Doug Dean

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
1990
1994
1996
1997
1998
1999
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
RD Productivity - Falling
70
50
65
45
Annual RD 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
Window of Exclusivity - Decreasing
0
2
4
6
8
10
12
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
EXAMPLE Parenteral Emulsion
13
EXAMPLE SVP Emulsion
0.1AU
Upper Control Limit
Lower Control Limit
450
550
500
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
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.
Disp.
0
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
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
Operational Uptime
Scrap Reprocess Time
Effective Uptime
Time spent using the assets!
20
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
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 RD.

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