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Cristina Grigore, Technical Proposals Manager, Lonza Ltd discusses the evolving landscape for the role CDMOs play as essential partners with biotech for developing new medicines.
Introduction
In the fast-paced world of drug development, biotech companies face numerous challenges, particularly during the clinical stage of their research. The high costs, complex manufacturing processes for biologics, and regulatory hurdles can pose significant technical as well as business risks. However, by collaborating with Contract Development and Manufacturing Organisations (CDMOs), biotechs can effectively de-risk their drug development journey, aiming at smoother progress and increased chances of success.
Challenges in the Biotech Landscape
Biotech companies are at the forefront of innovation, constantly striving to develop groundbreaking therapies to address unmet medical needs. These companies typically have limited resources and expertise when it comes to undertaking large-scale manufacturing and navigating complex regulatory frameworks in comparison to established large pharma. Many biotech companies struggle with growing pains as they near their first product launch. The transition to commercial success requires shifts in organisation, processes, capabilities, and mindsets.
Consistent funding for biotech can be another challenge. An attractive development and commercial program is one that requires limited upfront investment, is quick to come to market and can make a return on investment with a good margin.
However, drug development is now far riskier and more expensive than ever, and it has become important for biotech companies, with promising candidates in early clinical stages to plan how they will move toward later phase development and ultimately launch.
Historically, the primary option for biotech companies was being acquired by a larger player, the riskier route was developing capabilities in-house. In recent years, service agreements (CRO, CMOs) and partnering have provided an alternative path that can mitigate risk and still be attractive from a financing perspective.
The Role of CDMOs in Drug Development
CDMOs specialise in providing comprehensive services to support the drug development process. From formulation development and process optimisation to clinical and commercial manufacturing, CDMOs have the necessary infrastructure, technical know-how, and regulatory expertise to ensure efficient and compliant production.
Streamlining processes is a crucial aspect of risk mitigation. CDMOs employ technological innovation to optimise production efficiency, reduce costs, and enhance product quality. This helps biotech companies achieve reliable and scalable manufacturing, aiming at a seamless transition from clinical trials to commercialisation.
Additionally, if working with a CDMO that offers everything under one roof, for example both Drug Substance and Drug Product, biotechs can benefit from the integrated quality system, program management organisation and supply chain, leading to a consistent and coordinated approach and reducing the complexity associated with managing multiple suppliers.
Collaboration for Risk Mitigation
By partnering with an experienced CDMO, biotech companies can tap into a wealth of resources and capabilities. CDMOs bring their extensive manufacturing experience, quality systems, and regulatory compliance knowledge to the table. This collaboration allows biotechs to focus on their core competencies of research and development while mitigating risks associated with manufacturing and regulatory challenges.
Moving through early to late phase development and subsequently approval and launch, follows with a need to supply a significantly larger patient population (e.g. more units and larger batch sizes) and comply with additional regulatory requirements (e.g. validated analytical methods and validated processes). Setting up commercial in-house manufacturing can be challenging without an existing healthy portfolio. Additionally, late-phase expertise is highly specialised and developing this in-house can be time consuming and costly. Working with a service provider could mean avoiding all setup costs by selecting a supplier that provides the manufacturing asset at the right scale and manages the operational costs.
Working with a CDMO that has a well-established track-record of successful development, drug approvals and experience can also significantly lower risk in the eyes of creditors. Suppliers may also lower risk by providing attractive models of risk sharing with flexible manufacturing capacities, termination clauses and recovery on investment. Once products are approved and the forecast becomes real, the lower risk may attract investors and a better valuation as well.
A Financial View
A simple financial analysis of up-front investment, time to market, and discount rate, incorporating legislative and economic trends, suggests that building up expertise within biotech will become less attractive and working with a supplier may make more sense.
There are numerous annual reports on deal making by EY, KPMG, and Deloitte, targeting big pharma. These reports tend to focus on maximising benefits for the buyer or licensor. For a small biotech who has decided not to follow the classical drug development model which involves pharmaceutical companies acquiring biotechs and is not planning to sell, there are limited resources available to help decision-making.
Using financial decision-making indicators to take a quantitative approach allows for an objective evaluation of risks and benefits between building in-house expertise versus partnering with a supplier.
An example analysis is presented here. This compares in-house development with CDMO partnering, using a simple net present value (NPV)/ discounted cash flow (DCF) analysis approach to assessing the value of a deal and taking into consideration some of the trends and predictions for the next years, such as:
- Scarcity of manufacturing capacity and specialised late-phase expertise.
- Increasing complexity of CMC for new advanced therapy medicinal products.
- Increasing inflation and increasing discount rates.
- Potentially reduced exclusivity due to shortening of the minimum period of data protection, considering EU pharma legislation revision.
In this model, an attractive development program is one that has a positive NPV and DCF, where NPV is the up-front-investment divided by discount rate over the number of years considered and the DCF is the cash flow divided by the interest rate until the time the cash flow occurs.
The time of development plays an important factor in financial calculations, namely, time until return or commercialisation and time of regulatory exclusivity, at which point the margin drops with competition.
Calculations frequently underestimate the time needed until launch once clinical Phase 3 read-outs are available. Chemistry, manufacturing, and controls (CMC) activities such as process validation can easily add two years to the overall development timeline which is already 10 years on average. This, coupled with the increasing complexity of biological product manufacturing and controls has put CMC on a critical path and has even led to products failing submission.
A recent KPMG report, ‘2030’, predicts that the future will be even more fragmented, involving less ownership and more sharing of assets with players coming together on a project basis to de-risk development. Taken together with the financial simulation presented here, partnering with a CDMO may be the best option for biotechs moving forward into late phase.
Looking to the future, there is likely to be a shift toward more flexible partnership models and away from transactional relationships with CDMOs. These partnerships can involve equity from the biotech side but also include more commitment from CDMOs through sharing assets such as manufacturing suites and dedicating teams to provide solid and consistent support throughout the development pathway. In such a scenario, the reliability and trust that CDMOs will provide will be more important than ever.
Conclusion
In the ever-evolving landscape of drug development, collaboration between biotech companies and CDMOs has emerged as a powerful strategy to de-risk the journey. By leveraging the expertise and infrastructure of CDMOs, biotechs can navigate the complex manufacturing and regulatory landscape more effectively, increasing the likelihood of successful drug development.
Additionally, from a financial perspective, working with a CDMO that has a track record of successful development and experience can significantly lower risk in the eyes of creditors. CDMOs can further provide financial benefits by also offering lucrative models of risk sharing with flexible manufacturing capacities, termination clauses and recovery on investment. Once products are approved and the forecast becomes real, the lower risk could subsequently attract investors and lead to a better valuation.
Together, these essential partnerships speed progress and increase chances of success, ultimately driving innovation and bringing life-changing therapies to more patients in need.