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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.

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Productivity and the Economics of Regulatory Compliance in Pharmaceutical Production

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  1. Productivity and the Economics of Regulatory Compliance in Pharmaceutical Production Doug Dean & Frances Bruttin PwC ConsultingPharmaceutical Sector TeamBasel, Switzerland

  2. Declaring a Few Biases .... • Business • Manufacturing • Systems • Big pharma

  3. 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 win-win.

  4. Improving the Economics of Compliance • Risk • Compliance effectiveness • Cost • Shareholder returns Win - regulators & consumers Win - business

  5. Our Business Environment - Tough & Getting Tougher Real Market Growth - Slowing 15 10 % Market Growth 5 0 2001 1980 1999 1997 1990 1994 1996 1998 2000 1970 1993 1995

  6. Shareholder Returns - Falling 34% 32% 30% 28% 5 Year Annualised TSR (%) 26% 24% 22% 20% Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01

  7. R&D Productivity - Falling 70 50 65 45 Annual R&D expenditure ($ billion) 60 40 35 55 30 50 $Billion NCEs` 25 45 20 40 15 35 10 NCE's launched per year 30 5 25 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

  8. 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 Window of Exclusivity - Decreasing 0 2 4 6 8 12 10 Years of Exclusivity

  9. 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).

  10. Conclusions • Hostile environment. • Intense competition for resources. • Manufacturing has to contribute (à la Wheelwright).

  11. 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.

  12. Product quality attribute limit 0.2AU 3 batches - 500 mB ± 10% 0.1AU Lower Control Limit Upper Control Limit 450 500 550 EXAMPLE: Parenteral Emulsion

  13. 0.2AU EXAMPLE: SVP Emulsion 0.1AU Lower Control Limit Upper Control Limit 450 500 550

  14. What is the Potential for Improvement? • Value-added -vs- non value-added activities. • Measurement for accounting -vs-measurement for productivity • Ability of a process to be "right first time".

  15. 1% 94,7% Delays Cost Non Value Added Activities Transport Control Value Added 3 Days Time EXAMPLE: Value Added -vs- Non Value Added Process Time

  16. EXAMPLE: See It to Fix It - Value-Added Time Only 3 Days! 100% Packaging Coating & Branding Cost Comp Gran. 0% Disp. 35 days Time 3 days

  17. Measurement Shows Potential for Improvement 100% Cost reduction Time Compression 0% 35 days Best Practice: VA Ratio 50% 3days

  18. Scheduled Downtime Losses are “planned in” 80 hrs/wk Total Available Time Conversion Time Allocation for: Traditional Losses and Other Unexpected Losses Operational Uptime EXAMPLE: Traditional MRP II Measurement - For Accountants. Result Asset Utilisation 30-40%

  19. EXAMPLE: Measuring for Productivity - Reveals Potential 24 hrs/day, 7 days/week Scheduled Downtime Unpredicted loss of production time 168 hrs/wk Total Available Time Delays & poor planning Conversion Time Unscheduled Downtime Not right first time Uptime Operational Time Losses Scrap & Reprocess Time Operational Uptime Effective Uptime Time spent using the assets!

  20. Sigma ppm Defects Yield Cost of Quality Sigma ppm Defects Yield Cost of Quality s 69.2% 25-35% s 69.2% 25-35% 2 308,537 2 308,537 s 93.3% 20-25% s 93.3% 20-25% 3 66,807 3 66,807 s 99.4% 12-18% s 99.4% 12-18% 4 6,210 4 6,210 s 99.98% 4-8% s 99.98% 4-8% 5 233 5 233 s 99.99966% 1-3% s 99.99966% 1-3% 6 3.4 6 3.4 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. Pharma Semicon

  21. 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 This process is not capable

  22. æ ö Material Cost + Period Cost ç ÷ = Unit Cost ç ÷ Efficiency x Planned Volume è ø Calculating The Purely Business Benefits Reduce cost of compliance. Eliminate non-value add activity. Decrease by scrap reduction. Increase by raising process yield. Raise process capacity.

  23. 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.

  24. Benefits - Increased Effectiveness of Compliance Infrastructure 2 Direct Cost Recovery Cost 5 Compliance Gain 0% Level of Compliance 100%

  25. How this is a Win-Win High 6 5 6 - World Class 5 - Superior 4 - Healthy 3 - Average 2 - Not Capable 1 - Not Competitive 4 QUALITY 3 2 1 Low Low High PRODUCTIVITY

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