Lessons Learned From PDP Market Success

By Cliff Mintz Ph.D., Life Science Leader magazine

Plasma-derived products (PDPs), which include Factor VIII, immunoglobulins, albumin, and other proteins, are used to treat rare and serious diseases that include coagulation disorders such as hemophilia and immune deficiencies. The global PDP market has undergone drastic changes over the past 25 years.

In fact, the worldwide PDP market has more than doubled over the period of 2000 to 2008, and its size is currently estimated to be more than $15 billion annually. Industry experts expect the size of the market to continue to steadily grow and potentially exceed $32 billion per year by 2016. The United States is currently the largest market for PDP consumption, and its size continues to grow. However, the PDP market in developing countries like China, Brazil, Russia, and India is growing — and will continue to grow — at a faster rate than in the United States and other developed nations as the middle class in the former nations continues to emerge.

Because no single PDP manufacturer currently can meet commercial demand or dominate the world market, these companies have historically been viewed by their pharmaceutical and biotechnology counterparts as niche or specialty pharmaceutical companies.

While the advent of recombinant protein manufacturing has eliminated the perceived risks of many PDPs like Factor VIII, it has increased the price of these products. Not surprisingly, the sale of recombinant PDPs continues to rise in the United States and other developed countries. In marked contrast, sales of traditional PDPs are exploding in most developing nations, mainly because people in these countries cannot afford the higher-priced recombinant products. Together, this suggests that the PDP market will likely continue to be lucrative for the foreseeable future.

One of the worldwide leaders in the PDP industry is CSL Behring, a 100+-year-old company that has been providing PDPs for treating rare diseases like coagulation disorders, immune deficiencies, Alpha-1 antitrypsin deficiency, hereditary angioedema, and hemolytic disease in newborns. In 2009, CSL Behring received an award from the National Organization of Rare Diseases (NORD) for its continuing commitment to R&D in the area of rare blood coagulation disorders. Ending its fiscal year in June, the company had worldwide sales of $2.98 billion.

For the past 14 years, Peter Turner, president of CSL Behring and executive director and COO of CSL Group, has largely been responsible for charting the company’s course in the highly competitive and difficult-to-navigate PDP industry. Turner, with over 40 years of experience in all aspects of the PDP business, has helped grow CSL Behring into a global business. During his tenure, he has overseen the launch of a variety of new products and managed to introduce a plethora of existing products into developing markets. Turner received degrees in chemistry, biochemistry, and microbiology from the University of Melbourne and an MBA from the Royal Melbourne Institute of Technology.

Turner spoke with me from CSL Behring’s U.S. corporate headquarters (in King of Prussia, PA) about new product development, the technical and regulatory challenges faced by PDP manufacturers, and the future of the PDP business.

Is CSL Behring’s Business Model Similar To Or Different From Those Employed By Major Pharma And Biotech Companies?
In many ways the business models are quite similar. The major challenge that all drug manufacturers face is to show that the products that they produce are safe and efficacious. This requires a sizeable investment into preclinical and clinical development to bring products to market.

One advantage that PDP manufacturers have over pharmaceutical and biotechnology companies is that there are usually fewer safety and toxicity issues, mainly because the final product is a natural one found in human plasma. And, as long as you don’t denature the proteins or do something detrimental to the product, many of the toxicity issues commonly associated with small molecule drugs (and even recombinant products) are generally absent.

Moreover, human plasma is a rich source of proteins with potential clinical benefits. With this in mind, we tend to extract as many clinically relevant proteins as we can from every liter of plasma that is collected. As a result, product diversity at PDP companies tends to be greater and more extensive than that observed at most traditional pharmaceutical and biotechnology companies. In general, we tend to develop multiple products from our source material whereas pharmaceutical and biotechnology companies must invest substantial resources to manufacture only a single product.

One of the main issues that PDP companies face is the cost of human plasma, which is quite expensive and represents over half of the cost of the products that CSL Behring manufactures. Consequently, we have to charge substantially more for our products as compared with traditional small molecule and some biotechnology drugs. And, since most of our products are used to treat patients with rare diseases (small patient populations), it makes our business model even more challenging. To improve our ROI, we tend to spend much less on marketing and advertising as compared with other life sciences companies.

Finally, we cannot manage our cost structures as aggressively as most pharmaceutical and biotechnology companies. As a result, our profit margins are generally lower, which translates into less flexibility from an operational standpoint. However, given the challenges facing the pharmaceutical industry — like the loss of revenue from patent expiry and generic competition — the differences between the two business models may be substantially less in the near future.

What Are Some Of The Major Challenges Or Hurdles That Must Be Overcome When Developing Plasma-Derived products?
One of the major challenges that all PDP manufacturers routinely face is the ability to source enough plasma to produce quantities of product sufficient to meet commercial demand. Sometimes high demand for a specific product can affect the production and availability of other PDPs. For example, intravenous and subcutaneous immunoglobulin (Ig) products are in very high demand and happen to be driving the PDP market at the moment. Some industry analysts worry that if, for example, Ig is approved to treat Alzheimer’s disease an overwhelming demand for it may limit the availability of Ig to treat other indications (of which there are many).

For some PDPs, it was difficult to meet commercial demand simply by purifying them from plasma. This was the case for the coagulation factor called Factor VIII. An inability to purify sufficient quantities of Factor VIII from human plasma to meet patient demand ultimately led to the development of recombinant Factor VIII products. This was also the case for albumin, where chronic shortages of plasma resulted in the development of a variety of human albumin substitutes.

Obviously, to compete in this market, companies that specialize in PDP development must possess significant experience and technological expertise in plasma collection, storage, and regulatory oversight. That is, companies without these core competencies would find it difficult to start up operations and compete in the PDP sector. This is why PDP-focused companies like CSL Behring are generally viewed as specialty pharmaceutical companies, albeit a rather large and diversified example of a specialty pharma company in CSL Behring’s case!

Another challenge is an unwavering and ongoing commitment to quality principles. Quality is an essential element of everything that we do at CSL Behring. First and foremost, GLP (good laboratory practices), GCP (good clinical practice), and GMP are all directed at ensuring safety and efficacy of a product.

Manufacturing PDPs is a complicated process, and there are many things that can go wrong, so you have to pay close attention. There are many product quality attributes that can be glossed over. But, a thinking organization builds quality into a product at the earliest stages of product development.

What Are Some Of The Technological Advances That Have Made Plasma Products More Attractive?
The ability to separate plasma proteins to higher purity has resulted in development of safer and sometimes more efficacious plasma-derived products. Protein-based products are better characterized than ever before, and they must meet substantially higher clinical standards (safety and efficacy) to garner approval in today’s regulatory environment.

Advances in recombinant technology have had a significant impact on the PDP industry because they provide manufacturers with the ability to produce sufficient quantities of product to meet commercial demand. Also, expertise in recombinant technologies allows for expansion into other products like monoclonal antibodies, stem cells, therapeutic proteins, and growth factors. This is because manufacture of these products relies heavily on mammalian cell culture, which is an essential component of recombinant protein technology.

CSL Behring’s expertise in recombinant technologies and mammalian cell culture has permitted us to venture into the monoclonal antibody sector. We currently have two monoclonal antibodies — one for leukemia and one for rheumatoid arthritis — that are in development. We will continue to invest in this and other areas, but the main driver of our business right now is our PDP portfolio.

Many Life Science Executives Contend It Has Become Increasingly Difficult To Gain Regulatory Approval For New Products. What Are Your Thoughts On This Topic?
I think that regulatory standards have improved and gotten more complicated. Further, demonstration of superior product safety and efficacy is clearly required for regulatory approval these days. Unfortunately, these requirements have resulted in increases in the size and number of clinical trials necessary to garner regulatory approval of new products. Moreover, a growing number of companies are being asked to conduct Phase 4 clinical studies on previously approved products to demonstrate long-term safety. While there is no obvious downside to these trends from a patient perspective, they have clearly caused drug development costs to skyrocket. This has forced many drug manufacturers to become increasingly reluctant to advance potentially beneficial products through development because there may not be a sufficient ROI.

How Does CSL Behring Innovate?
To us, plasma is a rich source of potentially therapeutic proteins, and we certainly look for clinical applications for proteins that we can purify. Protein extraction and purification technology have greatly improved over the years, which has allowed us to identify and manufacture potentially new plasma-derived products.

We try to maximize the number of clinically relevant proteins that we extract from every liter of plasma that we process. This enables us to keep our raw material costs fixed — the cost of a liter of plasma is the same whether you extract one or multiple proteins —and it allow us to maintain our profit margins and keep our fixed costs low. Generally speaking, we take a conservative approach to new product development and prefer to expand our business within our core expertise. For example, the relationship between cell biology, mammalian cell culture technology, and recombinant coagulation products has allowed CSL Behring’s parent company, CSL Limited, to expand its business into developing monoclonal antibodies and vaccines. Of course, we will always consider lateral moves into new areas or technologies if we determine that our skill sets and core expertise can add value or make a difference. However, if this is not readily apparent, we probably won’t make an investment.

Unlike some of our competitors, M&A is not a way in which we tend to innovate. While we have acquired several companies, we only consider purchasing them when their core skills and business models are consistent with ours. Although many pharmaceutical companies have resorted to purchasing biotechnology companies to bolster their pipelines, we consider biotechnology to be a risky business that historically has not delivered adequate ROI.

In my opinion, I don’t think that M&A has worked particularly well for many pharmaceutical companies, and the industry will have to change if it wants to survive. That said, CSL Behring does, in fact, take risks. However, we carefully consider the risks that we take in order to increase the probability and likelihood of success.

Several Major Pharma Companies Have Recently Announced Their Intention To Enter The Rare Diseases Market. Will CSL Be Able To Compete With These Larger Companies In The Rare Diseases Space?
Many of our products are in the orphan or rare diseases space, and we have successfully competed in this market for several decades. I think that pharma’s recent focus on rare diseases has mainly been driven by the financial success of companies that compete in this market. I wouldn’t be surprised if many pharmaceutical company executives are thinking: if they can do it, why can’t we?

That said, I don’t think that the fundamental principles of drug development are different for rare diseases as compared with mass marketed drugs. In the end, it depends on whether the product is consistent with a company’s core competencies and skills, can be manufactured in a cost-effective manner, and whether it will yield an acceptable return on investment. However, it is important to point out that manufacturing proteins is much more complicated than making small molecule drugs. Also, a much different set of skills is required. Further, the rare disease business model is considerably different from the one that drives mass-marketed drugs. For example, patient populations are much smaller, targeted marketing rather than mass marketing strategies are effective, and small groups of physicians and therapy providers play pivotal roles in product adoption and uptake . To that end, you don’t see us advertising on television or participating in other mass marketing activities; we have learned that these approaches are not relevant in the rare diseases market. While we don’t intentionally fly under the radar, the nature of our business is: if you need our products, you or your physician will probably know about us!

What Effect Has Globalization Had On CSL Behring’s Business?
Coming from Australia where you might have 1% to 2% of the global trade in pharmaceutical and biological products, you have no choice but to globalize to remain competitive. Globalization has provided us with an enormous opportunity to grow and rapidly expand our business beyond the Pacific Rim.

The PDP business is extremely competitive with a lot of local and regional operators in the space. Consequently, we are always challenging ourselves to look for ways to improve efficiencies and control our cost base. This is not an industry that has historically enjoyed the luxury of large profits, and we tend to carefully manage our budgets and control expenses.

Which Developing Markets Do You Think Represent The Best Opportunities For Long-term Growth Of The PDP Industry, And How Will CSL Behring Attempt To Penetrate Them?
The so-called BRIC markets — Brazil, Russia, India, and China — represent the best opportunities for us, with India being the more difficult market to penetrate. Many of our therapies and products are expensive and have high per patient costs. Consequently, they are more readily available in countries where per capita GDP is quite significant. In other words, persons living in developed, affluent nations tend to benefit more from our products than those who live in developing countries. The development of wealth in emerging markets has increasingly been linked to better diagnosis and treatment of rare diseases. With this in mind, I believe that Brazil, Russia, and China have significant potential for long-term growth of our products.

The products that we think have potential in these markets are albumin (China), Factor VIII and VIX (Russia), and Ig (Brazil). Because of the economic growth in these countries, people have greater expectations for healthcare and will demand these products.

Historically, we have entered new markets by working with local and regional distributors to market and distribute our products, and if the market grows enough, you set up your own office there. We have successfully used this approach to conduct business in well over 35 countries.

One of the major challenges that we face in emerging markets is our ability to convince the governments of these countries to use our products rather than manufacture them at domestic production facilities. Quite often, countries initially attempt to provide these products domestically, but demand usually exceeds supply, and they ultimately bring in imports to bridge the gap. At the moment, I don’t believe that the Chinese market can support a domestic PDP production industry. But, if the Chinese economy continues to grow as rapidly as it has in the past —and business opportunities present themselves— then China will definitely be a future consideration for us.

Do You Think A Lower Cost Structure For Raw Materials And Availability Of A Well-Trained Workforce In Emerging Markets Will Affect Where Plasma Products Are Manufactured?
I don’t think that either of these factors is going to be a key determinant as they likely would be in traditional manufacturing settings. This is because the technology that we use to manufacture our products relies on economies of scale, automation, and expertise in science, engineering, and medicine — which are currently in short supply in most emerging markets. Also, maintaining the high quality standards demanded of all PDPs may actually cause costs to rise and thereby obviate any obvious savings that may have resulted from lower labor and raw material costs.

Finally, the current manufacturing and regulatory standards in many of these developing countries are not yet in place for us to be able to confidently manufacture our products there. Perhaps, as the middle class in these countries continues to grow and acquire wealth, quality standards will likely improve, and these countries will become attractive to companies like us.