AKAO 2017 Annual Report

36 We currently rely on a limited number of third parties for our required raw materials, drug substance, and finished drug product for our preclinical research, clinical trials and potential commercial production. For plazomicin, we source raw materials from various commercial suppliers, primarily located in Europe and the People’s Republic of China, including the aminoglycoside precursor sisomicin. Our drug substance has been manufactured by Hovione and we have entered into a long-term agreement with Hovione for commercial production of plazomicin. The drug product is manufactured by Pfizer CentreOne (formerly Hospira) and we have entered into a long-term agreement with Pfizer CentreOne for commercial production of plazomicin. Plazomicin Process. Plazomicin is an organic compound of low molecular weight, commonly referred to as a small molecule. Plazomicin is also considered a semi-synthetic molecule since it is derived from a primary starting material that is a natural product, sisomicin, produced by microbial fermentation. Plazomicin sulfate is prepared in four process stages (seven chemical steps) from sisomicin, with a final purification by ion-exchange chromatography and isolation by spray-drying of the amorphous sulfate salt from aqueous solution. We believe that our use of a synthetic process will enable us to have a cost of manufacturing for plazomicin that is similar to other modern small molecule antibiotics. Bulk Drug Substance. In March 2017, we entered into a commercial validation and manufacturing agreement (the “Commercial Manufacturing Agreement”) with Hovione Limited (“Hovione”), an Ireland-based company with facilities in Portugal and Ireland. Under the Commercial Manufacturing Agreement, Hovione agreed to carry out our validation program to validate and scale up our technology to manufacture the active pharmaceutical ingredient of plazomicin (the “Product”). Upon successful completion of the validation program, the Commercial Manufacturing Agreement also includes the manufacturing of commercial quantities of the Product on a commercial scale at Hovione’s facilities. The Commercial Manufacturing Agreement has an initial term of seven years after the first delivery of the Product. Pursuant to the Commercial Manufacturing Agreement, if plazomicin is approved by the FDA, we have minimum quantity and minimum annual purchase commitments from Hovione depending on our requirements and the period of time following approval by the FDA. For the first three years following approval of plazomicin by the FDA, we are required to purchase at least 80% of its required quantity of Product from Hovione. Following the initial three years after FDA approval, we are required to purchase between 40% and 66% of its required quantity from Hovione, depending on the amounts required during any such fiscal year. Contingent upon FDA’s approval of plazomicin, we have minimum annual purchase commitments from Hovione, beginning in 2020 through 2024. Beyond the minimum purchase obligation contained in the Manufacturing Agreement, we may use other suppliers and Hovione is obligated to cooperate with us in such efforts, including by performing certain technology transfers. The Commercial Manufacturing Agreement may be early terminated by either party for the other party’s uncured material breach or insolvency of which termination fees related to the minimum annual commitments may apply. In the event the FDA does not approve plazomicin or the approval is withdrawn, we are required to pay 50% of the remaining minimum annual commitment for that calendar year and the following two years’ minimum annual commitments. Drug Product. We have employed the services of Pfizer CentreOne to produce our plazomicin IV drug product. In August 2015, we entered into a development and supply agreement with Hospira, which was amended in September 2015 to include the Pfizer CentreOne Group of Pfizer, whereby Pfizer CentreOne assists us in the development and commercialization of plazomicin for IV administration. If we receive regulatory approval for plazomicin, we will purchase from Pfizer CentreOne our requirement of such product for commercial sale in the U.S., Canada and the EU (the “Territory”). In our NDA, the Pfizer CentreOne facility in McPherson, Kansas (“McPherson”) was filed as the manufacturer of the sterile IV drug product vials for plazomicin. In February 2017, Pfizer CentreOne received an FDA warning letter on Form 483 related to McPherson. In January 2018, this warning letter was upgraded to a designation of “Voluntary Action Indicated”, clearing a regulatory path for approval of plazomicin out of McPherson. Pfizer CentreOne continues to work to improve the GMP compliance status for McPherson and it remains our planned facility for plazomicin launch. In parallel, we are actively transferring production of plazomicin to an alternative Pfizer CentreOne site in Kalamazoo, Michigan as a second source and back-up launch