If You Build It, Will They Come? The Promise and Perils of Investing in Biomanufacturing Capacity

1
If You Build It, Will They Come?The Promise and
Perils of Investing in Biomanufacturing Capacity

• Thomas C. Ransohoff
• BioProcess Technology Consultants, Inc.
• 2nd Annual Sanford C. Bernstein Biosimilars
  Conference
• New York, NY
• November 19, 2009

2
Outline

• Biopharma Overview
• Molecules and Processes
• Facilities
• Worldwide Capacity Situation
• Growth and Distribution
• Utilization
• Trends
• Manufacturing Strategy Make v Buy
• Timeline and Cost for Construction
• Make v Buy Decisions

3
Biopharmaceutical Manufacturing Overview
4
Definition of Biopharmaceuticals

• Biologic Products are products that are made by
  or composed of viable organisms or biopolymer
  analogs
• Recombinant Proteins
• Monoclonal Antibodies
• Natural Hormones and Enzymes
• Synthetic Peptides and Oligonucleotides
• Antibiotics, Plant Animal Extracts, Allergens
• Vaccines
• Gene Therapy Products, Human Xenogenic Cells
  Tissues
• Blood Blood Derivatives, including polyclonal
  antibodies

5
Biopharmaceutical Blockbuster Products
There were 28 biopharmaceutical blockbuster
products in 2008 up from 27 in 2007 10
manufactured in microbial fermentation processes
9 18 manufactured in mammalian cell culture
processes 18 9 monoclonal antibodies/Fc
fusion proteins 9
6
Biopharmaceutical Industry Growth

• BPTC database covers 126 commercially marketed
  biopharmaceuticals as of 2009

7
General Scheme for Biopharmaceutical Bulk Drug
Substance Processes
Working Cell Bank
Intracellular (microbial fermentation)
Extracellular (microbial fermentation and
mammalian cell culture)
Bioreactor Conversion
Cell Harvesting
Cell Removal
Upstream Process
Cell Disruption/Refold
Isolation/Recovery
Isolation/Recovery
Downstream Process
Purification
Purification
Bulk Formulation
Bulk Formulation
8
20,000 L Fermentation Suite
Source Lonza Presentation, US Operations
Overview
9
Purification Large-Scale Chromatography
Source Lonza Presentation, US Operations
Overview
10
Plant investment decisions must be made long
before product approval
Timing of Plant Construction
Clinical Development Timeline (6-7 years)
Product Launch
Phase I (12 months)
Phase II (24 months)

• Safety

Phase III (24 months)

• Dose Finding
• First Efficacy

Filing Review (18 months)

• Pivotal Trials

Lead-Time for Building a Commercial Plant (4
years)
Design (12 months)
Construction (24 months)
Validation (12 months)
Source P. Seymour, IBC Bench to Clinic 2002
11
Mammalian Cell Culture Facility Costs
12
Industry-Wide Capacity Analysis
13
BPTC Approach to Biopharmaceutical Capacity and
Pipeline Analysis

• Bottom-up methodology
• Plant-by-plant estimation of capacity supply
• Product-by-product and dose-driven estimation of
  demand
• Market segmentation
• Focus on recombinant protein and monoclonal
  antibody products manufactured using
• Microbial fermentation
• Mammalian cell culture
• Commercially marketed products and product
  candidates in clinical development
• Probability weighting factors
• Accounting for multiple products targeting same
  indication
• Assumptions for probability of success and time
  to market
• Apply sensitivity analyses (i.e., Monte-Carlo) to
  quantify probability of predicted outcomes

14
The State of Mammalian Cell Culture Capacity

• Sufficient capacity worldwide to meet current
  annual production needs
• Adequate capacity forecast through 2013
• Increases in product titers and Operational
  Excellence initiatives improve productivity of
  existing capacity
• Probability of sufficient capacity through next
  decade is very high
• Relatively few new volume-drivers forecasted to
  be approved
• Growth of the existing commercial products slowing

15
Existing and Forecast Cell Culture Capacity

• Includes equivalent fed-batch capacity for
  companies using perfusion technology (1 L
  perfusion 5 L fed-batch)
• Product companies control 80 of installed
  capacity

16
Current and Projected Distribution of Capacity

• Top 10 companies control 80 of total worldwide
  capacity in 2009 decreasing slightly to 79 in
  2014
• By 2014, Merck KgA AstraZeneca/MedImmune (2014
  included in All Others) replaced by Celltrion
  BMS/Medarex (2009 capacity included in all
  others) in Top 10

A. Roche/Genentech B. Pfizer/Wyeth C. Amgen D.
Lonza E. Novartis/Sandoz F. Boehringer Ingelheim
G. Lilly/ImClone H. Biogen Idec I. Merck KgA
J. AstraZeneca/MedImmune K. Celltrion L.
Bristol-Myers Squibb/Medarex M. All Others
17
Distribution of Capacity Worldwide

• Figures include
• 96 Companies
• 21 Countries

NOTE Analysis does not include perfusion
capacity.

• Capacity expected to increase from 2.5 Million L
  in2008 to 4 Million L in 2013
• In 2008, 52 total installed capacity utilized
  growing to 73 by 2013

Source E. Reynolds, IBC BPI 2008
18
Manufacturing Capacity Demand Existing
Mammalian Commercial Products

• Mammalian cell culture demand
• Monoclonal antibodies/Fc fusion proteins dominate
  mammalian cell culture demand for bulk product on
  a kg/yr basis
• Growth of existing commercial products remains a
  driver for capacity demand growth

19
Pipeline Weighted Towards MAb Products

• Monoclonal antibodies represent the fastest
  growing segment of the pharmaceutical industry
• 85 90 of the mammalian cell culture product
  pipeline
• Approximately 65 of all biopharmaceutical
  products in development are produced in mammalian
  cell culture

20
Do We Need 10 Ton Capacity?

• Demand for all existing commercial products will
  approximately double from the current 5.8 metric
  tons to approximately 11.8 metric tons by 2013
• Current annual product requirements for each of
  the top five monoclonal antibody products is 800
  1,200 Kg each
• At 5 g/L titer a single large six pack facility
  can make 10 tons of monoclonal antibody (Kelley,
  2009)
• Demand for products currently in development will
  increase the future demand for cell culture
  manufacturing capacity
• The anticipated demand for virtually all products
  currently in development is expected to be less
  than 5 metric tons per year

Kelley B, Industrialization of MAb Production
Technologies, MAbs 15, Sep/Oct 2009
21
Trends That Will Impact Future Capacity
Utilization

• Fewer blockbuster drugs with greater focus on
  smaller markets and niche products
• Less difference in scale between pilot and
  commercial facilities
• Use of multipurpose plants potential for
  continuous production
• Mergers and acquisitions, resulting in
• Volume driver product candidates moving to
  product companies with significant capacity -gt
  free up CMO capacity
• Redundant facilities in larger organizations (the
  rich get richer)

22
Trends That Will Impact Future Capacity
Utilization

• Product company strategic initiatives to offer
  existing captive capacity on the CMO market
• Continued improvement in throughput and
  utilization of existing facilities, driven by
• Continuing increases in process yields
• Continuous improvement initiatives, enabled by
  QbD and other regulatory trends
• Increased availability and use of
  disposable/single-use technologies

23
Driving Forces for Single-Use Technologies

• Improved return on capital
• Reduced and deferred capital investment
• Increased speed of deployment
• Process control and portability
• Process and product flexibility
• Improved ability to manage and implement change

24
The Biopharmaceutical Facility of the Future

• Facility design will incorporate high titer (gt10
  g/L) processes
• Facilities of the future will require greater DSP
  space and capabilities to better handle the high
  titer bioreactor output
• Ratio of bioreactor space to DSP space will
  decrease
• Use of disposable technologies can reduce capital
  investment by over 50 and operating costs of
  manufacturing facilities (Roebers, 2009)
• Smaller bioreactors will produce similar
  quantities to todays larger bioreactors
• Smaller facility requirements may enable smaller
  companies to construct and manage their own
  facilities more cost effectively

Roebers J, Future trends in biopharmaceutical
operations and facilities, presented at BPI
2009, Raleigh NC
25
The Biopharmaceutical Facility of the Future

• Plant has 6 x 2,000 L bioreactors (possibly
  single use bioreactors)
• 12 day fed-batch CHO culture for MAb Production
• 2,000 L volume, 10 g/L 20 Kg MAb in harvest
• 80 purification yield 16 Kg per batch
• Harvest every 4 days
• 85 harvests/year (340 days) 1,360 Kg/year
• Capital investment lt 100M
• Overall COGS lt 70 per gram

26
Cost-Capacity Chart Selected Biologics
r20.96
Log-log linear relationship between 2007 price
and volume requirements
27
Manufacturing StrategyMake v. Buy Decisions
28

• Managing Risk

Timeline Risk
Manufacturing Capacity
Product Success/Failure
The essence of risk management lies in
maximizing the areas where we have some control
over the outcome while minimizing the areas where
we have absolutely no control over the
outcome - Bernstein, PL, Against the Gods The
Remarkable Story of Risk, 1998

• Risk management tactics
• Estimate the range of probable outcomes not just
  the base case
• Develop an organization that can manage change
• Utilize options (back-up strategies)
• Understand the cost of being wrong
• Evaluate parallel paths

29
Developing a Manufacturing Strategy
We will not get this perfectly right - Art
Levinson, Genentech, SF Chronicle 12/21/03
Whats the cost of being wrong?

• Inadequate Capacity
• Cost of Lost Sales
• Estimated loss of operating profit (50
  shortage) gtgt10 M/mon
• Does not include other costs (reputation,
  competition, etc.)

• Excess Capacity
• Carrying Cost of Facility and Organization
• Estimated carrying cost of a facility operating
  at 50 capacity ltlt10 M/mon

? Estimating the range of probable outcomes is
important
See also Mallik, A. et al, The McKinsey
Quarterly, 2002 Special Edition Risk Resilience
30
Make vs. Buy Decision (Risk minimization)

Make
Make or Buy

• Primary Driver
• Maximizing Control
• Make strategy during highest risk period to
  maximize control of supply
• Buy strategy may make sense once product
  lifecycle stabilizes, risk decreases, and control
  less important

Product Launch

Manufacturing costs set at decision point



RISK









Development Uncertainty
Market Uncertainty
Maturity
















Product Life Cycle

• Example Genentech outsourced Rituxan to prepare
  for Avastin approval
• Easier to transfer mature process
• Minimize impact of know-how leaks
• Retain control of less mature processes

31
Make vs. Buy Decision (Capital conservation)

Buy
Buy or Make

• Primary Driver
• Conserving Capital
• Buy strategy during highest risk period to
  conserve capital
• Make strategy may be attractive once product
  lifecycle stabilizes, capital becomes more
  available, and risk reduced

Product Launch

Manufacturing costs set at decision point



RISK






Development Uncertainty

Market Uncertainty


Maturity













Product Life Cycle

• Example Imclone outsourced through clinical
  supply and launch then switched to in-house
  production
• Outsourcing minimizes capatial expense during
  risky development phase
• Following successful product launch capital is
  more available to build its own facility and
  reduce operating costs

32
An Emerging Alternative Acquiring Existing
Capacity

• As the biopharmaceutical industry matures, older
  manufacturing facilities may become available for
  acquisition.
• Advantages rapid and reduced capital access to
  needed capacity
• Disadvantages need for renovation likely
  facility not optimized for requirement often
  available in most expensive locations
• Examples
• Genentech acquisition of NIMO from Biogen Idec
• Alexion acquisition of Dow facility in Rhode
  Island
• Centocor acquires plant from Wyeth
• Plant history Invitron ? Centocor ? Chiron ?
  Wyeth ? Centocor
• Lonza acquires Porrino plant from Genentech
• Plant history Glaxo Wellcome ? Genentech ? Lonza
• Merck acquires Insmed facility in Boulder
  Colorado
• Plant history Somatogen ? Baxter ? Insmed ? Merck

33
Conclusions

• Capacity likely to be available industry-wide,
  but
• Closely held
• Geographical distribution shifting
• Product and process innovations resulting in
  higher yields per batch and lower demand for
  bioreactor capacity implies
• Investments in manufacturing facilities will
  continue to slow
• Disposable/single-use technologies possible for
  some commercial supply
• Significant price reductions possible with
  biosimilar products
• Make v buy decisions becoming more complex
• Acquisition is increasingly an option for
  capacity
• Regulatory, market and technical uncertainties -gt
  poor ability to forecast biopharma capacity
  requirements accurately
• Risk assessment is critical

34
Thank you!

• BioProcess Technology Consultants, Inc.
• 289 Great Road, Suite 303
• Acton, MA 01720
• 978.266.9154 (phone)
• 978.266.9152 (fax)
• transohoff_at_bioprocessconsultants.com
• www.bioprocessconsultants.com