Rendering of new 300,000 square foot facility

We believe it is important to minimize potential disruptions associated with a high potency oncology pharmaceutical supply chain. Therefore, we have begun the process of internalizing key components of the supply chain we believe are integral to minimizing these risks and retaining value for shareholders. For example, the World Health Organization lists paclitaxel as an essential medicine. Paclitaxel is derived from the bark of the Pacific yew tree and harvestable trees for the starting biomass are globally limited in supply. While current supply of the starting biomass for paclitaxel may be sufficient to meet global paclitaxel API demand, we believe future shortages are possible if we are successful in the commercialization of one of our lead drug candidates, Oraxol. We believe this increased demand could lead to shortages of paclitaxel API potentially leading to market and supply disruptions.

Our research group evaluated the purity and potency of some of the largest global suppliers of paclitaxel API. In 2015, we acquired one of these suppliers, Polymed Therapeutics Inc., or Polymed, and Chongqing Taihao Pharmaceutical Co. Ltd., or Taihao. Taihao is a cGMP manufacturer of high potency oncology API based in Chongqing, China and Polymed is the U.S. marketing entity for Taihao’s API in North America and Europe. Historical production and sales of API by this subsidiary were to third parties. We anticipate a greater share of Taihao’s manufacturing capacity will be used for our internal needs in the future and, therefore, sales to third parties may decrease. Historically, Polymed sold certain of these API products internationally to mostly large multi-national pharmaceutical companies.

In 2014 we sought to obtain better control over our manufacturing of high potency oncology drugs used in global clinical studies, and we acquired Athenex Pharma Solutions, one of our suppliers based in Clarence, New York. The number of our clinical studies has grown since the close of the acquisition. We are currently standardizing and leveraging the acquired cGMP systems and operating procedures in anticipation of developing multi-cGMP large scale manufacturing plants in both the U.S. and China. Our Commercial Platform has also initiated a transition and expansion of these facilities to produce FDA shortage products.

Facilities, Manufacturing and Quality Assurance

Our facilities are located in the U.S., China and Hong Kong, and we own and lease a variety of manufacturing, research and development, distribution, packaging, laboratory, office and warehouse space. Our GMP operating facilities are inspected by the FDA, and we believe that all of our facilities are being operated in material compliance with the FDA’s cGMP regulations where applicable.

Our material facilities in Buffalo, New York, Dunkirk, New York and Chongqing, China have been, and will be, paid for through public-private partnerships, and will be available for our exclusive use at below-market rates, for the foreseeable future. These material facilities are described further in the descriptions of our public- private partnerships below.

In the US our plans include a 320,000 sq ft cGMP fill-finish high potency oncology plant capable of manufacturing sterile injectable and oral solid dosage forms. We have also established a 50,000 sq ft North American Headquarters. In 2016 Andrew Cuomo, the Governor of New York, announced our public/private partnership with New York State and held a ribbon cutting ceremony in our North American Headquarters along with local government elected officials.

In Chongqing China, where we have an existing active pharmaceutical ingredient plant, we are designing an expanded active pharmaceutical ingredient plant and a fill-finish plant and logistics center totaling about 700,000 sq ft.  These facilities will provide us valuable and necessary access to the Chinese cancer market.  Our public/private partnership with Chongqing was announced in 2015 with a signing ceremony in Banan, Chongqing attended by local government officials and the Athenex Board and Management team.