CMO Emerges As Key Biz For Korean Drugmakers

Contract manufacturing organization (CMO) business has become a mainstream strategy for the local pharmaceutical and biotech industry. It is noteworthy that CMO biz is no longer regarded as a short-term trend but a long-term growth engine for pharmaceutical companies.

Biopharmaceutical CMOs take orders from clients and manufacture medicines on consignment.

According to Frost & Sullivan, global market research and consulting firm, the CMO market worldwide recorded $11.9B in sales in 2019. The size of the CMO market is expected to hit $25.3 B by 2025 at an average annual growth rate of 13.7 percent, it said.

The global CMO market is led by several companies such as Boehringer Ingelheim, Lonza, Fujifilm, WuXi Biologics, Asahi Glass, and Thermo Fisher Scientific.

In Korea, Samsung Biologics, SK Group, ST Pharm, Binex, Kolon Life Science, Dongkook Pharmaceutical, Kyongbo Pharmaceutical, and PanGen Biotech are in the CMO biz.

In particular, Samsung Biologics and SK Group are aggressively investing in the global CMO market as well.

Samsung Biologics, which became the world’s largest CMO with its third plant capable of manufacturing 180,000 liters annually, began constructing the fourth plant last year.

The fourth plant is expected to produce 256,000 liters annually. The company plans to operate some of the production lines in 2022 and the entire lines in 2023.

Samsung Biologics is reportedly investing 1.74 trillion won ($1.55B) in building the fourth plant.

SK Holdings has a U.S. subsidiary, SK Pharmteco, for CMO business. The company acquired a plant in Swords, Ireland, from BMS in 2017 and established SK Biotech Ireland. It also took over Ampac Fine Chemicals, a U.S. CMO for drug raw materials, in 2018. SK Pharmteco acquired Yposkesi, a French CMO for gene and cell therapy, in March.

SK Bioscience, which debuted on Kospi in March, said it would shift its business focus from vaccine to CMO during the initial public offering process.

The emergence of CMO business in Korea stemmed from industrial changes in the local pharmaceutical sector.

Over the past several years, the pharmaceutical industry moved development focus from synthetic drugs to biopharmaceuticals, and from generic medicines, to pharmaceutical R&D. This led to an increase in the demand for CMOs that will enable the production and commercialization of biopharmaceuticals.

“For a CMO plant, the utilization rate of the bioreactor capacity is important,” an official at a Korean CMO said. “Korean biopharmaceutical companies’ global trials and increased joint research with multinationals have significantly contributed to better utilization of bioreactors at local CMOs.”

To produce biopharmaceuticals, a company must have a large-scale production facility and a manufacturing process that meets the stringent GMP standards. This is why a company normally outsources production to a CMO rather than manufacture a biopharmaceutical directly.

Frost & Sullivan said CMOs and pharmaceutical companies are transitioning “from transactional relationships to strategic risk-sharing partnerships.”

Also, the Covid-19 outbreak last year prompted a surge in the global demand for CMOs.

SK Bioscience clinched a CMO/CDMO deal with AstraZeneca in July and with Novavax in August, respectively, to manufacture their Covid-19 vaccines.

In April, GL Rapha, Hankook Korus, Isu Abxis, Chong Kun Dang Bio, Boryung Bio Pharma, Binex, Quratis, and Humedix formed a CMO consortium to produce Russia’s Sputnik V Covid-19 vaccine.

Another consortium, consisting of Huons Global, Humedix, Prestige Biopharma, and Boran Pharma, has jumped into the production of Sputnik V, too.

GC Pharma is a candidate for a CMO deal to produce another Russian Covid-19 vaccine, CoviVac.

However, industry officials said CMO business could be a double-edged sword for pharmaceutical firms.

“There is a dilemma in CMO business. If you focus on CMO biz, you can’t develop your product actively,” an official at a Korean CMO said.

“If you develop your product in the same field, your clients will raise suspicion over technology leakage. As trust is crucial in CMO business, you will have to choose only one of the two.”