likely to be even stronger. The biosimilars industry has the
potential to change the commercial landscape as profoundly as
generics players have done in conventional pharma. Pressure from
biosimilars will force the innovators to accelerate the search for
better products and will increase pressure on the industry as a whole
to reduce its cost of goods sold.
Complexity of biopharma supply chain and operations
As
the number of products rises and new process technologies such as
continuous manufacturing are introduced, the complexity of biopharma
operations and the biopharma supply chain will increase. Evidence
indicates that current production programs are already stretching the
industry, with several players failing to deliver to the market. This
challenge will only increase as sites move from the current “one
line, one product” setup toward nimble and flexible
multiple-product operations and are required to manage both current
and future technologies under one roof.
The
high premium on biopharmaceutical products and the relatively smaller
share of revenues they have historically accounted for in big
pharmaceutical companies have led to industry-wide challenges in the
supply chain. Complexity, cost, and service levels are far from
small-molecule best practices, even considering the additional
complexity of cold-chain requirements.
New manufacturing technology platforms
The
new classes of molecules discussed above, from drug conjugates to the
cell and gene therapies arriving in the next five years, will each
require its own novel manufacturing, supply, and quality-assurance
approaches. Today, many companies that are insourcing these products
in the late clinical or early commercialization phase are struggling
to set up the novel technologies and processes required to produce
them. Making the right decision about how to set up operations for an
autologous cell therapy is not an obvious exercise, and there will
naturally be many suboptimal solutions before sufficient experience
is built.
Quality compliance and regulatory scrutiny
Quality
functions are struggling to keep up with the rising demands of
regulators, primarily the US Food and Drug Administration. The
industry has received an unprecedented number of warning letters and
remediation programs in the last five years, and scrutiny is unlikely
to decrease. Furthermore, the increasing relevance of global markets
(beyond the United States, European Union, and Japan) is adding the
complexity of multiple quality standards and regulatory regimes.
Compliance, robustness of processes, and efficiency will need to be
squared in one equation.
What’s next: Evolving in a booming industry
These
trends will fundamentally reshape the industry. The changes will not
be the same for everyone; a variety of business archetypes will
coexist in the industry, and their strategies and success factors
will differ in important ways.
Global
innovators will have to drive product innovation in order to continue
to command premium prices, shifting the frontier of technology and
exploring new operational setups (such as the design and deployment
of their future network). Biosimilars players will have to focus on
cost, quality, and scale. For them, speed, process innovation, and
operational excellence are must-win battles. Players based in
emerging-market nations will have to find their own niches with the
right operational and quality performance to make the best use of
privileged access to, and knowledge of, their local markets.
Contract-manufacturing organizations will have to be at the leading
edge of process innovation and operational efficiency while retaining
or building a spotless reputation for service and performance. Beyond
these generic player archetypes, each company will need a detailed
view of its own strategic position, asking itself what it stands for
in the market and what it needs to do in order to win.
Whatever
their competitive niche, companies must continually evolve both their
manufacturing technologies and their operational capabilities.
Technologies are not yet sufficiently mature to rely only on
operational improvement to drive quality and productivity up and cost
down. Nor will technological improvements alone be sufficient to do
those things.
We
believe that the biopharmaceutical companies best positioned to
succeed in tomorrow’s market will be those that master a broad set
of technical and operational capabilities. Decisions that companies
are making today will have a critical influence on that success for
two important reasons. First, operational excellence is a hard-won
skill. Capabilities such as lean, agile, and efficient manufacturing
require sustained effort and commitment to develop and hardwire into
the organization. Second, decisions made today will affect companies’
competitive positions years or even decades into the future. This is
particularly true in areas such as footprint design and the choice of
core manufacturing technologies.
A
full discussion of all the technical and operational decisions facing
biopharma companies today and in the coming years is beyond the scope
of this article, but some of the most important considerations
include the following:
- reducing operating costs across manufacturing and quality divisions by methodically adopting lean practices (for example, eliminating waste and improving labor and asset efficiency) and improving process technology (including possible change controls and regulatory approvals), as well as finding new ways to improve the performance of the production process, from increases in expression systems to purification improvement and process stabilization
- improving operational agility and equipment utilization to increase manufacturing-site capacity for individual molecules by removing bottlenecks from existing assets, introducing the ability to run multiple products in fewer lines, and improving the industry’s readiness to respond quickly to the needs of a volatile market—all without compromising quality
- expanding capacity, which may encompass decisions on risk taking for postponement of asset deployment, capital-expenditure efficiency, and adoption of new technologies (such as the design of flexible facilities based on stainless steel, disposables, or hybrid systems to suit specific product and market conditions
- undertaking the right make-or-buy decisions as biopharma contract-manufacturing organizations become increasingly capable and available, forcing companies to reevaluate where their core operational skills should lie and how they will ensure the cost, quality, and availability of those they choose to outsource
- defining the manufacturing footprint—that is, building or acquiring a strong, competitive network with the right suppliers, manufacturing plants, and distribution capabilities to balance cost, service, and customer acceptance—and, in particular, considering a presence in emerging markets and the associated cost, regulatory, and market-access implications with great care
- improving efficiency in the supply chain to manage inventory, distribution logic, and the complexities of the cold chain
- streamlining the introduction of new products and new technology platforms to support the ambition of pushing a far greater number of molecules through technical development and manufacturing launch
- becoming a high-performing organization with access to talent capable of handling these challenges and the new ones that will inevitably emerge in such a rapidly evolving environment
The
prize for organizations that master these operational challenges is
far more significant than just short-term competitive advantage. Many
of the next major opportunities for biotech will require companies to
develop new and different technologies and operating models. Today’s
actions will shape companies’ readiness to grasp these
opportunities as they come to fruition.
At
one end of the scale, for example, the industry must develop the
capabilities to quickly and reliably produce the small batches of
fully personalized medicines required to deliver cell therapies. At
the other, it needs the high-volume, low-cost manufacturing
capabilities necessary to deliver inexpensive insulin and vaccines
against diseases such as malaria that take so many lives today in
low- and middle-income countries. Between these two extremes,
companies will need to accelerate the development and
commercialization of new molecules to allow a broader range of
illnesses to be addressed, and they must reduce manufacturing costs,
improve quality, and build capacity to broaden access to the
industry’s life-changing products.
Only
through a combination of strong science and deep operational
excellence will the biopharma industry be able to fulfill its
potential to transform the health expectations of millions of people
across the globe, successfully navigating both the promising and
challenging elements of the sector.
This
article is excerpted from the book From
Science to Operations: Questions, Choices and Strategies for Success
in Biopharma. For
more information, visit McKinsey’sPharmaceuticals
& Medical Products
site.http://www.mckinsey.com/Insights/Health_systems_and_services/Rapid_growth_in_biopharma?cid=other-eml-alt-mip-mck-oth-1412
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