By Girish Malhotra, PE, President, EPCOT International

Since 2001, a number of three-letter acronyms have been coined within the pharmaceutical industry. They have become a topic of discussion at conferences, in magazines and around water coolers. Everyone wants to have a “Quality by Design” (QbD) process but the industry is stuck in “Quality by Analysis” (QbA) mode. It is fascinating that everyone wants something to happen but no one has figured out how to “bell the cat”.

I believe the greatest opportunities for QbD lie in processes yet to be commercialized. But what about for existing processes? Challenges remain, because people are apprehensive to invest money to convert processes, and the economic justifications for doing so are lacking.

Most companies develop a QbD process during laboratory development. However, due to the type and configuration of the equipment available in the plant, we end up with a QbA process. That is, we have a “Square Peg in a Round Hole” [1]:

Chemists/Chemical Engineers develop an optimum (quality by design) process for an active pharmaceutical ingredient. During the scale up and commercialization process they find that they do not have the right size equipment and/or the configuration that exacts their desired process. However, there is a high demand for the product. Considerable monies can be earned if we produce and market this product quickly without large investment. We can alter the process or modify the existing equipment at a minimum cost to fit the process in the available equipment. The product is being produced in equipment that is not a perfect fit. It requires continuous quality analysis and equipment cleaning to minimize contamination.

The alternative is to make investments to conform the existing plant equipment that will incorporate an optimized, QbD process. Unfortunately, many plants and/or companies do not have the luxury for such an investment. But how do they know?

Drug manufacturing has two steps:

1.    API manufacture: Various raw materials are reacted and the final product is purified in the desired form to produce a finished product that would be blended with inert excipients.

2.    Tablet manufacture: API is blended with appropriate inert excipients. A tablet is produced and packaged.

Loss of significant dollars (six figures) per batch has been suggested as the justification for improvement implementations. Since the loss point is not mentioned, it is assumed that these losses are at drug formulation stage rather than at API manufacture stage. API, though it is the critical component, generally is not discussed and is treated as an orphan.

If the loss numbers are truthful, anyone and everyone would have jumped in and implemented improvements, as the quoted numbers are large enough to justify investments. There would not be any argument about the value of QbD.

Since we are still talking about these acronyms after nine years suggests that we do not have compelling financial justification to implement projects that will convert an existing QbA process to a QbD process and would be blessed by the regulators. If we did, the “C-levels” at corporations would have been asking why the projects have not been completed. Something else is missing in the whole scenario.

Justifying Investments for API Manufacturing

Allow me to present one perspective on justifying investments to support QbD, based upon my manufacturing, process development and operations background, and my P&L experiences. For the purposes of this article, the analysis is simple, but more detailed analysis can be performed.

API annual volume depends on the dosage and sales. Table 1 illustrates API needs per year for a billion dollar per year revenue at different average wholesale price (AWP) [2]. It is assumed that the API-to-tablet conversion yield is 80%

Tables 2 and 3 illustrate ROI (pay back time) calculation for a 200-milligram tablet sold at two different price levels. These are hypothetical examples. Savings are based on factory cost rather than the selling price, as it should be done according generally acceptable accounting principles. A tax rate of 33% is used. API factory cost is about $45 per kilo. API costs can be calculated as illustrated [2]. If this API is sold at 40% gross margin and converted to a 200-milligram tablet, the cost of API in each tablet would be about 1.9 cents.

I have used $500,000 for capital expenditure and expenditure of $1,000,000 for regulatory approval. These are just numbers and readers can change them for their own analysis. The cost of regulatory approval time is not part of the analysis. It is assumed that the regulatory approval will be post haste and does not require any other investment.

Based on the above tables, it is obvious that the payback time for the APIs for these billion dollar drugs will be long. As the wholesale price goes up, volume of API needed drops, and the justification becomes increasingly difficult. If the expenditure goes down, the justification becomes easier. If the API factory cost goes up, the justification might become easier.

Due to limited patent life, a brand company most likely will manufacture the API until the patents expire, and that time could be less than the payback months. Clearly, this would be a deterrent for a product specific investment. In addition, it is obvious from these tables that as the API volume declines, which will be due to lower dosage needed, justification will become even harder.

If the above API batch (e.g. 1,000 kilo) has to be disposed as waste, it will cost the company $45,000 of material and conversion cost. Added disposal cost can be expensive ($200 per drum). If such a situation develops, it is a clear example of poor translation and commercialization of a laboratory process.

Justifying Investments for Tablets

A similar analysis can be done for tablets and we can calculate payback time for any investment. A kilogram of API at 80% formulation yield will produce about 4,000 200-milligram tablets. Let us assume that the factory cost to blend, form tablets and package is about twenty cents per tablet. Factory cost of packaged $3.00 AWP drug and $10.00 drug would be $ 67.00 million and $ 20.00 million dollars respectively. Since the tablet factory cost dollars are high compared to API, depending on savings it may be easier to justify saving and regulatory investments in the formulation area.

If the tablet batch has to be dumped, the write-off dollars go up very quickly. Thus it is imperative that the formulation processes and related operations be very thoroughly understood and commercialized. In addition, we have to recognize that two distinct manufacturing operations make a drug manufacture; it is important that any improvement justification in each case be done on its own merits rather than being lumped as one.

Conclusions

From the above discussion, one can see that the financial justification for any investment in API process improvements becomes difficult due to regulatory expense. Thus, it is prudent and logical that we have the best processes from the get go that are based on chemistry and chemical engineering principles and can be called a QbD process.

Formulation processes do provide a higher opportunity compared to API manufacturing, but since the industry has been able to meet margins expected by investment analysts, bold steps have not been considered. Regulatory re-approval processes are also a deterrent. I am afraid that unless big Pharma changes change will be made for them. What do you think?

References

1.    Malhotra, Girish. Square Plug in Round Hole: Does this Scenario Exist in Pharmaceuticals?
2.    Malhotra, Girish: Pharmaceutical Costs, Technology Innovation, Opportunity and Reality.

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