Are Your Foreign Manufacturing Sites FDA-Ready?

By James Prutow, Frances Palomar, and Vignesh Ramesh

FDA inspections of overseas plants manufacturing pharmaceuticals and medical devices sold in the U.S. market are on the rise. The inspection frequency for a foreign manufacturing plant was once in nine years, as compared to once in 30 months for plants based in the United States, according to a 2010 GAO Report. While the FDA has long focused its time and resources to inspecting plants inside the United States, there is now a strong trend indicating a shift in this approach, driven by two major factors:

Slowing U.S. Growth/Strong Overseas Demand: Due to sluggish growth within the United States, it has become imperative for companies to drive down costs in order to remain profitable. The FDA realizes that more than 50% of pharmaceuticals and medical devices sold in the United States are supplied by factories overseas. As U.S. companies are expanding to meet growing demand from the global market, they are also trying to maintain a low-cost global supply chain.

Major Quality Nonconformances From Market Leaders: Another driver to the FDA’s shift has been the recent wave of well-publicized quality mishaps from market leaders with a global manufacturing footprint. For example, quality issues at an Asian API supplier of a large pharmaceutical company resulted in multiple allergic responses and deaths in the United States. In another case, a global drug manufacturer suffered multiple international recalls in the past year. Finally, another large pharmaceutical company headquartered in Asia suffered a number of problems with its API supply resulting in extended quality holds and recalls in the United States. The agency is under intense pressure to ensure that the quality of drugs and medical devices sold in the United States meets required standards.

The FDA’s Response
In response, the FDA is stepping up its enforcement activities through warning letters, 483s, consent decrees, and other enforcement activities related to good manufacturing practices (GMPs). For instance, GMPs have doubled between 2008 and 2011. Additionally, the FDA’s budget has nearly doubled since 2008, from $2.1B to $4.1B in FY2011.

In particular, the agency increased the 2011 budget for manufacturing plant inspections (domestic and international) to $135M — a jump of more than 30% from the previous year, according to a PwC (PricewaterhouseCoopers) analysis.

This increase in budget is equipping the FDA to pay increasing attention to overseas plants, among other high priority initiatives. To reinforce its presence abroad, the agency has added staff and/or opened international offices in every major continent and country in the past three years. In 2010, 10% of inspections were outside the United States; this percentage is expected to increase substantially with the addition of these offices.

Inspections of Generic Manufacturers
In addition to the overall increase in resources, the agency is poised to receive a significant boost in international inspection funding over the next few years. Congressional leaders will deliberate on the proposed legislation in 2012, which will launch user fees for generics manufacturers. These fees are similar to what branded pharmaceutical companies have paid in the past and would fund the significant expansion required to inspect generic manufacturing plants overseas. These inspections would include the manufacturers of APIs as well as those of finished doses. Many of these manufacturing plants are also part of the global supply chain of brand pharmaceuticals sold in the United States.

The end goal is to bridge the large compliance gap between domestic and foreign inspections over the next several years. Therefore, life science executives should be prepared to face scrutiny of their overseas supply chain by the FDA.

Why should CEOs Care?
Failed GMP inspections have an enormous impact on revenue and the brand of the company. Besides the obvious loss in direct product revenue from recalls, quality holds, import bans, and consent decrees, the brand of the company suffers. As illustrated in Figure 1, the impact of quality issues spans all business functions.

A poor report from the FDA could even damage partnerships with overseas suppliers. Governments and companies in developing countries are sensitive to quality problems, especially if the company is requesting permission to conduct clinical trials in that country. If a multinational drug or device company has a record of failed inspections, it might lose out to rivals in establishing or renewing relationships in those countries.

Conversely, successful FDA inspections could give a well-prepared company a competitive advantage. A company with a robust quality system is less likely to suffer disruptions from recalls, quality holds, or import bans. These companies can gain a reputation for reliability during a time of uncertainty and distrust within the global market.

To gain that advantage, executives should identify sites within their manufacturing network that might be a soft target internationally. At a minimum, foreign sites should be compliant with the quality system regulations (QSRs): 21 Code of Federal Regulations (CFR) 210-211 for pharmaceuticals and biotech and 21 CFR 820 for medical devices.

How to Proceed
Managing compliance in the overseas supply chain can be an enormous challenge. It is important to set priorities and to prepare for a multistage process.

Step 1 – Assess: The first step is to assess the quality levels of all facilities, whether owned or contracted. Identify processes which are directly impacting product quality. Which sites need the most attention, because of their systemic issues or their importance in serving the U.S. market?

Step 2 – Address Systemic Quality Gaps: Next, systemic gaps in processes must be addressed with the approach of sustaining quality (vs. the band-aid approach). The goal is not just to get the paperwork in order but to invest in a culture of quality that can be preserved over time.

Step 3 – Reassess: Sustainability is key to success. Once the changes have settled in, companies need to reassess quality levels and capabilities — even multiple times. Managing quality is an ongoing effort, not just a one-time program. Figure 2 breaks these steps down in more detail.

The FDA’s compliance list provides a good reference point for pharmaceutical and life science executives charged with assessing their company’s quality systems. Through an empirical analysis of observations cited by the agency, PwC identified “hot items” to be aware of on the FDA’s compliance list. While plants outside the United States may have different dynamics, the results indicate the FDA’s leading concerns. For example, the most common failing had to do with the plant not following through on a corrective and preventive action (CAPA) process in response to external complaints. The next most common observation involved inadequate or poor design controls. Poor training of personnel was also common. Lastly, inadequate risk management for both products and processes was a major shortfall. Compliance in all of these areas is required while building a discipline around quality. There is no quick fix.

Forward-Looking Executives Will Benefit
The FDA is poised to ramp up foreign inspections in the near future. While some pharmaceutical and life science leaders may be tempted to put off quality measures overseas until clear regulatory oversight is established, forward-looking executives will make the most of the lead time to meet the new compliance challenge in a careful, sustainable way. They will address systemic issues by lowering cost, streamlining quality operations, and promoting a culture of quality. This investment will equip the company to remain competitive in this stringent regulatory era and position it for long-term advantages over the next decade.

About The Authors
Jim Prutow is a principal in PwC’s Health Industries Advisory Practice, and Frances Palomar and Vignesh Ramesh are senior associates in PwC’s Health Industries Advisory Practice.