IHS Chemical Week

CHEM IDEAS

Financial Justification for QbD and Cost of Regulation Compliance

7:47 PM MDT | May 29, 2012 | By GIRISH MALHOTRA

Quality by Design, or QbD, is targeted at having a robust and repeatable process which produces quality product without rework or re-testing) is financially important for the pharmaceutical industry and highly beneficial for the consumers; as it will ensure quality all the time, and potentially alleviate shortages and lower costs. In order for QbD to become part of the pharma landscape C and E levels of the companies need to have a very clear understanding of cost of regulatory compliance and financial benefits of QbD. Even with the understanding, timely implementation will need considerable cajoling within each company. I am not being opportunistic or pessimistic but being realistic.

Unless QbD related costs are financially justified, especially for the existing products, not much will change. One source of funding is to pass the costs through drug sale price increases. That might be very difficult. The other source of funding can be the savings achieved from lower compliance cost expenditures once the QbD processes are in place. I expect that once the QbD based processes are in place and companies have rationalized their manufacturing practices and strategies, they will have significant savings which will offset their QbD effort. Regulatory bodies and the regulators at the companies might not agree with me about lowering compliance costs, but besides yield improvements this is an area in the manufacturing hemisphere where I believe significant cost saving opportunities exist. There are other cost saving areas and each company has to define and identify them.

Companies have to think QbD for the new products from the start. If it happens, it will be a win-win for the companies and patients.

Since every investment has to be paid for, companies have to find ways and means to pay for attaining QbD based processes. I believe that savings can come from creating processes that will lower cost of compliance. Since there are no published numbers that indicate how much money is spent to company, we can guesstimate (Table 1, below; *based on annual reports of different pharmaceutical companies).

Global pharmaceutical revenue, $ billion (year 2012)
900*
Cost of Sales @ 30% (avg. an assumption*) of revenue, $ billion
270
R & D @ 20% (avg. an assumption *) of revenue, $ billion
180
Sum of Cost of Sales and R&D, $ billion
450
Assumption: About 30% (assumption) of the Cost of Sales
and R&D money are Cost of Compliance.
Total cost of compliance, $ billion
 
 
150

I have used 30% sum of cost of sales and R&D as cost of compliance. It can include costs related to current methods of achieving quality, paper work, quarantine costs, cost of inventory, cost of recalls, infrastructure costs to quarantine materials and litigation, recall, rework and disposal costs. If I have missed any other item, the costs will change accordingly. If anyone has a better number, I would appreciate knowing about it.
 
If through better process technologies i.e. improved yield, reduced in-process quality checks (elimination/reduction of QbA), sustainable processes, plant consolidations (economies of scale: batch vs. continuous), improved asset utilization (e.g. moving from 30-40% to 60-75% asset utilization) and better record keeping companies can save 40 to 50% of the “cost of compliance” as speculated in Table 1, we could be saving between $60 billion-$75 billion/year, a number large enough to sustain on going manufacturing technology innovation in pharmaceuticals.
 
It is my firm belief that if we incorporate fundamentals of chemistry and chemical engineering in our processes to manufacture products from the day we start developing new manufacturing processes our products will meet quality standards the first time and every dollar that is not spent on compliance will drop to the profit before tax line. Pharmaceutical industry has to change its modus operandi. There are no alternates left.

Additional details are available are http://pharmachemicalscoatings.blogspot.com/2012/05/financial-justification-for-qbd-and.html
  
Girish Malhotra, PE
  












 
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