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
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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).

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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.
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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

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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".

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

1%

Value Added Non Value Added Activities Transport Control

94,7%

Cost

Delays

Time
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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%

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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%

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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!

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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

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Measure Spread & Variability

GOOD: High Capability BAD: Low Capability

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

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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.

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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.
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Benefits - Increased Effectiveness of Compliance Infrastructure

2s

Cost

Direct Cost Recovery

5s

Compliance Gain

0%

Level of Compliance
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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
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