Business of Contract Manufacturing 101 Saving Time & Money – Now & in the Future by Optimizing CMO / Sponsor Re

1. Business of Contract Manufacturing 101 Saving Time & Money – Now & in the Future by Optimizing CMO / Sponsor Relationships IQPC 7th Contract Manufacturing for Pharmaceuticals November 27, 2007 Paul Woitach Managing Partner Pharmaceutical Advisors LLC 316 Wall Street, 2nd Floor Princeton, NJ 08540 609-688-1330 pwoitach@pharmadvisors.com

2. Approach and Format • Provide a Toolkit Framework • Phase / Stage appropriate considerations • Consider Inputs & Outputs • Templates / checklists • Socratic Approach • The key questions to help you know what you don’t know • Every case is different – knowing the questions can be more helpful that generic answers • Business Perspective • Highly technical issues but…these are business decisions! • Follow-Up & Feedback • Customize discussion for your issues • Follow-Up Debrief

3. Contributing Advisors • From Our Advisors Development & Commercialization Team • James Behling • Chemical Development, Searle • Thomas Crawford, PhD • Chemical Development, Pfizer, Pharm Dev, Millennium • Suggy Chrai, PhD • Formulation, Drug Product, BMS, Liposome Co, Mova • David Dresback, PhD • Pharm Sciences, Pfizer • Gary Elliott, PhD • Product Development, Salmedix • Kent Iverson • Biologics Development & Mfg, Coulter, Corixa, Immunex, Genentech • Dennis Johnson • Quality, Eli Lilly • John McEntire, PhD • Analytical & Operations, Bioreliance

4. How Was This Developed • Small & Large Company Sponsor perspectives • Sourcing, Manufacturing Strategy & Vendor Management projects • CMOs & CROs Perspective • Operational, Commercial and Technical improvement • Individual white papers • Client projects • Years of experience and leadership

5. Advisors Functional Focus Integrating Research, Development, Engineering and Commercialization Expertise Practical Quality Systems & Regulatory Portfolio Decisions, Due Diligence & Valuation Rapid, Interactive Expert Panels Integrated Development View Linking Regulatory, CMC, Tox, Clinical Operational Input to Capital Plans Resolve Issues Build Skills Chemistry, Formulation Drug Delivery Safety & Efficacy ADME Scale-up & Sourcing Decisions Supporting Development, Operations, Strategy and Portfolio Management

6. Program Outline Build-in Risk Management and Efficiency • Ensuring you have an Outsourcing Strategy • Link to overall strategy and internal resource considerations • Understanding Yourself and Your Requirements • Critical considerations often missed during early development • Project-Specific Clinical, Safety & Other requirements • RFPs & Contracting • Approaches to reduce your costs and maximize your leverage • Risk Mitigation to Avoid delays & Cost and enable speed and success • Tips & Best Practices

7. What Makes This Challenging? • You need to get it right the first time • Potential for manufacturer’s leverage • High “switching costs” • Very different than working with a captive facility • Less timing flexibility as captive facilities allow setting internal priorities as desired whether fully utilized or underutilized • CMO’s focus on capacity as selling time in a schedule • CMO’s less able to accommodate schedule changes • The CMO’s revenues are the client’s expenses • Increased cost associated with changes to plan • Scope change may create overtime hours and/or premium/penalty pricing • Potential mis-aligned incentives / conflicts of interest: • CMO’s benefit if a questionable lot is released • CMO’s may not suffer if a program fails in the clinic • Some CMO’s and/or their other clients may be competitors to the sponsor • Competition with respect to Intellectual Property and/or control of information • Dual-focus CMO’s may exit the contract manufacturing business if their own drug development programs are successful • Allure of the trap of believing that there is a" Partnership” • A CMO or CRO relationship is not a “partnership” • Risk and reward to each of the parties is not usually proportional • Risk / Reward are not necessarily triggered by the same events

8. Framework for Proactively Managing Outsourcing Risk & Timelines

9. Relationship & Project Management Company Needs Program Requirements Long list of candidates Kick-off & Tech Transfer Resources Project Requirements Short list Proactive Management Leverage and Alignment Timing Internal issues Finalists and selected CMO Structured Process for Success Strategic Context Integrated Development Plans Sourcing & Selection Process Boundaries Clinical & Safety Requirements & Vendor ID Investment Strategy Action Plan & Key Indicators of Success Drug Substance & Drug Product Screening RFP & Selection Strategic Skills Regulatory and other Negotiation Contracting & Scope Approval & Regulatory

10. So What Does This Have to Do With Strategy? Remember - Output is More than Material ! • CMC Outsourcing delivers • Material • Technology • Registration Enabling Information • Make sure that you consider • What you should do now • What you can do now • What you do not want to do now Unfortunately, most companies enter contract manufacturing relationships without being able to consider and plan for all that’s needed

11. Best Outsourcing Programs Consider Current and Future Technical Requirements Examples of Technical Considerations • Final Form • Interim and preferred synthesis technology • Interim and preferred drug product formulation • Anticipated synthetic or formulation changes • Changes to purity profile, how to qualify new impurities depending on stage of development  • How API salt or particle size or formulation can change bioavailability & how to address in clinics • Process Development & Optimization needs • Trade off between speed and process learning • How and when to achieve reproducibility of bulk form & quality • Speed and process learning and technical risks vs. new/improved technology • Need for Demonstration of manufacturing including robustness & scalability • Analytical Technology • Raws, Intermediates and in process controls, Methods for DS and DP • Process safety & reaction engineering • Preferred Salt, polymorph, solvate – what & when • cGMP needs & timing • Clinical and safety demands, GLP requirements and GMP material needs • Dosage form development demands • Documents and information needed – Regulatory & Tech Transfer • Sourcing strategies & ability to manage distance • Vendor management & staffing Need a Strategic Context !

12. Ensuring an Appropriate Outsourcing Strategy Context – Link to overall strategy and internal resource considerations

13. Strategic Context

14. Corporate RequirementsWhy You Need Internal Clarity Early How Strategy choices influence your flexibility • Company and Program Requirements • Boundaries for choices • What to outsource impacts types of Vendors • Strategic skills and activities to not outsource influences types of Vendors and Scope of activities • When to build internal capability influences the types of Vendors, skills you need and knowledge transfer needed • Senior Management Commitment and Involvement • Links to development plans & priorities affects the Workscope • Realistic expectations & lead-times affects all outsourcing choices AND cost • Cash burn constraints affects choices and timing • Program and Project Requirements • When to outsource • Impact on development plan re: trade-offs cost & time • Impact on cash burn • How to manage it • Skills needed to effectively outsource >>>Resources cost & time • Level of resources needed >>>Resources cost & time • Risk investments • Investments in non-clinical activities that must be made before a key decision point is reached. These are required to keep program in continuous development mode.

15. Program & Project Inputs to Consider • Development Strategy • Approval Strategy • Investment Strategy • Development Plan beyond IND • Technological Difficulty • Unique technology needs • Is it possible to leverage common vendors

16. Broader Program or Considerations

17. Development Strategy Alternatives-Different Approaches to Managing Risk

18. Outsourcing Implications of Development Strategy Alternatives

19. Outsourcing Implications of Approval Strategy Alternatives

20. Outsourcing Implications of Investment Strategy Alternatives

21. Outsourcing Implications of Development Plan Alternatives

22. Outsourcing Implications of the Level of Technology Difficulty

23. Outsourcing Implications of Unique Technology Needs

24. Leverage with Vendors

25. Need for Integration Across Functions Current Trials Future Trials Process Safety & Crystallization Analysis Control of Impurities Scalable Process Pre-Formulation Outcome & Resultant Risks Vendor Selection / Location Development of dosage form Risk of need for Bridging studies Outcome to Enable Clinical Studies QA System & SOPs Baseline System to Manage CMOs Data Package For filings Time

26. Often Not Considered Until Too Late… Don’t Forget - Integration of DS & DP plans • DP can not be finalized if DS form is not finalized • DS form can not be finalized until DP requirements are understood Timing for finalization of DS form and final DP must be linked and planned backwards • Goal would be to have final DS form and DP formulation for use in all phase 3 studies but variations to this will be fact-driven • If DP vendor is conducting salt selection work, DS vendor then depends on DP vendor to begin production! Critical but often ignored because of the serial nature of the need for each in the clinic

27. Integration of DS & DP Plans • Early • Analytical methods & Characterization, Management of Impurities • Physical Chemical characterization as well as Analytical characterization • Salt Selection • Pre-Formulation • Chemistry supply to support Drug Product development • Avoid delay because DS or DP vendor has to wait for the other • Will raws be available to make what you need when you need it • Can be a bigger issue than commonly appreciated • Understanding and fixing Bioavability issues early • DP Timeline • Impact on Quantity of API needed • Avoids need for bridging clinical trials/PK/tox • Later • Feedback between DS & DP Development • Avoid scope changes & unrealistic demand to make up for lost time • Delays, Erosion of vendor relationship • Timing of Polymorph studies vs. risk • Will raws be available to make what you need when you need it Don’t Rely on Vendors to Integrate For You

28. But…The Reality • In a fast-moving and lean company, many of these issues can be beyond planning scope • Outsourcing challenges are typically under-estimated in clinical stage companies • Clinical progress drives the company anyway • Lack of experience • Assumption that it’s easy • Perception that it usually works out in the end • All of these issues must be within planning scope but smaller companies do not typically have all of the skills or experience internal to their organization, nor should they!

29. Symptoms of the Planning Problem Dangerous Assumptions We Hear… • “We don’t need to think about that because we’re going to license out in Phase II…” • “Our licensing partner will worry about that…” • “Let’s just get GMP material for everything…” • “We’re going to use GLP material…” • “We’ll get a consultant to write the CMC section when the time comes…” • “We’re starting to work on our Quality Manual…” • “It’s too early to be thinking about a Quality Agreement – it’s just development work…”

30. Nomination PhI PhII PhIII NDA/MAA Approval Senior Management View of the Timeline Preclinical Phase I License? Phase II Phase II Phase III Launch API Drug Product DP Activities API Activities

31. Launch Planning RM API DP PAIn Planning RM API DP DP Stability ICH DP Stability Planning RM API DP ICH Stability The View You Will See Nomination PhI PhII PhIII NDA/MAA Approval Evolving API Demand & Drug Product API/DP Launch Enabling Technology & Supply Manufacturer API/DP Technology/Supplies RM API DP PhIII Supplies DP Technology API Technology API Activities Raw Materials Demand Enabling DP Activities

32. It Pays to Engage Senior Management Ensure Clarity on • Boundaries for choices • What to outsource • Strategic skills and activities to not outsource • When to build internal capability • Senior Management Commitment and Involvement • Links to development plans & priorities • Realistic expectations & lead-times • Cash burn constraints • When to outsource • Impact on development plan • Impact on cash burn • How to manage it • Skills needed to effectively outsource • Level of resources needed

33. Understanding Your RequirementsA Key to Managing Risk Critical considerations often missed during early development

34. Requirements - The Good News • If you’ve done the work in the previous section well, defining Technical requirements should be easy • But don’t forget to consider some of the execution requirements essential to success…

35. In Addition to the Technical Output… • Define • Processes you need • What decisions to make and when • Data you will need • To make decisions before outsourcing • To acquire as an output of outsourced activity • Timelines • Your timeline • Related timelines • Ways to ensure and incorporate innovation • Internally • Within the vendor

36. Remember - Output is More than Material • CMC delivers • Material • Technology • Registration Enabling Information • Make sure that you consider • What you should do now • What you can do now • What you do not want to do now

37. Early Definition of Info Needs • Remember, you are buying chemistry, product AND information • Don’t lose site of info needed for PAI, Technology Transfers, Registration • Know what information you need to build on your process and when • Establish a documentation system for all contractors • Specify what you want and how you want it documented • Beyond just batch tickets • Development reports with raw data archiving • Helps you plan whether the resources will be available to get all the analytical work done that you will need • Enable building a Development Report as you go to avoid going back • Demonstrate professionalism and competence to contractors and your regulatory team Lower Costs and Avoid Rework / Wasted Effort

38. Process Data & Understanding • Affects ability to manage in an outsourced environment • Enables informed decisions on key trade-offs • Speed of Phase I supply required • Costlier, slower scale-up & process development • Early investment in analytics & technology is possible • Slower initial supply • Do you know enough to bet on doing all DP work under GMP or should you be doing some work with non-GMP material? • Requires Technology info, Supply & Demand info • Scale and Quantity definition for your vendor so they can help you • When to seek multiple runs at given scale • When to race to scale-up • How to apply simulation technologies • How to determine ROI • Inputs needed to make these decisions • Do you know when you need to lock the process for ICH? (ICH stability studies are registration enabling stability studies done for defined times at specified conditions) • Failure Mode & Effects Analysis (FMEA) • Ability to learn from failures • Analytical needs, timing, resource consumption All affect vendor selection, vendor ability to deliver and the robustness of your process and data package

39. Development Reports • Consider as a deliverable, a requirement for the contractor to deliver detailed development, analytical, and production report • What was tried, results, and evolution of the procedure, linked to notebook records and preliminary reports.  • You then have a good record of what works and doesn't work • How the synthesis and analytical procedures evolved into a manufacturing process and quality control test methods.

40. RFPs & Contracting Approaches to reduce your costs and maximize your leverage

41. Sourcing & Selection Process

42. Begin to Identify Vendors • Create Long List • Capabilities • Capacity • Location • Reputation • Information Resources • Sourcing Consultants • Trade-Shows & Conferences • AAPS, Informex, Interphex, Chemspec, CPhI, Contract Pharma, IQPC, etc.

43. Build a “Living” List of Preferred Vendors • Document and refresh findings on candidates as you generate long lists and screen down to short lists • Lack of fit today may not apply to the next project • Reduce search time later • Decide what you will share and what stays internal • Compile for various functions i.e. DS & DP etc. • This knowledge often “walks out the door” when employees or key consultants move on

44. Summary of Initial Critical Screening • The initial screening of candidates is largely document review and telephone interview • Limited travel and time investment if you have good access to prospects • The more detailed screening involves travel and much more time • Contract negotiations should be with no less than two candidates in parallel until a contract has been executed with the selected vendor • Maintain both leverage and a contingency option • Ideally a general business agreement (master service agreement in place with 1-3 CMOs for each discipline that allow more rapid initiation of projects if there is enough work for this type of strategy. • Be certain to plan appropriate lead-time for contract negotiation, as this activity can take several months or more

45. Construct The RFP • Workscope • Requirements • Terms & Conditions • Quality Agreement

46. Keep in Mind The Other Side of the Desk • Vendors Need • To understand required scope • Size of project and resource utilization • To understand their risk • Taking on a project with more scope that visible • Appropriate level of “hand holding” • Impediments to meeting timeline • Fit with their skills and schedule • “Ifs” and “thens” are needed in their proposed scope, if they are uncomfortable with the perceived risk • Where go-no-go steps help them manage risk • Transparency / Ability to put project in overall program context • Vendor does not need to know the therapeutic target or precisely the development timeline but some knowledge is helpful • Gives insight to the vendor to help them help you Cocktail Napkin TIPS Cost Your Money and Time!

47. Cost of Poorly Defined RFPs • Poorly defined RFPs and Technical Packages • Add cost • Add time • Risks processing proposals for unneeded work • Risk selection of the wrong vendor • Risk re-work • Risk un-necessary work • Reduce vendor choices in the future

48. RFP Package • The RFP should be structured to • Enable objective and complete comparison of the candidates • Expedite the development of a contract • The RFP and CMO response should be complete enough to provide the basis for Workscope, pricing and terms of the contract. • The Quality Agreement (CMO’s, or response to yours) enable assessment of vendor Quality policies and practices and operating basis • Sometimes challenging to accomplish early but push for it • Draft Quality Agreement or Key Quality points

49. RFP Contents – DP & DS • Brief description of your company (optional) • Brief description of the product (along with Material Safety Data Sheet and handling instructions) • Overall project objectives and timeline • Detailed scope for vendor’s portion of the project: • Process description with flow chart and bill of materials • In-process and product test methods and target specifications • What will be delivered to vendor and by when • What the vendor is expected to deliver back and when • Desired pricing structure (i.e., fixed price versus time and materials, mass unit price versus batch price, etc.) • Requests for information, including: • Financial status of the company and description of pharmaceutical development and commercialization programs, if any. • Confirmation of absence of conflicts of interest • References • Manufacturing success rate • RFP response instructions (due date for submission of response, name and address of person to whom the responses should be directed, etc.)

50. Tech Transfer Package – DP & DS • Package Elements • Technology • Raw Material specs & vendors • Unit Operations as practiced • Mass Balance as complete as possible • General safety and environmental • Analytical Requirements • Proposed specs for API • Useful for make vs. buy decisions • Gives vendor an adequate view • Help them understand their risk • Typically big ROI – can avoid cost/risk premiums • Reduces “ifs” and “thens” in their proposed scope • Avoids excessive go-no-go steps Enable Efficient & Credible Interaction and Decisions