Producing the goods

Looking at the new manufacturing principles squeezing more value out of pharma. A new study has revealed the extent to which the pharmaceutical industry is embracing new manufacturing principles as it looks to squeeze more value out of its operations.

The pharmaceutical industry’s disregard for the manufacturing scheme of things has gained a certain notoriety over the years. Compared with industrial sectors such as consumer electronics and food production, pharma has historically been positively dismissive of modern process design principles, measurement and control technologies, and other manufacturing processes.

A 2001 report by the US Food and Drug Administration estimated that the potential worldwide cost-savings from implementing efficiency improvements in pharma manufacturing could be as high as US$90 billon a year, the equivalent to the cost of developing 80-90 new drugs annually. But, insulated by enormous profits, the lack of emphasis on manufacturing has been able to fester within organisations.

John du Pre Gauntt, a specialist in the economics of IT and pharmaceuticals, has been studying the pharma sector for a new white paper by the Economist Intelligence Unit, “Quality Manufacturing: A Blockbuster Opportunity for Pharmaceuticals”. His interviews with senior businesspeople and regulators in the industry revealed an ingrained and indifferent attitude towards production.

“From a cultural point of view in pharma companies, the R&D people have historically been the rock stars and the production people have been the roadies,” he explains. “The production part wasn’t sexy. One of the ideas that the pharma industry has to overcome is that all the real action and value creation is in your research pipeline, when from the economic point of view how you make the stuff is almost as important as what you make.”

Furthermore, this is a mindset that the industry needs to overcome with some urgency or risk serious repercussions. The research pipeline is largely drying up, stretching out, or coming off patent for big integrated pharma. As a result, companies are facing enormous economic pressure, having to maintain hugely expensive R&D operations to create new patent protected drugs. But with generic manufacturers able to eat away significant market share within weeks of drugs coming off patent, big pharma is also aware that it can no longer look at its manufacturing side as just the poor step child.

Once a branded drug is released on market, pharma firms are making money through their distribution and manufacturing. And they have to squeeze as much value out of it as they can, because as the pharma firms know only too well, as soon as the drug comes off of patent the generic players will chew it up. As a result, du Pre Gauntt was not surprised to find that pharmaceutical manufacturing is gaining in importance relative to R&D and marketing.

Manufacturing processes

The latest research into the sector reveals the more sophisticated drugmakers are now adopting proven best manufacturing practices, providing a strategic view of how a business can create value through manufacturing. Six Sigma, a model first used at Motorola in the 1980s, is one such approach identified. Historically, pharma companies have relied on quality-by-testing, but this is problematic and expensive, as highlighted by Ali M Afnan, a Process Analytical Technologist at the Office of Pharmaceutical Science. “The basis of quality-by-testing is that the finished product is tested for quality, rejecting lots that fail to meet its stated specification,” explains Afnan. “This approach therefore results in a great deal of waste and thus is costly to the manufacturer and in turn the consumer. Quality cannot be tested into a product; it has to be built by design. Within quality-by-design, processes are understood at a mechanistic level, design reflects this knowledge and quality is inherent in the product. This design incorporates knowledge of the product and the process to ensure all critical quality parameters are adequately controlled.”

Six Sigma is designing quality into the front-end of the process. Sigmas are variations in quality and the aim is to get it down to where you have got it more or less right the first time. Wherever you eat a McDonald’s burger in the world it will taste almost the same because McDonald’s used Six Sigma to design that quality to where it can reproduce that quality anywhere. Intel has a methodology called ‘copy exact’ where it can take a Greenfield site and build a chip manufacturing facility that they know from the beginning will operate according to the same quality measures as one of its chip plants in Sunnyville, California. Pharma firms are now acknowledging this kind of approach, building the quality in the front-end rather than producing a million pills and then taking a statistical sample after their manufacture to test them for quality.

Following on from this approach is PAT, or process analytical technology, a combination of the physical technology – for measuring and stamping pills, etc. – and information systems and management principles to execute a Six Sigma philosophy. “Many times the people on the production floor know what needs to be done for quality management but they don’t have the tools – not simply the software tools or the physical tools but also the management tools – so that the quality can be built in on the front-end,” says du Pre Gauntt. “If you look at Japanese car plants, if a line worker spots a significant flaw he has the authority to hit a button and the whole line will stop. In that way they don’t find the car is defective eight, ten, twelve stops down the line. They try to fix flaws where they occur, as far up the chain as you can, as opposed to testing the quality almost at the distribution dock – which is historically what pharma did.”

The Tefen Ltd and Millipore Corporation study indicated that 70 percent of companies in the market have become aware of PAT within the last 12-24 months, although fewer than 40 percent already have a related program. Nevertheless, some pioneers are paving the way for the rest of the industry.

In 2003, Pfizer announced a program called Right First Time (RFT) to migrate its manufacturing towards a more predictive approach and quality control. Heavily steeped in PAT and Six Sigma concepts, the premise behind RFT was to improve Pfizer’s scientific understanding of its process steps, identify the critical variables to quality and monitor them on the idea of eventually replacing traditional quality assurance methods with real-time monitoring.

Hardcore issue

Elsewhere, the lean manufacturing approach pioneered under the auspices of the Toyota Production System have similarly made the leap to the pharma sector. The underlying principles of lean manufacturing revolve around eliminating waste, reducing cycle time and scheduling production based upon the pull of customer demand rather than pushing excess inventory. But while Toyota may be the first company associated with lean manufacturing there are some in the pharma field that have also been executing such principles for some time. Drugmaker Baxter Healthcare was undertaking its the ‘quality leadership process’ as far back as the mid-80s. A Baxter plant in North Carolina that uses Lean principles such as just-in-time (JIT) for manufacturing intravenous solutions has witnessed a reduction in the time between production and release of 74 percent.

Perhaps most interestingly, the principles that some pharma firms have seen benefit their manufacturing processes are now even being applied to their other operations. In a surprising turnabout in fortunes, newfound manufacturing efficiencies are now being used to leverage general efficiencies in the pharmaceutical sector, the lessons learned in manufacturing being applied to other corporate processes such as R&D and accounting.

“One of the aspects that came through, especially from Baxter Healthcare, is that after some of these things had been applied on the factory floor it was established that the way the company paid its suppliers could benefit from the lean principles, and the way that it dealt with HR could benefit. So it started on the factory floor but actually bubbled up into general corporate effectiveness. Companies are applying lean principles, mapping the flows of materials, information or people through a process and identifying bottlenecks and mapping the dependencies of those bottlenecks and trying to eliminate things that cause someone to have to execute a process that is not directly contributing to the customer value.”

With the new pressures in the pharmaceutical industry, its companies have certainly left it until the last minute to start putting their manufacturing processes under the microscope. Still, better late than never. And while it is the pharma industry’s bottom line that will initially benefit, there is a significant knock-on effect for society at large. “Eventually, a pharma company will inevitably be judged by its net income,” concludes du Pre Gauntt. “And the better they can do on that score, the more that they can put into R&D and the better they can keep producing the medicines that people need. Pharma still has a long way to go before it reaches that ordinary industry productivity. But the good news is that manufacturing is now definitely a hardcore issue. One of the things that we wanted to bring out in the paper is that all the parties recognise that as far as meeting the fundamental value to society that pharma provides – which is relief from disease or to generate health – you have got to get the economics better. It is simply not good enough to come up with these world-beating therapies that you can’t manufacture in scale or if you can they are out of reach for patients.”

What is Six Sigma?

Guiding philosophy: To reduce variation in your business and take customer-focused, data driven decisions.

Definition: Six Sigma is a rigorous and a systematic methodology that utilises information (management by facts) and statistical analysis to measure and improve a company’s operational performance, practices and systems by identifying and preventing ‘defects’ in manufacturing and service-related processes in order to anticipate and exceed expectations of all stakeholders to accomplish effectiveness.

Metrics: To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. DPMO allows you to take complexity of product/process into account. Rule of thumb is to consider at least three opportunities for a physical part/component – one for form, one for fit and one for function, in absence of better considerations.