Immunex Corp. (IMNX
) was riding high when Enbrel, its breakthrough drug for rheumatoid arthritis, won Food & Drug Administration approval in 1998. A dramatic advance in controlling the inflammation that is a hallmark of arthritis, Enbrel was heralded as one of the first major successes of the biotech industry. Sales reached $650 million in 2000, $150 million more than estimated by the company, and the stock rose as high as $80 that year.
But Immunex didn't have enough production capacity to meet demand, and the shortfall cost it as much as $200 million in sales last year, analysts estimate. The end result: the stock dropped as low as $11 and biotech giant Amgen Inc. (AMGN
) struck a deal in December to scoop up the smaller firm for a mere $25 a share. A new Enbrel plant under construction in Rhode Island, meanwhile, isn't likely to be ready until early 2003, Amgen says.
Welcome to the dark side of biotech. Hardly a month goes by without some promising new biologic drug experiencing a manufacturing snafu (table).
Granted, the biotech industry is hitting the big time after two decades of intense industry building. An Arthur D. Little study estimates that, while the pharmaceutical industry as a whole will grow 7% to 8% over the next five years, biotech will likely grow by as much as 15% a year. There are some 30 biopharmaceuticals already on the market and an additional 700 or so in various stages of development. And though no biotech firms show up on the BW50 list yet, some, such as Amgen, could well make an appearance in the next year or two--if they can successfully maneuver promising drugs over the approval and manufacturing hurdles.
That's no easy task, given that these protein-based drugs are extremely difficult to manufacture. Hence, the biotech industry's catch-22: The more successful the product, the worse the production bottleneck. "While there have been big advances in discovery technologies, there has not been a corresponding increase in development capacity," says Peter B. Davis, chief financial officer of Berkeley (Calif.) biotech firm Xoma Ltd. "Now, the worry is less whether [the industry] can find a molecule than what to do with the molecule it finds."
It is a worry that increasingly preoccupies companies and investors. A recent US Bancorp Piper Jaffray report found that all the biotech plants currently operational are running at or near capacity. Meanwhile, there are 99 biotech drugs in late stages of clinical development, and as many as 40 of these could reach the market by 2005--setting the stage for a major manufacturing crunch. Given that building a new biologics plant is technically challenging, and costs anywhere from $300 to $500 million, there is no guarantee that new facilities will arrive in time to meet demand.
It doesn't help that this is not the biotech industry's bailiwick--there's a big difference between discovering a new drug and making one. "Manufacturing is usually the lowest priority for a biotech startup," says Roland J. Andersson, a partner with Boston consulting firm Strategic Decisions Group. "That is just not the business they are in."
Even traditional drug companies, which have been in the manufacturing business for decades, don't always get it right. Schering-Plough Corp. (SGP
) was hit with a $500 million fine last year, and approval of Clarinex, its important new allergy drug, was delayed by the FDA due to inadequate quality control at four plants. Industry leader Pfizer Inc. (PFE
), No. 3 on the BW50 ranking, was cited by the FDA in March for quality-control problems at an Indiana plant. Manufacturing problems have so delayed a range of vaccines made by Merck (MRK
) (No. 40), Wyeth (WYE
), and Aventis (AVE
) that children across the country are being turned away by doctors who have run out of routine shots.
And those are the kinds of drugs that are supposed to be easy to make. Biotech drugs are far more complex, built from fragile molecules meant to mimic natural disease-fighting proteins found in the body. Because these protein-based drugs are too big to be absorbed through the gut, they must be injected directly into the bloodstream, not swallowed as pills.
That's unfortunate, because pills, which are chemical entities, are pretty straightforward. If you can make one, you can make millions just like it without much worry. Biologics are made from living cells or bacteria, and are inherently harder to control. First, cells that express the appropriate proteins are grown in fermentation tanks, a process that takes two to three weeks. Another two to four weeks is required to extract and purify the protein. At that point the protein is placed in vials, and rigorous quality tests are conducted for up to two months.
This whole process might have to be significantly altered when a company moves from research to mass production, and even minor changes can affect the drug's action in the body. That's one reason the FDA sent back a psoriasis drug under joint development by Xoma (XOMA
) and Genentech (DNA
) for more clinical trials: The agency wants to ensure that manufacturing changes made to allow mass production didn't change the way the drug performs.
The whole process can be just as challenging for Big Pharma as for small startups. Johnson & Johnson (JNJ
), No. 1 in the BW50, makes and markets a version of Amgen's Epogen anemia drug for the European market, called Eprex. In November, J&J warned European doctors that dozens of patients taking Eprex had come down with a potentially fatal blood disorder. "Our guess is that this is probably related to a manufacturing problem," says Anthony Gringeri, a vice-president at Amgen, which manufactures all versions of the drug sold in the U.S. In America, the complication has shown up only once, in Amgen's Epogen. A J&J spokesperson says no causative link has been established between the drug and recent blood disorder cases, but the company is looking at everything from manufacturing to how the drug is stored and handled.
To avoid manufacturing headaches, many biotech firms turn to contract manufacturers such as the Lonza Biologics unit of Swiss-based Alusuisse Lonza Group, or Germany's Boehringer Ingelheim. But these companies can demand stiff contract terms or refuse to deal with biotech companies they deem too small. And they do not guarantee smooth sailing. Approval of Eli Lilly & Co.'s (LLY
) breakthrough sepsis drug, Xigris, was delayed for several weeks last year because of FDA concerns with the contract manufacturer.
Manufacturing debacles could ease over time. The Piper Jaffray survey estimates that 938,000 liters of biotech production volume will come on line in the next four to five years--a 200% increase in capacity. Most of this increase, however, is being added by just a few companies: Amgen, Boehringer Ingelheim, Biogen (BGEN
), Genentech, and Idec Pharmaceuticals (IDPH
). And any of them could run into delays. Small biotech, meanwhile, must hash out their own solutions, if and when they have a successful product. One can only wonder which of these might be the next Enbrel.
MARCH 25, 2002 |
Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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