News

Posted On: 10/12/2006

Pharmaceutical Manufacturing Wastes $50 Billion Annually, New Study Finds

PharmaManufacturing.com

The pharmaceutical industry could be wasting over $50 billion a year in manufacturing costs alone, according to results of the largest study to date of pharmaceutical manufacturing and the Food and Drug Administration monitoring policies. (To access the full study report (over 400 pages long), released on October 9th, click here). Jackson Nickerson, professor of organization and strategy at the Olin School of Business at Washington University in St. Louis, and Jeffrey Macher, assistant professor of strategy and economics at Georgetown University, conducted the study, which neither the FDA nor the industry funded.

The goal of the research was to see where conflicts between industry and the FDA might be impeding manufacturing, Nickerson said, in an effort to improve the regulatory environment and, in some cases, enhance the industry's incentives to lower product costs and improve product quality.

Researchers studied 42 manufacturing facilities owned by 19 manufacturers, looking at cycle time, frequency of deviations, reasons for deviations, yield and rates of improvements in important manufacturing metrics. Their analysis revealed five key outcomes that influence the pharmaceutical manufacturing performance metrics.

• Information technology. Companies that used IT to electronically and automatically report, track and resolve deviations; track people; and centrally store all data, uniformly displayed superior manufacturing performance compared to those without such IT.



• Decision making. The lower down in the ranks that companies allow employees to make decisions, the higher the overall manufacturing performance. This is especially true when considering deviation management, lot failure, lot review and process valuation.



• Outsourcing. Contract manufacturing generally — although not always — has inferior manufacturing metrics.



• Process analytical technology. The use of technology that measures the uniformity of a drug's content prior to the completion of the final product corresponds to worse performance measures. The correlation doesn't imply causation, said Nickerson. In fact, process analytic technology may improve a drug's quality. However, the FDA had been encouraging the industry to adopt use of the technology using the argument that it would improve overall performance. Nickerson said, this finding may cause the FDA to rethink their reasons for endorsing process analytic technology.



• Size and range. The scale and scope of the manufacturing facility have a complex interplay with manufacturing performance. Depending on what aspect of manufacturing is being measured, scale and scope can either be a detriment or a benefit.

Last year, the two professors concluded a similar study of the FDA's regulatory processes.

With the two studies concluded, Macher has said, "We feel that we are now in a better position to comment on how to improve or change regulations so that the FDA and manufacturers focus on a risk-based environment."

Although the report is primarily a benchmarking device, the research is already pointing to important observations that suggest specific areas of conflict and to the direction to take in future research. For example, the FDA study made it clear that individual regulators are not identical in how they inspect a facility.

"If there are differences in regulators and if regulatory agencies randomize who goes out and inspect facilities, then we believe that creates an incentive for manufacturers to be overly risk averse," Nickerson said. "Manufacturers want to insure themselves against any regulator that comes into inspect a facility, especially when adverse outcomes can impose substantial costs on the manufacturers. The net result is that because of the regulatory environment, companies have an incentive not to innovate in manufacturing processes that could lower cost or improve the manufacturing process."

The professors say that once they better understand the interplay between regulators and manufacturers, they can make proposals on how to change regulatory policies so that firms do have an incentive to innovate manufacturing processes.

"Doing so could have a dramatic impact on global healthcare," Macher said.