TABLE OF CONTENTS Chapter 1: EXECUTIVE SUMMARY 1.1 Introduction 1-1 1.2 Participants Locations 1-3 1.3 Industry Pricing Trends 1-4 1.3.1 Recent Industry Pricing Changes 1-4 1.3.2 Contractor Utilization Rates 1-5 1.4 Outsourcing Strategies and Contractor Selection 1-6 1.4.1 Users Outsource Strategies 1-6 1.4.2 Using New CMOs for New Projects 1-7 1.4.3 Price Premium for One-Stop-Shop CMO 1-7 1.4.4 Price Reduction from Emerging-Market CMO 1-9 1.5 Contractors Business Strategies and Customer Types 1-10 1.5.1 Fee-For-Service versus Partnership Contracts 1-10 1.5.2 Competition Emerging-Market CMOs 1-11 1.5.3 Contractors Client Segments 1-12 1.5.4 Impact on Pricing Due to Use of Disposables 1-13 1.6 Contract Agreement: Expectations and Preferences 1-14 1.6.1 Preferred Pricing Models 1-14 1.6.2 Typical Pricing Model for Analytical Testing 1-15 1.6.3 Preferred Pricing Model for Early Process Development 1-16 1.7 Prices Paid and Prices Charged 1-17 1.7.1 Contractors Pricing Models 1-17 1.7.2 Pricing: Per-Batch, Per-Week, and Per-Gram 1-18 1.8 Improving Contract Agreements and Solving Problems 1-24 1.8.1 Users Perspective: Roadblocks to Negotiations 1-24 1.8.2 Contractors Perspective: Roadblocks in Negotiations 1-25 1.8.3 Users Experience with Changes in Contract Price 1-26 1.8.4 Contractors Use of Cancelation Fees 1-27 1.8.5 Final Observations 1-28
TABLE OF CONTENTS (continued) Chapter 2: METHODOLOGY, DEFINITIONS AND ACRONYMS 2.1 Research Objectives 2-1 2.2 Research Methodology 2-2 2.3 Definition of Biopharmaceutical Manufacturing 2-3 2.4 Box-and-Whiskers Plot Definition 2-3 2.5 Acronyms 2-4 Chapter 3: INDUSTRY PRICING TRENDS 3.1 Introduction 3-1 3.1.1 Participant s Locations and Job Titles 3-1 3.1.2 Approved Biologic Products on Market 3-3 3.1.3 Number of Biopharmaceuticals in Clinical Trials 3-5 3.2 Industry Pricing Trends 3-7 3.2.1 Recent Industry Price Changes 3-7 3.2.2 Expected Price Changes 3-10 3.2.3 Product or Service with Higher/Lower Prices Users 3-14 3.2.4 Product or Service with Higher/Lower Prices CMOs 3-17 3.2.5 Change in Optimized Expression System Pricing Models 3-22 Users 3.2.6 Change in Optimized Expression System Pricing Models 3-24 CMOs 3.2.7 Key Factors Affecting Manufacturing Costs Users 3-27 3.2.8 Key Factors Affecting Manufacturing Costs CMOs 3-32 3.3 Profit Margins 3-35 3.3.1 Contractors Target Gross Profit Margins 3-35 3.3.2 Impact of Pricing Pressures on Contractor Margins 3-37 3.4 Contractors Utilization Rates 3-39 3.4.1 Current and Planned Overall Utilization Rates 3-39 3.4.2 Current Utilization Rates by Tank Size 3-40 Chapter 4: OUTSOURCING STRATEGIES/CONTRACTOR SELECTION 4.1 Outsource Strategies 4-1 4.1.1 Manufacturing Budgets: In-House vs. Outsourced 4-1 4.1.2 Outsource Budgets: Process Development vs. 4-2 Manufacturing 4.1.3 Users Outsource Strategies 4-4
TABLE OF CONTENTS (continued) Chapter 4: 4.2 Contractor Relationships 4-7 4.2.1 Users Current Contractors 4-7 4.2.2 Plans for New or Different Contractors 4-9 4.3 Contractor Selection 4-12 4.3.1 Initial Contact with Contractors 4-12 4.3.2 Using New CMO for New Project 4-15 4.3.3 Current Project CMO Change 4-19 4.3.4 Price Difference between Large and Small CMOs 4-24 4.3.5 Price Premium for One-Stop-Shop CMO 4-29 4.4 Contractor Location 4-32 4.4.1 Use of Asian-Based CMO 4-32 4.4.2 Use of Start-up CMO in Emerging Markets 4-35 4.4.3 Use of Established CMO with Operations in Emerging 4-39 Markets 4.4.4 Outsource Services to Emerging-Market CMOs 4-45 4.4.5 Price Reduction from Emerging-Market CMOs 4-49 4.4.6 Expectation of Lower Prices for Specific Services from 4-51 Emerging-Market CMOs 4.4.7 Product Types Sourced from Emerging-Market CMOs 4-54 Chapter 5: CONTRACTORS BUSINESS STRATEGIES/CUSTOMER TYPES 5.1 Business Strategies 5-1 5.1.1 CMO Focus or Business Strategy 5-1 5.1.2 Competition from Emerging-Market CMOs 5-4 5.1.3 Price Reduction Expected Due to Competition from 5-7 Emerging Markets 5.2 Customer Base 5-11 5.2.1 Fee-for-Service versus Partnership Contracts 5-11 5.2.2 Domestic versus International Clients 5-12 5.2.3 Contractors Client Segments 5-13 5.3 Technology and Product Trends 5-15 5.3.1 Observed Shift to Perfusion Processes 5-15 5.3.2 Impact of Pricing Due to Use of Disposables 5-19 5.3.3 Accelerated mab Platform 5-22
TABLE OF CONTENTS (continued) Chapter 6: CONTRACT AGREEMENT: EXPECTATIONS/PREFERENCES 6.1 Users Expectations of Pricing Models 6-1 6.1.1 Expectations of Core Charges: Users vs. Contractors 6-1 6.1.2 Preferred Pricing Models 6-2 6.1.3 Typical Pricing Model for Analytical Testing 6-4 6.1.4 Typical Pricing Model for Formulation Development 6-7 6.1.5 Typical Pricing Model for Cell-Line Development 6-9 6.1.6 Price Difference for Accelerated mab Projects 6-11 6.1.7 Shift from Fed-Batch to Perfusion Processes 6-12 6.1.8 Pricing Models for Perfusion Processes 6-15 6.1.9 Pricing Models for Perfusion Processes for Clinical Trial 6-15 6.1.10 Antibody Conjugates in Product Portfolio 6-20 6.1.11 Outsourced Antibody Conjugation Services 6-22 6.2 Contractors Pricing Practices and Preferences 6-25 6.2.1 Preferred Pricing Model for Early Process Development 6-25 6.2.2 Current Trends in Cell-Line Development Licensing Fees 6-26 6.2.3 Long-Term Contracts with Clients 6-28 6.2.4 Trends Towards Alternative Business Arrangements 6-31 Chapter 7: PRICES PAID AND PRICES CHARGED 7.1 Process Development Prices 7-1 7.1.1 Examples of Process Development Prices: Microbial 7-1 7.1.2 Examples of Process Development Prices: Mammalian 7-2 7.1.3 Process Development Hours 7-3 7.1.4 FTE Rates for Process Development 7-4 7.2 FTE Rates 7-6 7.3 Contractors Pricing Models 7-12 7.4 Contractors Short-Term vs. Long-Term Rates 7-15 7.4.1 Contractors Batch Pricing 7-17 7.4.2 Contractors Time-in-Facility Pricing 7-19 7.5 Pricing: Per-Batch, Per-Week, and Per-Gram 7-21 7.5.1 Per-Batch Pricing: Contractor vs. User Averages 7-22 7.5.2 Time-in-Facility Pricing: Contractor vs. User Averages 7-25 7.5.3 Price-Per-Gram: Contractor vs. User Averages 7-27 7.6 Special Analysis: Price Per-Gram 2013 vs. 2011 7-29 7.7 Special Analysis: Price, Per-Batch or Per-Week, Per-Liter 7-32
TABLE OF CONTENTS (continued) Chapter 7: 7.8 Typical Charges for Additional Services 7-36 7.8.1 Typical Charges for Mammalian Cell Culture Services 7-36 7.8.2 Typical Charges for Microbial Fermentation Services 7-40 Chapter 8: IMPROVING CONTRACT AGREEMENTS AND FUTURE OBSERVATIONS 8.1 Contract Negotiations for Production 8-1 8.1.1 Users Perspective: Roadblocks to Negotiations 8-1 8.1.2 Contractor Perspective: Roadblocks to Negotiations 8-7 8.2 Users Perspective: Preparing for Problems 8-10 8.2.1 Experience with Changes in Contract Price and the 8-10 Consequences 8.2.2 Users Experience with Cancelation Fees 8-15 8.2.3 Users: Frequency of Change Orders 8-16 8.3 Contractors Perspectives: Preparing for Problems 8-19 8.3.1 Contractors Use of Reservation Fees 8-19 8.3.2 Contractors Use of Cancelation Fees 8-21 8.3.3 CMOs: Typical Number of Project Change Orders 8-23 8.4 Future Observations 8-28 8.4.1 Contractors Future Market Trends 8-28 8.4.2 Users Perspective: Other Observations 8-33 8.4.3 Contractors Perspective: Other Observations 8-36
LIST OF TABLES Chapter 1 1.4-1 Reason to Use New CMOs for New Projects 1-7 1.4-2 Reasons to Pay or not Pay a Premium for a One-Stop-Shop CMO 1-9 1.8-1 Users Perspective: Contract Sections Most Difficult to Negotiate 1-25 1.8-2 Contractors Perspective: Most Common Roadblocks in Negotiations 1-26 1.8-3 Additional User Pricing and Contract Agreement Observations 1-29 1.8-4 Additional Contractor Pricing and Contract Agreement Observations 1-30 Chapter 2 2.2-1 Market Research Steps 2-2 2.5-1 Acronyms 2-4 Chapter 3 3.1-1 Titles of Respondents Listed Alphabetically 3-2 3.2-1 Product or Service Experiencing Higher or Lower Prices Users 3-15 3.2-2 Product or Service Experiencing Higher or Lower Prices CMOs 3-19 3.2-3 Factors Affecting Manufacturing Costs Users 3-28 3.2-4 Factors Affecting Manufacturing Costs CMOs 3-32 3.3-1 Contractors Target Gross Profit Margins 3-36 3.4-1 Contractors Current Utilization Rates by Tank Size and Production 3-41 Technology Chapter 4 4.2-1 Contract Manufacturers Used by Respondents 4-8 4.2-2 Contract Manufacturers Being Considered by Respondents 4-10 4.2-3 Reasons Why a New or Different CMO is Being Considered 4-10 4.3-1 Reasons to Use New CMO for New Projects 4-15 4.3-2 Reasons for Switching to New CMO for Current Project 4-20 4.3-3 Summary of Comments about Price Differences Between Large and 4-25 Small CMOs 4.3-4 Reasons to Pay or not Pay a Premium for a One-Stop-Shop CMO 4-30 4.4-1 Conditional Use of Start-Up CMO in an Emerging Market 4-36 4.4-2 Advantages of an Established CMO in an Emerging Market 4-41 4.4-3 Services Considered Sourcing from an Emerging-Market CMO 4-46
LIST OF TABLES (continued) Chapter 5 5.1-1 Additional Business Strategies 5-2 5.1-2 Challenges and Opportunities for CMOs in Emerging Markets 5-5 5.1-3 Services Most Affected by Emerging-Market CMOs in Established Markets 5-8 5.2-1 Average Percentage: Fee-for-Service versus Partnership Contracts 5-11 5.2-2 Contractors Client Base by Segment 5-14 5.3-1 Perfusion Processes 5-16 5.3-2 Impacts of Disposables 5-20 Chapter 6 6.1-1 Pricing Models Preferred by Users by Percentage 6-2 6.1-2 Pricing Models Preferred by Users by Product Phase 6-4 6.1-3 Pressures on Choosing Fed-Batch or Perfusion Processes for Manufacturing 6-13 6.2-1 Trends in Cell-Line Development Licensing Fees 6-27 6.2-2 Types of Price Adjustments in Long-Term Agreements 6-29 Chapter 7 7.3-1 Contractor Preferred Pricing Models by Project Phase 7-14 7.5-1 Average Numbers of Batches Per Project By Tank Size 7-21 7.5-2 Average Numbers of Weeks Per Project By Tank Size 7-22 7.5-3 Average Numbers of Grams Per Project By Tank Size 7-22 7.6-1 Number of Users Products Included in the Analysis 7-29 7.8-1 Prices Paid, or Prices Charged, for Additional Services for Mammalian 7-39 Cell Culture 7.8-2 Prices Paid, or Prices Charged, for Additional Services for Microbial 7-43 Fermentation Chapter 8 8.1-1 Users Perspective: Contract Sections Most Difficult to Negotiate 8-2 8.1-2 Contractors Perspective: Most Common Roadblocks in Contract 8-7 Negotiations 8.2-1 Cause of Changes in Contract Price 8-11 8.2-2 Consequences of Changes in Contract Price 8-11 8.4-1 Future Market Challenges for Biopharmaceutical Contract Manufacturing 8-29 8.4-2 Additional User Observations about Pricing and Contract Agreements 8-33 8.4-3 Additional Contractor Observations about Pricing and Contract Agreements 8-37
LIST OF FIGURES Chapter 1 1.2-A Locations of Study Participants 1-2 1.3-A Opinions Regarding Price Changes in the Past Two Years 1-3 1.3-B Utilization Rates: 2013 and 2014 1-4 1.4-A Summary of Outsourcing Strategies 1-5 1.4-B Willingness to Pay a Premium for a One-Stop-Shop CMO 1-7 1.4-C Price Reduction Expected for Sourcing from Emerging-Market CMO 1-9 1.5-A Average Percentage: Fee-for-Service versus Partnership Contracts 1-11 1.5-B Competitive Assessment of CMOs in Emerging Markets 1-12 1.5-C Contractors Client Base by Segment 1-13 1.5-D Pricing Impact of Disposables in Upstream Development and Manufacturing 1-14 1.6-A Pricing Models Preferred by Users 1-15 1.6-B Pricing Model for Analytical Testing 1-16 1.6-C Contractors Pricing Model for Early Process Development 1-17 1.7-A Contractors: Primary Pricing Models 1-18 1.7-B Per-Batch Pricing: Average Prices Charged and Paid: Mammalian 1-19 1.7-C Per-Batch Pricing: Average Prices Charged and Paid: Microbial 1-20 1.7-D Time-in-Facility Pricing: Average Prices Charged and Paid: Mammalian 1-21 1.7-E Time-in-Facility Pricing: Average Prices Charged and Paid: Microbial 1-22 1.7-F Per-Gram Pricing: Fee Per Gram by Project Volumes: Mammalian 1-23 1.7-G Per-Gram Pricing: Fee Per Gram by Project Volumes: Microbial 1-24 1.8-A Experience with Changes in Contract Price 1-27 1.8-B Contractors Cancellation Fees 1-28 Chapter 2 2.4-A Explanation of Box-and-Whiskers Plot 2-4 Chapter 3 3.1-A Locations of Study Participants 3-2 3.1-B Respondents with Biologic Products on the Market 3-4 3.1-C Distribution of Biologic Products on the Market 3-4 3.1-D Respondents with Biopharmaceuticals in Clinical Trials 3-5 3.1-E Distribution of Biopharmaceuticals in Clinical Trials 3-6 3.2-A Opinions Regarding Price Changes in the Past Two Years 3-7 3.2-B Expected Changes in Price 3-10 3.2-C Current and Proposed Price Changes Users 3-14 3.2-D Current and Proposed Price Changes CMOs 3-18 3.2-E Price Changes for Optimized Expression Systems Users 3-23 3.2-F Changes in Optimized Expression Systems Pricing Models CMOs 3-25
LIST OF FIGURES (continued) Chapter 3 3.3-A Contractors Target Gross Profit Margins by Phase: 2013 and 2016 3-37 3.3-B Impact of Pricing Changes on Margins 3-38 3.4-A Utilization Rates: 2013 and 2014 3-40 3.4-B Contractors Current Average Utilization Rates by Tank Size and 3-41 Technology Chapter 4 4.1-A Manufacturing Budgets: Outsourced versus In-House 4-2 4.1-B Outsource Budgets: Process Development versus Manufacturing 4-4 4.1-C Summary of Outsource Strategies 4-5 4.2-A Plan to Use New or Different CMO 4-9 4.3-A Initial Discussions with Contractors 4-12 4.3-B Differences in Prices Between Large and Small CMOs 4-25 4.3-C Willingness to Pay a Premium for a One-Stop-Shop CMO 4-30 4.4-A Willingness to Use an Asian-Based CMO 4-33 4.4-B Willingness to Consider a Start-Up CMO in an Emerging Market 4-35 4.4-C Concerns Regarding Use of a Start-Up CMO in an Emerging Market 4-36 4.4-D Willingness to Consider an Established CMO in an Emerging Market 4-40 4.4-E Challenges of Using an Established CMO in an Emerging Market 4-41 4.4-F Price Reduction Expected for Sourcing from Emerging-Market CMO 4-49 4.4-G Specific Services with Expected Lower Pricing from Emerging-Market 4-52 CMOs 4.4-H Outsourcing Innovative or Off-Patent Products from Emerging-Market CMOs4-55 Chapter 5 5.1-A Phase-Based Business Focus 5-1 5.1-B Competitive Assessment of CMOs in Emerging Markets 5-5 5.1-C Price Reduction Due to Emerging-Market CMOs 5-8 5.2-A Contractors Using Fee-For-Service Model Exclusively 5-12 5.2-B Percent of Clients Located in Same Country as Contractor s Facility 5-13 5.2-C Contractors Client Base by Segment 5-14 5.3-A Use of Perfusion Processes 5-15 5.3-B Pricing Models for Perfusion Processes 5-16 5.3-C Pricing Impact of Disposables in Upstream Development and Manufacturing 5-19 5.3-D Accelerated Platform Availability 5-22 5.3-E Accelerated Platform Pricing 5-23
LIST OF FIGURES (continued) Chapter 6 6.1-A Percent of Respondents Expecting Certain Services to be a Core Charge 6-1 6.1-B Pricing Models Preferred by Users 6-3 6.1-C Pricing Model for Analytical Testing 6-5 6.1-D Pricing Model Used for Formulation Development 6-7 6.1-E Typical Pricing Model for Cell-Line Expression Services 6-10 6.1-F Difference in Pricing for Accelerated and Standard Antibody Projects 6-11 6.1-G Movement Towards Use of Perfusion Manufacturing Processes 6-13 6.1-H Pricing Models for Perfusion Processes 6-16 6.1-I Pricing for Manufacturing Clinical Materials by Perfusion Processes 6-18 6.1-J Respondents with Antibody Conjugation Projects 6-20 6.1-K Type of Molecule Conjugated to Antibody 6-21 6.1-L Outsourcing Conjugation Services 6-23 6.1-M Pricing of Conjugation Services 6-23 6.2-A Contractors Pricing Model for Early Process Development 6-25 6.2-B Long-Term Contracts with Clients 6-28 6.2-C Trends Toward Alternative Business Arrangements 6-31 Chapter 7 7.1-A Estimates of Process Development Fees for a E. Coli Process 7-2 7.1-B Estimates of Process Development Fees for a Mammalian Process 7-3 7.1-C Estimates of Process Development Hours 7-4 7.1-D Annual FTE Rates for Process Development 7-5 7.1-E Users Expectations vs. Experience: FTE Rates for Process Development 7-6 7.2-A Annual FTE Rates for Manufacturing Staff 7-7 7.2-B Annual FTE Rates for QC Staff 7-7 7.2-C Annual FTE Rates for Project Management Staff 7-8 7.2-D Annual FTE Rates for Regulatory Support Staff 7-8 7.2-E Annual FTE Rates for Analytic Development Staff 7-9 7.2-F Users Expectations vs. Experience: FTE Rates for Management Staff 7-10 7.2-G Users Expectations vs. Experience: FTE Rates for QC Staff 7-10 7.2-H Users Expectations vs. Experience: FTE Rates for Project Management 7-11 7.2-I Users Expectations vs. Experience: FTE Rates for Regulatory Support 7-11 7.2-J Users Expectations vs. Experience: FTE Rates for Analytic Development 7-12 7.3-A Contractors: Primary Pricing Models 7-13 7.3-B Contractors Preferred Pricing Models by Project Phase 7-15 7.4-A Batch Pricing: Average CMO Rates Per Batch or Run: Mammalian 7-17 7.4-B Batch Pricing: Average CMO Rates Per Batch or Run: Microbial 7-18 7.4-C Time-in-Facility Pricing: Average CMO Rates Per Week: Mammalian 7-19 7.4-D Time-in-Facility Pricing: Average CMO Rates Per Week: Microbial 7-20 7.5-A Per-Batch Pricing: Average Prices Charged and Paid: Mammalian 7-23 7.5-B Per-Batch Pricing: Average Prices Charged and Paid: Microbial 7-24 7.5-C Time-in-Facility Pricing: Average Prices Charged and Paid: Mammalian 7-25 7.5-D Time-in-Facility Pricing: Average Prices Charged and Paid: Microbial 7-26 7.5-E Per-Gram Pricing: Average Prices Charged and Paid: Mammalian 7-27 7.5-F Per-Gram Pricing: Average Prices Charged and Paid: Microbial 7-28
LIST OF FIGURES (continued) Chapter 7 7.6-A Per-Gram Pricing: Fee per Gram by Project Volumes: Mammalian 7-31 7.6-B Per-Gram Pricing: Fee per Gram by Project Volumes: Microbial 7-32 7.7-A Per-Batch Pricing: Fee per Batch per Liter by Tank Size 7-33 7.7-B Time-in-Facility Pricing: Fee per Batch per Liter by Tank Size 7-34 7.7-C Explanation of Box-and-Whiskers Plot 7-35 7.7-D Box-and-Whiskers Plot: Per-Batch Pricing: Mammalian Cell Culture 7-35 7.7-E Box-and-Whiskers Plot: Per-Batch Pricing: Microbial Fermentation 7-36 7.8-A Average Price Paid by Users for Additional Services: Mammalian-1 7-37 7.8-B Average Price Paid by Users for Additional Services: Mammalian-2 7-37 7.8-C Average Price Charged by CMOs for Additional Services: Mammalian-1 7-38 7.8-D Average Price Charged by CMOs for Additional Services: Mammalian-2 7-38 7.8-E Average Price Paid by Users for Additional Services: Microbial-1 7-41 7.8-F Average Price Paid by Users for Additional Services: Microbial-2 7-41 7.8-G Average Price Charged by CMOs for Additional Services: Microbial-1 7-42 7.8-H Average Price Charged by CMOs for Additional Services: Microbial-2 7-42 Chapter 8 8.2-A Experience with Changes in Contract Price 8-10 8.2-B Cancellation Fees Paid by Users 8-15 8.2-C Users: Frequency of Change Orders 8-17 8.3-A Contractors Reservation Fees 8-20 8.3-B Average Percentage Charged for Reservation Fee 8-20 8.3-C Contractors Cancellation Fees 8-22 8.3-D Comparison of Contractor and User Cancellation Fees 8-22 8.3-E CMOs: Distribution of Average Number of Project Change Orders 8-23 8.3-F CMOs: Pricing Method for Change Orders 8-24 8.3-G Comparison of Number of Typical CMO and Reasonable User Change 8-25 Orders