Fetal Bovine Serum: Supply and Demand for US FBS
Globally, fetal bovine serum (FBS) remains a critical raw material for much of the biotechnology, pharmaceutical and diagnostics industry. Research and development efforts in both the commercial and academic sectors continue to rely heavily on fetal bovine serum as a safe and effective growth medium. Growing demand from traditional serum users as well as emerging markets in China, India, South Korea and the Middle East continue to support the growth of serum. While China does not currently allow the import of US FBS, South Korea is a growing market for the product. Export statistics indicate that South Korea consumes around 20,000L of US fetal bovine serum annually. Our research indicates that the current anticipated global growth rate for fetal bovine serum is 5-7%.
Historically, the annual supply of US FBS was estimated to be well over 300,000L. Recent environmental factors in the United States, such as drought, along with consolidation of raw material suppliers and producers, have created supply constraints for serum. RMBIO currently estimates the supply of US FBS to be less than 200,000L for 2017 and 2018. While there are twenty or more established sellers of US FBS, less than half of these companies manufacture it directly and of those, we estimate the largest 3-4 currently control and process over 65% of the US supply.
Although this article is focused on fetal bovine serum from the US, it is important to note that FBS availability and pricing from other countries like Australia and New Zealand along with USDA approved countries in Central America, Mexico, and Canada impact the global serum market also. As an example, over the past several years, the price gap between US and Australia/New Zealand serum has widened considerably (see chart below). One impact we observed from this situation is that some historical consumers of Australian and New Zealand FBS have considered using other sources of FBS, including US serum and FBS alternatives. The recent price drop for Australian and New Zealand serum has slowed this momentum, but we do believe a lingering effect is that more customers seem interested in qualifying serum from numerous global regions. This diversification strategy provides companies flexibility to adjust their serum sourcing in the event that pricing and availability dictate.
Growing demand, coupled with a lower supply has resulted in a volatile market for US FBS and consequently, prices have increased over 300% in the past few years. RMBIO and our customers are subject to the pricing impacts of this commodity business. While this may make for a dream case study for economists, it has presented unique challenges to RMBIO, our customers, and the entire industry.
RMBIO's Three-Part Response
While we deem the current market “as-is” as unsustainable, we also are not bold enough to confidently predict the duration or eventual outcome of the current cycle. Rather than focusing on things that are beyond our control, we have reacted to these unprecedented times by focusing on three areas that we feel provide our customers options.
- The first and most logical approach is to further strengthen our relationships with raw serum producers and our customers. This approach of developing partnerships among RMBIO, our serum suppliers, and our customers provides a sustainable business model that is mutually beneficial to all parties. Using this approach, RMBIO has maintained supply agreements for 2016 with our key US FBS providers, which ensures our customers supply of FBS.
- Additionally, we have strengthened our supply of USDA approved, Central American and Mexican origin FBS. The primary advantages of USDA approved FBS include an added level of diversity in the supply chain and the opportunity to save 10-15% in cost vs. US FBS.
Lastly, we have invested resources to develop and source two primary FBS alternatives.
Fetalgro is our proprietary FBS alternative that uses calf serum as its base, while incorporating Lipogro and some other growth factors in to the serum. Utilizing calf serum reduces the concern of supply shortages and lowers the cost considerably. Cell growth studies have shown Fetalgro performs similarly and sometimes even better than FBS for many cell lines, including CHO.
As FBS prices started to escalate we prioritized sourcing the highest quality newborn calf serum we could find. The result is a newborn calf serum that falls within our FBS specifications for hemoglobin and endotoxin, while total protein ranges from 4.9 to 5.7, which is outside our FBS specification of <4.5. For many of our customers, the trade-off in total protein levels is more than offset by the cost advantages of newborn calf serum over FBS, and as a result, newborn calf serum has become a top seller for us in the past two years.
The Most Recent Trends
As an FBS industry, we understand that the cattle herd is beginning to rebuild from 60 year low levels. It is going to take awhile to get the market back in balance, thus we believe that any significant price relief on FBS will take some time to develop. While we hope and believe that the US FBS market is poised to steady during 2017, it still remains very dynamic. With so many factors weighing on the FBS supply and demand it is more of an art than a science to gauge the market sentiment and direction. We do our best to act as a liaison between our serum collectors and customers and are always happy to discuss what we are hearing and seeing on the FBS front. If you want to join in the conversation, or share what you know, please give us a call.