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Shortfall Happens

The dark side of outsourcing is coming into view: worldwide capacity for biological manufacturing is currently maxed out. Firms with biological products still in clinical development could find their progress to market delayed, if they can't make enough protein for trials. Others unable to meet demand for approved products will have to reconcile themselves to lost sales. Demand will likely exceed capacity for several years to come--putting companies that do have manufacturing capacity in strong bargaining positions.

The biotechnology industry has embraced outsourcing in recent years, seeing it as a practical way to focus investment and limit risk. Supposedly sager biotechs let go of the vision of becoming FIPCOS (fully-integrated pharmaceutical companies), deciding that money was better spent on R&D or acquisitions, than on capital intensive capacities that could be had for hire. And the fear factor also kicked in: if a product failed or fell behind, a costly manufacturing plant or purpose-built sales team would be left sitting idle, burning vital cash. Firms that outsourced were praised for their parsimony, while those that bucked the trend—like ImClone Systems Inc. , which decided to build its own manufacturing plant, were criticized for doing so.

But now the dark side of outsourcing is coming into focus. Worldwide capacity for biological manufacturing is maxed out. Firms...

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