Contract Fermentation Update, Market Continues to Tighten
By Mark Warner, PE, Founder, Warner Advisors LLC
Special to The Digest
In my previous articles on the contract fermentation landscape here and capital light scale-up here, I reviewed contract fermentation organizations (CMOs) and discussed how the market was tightening. The last article was over a year ago and I thought it was worth an update. I would like to say it is not important to me for my predictions to turn out to be correct, but my friends and colleagues would advise otherwise. In this case, it turns out I was unfortunately correct, the market has continued to tighten. Contract manufacturing options are diminishing and the facilities currently operating are looking for more favorable commercial terms. If you are planning to scale a fermentation process through contract fermentation facilities, it is going to be a good time to bring your “A” game to the search effort.
It is worth a refresher on what a CMO is and is not. In the world of biotechnology, a CMO is a manufacturing facility with aseptic fermentation and downstream recovery to make a range of products from microbes. Implied in the name is that these are primarily manufacturing facilities that have long term agreements to make products (commonly pharmaceuticals) from processes with an operational history and have successfully been scaled-up. By contrast, most emerging biotechnology companies looking to do scale-up work, are seeking shorter term arrangements (as low as just a few fermentation runs) to prove their technology and produce samples for potential clients. While CMOs can successfully support scale-up work, it is usually a small subset of the CMO world and finding the right partner is a complicated and time-consuming journey. Updated perspectives follow:
Read the fine print – with the market tightening, CMOs are pushing more favorable terms like reservation fees and other terms that have not been typical in recent years. Many of these terms have been used by some sites, but are becoming more prevalent. Reservation fees are like booking a non-refundable vacation. If you want to go to Maui on vacation, it may only cost you a few hundred dollars to book it far in advance, but as you get 60-120 days out, there is a large payment that progressively becomes less refundable the closer you get to your travel date. Many CMOs often operate the same way. You pay a non-refundable fee to lock up capacity (your “slot”) and it becomes more non-refundable the closer you get to your dates of operation.
Hand-me downs – those of us who are the youngest in a family understand the concept of hand-me-downs and to some degree, this is what has formed the bulk of the contract fermentation industry. Antibiotic and pharmaceutical sites that get to a certain age find it more difficult to meet the more stringent pharma GMP requirements, but the sites are often very suitable for industrial biotechnology (foods, fuels and chemicals). There is really no such thing in the contract fermentation industry as a “new car smell”, a brand-new fermentation facility built solely to support contract operations. There have been many proposed facilities and a few existing sites that are expanding, the capital cost and project timeline constraints have made re-purposed pharmaceutical or biofuel facilities the most likely candidates.
Shotgun marriage – as outlined above, most contract fermentation sites do not grow up wanting to be a CMO, but rather end up there based on an economic downturn of their primary business. This creates a situation where not all are as well set up to operate as a CMO as others. Running one single organism month after month in a large building full of fermenters is much different that running 5 different organisms in fermenters within the same building at the same time. The second case is much more difficult and causes issues for many looking to make the transition from captive site to CMO. Something to consider when evaluating various CMO options.
You still really need a passport – while I mentioned this in previous articles, the need has only increased. In the last year, CMO options within the US have diminished but have expanded in Europe. The majority of my contract manufacturing searches struggle to find a qualified facility in the US, while there are numerous sites in Europe that have the technical and commercial structure to produce the product.
Contract manufacturing is still the best route for many early stage biotechnology ventures and understanding the challenges up front will prepare the team to a successful endpoint.
Mark Warner is a registered professional engineer with 30 years of experience in process commercialization, focusing for the last 10 years on taking first-of-a-kind-technologies from bench-top to commercial operation. He has worked for four companies who have held the #1 spot in biofuels digest’s top company list, in a range of advanced biotechnologies including biodiesel, cellulosic ethanol, phototrophic algae, heterotrophic algae and innovative food products. He is the founder of Warner Advisors, providing consulting services and acting in interim engineering leadership roles for advanced bioeconomy clients. He can be reached at firstname.lastname@example.org or visit www.warneradvisorsllc.com.