Manufacturing Success

---

By Shawn Lawrence

Graeme Macaloney, QSV president and CEO knows exactly where the safe money in biotech is. With 22 years of pharma, biotech and entrepreneurial experience spanning management and governance roles in genomic and proteomic organizations he has learned this much.

There is no role that he has played within the industry that he has enjoyed as much success than as the founder of QSV Biologics Ltd. Two years after founding QSV, it has grown as a biopharmaceutical contract manufacturing company and developed into multi-million dollar business with customer contracts spanning four continents.

In discussing this success, Macaloney draws a striking a parallel between the biotech industry as it is today to the days when prospectors stampeded to the creeks of the Klondike river and Dawson City in search of gold. Macaloney is a firm believer that the payoff of running a CMO is in most instances as profitable but far less risky than running a biotechnology company.

Explains Macaloney, "On the one side there is this constant lineup of biotech companies with drugs coming along all the time, all hoping to strike gold, some make their fortune but the majority go home empty handed. On the other side are the CMO's, providing the opportunity to these bio-companies to cut cost, reduce time to marketplace and generally achieve excellence. The major difference between the two sides is for a CMO it doesn't really matter if a product fails or succeeds, the CMO is still getting paid."

In reference to the gold rush analogy, Macaloney likens CMO's to the merchants selling the tools, shovels and the other equipment making money whether the prospectors come back with gold or not.

Needless to say the decision to get into the CMO side of things is one he doesn't regret and less surprising is the fact his creation, QSV, has developed into a global cGMP biologics contract-manufacturing leader. Among the company's accomplishments in its short lifespan is its distinction as the only Canadian dedicated biologic CMO with successful experience in Phase III manufacturing. Additionally it also captured the Frost & Sullivan Award in 2005.

"There's definitely an attractive element to running a CMO, knowing I'm not one being exposed to risks biopharma companies are faced with. And that even though most of my customers are going to fail in getting their product to the marketplace, there's always another customer around the corner."

One might think that eventually this endless stream of biotech companies turning to CMO's such as QSV will eventually run dry, but Macaloney paints a very different picture.

"It's quite the opposite actually. In fact we've lost some business, because we don't have the resources to serve such a wide range of clients. Again that's a good thing, the ratio of CMO's to small biotech companies works in our favour, we have a built in marketplace" says Macaloney on what he considers the portfolio effect.

"Most small biotech companies enter into clinical trials knowing that they don't have the expertise in place to manufacture their product on a large scale. They also know that when formulating their pilot plan, there is easily a 10 million dollar startup fee and to build up a staff can take three to five years. With a one in 10 chance to get the product to market that's a huge expenditure of both time and finances. You can't do that these days, it's not worth the risk so you either turn to Big Pharma or you contract out with a CMO."

He adds that there's still also the bonus that some of the companies that come to him will actually make it all the way to commercial. Explains Macaloney companies that use QSV know ahead of time that they need to commit nine to 12 months and roughly $1.5-3.0 million to establish an operating process, and while that sounds like a lot, it's much more expensive and time consuming to do it on their own. And after making such a commitment, the companies won't go elsewhere for later clinical trial phases because the costs of reproducing the processes elsewhere defeats the purpose.

This is a process that Macaloney refers to as 'the anchor effect'. The idea being that QSV provides the infrastructure and in turn uses it to keep its customers coming back for more.

There are other aspects that make CMO's successful, namely speed to market and high quality service. Both attributes are essential to QSV's success, in fact it is the companies operating mantra: quality and speed build value (QSV).

In terms of quality, hiring the right personnel is one of the main focal points of the company. For some of Macaloney's needs he turns to two of the local universities, the University of Alberta and NAIT. But even that approach has shortcomings says Macaloney because for every 10 jobs in the bio-manufacturing sector there's actually only one person in training. So where else does QSV turn to for personnel?

"For the most part we populate ourselves by targeting people from other Big Pharma or Big biotech companies. We also target staff at other CMO's and import them. I'm not above importing staff from generic or non-science related manufacturing companies.

While the company is the only one of its kind in Canada dealing in biologics, proteins, therapeutics, vaccines and anything that has a protein basis to the active ingredients, and a client base made predominantly of foreign companies, QSV is in constant competition.

"Overall, we stack up well against all our competitors, whether they're overseas or south of the border. We have several advantages working in our favour against CMO's in Europe and Asia, and we seem to hold our own against American CMO's. One of the advantages we have over our overseas competitors is the time zone advantage. Close proximity to our clients is another. To design the process involves a lot interaction between my scientists and the client's scientists. It requires close proximity. To try and interact with colleagues on another continent with another culture is very prohibitive."

"Against the American CMO market, you have the big CMO's that are established, and the smaller players and new entrants. Where we sit is in between."

In terms of his general feel for the industry, Macaloney believes now is the time for Canadian CMO's to establish their niche in the marketplace. He'd also like to see some government assistance in expanding the national CMO marketplace and advancing life sciences intellectual property in Canada.

Macaloney believes a move made on the Canadian government's part would be a significant step forward not only in boosting the country's CMO industry, but also in taking a serious chunk out of trade deficit and reversing the intellectual property drain out of Canada "Other countries are realizing the benefits of doing this and Canada has to jump on board. A healthy CMO industry can mean a lot to research and development in this country. It would help Canadian biopharmaceutical companies grow to a stage at which they will be in a better position to negotiate their Intellectual Property and keep their products in Canada thereby locking in the value generated by their research."

"That's the key, for every product we as CMO's can help keep here, manufactured in Canada, we can help make an impact in so many areas, it's a big economic endgame to be played here and we can't go it alone."