Cost Cutting and Quality

The last several years have been turbulent for the US pharmaceutical market.  Unfavorable economic conditions have hit all sectors of the global economy. Historically, the pharmaceutical industry has been relatively immune to the downswings of the global economic cycle because illness, which provides the opportunities for these pharmaceutical companies to create and produce drugs, never recedes.  But, as a result of the severity and duration of the current economic climate coupled with uncertain employment opportunities and impending patent expiry of successful drugs, investment confidence has dropped.  Pharmaceutical companies have been among those dramatically affected by the reduced availability in financial investments.
The pharma/biotech/med device industry is a highly regulated, scrutinized, and inspected sector of the American economy and, as a result, the funding required for growth and/or innovation in general (e.g., research and development, construction and licensing of new facilities), is incredibly significant.
Those of us within the industry have been witnessing unprecedented reductions in the work force, elimination of growth projects, and above all, we have felt the pressure to cut overhead wherever possible in order to increase profit margins in order to attract what few investors remain.
 During times such as these, the challenge of cutting costs while maintaining quality take center stage.  While we would like to think that cost cutting never has a negative impact on the quality of product, there have been too many recent high profile quality failures to be certain.
The issues that industry and the consumer have seen vary widely on the surface, but seem to offer direct evidence that industry has made harmful choices with regard to cost cutting and quality systems.  Some of the most high profile instances fall into at least one of the following causal categories:
  • Importation of low cost and contaminated raw materials sourced from lesser regulated foreign countries (e.g., Chinese raw materials)
  • Ongoing Quality issues → warning letters → drug shortages → a growing dependence on lesser regulated domestic sectors (e.g., compounding pharmacies)
  • The cost of compliance in biopharma due to the criticality of sterile production renders production of specialty drugs, or drugs that have to be re-engineered, annually unprofitable → fewer companies manufacturer sterile drugs → supply chains have no redundancies → drug shortages if manufacturers in that market lower output for any reason (e.g., cancer drugs, vaccines)
Consider this excerpt from a recent article in the NY Times:
“In the last three years:
  • six of the major manufacturers of sterile injectable drugs — which are subject to rigorous inspections by the federal government, as opposed to compounding pharmacies, which are generally overseen by the states — have been warned by the Food and Drug Administrationabout serious violations of manufacturing rules.
  • Four of them have closed factories or significantly slowed production to fix the problems.
  • Nearly a third of the industry’s manufacturing capacity is off line because of quality issues, according to a Congressional report.”
Beyond shortages of drugs, we as consumers have also seen some truly frightening quality failures.  The following is a list of some of the most high profile quality failures that can be linked to quality cut backs.  Some of the issues on the list were only identified after the product had been distributed to the market place:
  • A failure to add the active ingredient (albuterol) during the manufacture of asthma inhalers.  This failure resulted in the deaths of at least 17 people, several recalls, a consent decree and a $500 million fine for the manufacturer.
  • Vials of drugs for the treatment of Gaucher’s disease or Fabry disease contaminated with particles of steel, rubber, or fiber.  This failure resulted in production stoppage, drug shortages, cessation of related clinical trials, and a permanent injunction against the manufacturer in addition to a $175 million fine.
  •  The contamination of infant formula with insects and insect larvae.
  • The presence of glass flakes in vials of injectable chemotherapies resulting from a breakdown of the vial itself.  This event led to recalls and a drug shortage.
  • A rash of issues with a single manufacturer’s products that led to a recall of nearly 200 million bottles of some of the nation’s most well known over-the-counter drugs.  In this case, FDA inspectors found among other things, “thick dust and grime covering equipment, a hole in the ceiling and duct tape-covered pipes, raw ingredients contaminated by an unspecified bacteria, a lack of quality control procedures and poor handling of complaints.”  This string of events resulted in a press release from FDA urging consumers to stop using 4 entire product lines all together.  This event caused the shutdown of production at an entire plant. 
  • During an inspection of a plant that manufactured sterile injectables, FDA inspectors reported rusty tools, mold, and a barrel of an “unknown liquid” later determined to be urine.  This led to a warning letter, which almost always leads to drug shortages – and it was the 4th given to a manufacturer of sterile products during this time frame.
  • Another manufacturer of sterile chemotherapies was also given a warning letter.  In a particularly disturbing report, the NY Times states the following in a recent article:
“Agency inspectors cited the failure to investigate a number of reported problems at XXX’s plant, including complaints of human hair and fungal growth in vials. 
One former supervisor at the plant said his managers were reluctant to stop the production lines. “It’s like trying to fix your car when you’re driving down the Thruway,” said the former employee, who was recently terminated and said he did not want to be identified because he feared retaliation. Managers ordered shortcuts that compromised quality, he said, and skimped on cleaning to shorten the turnaround time between batches. Afterward, centipedes and spiders were spotted in manufacturing areas, he said.
F.D.A. inspectors cited internal reports of infestations, including a spider and weevils inside vials.” 
For perhaps the first time in my career, I have noticed that consumers are beginning to fear the domestic supply chain.
This is obviously bad news for the consumers, our industry, the potential for medical innovation and the prospect for economic recovery.
Quality systems are groups of integrated tools designed to define, monitor, and control the systems that create and measure the quality of product that patients depend on.  While they do not directly result in the production of manufactured units, they have evolved over time, precisely because we know that they are directly responsible for protecting consumers from the distribution of adulterated and unsafe products.
These systems, if implemented correctly, begin during development and help us establish, maintain, and continually perfect our control over the manufacturing and inspection processes.
Implementing and enforcing effective quality systems allows us to routinely and reliably perform systematic checks on manufactured products by monitoring quality during production and detecting problems before product is released.
Not only do robust quality systems protect consumers from comprised or ineffective product, they also result in the identification of manufacturing issues as far upstream as possible, thereby reducing the financial impact of correcting the problem.  And as if those incentives weren’t enough, robust and effective quality systems are, in fact, required by federal law and failure to design, implement and support them appropriately can result in disciplinary action up to, and including, loss of license to manufacture goods.
As a business owner, I know how challenging these economic realities can be.  I know how severe the pressures to turn a profit are, and I know how difficult it is to continually do more with less.
I also know that when push comes to shove, I don’t decide to cut costs by cutting quality – I choose instead to double down on quality.
It is clear from my view from inside the crucible of quality that the economically-driven choices are indeed having a detrimental effect on the quality of product, the safety of the consumer, and the finances of the companies in question.
It is clear that some manufacturers are choosing to increase turnaround time and volume by cutting or, in some cases, by all together bypassing their quality systems.  The impact of these choices, and the fate of the organizations that make them, is becoming clearer every day.
The fact that these choices are being made is becoming clear within the industry and, perhaps for the first time, it is becoming evident to the typical consumer.
It is also clear that the end game when quality cutting choices are made can and will include one or more of the following:
  • Patients harmed or killed
  • Excessive fines
  • Product recalls shortages
  • Warning letters or consent decrees
  • Exorbitant remedial expenditures
  • Loss of revenue
  • Loss of consumer trust
  • The devaluation of brand names
  • The cessation of innovation and development
For those of you that are paid to worry about the bottom line – here it is:

When you defund, cut, or marginalize quality systems, patients are harmed, supply is threatened, brands are no longer trusted, and fines and remedial costs wipe out profit. 
When you sacrifice quality, there is no upside.


© Coda Corp USA 2012. All rights reserved.
Gina Guido-Redden
Chief Operating Officer
Coda Corp USA

“Quality is never an accident; it is the result of high intention, sincere effort, intelligent direction and skillful execution. It is the wisest of many alternatives.”

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