Outsource or Inhouse

1
Outsource or In-house?

• Options for the production of development APIs
  and Drug Products.
• Peter Lutwyche, Ph.D.
• Director,
• Pharmaceutical Development

2
Scope

• Comparison of relative merits of contract
  manufacturing vs in-house manufacturing for
  development products presented as a case history
  of QLT
• Decisions Made
• Business Pressures
• Lessons Learned
• Future Plans

3
QLT

• Founded in 1981
• Became the world leader in Photodynamic Therapy
  (PDT)
• 1995 Photofrin Lung Cancer, Barretts Esophagus
• 1996 headcount 50 revenue 14MM
• 2000 Visudyne Age-Related Macular Degeneration
• 2000 headcount 200 revenue 49MM
• 2004 Acquisition of Kinetek (ILKs), Atrix
  (Eligard)
• 2005 headcount gt500 revenue 242MM
• 2006 Divestment, Re-focus on Ocular and Derm
• 2006 headcount 230 revenue 175MM

4
Business Models for Manufacturing of Development
Products

• 1st Phase Virtual Company
• Outsource drug development, GMP clinical
  manufacturing, Analytical
• 2nd Phase Scientific Control
• Continue to outsource GMP Manufacturing
• Bring Formulation, Process Dev. Analytical,
  Stability, QC In house
• Partner with CMOs with regard to problem
  solving, issues etc
• 3rd Phase Fully Integrated
• All drug development activities performed
  in-house
• 4th Phase As required
• Competitive bidding between in-house and CMOs
  combined with strategic analysis

5
1st Phase Virtual Company

• Statement Outsource everything!
• Advantages
• Low internal overhead
• Access to experience and specialized facilities
  as required
• Disadvantages
• Contractors know more about your product than you
  do
• Can get stuck in a non-ideal relationship
  (tech-transfer barrier)
• Normal development issues can be very expensive
  to solve
• Your (only!) product is always competing for
  resources
• Reduce IP opportunities

6
2nd Phase Scientific Control

• Statement Its Our Product!
• Advantages
• Ownership, IP, empowerment
• Increased flexibility with tech. transfer
• Possibility of cost savings through efficiencies,
  detailed knowledge
• Still leaves manufacturing overhead with CMO,
  where it is shared
• Disadvantages
• Significantly increased internal overhead
  (management and technical)
• Although increased flexibility, scheduling still
  can be poor
• Product is still competing for attention

7
3rd Phase Fully Integrated

• Statement We do it all!
• Advantages
• Total Ownership
• Increased flexibility (not total)
• Disadvantages
• High Internal Overhead (management, technical,
  compliance)
• Capital investment
• Need vast internal experience

8
QLTs experience

• In 2005, built a state-of-the-art aseptic
  (isolator-based) Pilot Manufacturing Facility
• Rationale
• Integrate a portion of Visudyne supply chain
• Prepare for Phase III supplies of aseptic
  products
• Prepare for in-license products

9
PMF

• Construction, commissioning and validation took
  2yr
• Cost 10MM
• Labour 20 FTE/year
• Not as straightforward as hoped
• Inexperience led to delays, batch failures
• Many, many discussions on the appropriate quality
  standards
• Development staff distracted
• Compare to well-established CMO
• BUT project completed, facility opened

10
Concurrently.

• In 2005, Macugen launched for AMD
• In 2006, Lucentis launched for AMD
• Led to Visudyne sales decline
• QLT pipeline falteredPhase II and Phase III
  trials failed
• Hence
• Cost-cutting and down-sizing

11
Inevitably

• A new question was asked
• What is critical to QLTs sustained business
  model?
• An aseptic manufacturing facility with a 2MM
  annual overhead, when no aseptic products are in
  pipeline?
• NO!

12
Lessons learned (the hard way)

• Biotech is a risky business, therefore
• Define business model Developing new drugs!
• Stick to activities critical to sustainability of
  business model (building pipeline)
• Remain cognisant of market forces
• Build on certainty, or change business model
  CMO?
• If necessary, waitthere are contract resources
  available, use them
• All of the infrastructure in the world will not
  save a Biotech with no pipeline

13
4th Phase As required

• Question What makes sense?
• Small molecule APIs.
• Early stage, small (kg) quantities, clear
  guidance on clinical supply (ICH Q7A), low GMP
  overhead (material control,lock on door, batch
  record)
• In-house advantage lab chemists perform early
  GMP batches no tech transfer of complex
  multi-stage processes and analytical controls,
  the experts stay involved move quickly

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4th Phase As required

• Small molecule APIs.
• Contract out post clinical PoC or when
  solvent/reaction volumes get too large, or when
  internal resources saturated
• But ALWAYS perform competitive bid with CMOs,
  factoring in internal indirect costs there will
  be occasions when CMOs will win over in-house
  even pre PoC.
• At QLT now 1 API being manufactured in-house
  for PhI/II
• 2 APIs contracted to CMO

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4th Phase As required

• Topicals and Orals
• Controlled not classified rooms, minimal
  monitoring, simple equipment
• Formulation scientists make the initial batches
• Early stage small batch sizes move quickly
• Currently using PMF for both topicals and orals
  in PhI/II, and utilizing the isolator technology
  to provide inert compounding atmosphere for
  sensitive compounds

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4th Phase As required

• Aseptic Products
• High fixed overhead (micro, QC, cleaning, etc)
• Expensive, specialized rooms and equipment
• High compliance bar
• Likely only makes sense to do in-house if
  multiple products involved AND the organization
  can run more efficiently than a specialized
  contractor
• Still, work out the numbers
• QLT has a sterile product in clinical
  development, and will be undertaking this
  exercise shortly

17
4th Phase As required

• When to implement? After all, QLT already has
  choice.
• As early as startup if the products fit. Dont
  need a huge investment for early stage small
  molecules, topicals and orals.
• Extend philosophy to commercial too.

18
Summary

• Current QLT Outsource policy for development APIs
  and Drug Products is
• View each case individually
• Be aware of all resources required and available
• Be rigorous and objective in analysis

19
Acknowledgements

• Ideas arose from discussions with QLT employees
• Alun Rees
• Darren Gray
• Deepank Utkhede

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