Sartorius Bioprocess Solutions & SUT Demand Outlook – Customer Assessment – Part 2

In our previous Interview, we spent a good deal of time discussing the benefits of scale-out vs scale-up, the demand outlook for SUT [single-use technology] in the context of capacity utilisation as well as a normalisation in customer purchasing behaviour [see Sartorius Bioprocess Solutions & SUT Demand Outlook – Customer Assessment – Part 1 – 9 February 2023]. Today I’d like to dig a bit deeper into how the different players are positioned to capitalise on that demand, and dig into your comments that Danaher represents the most complete one-stop shop, closely followed by Thermo, with Sartorius having a few gaps in the portfolio. Can you start by walking me through how you choose to purchase from the different suppliers? What are your key purchasing criteria, and how would you rank them?

If we stick with the skids, or the type of equipment for which you can’t easily swap out the suppliers, you mentioned that performance is key. How often do you have a fairly broad selection of vendors when it comes to the equipment meeting your technical requirements as opposed to there only being one vendor who meets your specific requirements?

You underlined the fact that SUT technologies are evolving rapidly, for example the scale-up from 2,000- to 5,000-litre SUT bioreactors. I appreciate it’s always hard to generalise across the entire spectrum of upstream and downstream workflows, but to the extent you can, which supplier do you consider to be the most innovative and constantly pushing the boundaries of what SUT can do?

Speaking of bioreactors, last I checked, Sartorius didn’t offer single-use bioreactors that went above 2,000 litres, but other vendors did indeed go up to 5,000 litres. Has the company come out with a 5,000-litre bioreactor, or is it still a bit behind the curve here?

Circling back to the quality and performance across products, you highlighted that Thermo Fisher has the best perfusion reactor on the market. What about if we look at other SUT along the different bioprocessing workflows? If we look at filtration, fluid management, purification, cell culture, media, etc, is there any one supplier that really stands out from a quality and performance perspective?

What about Sartorius specifically? How competitive is its portfolio and how effectively has the company been launching new technologies into the market vis-à-vis its peer group?

Based on previous Interviews, it seems Sartorius was better-positioned in upstream workflows vs downstream, although obviously since then, as you noted, there have been a couple of downstream acquisitions, such as of BIA Separations in November 2020. The company also acquired Novasep in February 2022. Following such M&A, do you believe Sartorius has balanced out its expertise across both upstream and downstream workflows? Perhaps you can bake in some commentary around the Novasep acquisition, and the extent to which that changed the calculus for Sartorius’s chromatography division.

To be clear, despite the Novasep acquisition, Sartorius still lacks competitive resins and affinity ligands?

Has Sartorius or any other incumbent launched or publicly disclosed plans to develop ATF [alternating tangential flow] filtration units following the expiry of Repligen’s patents? I understand that was a core technology for the aforementioned business.

To confirm, despite the patent expiry for Repligen, unless there’s a step change in the functionality of the technology, you don’t see a huge volume of copycat technologies coming to market, and you don’t see Repligen losing significant share over the coming years?

Speaking of Repligen’s filtration franchise, the company’s next-generation technology is TFDF [tangential flow depth filtration]. Based on previous Forum Interviews, it seems as if the market is somewhat unenthused by this new technology. What’s your personal view?

Going back to this process intensification trend, you mentioned Sartorius is positioning itself rather nicely. Can you elaborate on precisely what Sartorius technologies are enabling such process intensification, across both upstream and downstream workflows?

What about the Ambr bioreactors? According to the marketing material the Ambr product line consists of multi-parallel bioreactors that are fully automated and accelerate upstream process development. Coupled with your comments around Sartorius’ CLD [cell line development] capabilities, is that a unique differentiator for Sartorius, enabling and facilitating process development in upstream workflows?

Do you see competitors dethroning Sartorius’s Ambr or the company’s positioning more broadly in upstream process development?

We’ve discussed upstream. What about downstream process intensification? Where does Sartorius play into that?

We’ve spent a good deal of time talking about the relative strengths and weaknesses of the different suppliers across the spectrum of upstream to downstream workflows, and I want to put that in the context of your previous commentary on one-stop shops. You mentioned that CDMOs [contract development and manufacturing organisations] are increasingly looking to standardise their capacities both within a facility and inter-facility, and sourcing from one supplier. On balance, you also noted that a CDMO needs to be flexible in order to cater to customer needs. If a customer is tech-transferring in a product that uses another supplier’s SUT, then a CDMO needs to be able to cater to that. Indeed, CDMOs are always looking to use the best bioreactor or filtration unit and therefore aren’t that sticky. Can you help me reconcile the two opposing dynamics here? Do you see CDMO spend increasingly shifting towards one-stop shops, or will the status quo remain?

Essentially, as a CDMO, you’re not necessarily looking for a one-stop shop that can cater to the entire spectrum of upstream and downstream workflows, but rather you’re looking for a supplier that offers the best skid or systems portfolio for an individual bioprocessing workflow. Is this a fair summary?

We know roughly 75% of Sartorius’s BPS [Bioprocess Solutions] revenue stems from consumables and thus recurring revenue streams. As we think about future consumables pull-through, how often would Sartorius’s consumables stem from third-party skids? Essentially, I’m looking to understand the future pull-through that could come through third-party systems in a hypothetical scenario where competitors take more market share.

I want to revisit the mix between custom solutions vs off-the-shelf, which we discussed in our previous Interview. You mentioned that a significant proportion of market demand for SUTs is for custom solutions as opposed to off-the-shelf or platform solutions, which in turn was causing somewhat of a bottleneck given the longer lead times. Can you elaborate on what percentage of SUT demand would be for custom SUT vs off-the-shelf SUT?

Is there one player out of the big four that you believe offers best-in-class custom services or lead times?

It seems there is a drive towards the standardisation of SOPs [standard operating procedures] and therefore SUT technologies. Put simply, is that going to be a tailwind or headwind for Sartorius? Generally speaking, would that custom business be a higher-margin operation than an off-the-shelf business, or vice versa?

How rapidly do you think we could see this shift to off-the-shelf solutions? This has been spoken about for a while, and you referenced a number of consortiums and meetings that are ongoing. Is this a shift that we can expect in the next couple of years? Is this more of a mid-to-long-term event?

Speaking of ATMPs [advanced therapeutic medicinal products], is there any one player that stands out in having a purpose-designed portfolio for something such as C&GT [cell and gene therapy] as opposed to repurposing existing platforms?

Does Sartorius have any SUT that is specifically tailored for the C&GT market as opposed to repurposing its biologics equipment?

How large do you see some of the ATMP end markets being for Sartorius, or indeed the other SUT suppliers? If we look at C&GT specifically, how are you thinking about the TAM size relative to your mammalian antibody market? Is there any way you can break that out?

My understanding is that mRNA and C&GT require a lot more downstream purification than a mAb [monoclonal antibody] in addition to the fact that today’s lower yields drive the need for more batches. On paper, that seems to translate into greater volumes of SUT required per dose or per patient treated. Other specialists have postulated that C&GT, because of the SUT required, represents 120-135% of the biologics opportunity for a player such as Sartorius. Do you broadly subscribe to those back-of-the-envelope calculations, or would you adjust any of those numbers?

How robust are Sartorius, Danaher and Thermo’s pricing power, especially in the context of everything we’ve discussed regarding SUT demand, but also SUT capacity underutilisation? You previously mentioned you expect roughly 25% underutilisation today, potentially climbing up to 30-40% in 2025 or 2026 once additional capacities come online. Do you see CDMOs exerting pricing pressure on the SUT suppliers?

You alluded to vendor price changes. Sartorius has spoken about high-single-digit price increases in mid-2022, and then referenced mid-single-digit price increases in early 2023. How are you thinking about Sartorius’s ability to increase prices further, especially in the context of the CAPEX the SUT suppliers have spent on their own production plants? Could there be oversupply relative to demand?

I understand there’s no major difference in the price increases the different vendors have looked to implement so far, but do you think they’re approaching the ceiling of what could realistically be achieved? Or do you think there is scope for further low-to-mid-single-digit price increases in H2 2023, especially given CDMOs are passing them through?

In the context of the ongoing R&D funding environment, do you think we’ll soon reach a ceiling whereby the economic value proposition of SUTs simply isn’t as compelling vs reusable technology, and so it’s unlikely we’ll see any significant price increases in H2 2023?

I want to talk about a new market entrant into the bioprocessing world, Biotage. This is a company that already offers Flash 400 chromatography solutions for downstream processes. It also acquired PhyNexus in January 2019, which among other things, offers the first large-scale endotoxin-free plasmid purification. Recently, the company announced its acquisition of Astrea Bioseparations in January 2023. I’ve hosted Forum Interviews on Biotage and the acquisition of PhyNexus previously [see Biotage – Biomolecules Growth Outlook – 20 January 2021, Biotage – Building out a BioPharma Ecosystem – Part 1 –19 July 2022 and Biotage – Building out a BioPharma Ecosystem – Part 2 – 22 July 2022] and have an upcoming interview on the acquisition [see Biotage – Astrea Bioseparations Acquisition Analysis & Bioprocessing Franchise Build-out – 14 March 2023]. How are you thinking about Astrea Bioseparations’ portfolio and its applications in bioprocessing, notably the chromatography resins, absorbents, columns, as well as nanofibre-based purification technology vs the hollow-fibre tech from Repligen or Cytiva’s membrane?

How does Astrea’s nanofibre technology line up vs hollow-fibre tech from Repligen or Cytiva’s membranes? How do Astrea’s ligands compare vs Repligen’s affinity ligands following its September 2021 acquisition of Avitide? To some extent, it seems Astrea is competing for the same customer in ATMPs.

Do you think Biotage and Astrea have the reputation and scale to compete vs Cytiva and Danaher?