Case study 1: Process change case study

By zceie01, on 1 June 2014

Data on manufacturing costs were collected by Dr Sally Hassan with help of LONZA. Dr Suzy Farid also contributed to the development of this case study. Some data on manufacturing costs in this case study are blacked out subject to peer review and publication.

The BRITS tool can provide guidance to stakeholders in cell therapy projects in the development of manufacturing strategies. Managers have at their disposal options to use a range of manufacturing technologies along the development pathways. The BRITS tool will provide guidance for managers:

In assessing how investments and pay-offs associated with different manufacturing technologies affect the firm’s cash flows.
In evaluating how switches between different technologies along the development pathway affect these cash flows.
In deciding on optimal manufacturing strategies for the commercialisation of a specific project.

Different scenarios for manufacturing strategies

We use the case study of company X, which is developing a new allogeneic cell therapy product. The company has completed preclinical studies and has regulatory approval to proceed with a phase I/IIa study to assess the therapy’s safety and to collect preliminary data on the therapy’s efficacy. As they are planning the project’s development trajectory all the way through FDA approval, managers are weighing several options. Specifically, managers are considering whether to set up manufacturing using more traditional, and cheaper planar cell expansion processes or whether to opt for more advanced, and more expensive 3-D single use cell expansion processes. While requiring a higher upfront investment, these 3-D single use cell expansion processes will allow the company significantly reduce post-commercialisation per unit manufacturing costs.

Apart from considering whether to use either planar or MC-SUB technology all the way along the development trajectory (scenario’s A+E), managers consider various scenarios that involve switching from planar to MC-SUB technology as clinical trials progress and uncertainty about market approval is reduced. Figure 1 highlights these various scenarios.

Figure 1: Scenarios for different manufacturing strategies

Business planning for the cell therapy company X is developing builds on a number of assumptions that are used as input for the tool.

Figure 2.1: Project assumptions that are fixed across scenarios (clinical trials)

Figure 2.2: Project assumptions that are fixed across scenarios (staffing)

Figure 2.3: Project assumptions that are fixed across scenarios (other)

In addition, managers have obtained input from a contract manufacturer about the manufacturing costs associated with different scenarios (see figure 3).

Figure 3: Project assumptions that vary across scenarios

Finally, managers expect clinical trials 1, to take 1 year to complete, clinical trials 2, 2 years to complete, and clinical trials 3, 3 years to complete. Moreover, contract manufacturers warn managers that changing manufacturing processes at a specific stage of the development process requires managers to factor in a one-year delay in the duration of the clinical trials for that stage, and will require the company to conduct a bridging study involving fifteen subjects to satisfy regulators.

Valuation of different scenarios for manufacturing strategies

Using the BRITS tool, users are able to assess the NPV for the different scenarios. Assuming that the company will be able to charge $10k for its product post-commercialisation, the tool provides the following valuations (see figure 4).

Figure 4: Valuation of different scenarios assuming therapy can be commercialised at a price of US$ 10k

Figure 4 suggests that the highest valuation of the project is realised if managers select scenario A as the basis for the company’s manufacturing strategy, and stick to the more traditional planar technology throughout the commercialisation process. Thus, given the assumptions underlying the tool’s calculations, benefits in terms of lower costs of goods post-commercialisation of the new MS-SUB technology do not weigh up against the increased upfront investments for this technology.

The assumption that the company will be able to sell its product at a price of $10k means that it will enjoy a significant gross profit margin. Under scenario A, the company would enjoy a gross profit margin of $7,317/$10,000 = 73%, and

under scenarios B, C, D, E, the company would enjoy a margin of $8,500/$10,000 = 85%.

Assessing different scenarios for manufacturing strategies under different conditions

Managers For example, managers often overestimate the willingness to pay for novel cell therapies and the profit margins their firms are able to sustain in the market. The BRITS tool is useful in assessing how reductions in gross profit margins firms are projected to realise, affect trade-offs managers face.

Figure 5 highlights how reductions in the price of the cell therapy alter valuations of the different manufacturing scenarios. As the price the firm charges for its cell therapy product decreases, scenario A falls down the ranking of the scenarios with the highest valuation. With a reduction of the price of the cell therapy product by half, it becomes more attractive to switch to MC-SUB manufacturing technology for phase 3 (scenario B), or phase 2 clinical trials (scenario C), than to stick to planar technology throughout (scenario A).

Figure 5: NPVs of manufacturing scenarios at different price points of cell therapy

Filed under Project Valuation & Planning Tool

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Case study 1: Process change case study

Different scenarios for manufacturing strategies

Valuation of different scenarios for manufacturing strategies

Assessing different scenarios for manufacturing strategies under different conditions

327 Responses to “Case study 1: Process change case study”

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