Productivity and The Economics of Regulatory Compliance in Pharmaceutical Production

Productivity and the Economics of Regulatory Compliance in Pharmaceutical Production
Doug Dean & Frances Bruttin

PwC Consulting Pharmaceutical Sector Team Basel, Switzerland
Declaring a Few Biases ....
Business
Manufacturing
Systems
Big pharma
Our Thesis
The status quo is untenable.
Pharmaceutical manufacturing - lots of room for improvement.

Traditional metrics hide poor performance.
Compliance infrastructures are not ecomomic.

Technologies are critical enablers - but not in isolation. Huge potential for industry & regulators to create a winwin.
Improving the Economics of Compliance
Risk
Win - regulators & consumers
Compliance effectiveness
Cost
Win - business
Shareholder returns
Our Business Environment - Tough & Getting Tougher
15
Real Market Growth - Slowing
10
% Market Growth
5
Shareholder Returns - Falling
34% 5 Year Annualised TSR (%) 32% 30% 28% 26%
24% 22%
20% Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01
R&D Productivity - Falling
70 65 60 55
Annual R&D expenditure ($ billion)
50 45
40
35 30 25
50
45 40 35 30 25 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
20 15
10 5 0
NCE's launched per year
Window of Exclusivity - Decreasing
Cox-2 Inhibitors 1998/9
Invirase 1995
Recombinate 1992 Difulcan 1990 Mevacor 1987 AZT 1987 Seldane 1985 Prozac 1985 Capoten 1980 Tagamet 1977 Inderal 1968
0 2 4 6 8 10 12
Years of Exclusivity
8
Pharma Manufacturing - Unmet Performance Expectations
Utilisation levels - 15% or less (but low levels masked). Scrap and rework - we plan for 5-10% (accepted as necessary). Time to effectiveness - takes years (not challenged).
Costs of quality - in excess of 20% (that's the way it is).

9
Conclusions
Hostile environment. Intense competition for resources. Manufacturing has to contribute ( la Wheelwright).
10
Our Findings - Problems Start in Development
Processes are transferred that are neither fully understood or capable at commercial scales. Lengthy & elaborate new product introduction exercises that generate data but fail to provide critical information. 50% of production costs locked in before Phase III begins, process inefficiencies "institutionalized".
No scientific basis for trading-off time in return for deeper process understanding.
11
EXAMPLE: Parenteral Emulsion
Product quality attribute limit

0.2AU
3 batches - 500 mB 10%

0.1AU
Lower Control Limit
Upper Control Limit
450
500
550
12
EXAMPLE: SVP Emulsion
0.2AU
0.1AU
Lower Control Limit
Upper Control Limit
450
500
550
13
What is the Potential for Improvement?
1. Value-added -vs- non value-added activities. 2. Measurement for accounting -vs-measurement for productivity
3. Ability of a process to be "right first time".
14
EXAMPLE: Value Added -vs- Non Value Added Process Time
1%
Value Added Non Value Added Activities Transport Control
94,7%
Cost
Delays
Time
15
3 Days
EXAMPLE: See It to Fix It - Value-Added Time Only 3 Days!

100%
Packaging
Cost
Coating & Branding
Comp Gran.
0%
Disp.
3 days
Time
16
35 days
Measurement Shows Potential for Improvement

100%
Cost reduction
Time Compression
0%
3days
Best Practice: VA Ratio 50%

17
35 days
EXAMPLE: Traditional MRP II Measurement - For Accountants.
Scheduled Downtime
Losses are planned in 80 hrs/wk

Total Available Time
Allocation for:
Traditional Losses and Other Unexpected Losses Operational Uptime
Conversion Time
Result Asset Utilisation 30-40%
18
EXAMPLE: Measuring for Productivity - Reveals Potential
24 hrs/day, 7 days/week
Scheduled Downtime
168 hrs/wk
Total Available Time
Unpredicted loss of production time

Unscheduled Downtime
Delays & poor planning

Operational Time Losses
Conversion Time Uptime
Not right first time

Scrap & Reprocess Time
Operational Uptime
Effective Uptime
Time spent using the assets!

19
EXAMPLE: Sigma - Getting it Right First Time.
Quantifies process ability to generate defect-free output. Allows comparison of any two processes. Higher sigma values indicate better processes. Should be the scientific basis for process transfer.
Sigma ppm Defects Yield 69.2% 2s 308,537 93.3% 3s 66,807 99.4% 4s 6,210 99.98% 5s 233 99.99966% 6s 3.4 Cost of Quality 25-35% 20-25% 12-18% 4-8% 1-3%
Pharma Semicon
20
Measure Spread & Variability

GOOD: High Capability BAD: Low Capability
Lower Specification Limit
Upper Specification Limit
This process is capable

21
This process is not capable
Calculating The Purely Business Benefits
Decrease by scrap reduction.
Reduce cost of compliance. Eliminate non-value add activity.
Material Cost + Period Cost Unit Cost = Efficiency x Planned Volume
Increase by raising process yield.
Raise process capacity.
22
A Thought Experiment - 5 Sigma Pharmaceutical Production
Cost of quality & compliance - 3% of period costs.
Unit cost of production 60% lower than 2.5 sigma competition.

Cycle time - 5 days (down from 30). Newly introduced processes immediately effective. Key enablers:
Process understanding Parametric profiling of production processes. Process capability hurdle levels governing development promotion NIR analysis for raw materials and in-process control. Continuous high-volume microwave sterilization. On-line measurement supported by sigma tools.. Enterprise Manufacturing Execution System with EBR capability. Enterprise Document Management System, shared with R&D.
23
Benefits - Increased Effectiveness of Compliance Infrastructure
2s
Cost
Direct Cost Recovery
5s
Compliance Gain
0%
Level of Compliance
24
100%
How this is a Win-Win
High
5
QUALITY
4
3 2 1
6s - World Class 5s - Superior 4s - Healthy 3s - Average 2s - Not Capable 1s - Not Competitive
Low Low High
PRODUCTIVITY
25

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Productivity and the Economics of Regulatory Compliance in Pharmaceutical Production

Doug Dean & Frances Bruttin

Declaring a Few Biases ....

The status quo is untenable.

Pharmaceutical manufacturing - lots of room for improvement.

Compliance infrastructures are not ecomomic.

Improving the Economics of Compliance

Our Business Environment - Tough & Getting Tougher

Real Market Growth - Slowing

Shareholder Returns - Falling

34% 5 Year Annualised TSR (%) 32% 30% 28% 26%

R&D Productivity - Falling

Annual R&D expenditure ($ billion)

NCE's launched per year

Window of Exclusivity - Decreasing

Cox-2 Inhibitors 1998/9

Pharma Manufacturing - Unmet Performance Expectations

Costs of quality - in excess of 20% (that's the way it is).

Our Findings - Problems Start in Development

EXAMPLE: Parenteral Emulsion

Product quality attribute limit

3 batches - 500 mB 10%

Lower Control Limit

Upper Control Limit

EXAMPLE: SVP Emulsion

Lower Control Limit

Upper Control Limit

What is the Potential for Improvement?

3. Ability of a process to be "right first time".

EXAMPLE: Value Added -vs- Non Value Added Process Time

Value Added Non Value Added Activities Transport Control

EXAMPLE: See It to Fix It - Value-Added Time Only 3 Days!

Coating & Branding

Measurement Shows Potential for Improvement

Best Practice: VA Ratio 50%

EXAMPLE: Traditional MRP II Measurement - For Accountants.

Losses are planned in 80 hrs/wk

Result Asset Utilisation 30-40%

EXAMPLE: Measuring for Productivity - Reveals Potential

Unpredicted loss of production time

Delays & poor planning

Conversion Time Uptime

Not right first time

Time spent using the assets!

EXAMPLE: Sigma - Getting it Right First Time.

Measure Spread & Variability

Lower Specification Limit

Upper Specification Limit

Lower Specification Limit

Upper Specification Limit

Lower Specification Limit

Upper Specification Limit

Lower Specification Limit

Upper Specification Limit

This process is capable

This process is not capable

Calculating The Purely Business Benefits

Decrease by scrap reduction.