F.D.A. and Drug Makers Could Run Tighter Ship

The pharmaceutical industry could be wasting more than $50 billion a year in manufacturing costs alone, costs that could translate in to lower prices or greater research and development – according to findings of the largest empirical study ever performed of pharmaceutical manufacturing and the Food and Drug Administration monitoring policies. 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, jointly conducted the study, which received no funding from either the pharmaceutical industry or the F.D.A.

“We undertook the project to understand how the F.D.A. regulates and pharmaceutical manufacturers produce so we could see where there may be conflicts that inhibit advances in manufacturing,” Nickerson said. “Our policy goal is to understand both sides of the coin so that we could contribute to improving the regulatory environment, thereby altering the pharmaceutical industry’s incentives to maintain and in some cases enhance product quality, but for a much lower cost.”

In their most recent findings, the researchers collected data from 42 manufacturing facilities owned by 19 manufacturers. They studied the company’s performance in terms of cycle time, frequency of deviations, reasons for deviations, cycle time, 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 – have inferior manufacturing metrics.
• Process analytic 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.

Nickerson said that some of the findings weren’t necessarily surprising, but the study represents one of the first documentations of these phenomena.

The manufacturing project was completed about a year after Nickerson and Macher conducted a similar study that focused on the FDA’s regulatory processes.

“Each study addresses a different side of the same coin. But in combination, 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,” Macher said.

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, then they can make proposals on how to change regulatory policies so that firms do have in incentive to innovate manufacturing processes.

“Doing so could have dramatic impact on global healthcare,” Macher said.