# Presentation: 327573

## Doug Dean & Frances Bruttin
PwC ConsultingPharmaceutical Sector TeamBasel, Switzerland

- PwC ConsultingPharmaceutical Sector TeamBasel, Switzerland

**Productivity and the Economics of Regulatory Compliance in Pharmaceutical Production**

## Declaring a Few Biases ....

- Business
- Manufacturing
- Systems
- Big pharma

## 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.

## Improving the Economics of Compliance

- Risk
- Compliance effectiveness
- Cost
- Shareholder returns

***Win - regulators & consumers***

***Win - business***

## Our Business Environment - Tough & Getting Tougher

**% Market**
**Growth**

**0**

**5**

**10**

**15**

**1970**

**1980**

**1990**

**1993**

**1994**

**1995**

**1996**

**1997**

**1998**

**1999**

**2000**

**2001**

**Real Market Growth - Slowing**

## Shareholder Returns - Falling

**20%**

**22%**

**24%**

**26%**

**28%**

**30%**

**32%**

**34%**

**Mar-98**

**Sep-98**

**Mar-99**

**Sep-99**

**Mar-00**

**Sep-00**

**Mar-01**

**5 Year Annualised TSR (%)**

**Shareholder ****R****eturns ****- F****alling**

## R&D Productivity - Falling

**R&D Productivity - Falling**

**30**

**35**

**40**

**45**

**50**

**55**

**60**

**65**

**85**

**86**

**87**

**88**

**89**

**90**

**91**

**92**

**93**

**94**

**95**

**96**

**97**

**98**

**99**

**0**

**5**

**10**

**15**

**20**

**25**

**30**

**35**

**40**

**Annual R&D expenditure ($ billion)**

**NCE's launched per year**

**NCEs`**

**$Billion**

**25**

**50**

**45**

**00**

**70**

## Window of Exclusivity - Decreasing

**0**

**2**

**4**

**6**

**8**

**10**

**12**

**Years of Exclusivity**

## 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).*

## Conclusions

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

## 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.

## EXAMPLE: Parenteral Emulsion

## EXAMPLE: SVP Emulsion

**EXAMPLE: SVP Emulsion**

**450**

**550**

**500**

**0.1AU**

**Upper**
**Control**
**Limit**

**Lower**
**Control**
**Limit**

## 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".

## EXAMPLE: Value Added -vs- Non Value Added Process Time

## EXAMPLE: See It to Fix It - Value-Added Time Only 3 Days!

***3 ******days***

**EXAMPLE: See It to Fix It - Value-Added Time Only 3 Days!**

**Coating & Branding**

**Packaging**

**Comp**

**Gran.**

**Disp.**

***Time***

***Cost***

**0%**

**100%**

***35 days***

## Measurement Shows Potential for Improvement

**Measurement Shows Potential for Improvement**

**0%**

**100%**

***3******5****** days***

**Best Practice: VA Ratio 50%**

***3******days***

**Cost reduction**

**Time Compression**

## EXAMPLE: Traditional MRP II Measurement - For Accountants.

_*Result*_
- Asset Utilisation
- 30-40%

**EXAMPLE: Traditional MRP II Measurement - For Accountants.**

## EXAMPLE: Measuring for Productivity - Reveals Potential

**Conversion Time**

**Unscheduled Downtime**

**Uptime**

**Operational Time Losses**

**Operational Uptime**

**Scrap & Reprocess Time**

**Effective Uptime**

**Total**
**Available**
**Time**

- 168 hrs/wk

- 24 hrs/day, 7 days/week

- Unpredicted loss of
- production time

- Delays & poor
- planning

- Not right
- first time

- Time spent using the assets!

**EXAMPLE: Measuring for Productivity - Reveals Potential**

## 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***

## Measure Spread & Variability

- Lower
- Specification
- Limit

- Upper
- Specification
- Limit

**GOOD:**** ****High Capability**

- Lower
- Specification
- Limit

- Upper
- Specification
- Limit

**BAD:**** ****Low Capability**

- Lower
- Specification
- Limit

- Upper
- Specification
- Limit

**This process is capable**

- Lower
- Specification
- Limit

- Upper
- Specification
- Limit

**This process is not capable**

## Calculating The Purely Business Benefits

- Decrease by scrap reduction.

- Reduce cost of compliance.
- Eliminate non-value add activity.

- Increase by raising process yield.

- Raise process capacity.

## 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.*

## Benefits - Increased Effectiveness of Compliance Infrastructure

**0%**

**100%**

- Level of Compliance

- Cost

**5******

**2******

**Compliance Gain**

**Direct Cost Recovery**

## How this is a Win-Win

**6******** - World Class**
**5******** - Superior**
**4******** - Healthy**
**3******** - Average**
**2******** - Not Capable**
**1******** - Not Competitive**

**PRODUCTIVITY**

**QUALITY**

**Low**

**High**

**Low**

**High**

**4**

**3**

**2**

**1**

**6**

**5**