Answering Today's Pharma Dilemma Of Build Or Buy
By Charles Christy, Head of Commercial Solutions, Ibex™ Dedicate, Lonza P&B
The need to increase speed and flexibility in drug development and manufacturing has led to new strategies to improve the development and clinical trial process. It has also led to technological innovations, such as those driving the implementation of continuous manufacturing and /or process intensification. Even the regulatory landscape of the pharmaceutical industry has changed, as alternative pathways for accelerated drug approval have paved the way for quicker access to promising novel medicines. Nevertheless, as the industry identifies more efficient ways to deliver drugs to patients, these advancements also increase pressure to acquire significant capacity that can quickly deliver therapies to the patients who need them most, especially for diseases affecting large patient populations (e.g., vaccines, oncology, and central nervous system diseases).
Drug manufacturers that previously had 10 to 12 years to identify their supply chain needs and establish the necessary capacity are now facing shorter timelines for decision making due to accelerated regulatory pathways. Deciding on the size, number, and type of facilities to build without adequate data about demand creates substantial risks with costly consequences. If demand is overestimated, you could end up with too much product, resulting in high cost of goods, wasted inventory, product expiration, or even closed facilities. On the other hand, if the drug performs better than expected and you do not have the capacity to keep up with demand, you risk losing market share or even falling short on supply. And a drug shortage would have a clear impact on not just company profitability but also on patients in need of their medication. The uncertainty in both scenarios is further compounded by not knowing when a drug will be approved, if it is at all.
So, do you build your own capacity, ultimately relying on your internal capabilities and resources to successfully bring your drug to market in a timely manner? Or do you turn to a traditional CDMO model, where you are contracted to manufacturing arrangements and risk penalties if your forecast is wrong? With a $2.6 billion price tag on the cost of developing a new drug and clinical research success rates at only 12 percent, the wrong decision could have huge implications for the overall success of your project.1 However, a new business and operating model may serve as a third option, offering an innovative and agile way to manage demand uncertainty and reduce the risks associated with early investment decisions.
Understanding The Costs—And Risks—Of Your Investment
The methods used for demand forecasting in the pharmaceutical industry are often based on assumptions and approximations while taking into consideration factors such as the number of patients in need of the drug, ability for product supply ramp-up, and peak market demand. With these decisions being made 5 to 10 years prior to when a product is expected to be approved, it is no surprise that pharmaceutical companies, on average, miss their demand forecast by nearly 40 percent.2 Therefore, making these decisions when there is a better understanding of a drug’s clinical update increases their accuracy. Unfortunately, today’s business models do not offer this flexibility. Determining whether to build or buy requires a complete understanding of what factors you should consider while weighing both unpredictable options.
Build Versus Buy
When drug manufacturers begin plans to build their own major manufacturing facility, the focus is often on the cost of the facility itself, such as construction, validation, and equipment installation. First and foremost, though, you must obtain regulatory building permissions and select an engineer to design the building, which can take up to a year, delaying critical timelines. There are also significant costs associated with providing supporting infrastructure, such as warehousing, utilities, waste treatment, quality control laboratories, security, IT, and personnel recruitment and training. Other important decisions include what the scale and output of the facility should be. This has a tremendous impact on the ability to supply the market if that facility is underutilized or not equipped to meet demand.
If you choose to work with a CDMO, you are still expected to provide demand expectations, and these forecasts are often contractually binding. Therefore, if they are wrong, you may accrue penalties, e.g., paying for the capacity even if it is not used or incurring extra costs related to the CDMO making up for underestimated demand. However, working with a CDMO does offer several benefits, including existing capacity that, if available, allows you to delay decision making much later than if you build. And while misconceptions about working with a CDMO, such as a perceived loss of control and inflexible supply chain, are often drivers for manufacturers to take on the risks of building internal capacity, an innovative third option exists that combines the benefits of a CDMO with the potential for substantial CAPEX and OPEX savings.
Product Life Cycle Management In One Location
To address the market’s needs, Lonza Pharma & Biotech offers an alternative business model that is neither buy nor build: IbexTM Dedicate, a modular, technology-agnostic biomanufacturing concept that provides a supply chain solution from clinical to commercial for virtually any biologic at any scale, including drug substances and drug products. Ibex Dedicate relies on pre-existing buildings within the Lonza biopark in Visp, Switzerland, equipped with centralized warehousing, quality control systems, utility generation, waste treatment, and personnel training centers. This setup enables customers to have flexibility and speed throughout the complete product life cycle in one site, while leveraging investments already made by Lonza that reduce both CAPEX and traditional ongoing OPEX costs typically associated with supporting infrastructure. Overall, Lonza estimates using an Ibex Dedicate facility could reduce CAPEX costs by 25 to 30 percent and OPEX by 25 percent. An additional 10-year tax savings can further minimize the cost of doing business in Switzerland, which was recently ranked in the 2018 World Economic Forum Global Competitiveness Report as one of the world’s top-ranked economies.3
Yet, the biggest benefit of this solution is the advantage it offers in the face of demand uncertainty and forecasting. On average, it can take up to five years to build a pharmaceutical manufacturing facility. Using an Ibex Dedicate solution could reduce this timeline by nearly 30 months, allowing the delay in decision making to improve predictability in demand and give a better chance of building a facility at the right scale and capacity. Ibex Dedicate brings the knowledge and expertise of a CDMO but also includes flexibility in how the facility is operated and owned. For example, operations could begin with Lonza’s team running the facility, with ownership transferred to the manufacturer later. Conversely, the starting model could be Lonza running only the supporting infrastructure, with the facility staffed by the company.
If demand is overestimated and the facility is not fully utilized, Lonza could help sell the underutilized portion of the facility to other companies. If it is underestimated, you can rapidly scale up to expand your capabilities, as the existing space in the Lonza Biopark in Visp includes over 1 million square feet of space (giving it the potential to become one the largest manufacturing complexes in the world). The agility of the Ibex Dedicate business model is also demonstrated in the flexibility of the operational mode. With a traditional CDMO setup, you must use the facility and equipment as it is, but Ibex Dedicate can be tailored to the exact process, equipment, and scale needed. Producing both drug substances and drug products in the same location offers several opportunities in terms of logistics and supply chain and the cost and support associated with those services.
As the pharmaceutical industry continues to grow, so will the opportunities for companies to expand their pipelines with novel drugs for multiple indications. Securing a business model that allows flexibility and agility offers unique advantages when you need to respond to unexpected variations in supply chain patterns. Without such a strategy, the existing build-or-buy options come with hidden costs and difficulties, adding complexity and risk already inherent in drug development and manufacturing. And with a focus on improving efficiency and speed creating pressure to deliver better drugs faster, having the insight, ability, and readiness to respond gives you the best chance of thriving in an increasingly competitive market.
- Sullivan, Thomas. (March 2019). A Tough Road: Cost To Develop One New Drug is $2.6 Billion; Approval Rate for Drugs Entering Clinical Development is Less Than 12%. Policy & Medicine. https://www.policymed.com/2014/12/a-tough-road-cost-to-develop-one-new-drug-is-26-billion-approval-rate-for-drugs-entering-clinical-de.html
- M. Cha, B. Rifai, and P. Sarraf. (2013). Nat. Rev. Drug Disc. 12, pp. 737–738.
- Schwab, Klaus. (2018). World Economic Forum. The Global Competitiveness Report 2018. http://www3.weforum.org/docs/GCR2018/05FullReport/TheGlobalCompetitivenessReport2018.pdf