Over-engineering in pharmaceutical companies is pushing up the cost of drugs. But these could be lowered, saving as much as £3 million on a £20 million plant.
Research shows that more than half of the UK's largest pharmaceutical companies are paying up to
£3 million more than they need to, out of the £20 million typical costs of a manufacturing plant.
Shepherd, one of Europe's largest privately owned design, engineering and construction companies with particular expertise in the pharmaceutical industry, commissioned the research to identify how pharmaceutical companies could drive down pharmaceutical production costs. This could result in more drugs being prescribed on the National Health Service.
The research identified four areas which would produce significant cost savings: greater standardisation of process equipment and batch sizes; closer team-working between clinical trials and production departments; closer team-working with suppliers; and more focused validation to meet regulatory requirements more precisely.
Validation is the procedure which proves to regulatory authorities that a drug and its manufacturing processes meet quality standards.
Pharmaceutical companies quoted widely varying validation costs, ranging from 1 per cent of capital costs to more than 20 per cent. A quarter were in the 6 per cent
10 per cent bracket and a further quarter in the 11 per cent15 per cent bracket.
Ron Pearson, Head of the Pharmaceutical Division at Shepherd, said: "Of course costs will vary according to the nature of the drug and where it is being sold. But in our view facility validation should not go above 6 per cent. Certainly anything over
15 per cent is completely unnecessary.
"Validation costs escalate beyond the 6 per cent norm for a number of reasons, mostly because of inexperience and a lack of planning. The industry has a natural desire for abelts and braces'. It has also developed historical agold standards' in production which are now often over-specified and cause unnecessary costs.“
Shepherd carried out the research because it is increasingly being asked by pharmaceutical companies to advise on best practices to reduce costs. Pharmaceutical companies are particularly interested in the construction industry's own partnering initiatives.
Pearson said: "We struggle to give best advice to pharmaceutical companies because their practices are at odds with what they profess to want. A classic example is partnering the process of suppliers working as a supportive team with clients from the earliest stages of a project.
"Pharmaceutical companies want to involve suppliers in the early stages of designing manufacturing processes and plant for a new drug advising them on specifications, systems and equipment. Yet their procurement departments require purchases to be made strictly on the basis of lowest price in a tender process. Advising on specifications is seen as acheating' because the specifier can play to their own strengths.“
Pearson believes pharmaceutical companies can learn from other industries, such as micro-electronics: "Most of our recommendations will not only drive costs down but also vastly improve the speed of drug-to-market. A company vying to market a new drug before its patent expires or before a competitor introduces a similar one faces similar issues to an electronics company rushing to get its latest mobile phone to market. There is only a small window of competitive advantage and companies need the slickest of manufacturing processes to maximise these.
"We hope this report will highlight areas for improvement within the industry and encourage the industry to debate and resolve many of the areas of conflict which it reveals.“
Shepherd has more than 20 years experience of working with the pharmaceutical industry. Its expertise covers feasibility studies, design, engineering, construction, process engineering, validation, cleanroom technology, funding and facilities management. They have particular expertise in helping clients with a complete project from designing, building and engineering to validating a new facility.
Shepherd commissioned an independent marketing company, IAS Marketing and Communications, to carry out research into production issues in the UK's pharmaceutical industry. In-depth telephone interviews were carried out in August 2000 with 52 senior personnel from the UK's leading pharmaceutical companies.
Those interviewed were asked to identify the key issues facing the industry and discuss how these are affecting the production process. In particular, interviewees were asked about pressures of both cost and speed-to-market of drug production.
Shepherd calculated that pharmaceutical companies could save up to £3m on a typical £20m new manufacturing plant with savings in three areas: u Validation many companies could save up to
10 per cent £2m. u Equipment is 50 per cent of total cost
5 per cent is an easy saving to achieve £0.5m. u Building costs with simplified engineering could be reduced by 30 per cent building costs account for 17 per cent of a project cost £1m.
Partnering and how it could help the pharmaceutical industry is described in detail at Appendix 1 of Shepherd's report. In the construction industry, leading construction companies are now establishing a partnering approach between client and contractor and also with the contractor's supply chain. The partnering approach has already been developed by companies and organisations through initiatives such as: National Health Service through Procure 21 and Glaxo Research with its The basic concept of partnering is defined as: "A management approach used by two or more organisations to achieve specific business objectives by maximising the effectiveness of each participants resources. The approach is based upon mutual objectives, an agreed method of problem resolution and an active search for continuous measurable improvement.“
The benefits of partnering for pharmaceutical companies are: u Achieving abest value'. This does not necessarily mean cheapest capital cost but does mean cheapest whole life cycle cost by taking into account running costs, including energy and maintenance. u Too often many diligent hours are spent on determining the architectural features of a building or interior finishes when they have little chance to improve product quality, plant efficiency or impact final cost. u The two areas that most affect the project cost, both capital and running cost, are the process equipment and the mechanical services. However, they also carry a large potential risk where cost reductions could affect product quality and/or plant capacity. u By partnering with a designer/contractor and by conducting value engineering workshops, effort can be concentrated in the right areas to achieve a budget that can be relied upon by all parties. It is important to get the building costs right, but the primary focus should be on the process equipment and the mechanical services which on average carry 75 per cent of the project cost. u Each cost decision made carries with it an associated risk that may or may not affect the quality of the product or facility performance. Individual project teams analyse these decisions for each completed project. The decision process varies depending on each team's tolerance for risk and need to limit cost. These different decision strategies lead to the large cost variances we see in pharmaceutical projects. u
Shepherd Solutions is based in York, UK. A copy of the report, Driving Costs Down in Pharmaceutical Production, is available on www.shepherdsolutions.com