If You Build It Will They Come The

If You Build It, Will They Come? The Promise and Perils of Investing in Biomanufacturing Capacity Thomas C. Ransohoff Bio. Process Technology Consultants, Inc. 2 nd Annual Sanford C. Bernstein Biosimilars Conference New York, NY November 19, 2009

Outline Ø Biopharma Overview • Molecules and Processes • Facilities Ø Worldwide Capacity Situation • Growth and Distribution • Utilization • Trends Ø Manufacturing Strategy – Make v Buy • Timeline and Cost for Construction • Make v Buy Decisions From Clone to Commercial®

Biopharmaceutical Manufacturing Overview

Definition of Biopharmaceuticals Ø 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 From Clone to Commercial®

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] From Clone to Commercial®

Biopharmaceutical Industry Growth Ø BPTC database covers 126 commercially marketed biopharmaceuticals as of 2009 From Clone to Commercial®

General Scheme for Biopharmaceutical Bulk Drug Substance Processes Working Cell Bank Intracellular (microbial fermentation) Bioreactor Conversion “Upstream” Process Cell Harvesting Extracellular (microbial fermentation and mammalian cell culture) Cell Removal Cell Disruption/Refold Isolation/Recovery “Downstream” Process Isolation/Recovery Purification Bulk Formulation From Clone to Commercial® Bulk Formulation

20, 000 L Fermentation Suite From Clone to Commercial® Source: Lonza Presentation, “US Operations Overview”

Purification – Large-Scale Chromatography From Clone to Commercial® Source: Lonza Presentation, “US Operations Overview”

Timing of Plant Construction Clinical Development Timeline (6 -7 years) Phase I (12 months) • Safety Product Launch Phase II (24 months) • Dose Finding • First Efficacy Phase III (24 months) • Pivotal Trials Plant investment decisions must be made long before product approval Lead-Time for Building a Commercial Plant (~4 years) Design (12 months) Source: P. Seymour, IBC Bench to Clinic 2002 From Clone to Commercial® Filing & Review (18 months) Construction (24 months) Validation (12 months)

Mammalian Cell Culture Facility Costs From Clone to Commercial®

Industry-Wide Capacity Analysis

BPTC Approach to Biopharmaceutical Capacity and Pipeline Analysis Ø Bottom-up methodology • Plant-by-plant estimation of capacity “supply” • Product-by-product and dose-driven estimation of “demand” Ø 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 Ø Probability weighting factors • Accounting for multiple products targeting same indication • Assumptions for probability of success and time to market Ø Apply sensitivity analyses (i. e. , Monte-Carlo) to quantify probability of predicted outcomes From Clone to Commercial®

The State of Mammalian Cell Culture Capacity Ø Sufficient capacity worldwide to meet current annual production needs Ø Adequate capacity forecast through 2013 • Increases in product titers and Operational Excellence initiatives improve productivity of existing capacity Ø Probability of sufficient capacity Bio. Process Technology Consultants report, December 2008 From Clone to Commercial® through next decade is very high • Relatively few new “volume-drivers” forecasted to be approved • Growth of the existing commercial products slowing

Existing and Forecast Cell Culture Capacity Ø Includes equivalent fed-batch capacity for companies using perfusion technology (1 L perfusion ≈ 5 L fed-batch) Ø Product companies control ~80% of installed capacity From Clone to Commercial®

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 Kg. A & Astra. Zeneca/Med. Immune (2014 included in “All Others”) replaced by Celltrion & BMS/Medarex (2009 capacity included in “all others”) in Top 10 A. Roche/Genentech E. Novartis/Sandoz H. Biogen Idec K. Celltrion From Clone to Commercial® B. Pfizer/Wyeth C. Amgen D. Lonza F. Boehringer Ingelheim G. Lilly/Im. Clone I. Merck Kg. A J. Astra. Zeneca/Med. Immune L. Bristol-Myers Squibb/Medarex M. All Others

Distribution of Capacity Worldwide Figures include • 96 Companies • 21 Countries NOTE: Analysis does not include perfusion capacity. Ø Capacity expected to increase from ~2. 5 Million L in 2008 to ~4 Million L in 2013 Ø In 2008, ~52% total installed capacity utilized; growing to ~73% by 2013 From Clone to Commercial® Source: E. Reynolds, IBC BPI 2008

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 From Clone to Commercial

Pipeline Weighted Towards MAb Products Monoclonal antibodies represent the fastest growing segment of the pharmaceutical industry Ø 85 – 90% of the mammalian cell culture product pipeline Ø Approximately 65% of all biopharmaceutical products in development are produced in mammalian cell culture From Clone to Commercial®

Do We Need 10 Ton Capacity? Ø 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 Ø At 5 g/L titer a single large “six pack” facility can make 10 tons of monoclonal antibody (Kelley, 2009) Ø Demand for products currently in development will increase the future demand for cell culture manufacturing capacity Ø 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 1: 5, Sep/Oct 2009 From Clone to Commercial®

Trends That Will Impact Future Capacity Utilization Ø 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 Ø Mergers and acquisitions, resulting in: • “Volume driver” product candidates moving to product companies with significant capacity -> free up CMO capacity • Redundant facilities in larger organizations (the rich get richer) From Clone to Commercial®

Trends That Will Impact Future Capacity Utilization Ø Product company strategic initiatives to offer existing captive capacity on the CMO market Ø Continued improvement in throughput and utilization of existing facilities, driven by: • Continuing increases in process yields • “Continuous improvement” initiatives, enabled by Qb. D and other regulatory trends Ø Increased availability and use of disposable/single-use technologies From Clone to Commercial®

Driving Forces for Single-Use Technologies Ø Improved return on capital • Reduced and deferred capital investment • Increased speed of deployment Ø Process control and portability Ø Process and product flexibility Ø Improved ability to manage and implement change From Clone to Commercial®

The Biopharmaceutical Facility of the Future Ø Facility design will incorporate high titer (>10 g/L) processes Ø 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 Ø Use of disposable technologies can reduce capital investment by over 50% and operating costs of manufacturing facilities (Roebers, 2009) Ø Smaller bioreactors will produce similar quantities to today’s larger bioreactors Ø 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 From Clone to Commercial®

The Biopharmaceutical Facility of the Future Ø Plant has 6 x 2, 000 L bioreactors (possibly single use bioreactors) Ø 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 Ø Harvest every 4 days • 85 harvests/year (340 days) = 1, 360 Kg/year Ø Capital investment < $100 M Ø Overall COGS < $70 per gram From Clone to Commercial®

Cost-Capacity Chart: Selected Biologics r 2=0. 96 Log-log linear relationship between 2007 price and volume requirements From Clone to Commercial®

Manufacturing Strategy: Make v. Buy Decisions

Managing Risk “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 Ø Estimate the range of probable outcomes; not just the “base” case Ø Develop an organization that can manage change Ø Utilize options (back-up strategies) Ø Understand the cost of being wrong Ø Evaluate parallel paths From Clone to Commercial®

Developing a Manufacturing Strategy “We will not get this perfectly right” - Art Levinson, Genentech, SF Chronicle 12/21/03 What’s the cost of being wrong? Excess Capacity Ø Carrying Cost of Facility and Organization: • Estimated carrying cost of a facility operating at 50% capacity: <<$10 M/mon Inadequate Capacity Ø Cost of Lost Sales • Estimated loss of operating profit (50% shortage): >>$10 M/mon • Does not include other costs (reputation, competition, etc. ) Estimating the range of probable outcomes is important See also: Mallik, A. et al, The Mc. Kinsey Quarterly, 2002 Special Edition: Risk & Resilience From Clone to Commercial®

Make vs. Buy Decision (Risk minimization) Make Primary Driver: Maximizing Control Make or Buy Product Launch Ø “Make” strategy during highest risk period to maximize control of supply Manufacturing costs set at decision point RISK Ø “Buy” strategy make sense once product lifecycle Development Market Maturity stabilizes, risk Uncertainty decreases, and control Product Life Cycle less important outsourced Rituxan to prepare for Avastin approval Example: Genentech • Easier to transfer mature process • Minimize impact of “know-how leaks” • Retain control of less mature processes From Clone to Commercial®

Make vs. Buy Decision (Capital conservation) Buy or Make Primary Driver: Conserving Capital Product Launch Ø “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 Manufacturing costs set at decision point RISK Ø Development Uncertainty Market Uncertainty Maturity Product Life Cycle Example: Imclone outsourced through clinical supply and launch then switched to inhouse 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 From Clone to Commercial®

An Emerging Alternative: Acquiring Existing Capacity Ø 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 Ø 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 From Clone to Commercial®

Conclusions Ø Capacity likely to be available industry-wide, but: • Closely held • Geographical distribution shifting Ø 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 Ø Significant price reductions possible with biosimilar products Ø Make v buy decisions becoming more complex • Acquisition is increasingly an option for capacity • Regulatory, market and technical uncertainties -> poor ability to forecast biopharma capacity requirements accurately • Risk assessment is critical From Clone to Commercial®

Thank you! Bio. Process Technology Consultants, Inc. 289 Great Road, Suite 303 Acton, MA 01720 978. 266. 9154 (phone) 978. 266. 9152 (fax) transohoff@bioprocessconsultants. com www. bioprocessconsultants. com From Clone to Commercial®