It’s the best/worst of times for European bioprocessing
03/01/2008
By George Miller
Despite mixed signals biotech marches on, and takes contamination control technology along with it
The last quarter of 2007 displayed more discouraging signs than positive ones for the European bioprocessing industry. Yet 2008 nonetheless holds promise. Suppliers of contamination control products and services, especially those involving disposable bioprocess technology, are preparing for mid- to high-single- and even double-digit growth.
The year 2007 will be remembered as a year of contrasts for European biotech companies. Its first quarter was marked by bubbling enthusiasm for the biopharmaceutical year ahead: “The industry in the U.S. has never been stronger and we’re seeing its success story spreading to other parts of the world–particularly Europe,” trumpeted Ernst & Young’s Global Biotechnology leader Glen Giovannetti last April. “Time will determine whether these trends will be sustained, but there’s reason for optimism. Innovation is being rewarded with record revenues and unprecedented premiums in M&A transactions.”
Unfortunately, the trends were not sustained. By less than a year later, European biotech headlines were far more likely to read like the following: “Biotech sees market value slip away,” and ‘UK biotechnology in need of healthy injection,” both from the Financial Times in January.
The dire reporting that followed such bleak headlines was delivered as only the British can: “Investors should stay clear of the UK biotechnology sector and instead put their capital in alternative, low-risk industries as biotech is unlikely to generate positive returns this year, KBC Peel Hunt, the broker, has warned in a report.” Here’s another: “Paul Cuddon, an analyst at KBC, said, ???Profitability is a luxury for UK biotech and would, in our opinion, represent a misuse of capital for many companies. Not only have share prices fallen but liquidity has also dried up.”
Funding rolls in
Yet somehow biotech companies continued to attract venture capital to further the quest for positive returns. European VC investment climbed to €1.14 billion in the second quarter, despite fewer deals, according to a September 2007 report from Ernst & Young and Dow Jones VentureOne. The 5 percent increase in amount invested over the first quarter of 2007, despite a 20 percent drop in deal flow, is primarily due to increased deal sizes in early-stage investments. Year-over-year, the researchers found, investment was up and deals were down in nearly every industry, with health care companies seeing the biggest change, raising 10 percent more capital (€290 million vs. €265 million) in 34 percent fewer deals (41 vs. 62) than in the second quarter of 2006.
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In the health care sector, biophar-maceutical companies accounted for 66 percent of deal flow, attracting €243 million in 27 deals, the report said. Like other investment areas, the year-over-year totals for biopharmaceutical deals were down (13 percent), while the quantity of euros invested was up (24 percent).
Politicians and bureaucrats
Even politicians and bureaucrats have jumped onboard the investment bandwagon. In January 2008, the European Commission announced €1.75 billion in funding for its Seventh Research Framework Program (FP7) initiative, to usher in “a new age in biosociety,” including “projects ranging from environmental science to sustainable transport, from nanotechnology to biotechnology,” according to an announcement of the funding.
The life sciences and biotechnology are already the main scientific drivers of the bioeconomy in Europe, with estimates of its value reaching €1.6 trillion per annum, according to European science and research commissioner Janez Potocnik.
In the big picture, the global pharmaceutical market is expected to grow at a 5 to 6 percent pace next year (4.8 percent in Europe, trailed only by Japan’s ???0.7 percent), compared with 6 to 7 percent in 2007, according to IMS Health, a Norwalk, CT based health-care information company (see Table 1). (IMS does not break out biotech separately.)
“In several respects, 2008 marks an inflection point for the global pharmaceutical market,” says Murray Aitken, senior vice president for health care insight at IMS, in an announcement.
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“For the first time, the seven largest markets will contribute just half of overall pharmaceutical market growth, while seven emerging markets will contribute nearly 25 percent of growth worldwide, and, as the impact of established pharmaceuticals losing patent protection accelerates, we will see a decline for the first time in the size of the $370 [billion] to $380 billion audited market for primary-care-driven drugs. In the coming year, biopharmaceutical and generics companies will more aggressively adjust their business models to manage through these inflections, capturing new opportunities in this changing market environment.”
Pharma market dynamics
In its 2008 forecast, released in November 2007, IMS noted the following market dynamics:
- Growth contribution from top markets falls. In the U.S. and the five largest European markets, sales growth in 2008 is expected to range from 4 to 5 percent. The market in Japan is forecast to grow 1 to 2 percent next year, down from the 4 to 5 percent pace expected in 2007. Key factors limiting growth in these markets include a leveling off of growth from the introduction of the Medicare Part D prescription drug benefit in the U.S., patent expiration of branded products, and an associated increase in the use of lower cost generics, among others.
- ‘Pharmerging” market growth accelerates. The emerging markets of China, Brazil, Mexico, South Korea, India, Turkey, and Russia are expected to grow 12 to 13 percent next year, to $85 billion to $90 billion. In these markets, there is significantly greater access both to generic and innovative new medicines as primary care improves and becomes more available in rural areas, and as private health insurance becomes more commonly held.
- Generics rise. Drugs with approximately $20 billion in annual sales will face patent expiration in 2008, similar to levels seen over the past two years. Leading products such as Risperdal, Fosamax, Topamax, Lamictal, and Depakote are expected to lose market exclusivity in one or more major markets around the world next year. This will help drive growth of generics by 14 to 15 percent next year, to more than $70 billion. In 2008, more than two-thirds of all prescriptions written in the U.S. are expected to be for generics. New government contracting initiatives in Germany and educational programs in Japan, Spain, and Italy will drive greater generics use in those markets. Also, generics competition within the biotech sector will rise as the biosimilar epoeitin alfa is marketed across Europe.
Also, throughout 2008, IMS expects both more independent meta-analysis of broadly used drugs, and a move toward risk assessment based not only on scientific evidence but also the views of legislators and juries. In the U.S., the FDA has established a Risk Communication Committee, a new arm designed to improve risk communication to the public, and efforts like Risk MaPP–Risk Based Manufacture of Active Pharmaceutical Products–a global initiative by the not-for-profit association of pharmaceutical manufacturing professionals, ISPE, promise to provide guidance for the control of exposures to pharmaceutical compounds based on rigorous science, including a systematic approach to risk management. Objectives include explaining the use of risk assessments in the implementation and verification of risk controls, and outlining a risk-based process whereby the adequacy of controls and the cleaning of equipment can be verified.
Click here to enlarge image “These indicators paint the stark reality of a marketplace in transition,” said Aitken, in the announcement. “The actions being taken by companies to reinvent themselves will need to continue at an accelerated pace. Today, commercial strategies and tactics are being re-assessed to better align with future opportunities, while portfolio strategies are being adjusted to capture growth in emerging markets and reflect shifts in product values.”
Contamination control market growth
For contamination control, market researcher The McIlvaine Co. (Northfield, IL) estimates that 2008 pharmaceutical market growth in Europe will translate into cleanroom space additions of 0.84 million square feet over their 2007 level, bringing the space in use to 7.45 million square feet (see Table 2). (The McIlvaine Co. does not break out biotech separately).
For a more specific look at biotech, bioprocess equipment maker and service provider Sartorius Stedim Biotech provides a frontline example of how the shift to disposable technology–for both cost and contamination control reasons–is gaining momentum.
The Goettingen, Germany-based company announced in mid-January an agreement with manufacturing specialist Paul Mueller Co., based in Springfield, MO, for the manufacture of stainless-steel biopharmaceutical production systems, including fermentors, bioreactors, freeze-thaw systems, and crossflow and other filtration systems.
Hybrid systems
“Our customers need innovative disposable systems and classic stainless-steel systems, as well as combinations of both; in other words, hybrid systems,” says Joachim Kreuzburg, chairman and chief executive at Sartorius Stedim Biotech. “This partnership enables us to focus on our activities even more strongly and provides a maximum leverage of resources and economies of scale.”
The deal covers North America and involves the closing of its production facility for stainless-steel systems in Bethlehem, PA. In Europe and Asia, Sartorius Stedim Biotech will continue to manufacture stainless-steel systems at its production facilities in Melsungen, Germany, and Bangalore, India.
Click here to enlarge image There’s no arguing that disposable technology has become a driver of Sartorius Stedim revenue. Kreuzburg told investors in mid-November that some 75 percent of its sales revenue is now realized by its double-digit-growth disposables business. He described single-use bags as a platform technology and talked about the company’s single-use product portfolio as elements to be used in the ‘disposable factory” for customers’ strategic projects.
Starting from what he called the “underlying classic pharma growth” of 6 percent, Kreuzburg factored in the market penetration of biotech drugs to estimated biotech growth at about a 12 percent compound annual rate. After accounting for the “paradigm shift to disposables,” he said he expects about an 18 percent growth rate for innovative disposables.
“The industry needs more efficient, less capex-intense, more flexible production technologies, which facilitate the implementation of process improvements,” he told investors.
Technology shift
The key driver is changing challenges in pharmaceutical production. “The technology shift in pharma production is happening now,” Kreuzburg said. Since 2002, he added, more than 50 percent of newly approved drugs are biotechnologically produced, and he estimated hundreds of biotech drugs approaching late-stage clinical trials.
Such production challenges are evident on both sides of the pond. “I don’t see a big difference between the bioprocessing markets in the U.S. and Europe,” said Thomas C. Ransohoff, vice president and senior consultant at Bioprocess Technology Consultants, Acton, MA. “Both are bringing in technology to processes. Anyone building new is leveraging more disposables.”
One bioprocessing difference that he did point out involves validation. “In Europe, aseptic processing validation is required at an earlier stage than in the U.S.,” he said. European regulations, of course, also affect facilities in the U.S. when manufacturers wish to sell their products in European markets.
Vaccine revival
Among the drivers of disposable technology, Kreuzburg of Sartorius Stedim also mentioned the revival of the vaccine industry. The global market, which historically has been viewed as providing low margins and little growth, is currently attracting the interest of all major pharmaceutical giants as well as biotechs. The market is witnessing growth rates much faster than the traditional pharmaceutical market, and with many new blockbuster potential vaccines likely to hit the market in future, the growth is expected to increase, according to the November 2007 Global Vaccine Market Outlook (2007-2010), a market research report by Delhi, India-based market researcher RNCOS.
Vaccine market growth is being spurred by its potential to prevent deaths due to diseases. However, several challenges still remain, most notably the gap between developed and developing countries in terms of accessibility and quality of vaccines.
Key findings of the report: At a growth rate of 16.5 percent, the global vaccine market is expected to reach U.S. $21.05 billion by 2010. Cancer and addiction vaccines are expected to grow rapidly through 2010. Europe is the second largest market globally for vaccines, behind the U.S. Flu vaccines have huge demand at present and all major vaccine manufacturers are investing in the segment. The report also found that vaccines can be more profitable than generic pharmaceutical drugs but fetch lower margins than branded drugs.
As the second largest market for vaccines, and the region that justifiably claims to be the birthplace of the vaccine manufacturing industry, Europe is well positioned to capitalize not just on the vaccine revival but on the long-term growth of the biotech industry as a whole. After all, it has both private industry and government as active supporters. And as it does so, it will continue to drive and benefit from advances in contamination control technology.