Sartorius – Acquisition of Albumedix & Recombinant Human Albumin Demand Outlook in Advanced Therapies

Can you start by outlining the core value proposition and uses cases of rHA [recombinant human albumin] vs HSA [human serum albumin] vs BSA [bovine serum albumin]?

Circling back to the example you gave of the client that was in phase 2b, went to the FDA with an HSA-based gene therapy and was essentially turned away, is this unique to C&GT [cell and gene therapy]? Are the regulatory requirements around the use of rHA over HSA particularly stringent in what we would call ATMPs [advanced therapy medicinal products], so an in-vivo gene therapy or a stem cell-based therapy, or does this also apply to recombinant proteins such as monoclonal antibodies?

Let’s dive deeper into the applications and value proposition of rHA and HSA. As you mentioned, it’s used in the cell culture media in which these cells grow. How often is animal-free cell culture required, and how often is albumin a critical component of the media in the first instance?

On your point around the use of albumin across the different bioprocessing workflows, it seems as if albumin is a critical component in not only the cell culture and cell media but also the downstream filtration and then formulation. Essentially, off the bat, this allows Sartorius to control far more of the existing workflows in which it operates, through the August 2022 agreement to acquire Albumedix. Is this correct?

To your point on the use of long-chain sugar molecules for stabilisation purposes, do you see a risk whereby rHA, or albumin as a molecule, is substituted with an alternative, whether next-generation sugars or even enzymes?

I understand how albumin, when used as a critical component in the final drug product itself – such as in the stabilisation of the formulation – is very hard to switch. Once a customer has gone through the clinical trials and submitted a regulatory dossier, all critical input materials are locked in. Does the same apply to the bioprocessing steps themselves? For example, if albumin were replaced by something else in the downstream purification and filtration steps, would existing customers have an equally hard time switching? Is the filtration process part of that regulatory submission or not? In previous Interviews, we’ve discussed the use of salt-active nucleases for the purification of viral vectors used in C&GT, and the specialist highlighted how costly, time-consuming and onerous current filtration workflows are. Do you think the switch away from albumin in downstream filtration and other bioprocessing workflows will take decades or could it be a shorter period?

You mentioned that HSA is priced between USD 2 and USD 4 per gram. How does rHA price by comparison, and how do you see that delta evolving?

What’s the price elasticity of demand for rHA? My assumption is that the final price point of these advanced therapies is so high that biotech and pharma customers are willing to invest in the best of the best to guarantee equality and regulatory approval. Is that fair to say, or would you argue that, despite the high price point of advanced therapies, customers are price sensitive enough to opt for the lower-cost rHA?

Do you think pricing has been a limiting factor to rHA adoption? If we were to see pricing decrease as capacity increases, would that lead to an inflection in uptake?

Can you outline the supply-demand balance for rHA? Does demand far exceed capacity, and if so, can you quantify that?

Sartorius bought CellGenix and Xell, so now it seems the company can offer an integrated bag, media, cytokine product, and can now add the recombinant albumin into that. Is that a unique differentiator?

Given Sartorius is now positioning itself as a fully integrated supplier of critical materials for advanced therapies, what do you think its pricing philosophy will be for its rHA? What does that therefore imply for the typical margin profile of rHA vs HSA?

I want to dive deeper into your point on what Sartorius can do with some CAPEX here. We know Albumedix generated DKK 150m when it was spun out from Novozymes in 2017 – not adjusting for inflation, that’s about GBP 17m. In 2022, Albumedix is expected to generate GBP 33m. Essentially, that represents a doubling of revenue in five years, which is impressive, but from a low base and in absolute terms that’s only an additional GBP 16m despite this massive growth in the wider biologics and C&GT market. Has this tempered growth for Albumedix ultimately come down to its limited capacity, and is this therefore an asset that Sartorius can supercharge with additional CAPEX investment?

How much CAPEX do you think Sartorius will need to facilitate the explosive growth in demand we’ve discussed? From what I can find, Albumedix has a 72,000-square-foot site in Nottingham, and I believe the site dates from the 1980s.

How long would it take to build out the kind of facility we discussed? What are the timelines involved?

You noted the three core components of rHA COGS include batch size, purification and where the rHA is derived from. Is there scope for Sartorius to make rHA cheaper or otherwise drive down COGS? Could a better yeast-based manufacturing system, or different purification system, be implemented? Could Sartorius look to reduce the purity of Albumedix’s rHA, in that perhaps it’s currently purer than it needs to be? What’s your view on available levers for Sartorius to drive down COGS beyond just scale?

How do you think the economics would compare across two sites? You mentioned Sartorius could drive down costs at the new facility, and maybe tweak pricing slightly, but net-net, will the 80% of volume driven by the cell culture media still be in the 50-80% margin range? Could it be higher?

By how much would COGS have to decrease for rHA to compete effectively vs HSA for existing in-vivo applications?

Circling back to what else Sartorius can do with Albumedix, as discussed, you need albumin for cell media, you need it for filtration because it requires albumin in different quality and quantities, and after that, it’s needed for formulation. Given rHA’s applications as a formulation excipient in vaccines among other therapeutics, do you think Sartorius will start moving downstream into formulation and final drug packaging?

The low-hanging fruit or near-term opportunity for Sartorius is for it to become an integrated critical raw and auxiliary material supplier. Do you think this will allow the company to sign new customers it wouldn’t have been able to work with before, or will it just expand its share of wallet with existing customers?

If you look at the other major bioprocessing players, or the remaining three of the big four – Thermo Fisher, Danaher and Merck Millipore – many have their own CDMO [contract development and manufacturing organisation] operations and a lot already offer a fairly broad catalogue of cell media, cytokines, growth factors, cell lines and so on. Indeed, Thermo Fisher recently bought PeproTech, although according to PeproTech’s catalogue, it only has HSA and BSA, and doesn’t have rHA. How difficult would it be for someone such as Thermo Fisher, who bought PeproTech and is clearly acquisitive, to build out a similar portfolio to Sartorius’s but arguably do it better?

How large a business do you see the supply of critical materials for C&GT being for Sartorius, relative to its existing base business that is single-use technologies? Do you see CellGenix, Xell AG and Albumedix together forming a business that has greater growth potential and arguably becomes the major revenue driver for the company in the future? Or do you think this business will primarily remain a vendor of single-use technology and bioprocessing equipment?

Albumedix, as we said, is expected to generate GBP 33m in 2022 with significant double-digit EBITDA. If we take that at face value and assume a price tag of GBP 415m, that implies an EBITDA multiple ranging between 15x and 20x-plus. Given all the potential synergies and the different growth avenues, do you think that’s justified?

To that point, in light of all of the different growth drivers, the end market expansion and the synergies we’ve discussed, why do you think Sartorius acquired Albumedix over any other rHA player, whether InVitria, Kerry Group – although I appreciate that one is quite large – Lazuline, Proteintech or Albumin Bioscience?

You mentioned Lazuline doesn’t have the right documentation and any potential acquirer would need to invest in setting that up, which is time-consuming and expensive. What about Proteintech or Albumin Bioscience? Are there are any other ready-to-go assets that a competitor may look to acquire?

To confirm, Albumedix is differentiated in its purity, quality and the depth of documentation it has vs the independent players. Therefore, Sartorius has an advantage in that if any other bioprocessor or player – such as Miltenyi Biotec – wants to get into the game, there would be a time lag before they’d get the documentation and quality in place. All the other players that would be comparable to Albumedix are then part of a larger group, whether InVitria or Kerry, and are therefore unlikely to be sold, so Sartorius essentially has somewhat of a pseudo first-mover advantage here. Is that correct?

What percentage of rHA demand, in terms of volume or value, do you think will stem from advanced therapies, coating for medical devices, diagnostics, in-human therapeutic use or anything else in the coming years?