Three Manufacturing Strategies That Work

Choosing the Right Model for Your Stage and Differentiation

Article 3 of 10 in a series on cell therapy partnership strategy.

Every cell therapy company faces the same strategic question: who manufactures the product? The answer shapes everything from capital requirements to partnership leverage to long-term margins. Get it wrong, and manufacturing becomes either a resource drain or a dependency that constrains strategic options.

Three models dominate the landscape: in-house manufacturing, contract development and manufacturing organization (CDMO) partnerships, and strategic manufacturing partnerships. Each has distinct economics, risk profiles, and implications for partnership strategy.

Strategy 1: In-House Manufacturing

Legend Biotech built its own manufacturing infrastructure before Carvykti reached commercial stage. The company invested hundreds of millions of dollars in facilities across China and the United States. When Janssen came calling, Legend offered something rare: a fully integrated operation that could scale production without third-party dependencies.

The in-house model requires substantial capital—typically $200-500 million for a commercial-scale facility capable of manufacturing autologous CAR-T at volume. Beyond capital, it demands specialized talent: process engineers, quality systems experts, supply chain managers with cell therapy experience. These professionals are scarce and expensive.

The payoff is control. In-house manufacturers own their destiny. They can iterate on processes rapidly, protect proprietary manufacturing innovations, and capture the full margin between manufacturing cost and product revenue. When Legend and Janssen structured their partnership with profit-sharing rather than royalties, Legend's manufacturing capability was central to the negotiation—they weren't licensing an asset, they were contributing a manufacturing operation.

The risks are equally clear. Capital deployed into manufacturing facilities isn't available for R&D or clinical development. Manufacturing problems become company problems—there's no external party to share responsibility. And if clinical programs fail, manufacturing investments become stranded assets.

Best suited for: Companies with validated clinical programs, sufficient capital (or capital-raising ability), and platform strategies that will utilize manufacturing capacity across multiple products. Also appropriate for companies whose manufacturing process itself represents proprietary innovation.

Strategy 2: CDMO Partnerships

Lonza, Thermo Fisher, and a growing roster of specialized CDMOs offer cell therapy manufacturing services. The model is familiar from small molecule and biologics: pay for capacity, benefit from the CDMO's scale and expertise, preserve capital for core activities.

The CDMO model has enabled dozens of cell therapy programs to reach the clinic. Early-stage companies that can't justify manufacturing investment can access GMP production. Later-stage companies can add capacity without facility construction timelines.

Novartis took this path with Kymriah, partnering with CDMOs to supplement internal capacity. The strategy enabled rapid geographic expansion but created ongoing dependencies. Manufacturing remained a significant cost line item, and quality oversight required substantial internal resources despite external production.

The economics are straightforward but unforgiving at scale. CDMO pricing for autologous CAR-T typically runs $100,000-200,000 per batch, plus technology transfer fees, facility qualification costs, and ongoing quality oversight expenses. At low volumes, this represents savings versus in-house alternatives. At commercial scale, it represents margin compression that compounds annually.

"At commercial scale, CDMO pricing creates margin compression that compounds annually. The question isn't whether you can afford CDMOs early—it's whether you can afford them forever."

Best suited for: Early-stage programs requiring GMP manufacturing for clinical trials, companies pursuing rapid geographic expansion, or programs where manufacturing is truly commodity and competitive advantage lies elsewhere.

Strategy 3: Strategic Manufacturing Partnerships

The third model combines elements of the first two: manufacturing capability comes from a partner, but the relationship is strategic rather than transactional. The partner invests in dedicated capacity, shares risk and reward, and commits to long-term collaboration.

The Kite-Daiichi Sankyo partnership for Japan illustrates both the appeal and the challenges. Daiichi Sankyo brought Japanese commercial infrastructure and regulatory expertise. Kite (Gilead) brought Yescarta and manufacturing know-how. The intent was for Daiichi Sankyo to establish Japanese manufacturing capability.

Reality proved more complex. Cell therapy manufacturing transfer is technically demanding. Process parameters that work in one facility may not transfer directly. Quality systems must be rebuilt from the ground up. The Kite-Daiichi partnership ultimately relied more heavily on Gilead's US manufacturing than originally planned.

More successful strategic partnerships often involve acquisition or joint venture structures rather than arm's-length licensing. AstraZeneca's $1.2 billion Gracell acquisition brought FasT CAR-T manufacturing capability in-house completely. The Legend-Janssen partnership created joint governance with shared manufacturing oversight.

Best suited for: Companies seeking geographic expansion into markets where local manufacturing provides regulatory or commercial advantage.

The Hybrid Reality

Most successful cell therapy companies eventually operate hybrid models. They maintain in-house capability for core products and geographies while using CDMOs or partners for specific applications.

Bristol Myers Squibb, following its Celgene acquisition, operates internal manufacturing for Breyanzi and Abecma while maintaining CDMO relationships for capacity flexibility. The internal capability provides control over core production and drives manufacturing innovation. The CDMO relationships provide surge capacity and geographic reach.

Decision Framework

The manufacturing strategy decision depends on four factors:

Stage and capital position. Pre-clinical and early clinical programs rarely justify manufacturing investment. CDMO relationships make sense until clinical proof-of-concept de-risks the program.

Manufacturing as differentiation. If your manufacturing process itself represents competitive advantage—faster vein-to-vein time, lower cost, better yields—protecting that advantage argues for internal control.

Volume expectations. The crossover point where internal manufacturing becomes economically superior to CDMOs typically falls between 500 and 1,000 patients annually.

Partnership strategy. Manufacturing capability affects both deal structure and valuation. Companies with internal manufacturing command different terms than companies with CDMO dependencies.

The Cost Trajectory Question

Monoclonal antibodies provide instructive precedent. Early mAb production cost over $1,000 per gram. Today, leading manufacturers achieve $50-100 per gram. The cost reduction came from improved cell lines, optimized processes, increased scale, and continuous manufacturing innovation.

Cell therapy will follow a similar trajectory. Current autologous CAR-T production costs of $50,000-150,000 per dose will decline as processes improve and volumes increase. The question is who captures that cost reduction.

Companies that control their manufacturing capture cost improvements as margin expansion. Companies that outsource manufacturing see cost improvements flow to CDMOs or remain shared through pricing negotiations. Over a product's commercial lifetime, this difference compounds dramatically.

Next in series: Platform vs. Product

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For advisory on cell therapy partnership strategy, contact Kerlann Advisory.