Costs of Failure in Product Quality - Pharmaceutical Technology

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Costs of Failure in Product Quality
The authors detail the possible consequences of noncompliance and a lack of quality control.

Pharmaceutical Technology
Volume 36, Issue 4, pp. 110-118

Loss of business in a competitive market

Loss of business due to product quality concerns is a serious issue in a highly competitive market, especially in generics, where a customer often has many choices for the same product. This may impact vendors and suppliers of raw materials as the drug manufacturer may decide to delay or even cancel intended or placed orders for components. The wholesale and retail industries may not receive the finished product and thus charge the manufacturer for a failure to deliver the goods on the due date (typically under a contract). In addition, the wholesaler and retailer may charge the manufacturer for higher costs they incur for delays in procuring products for their chains or outlets from other sources. Furthermore, customers may demand more favorable terms for purchasing products.

Continuous regulatory scrutiny

Examples of business losses due to lack of quality
An FDA Warning Letter may affect the agency's overall dealings with the cited company. When a company receives an FDA Warning Letter, the agency is stating that the current quality status and practices of the company are not acceptable. Despite sincere, expensive, lengthy, and scientific attempts to correct current practices in order to bring them in line with regulatory requirements, such efforts may not be immediately sufficient for the company to bring its status back into compliance. It may take two to three years or even longer for all the remedial efforts to be completed to the liking of company management, auditors, and regulatory agencies.

Warning Letters (especially multiple warning letters) often result in the regulatory agency requiring the company to enter into a court ordered consent decree. In the case of consent decree, the company is under constant surveillance by the regulatory agency (and often an outside consulting company). Such a punitive activity is costly, usually lengthy, further lowers company morale, and makes future growth difficult. No company wants to reach the point where a consent decree is necessary. The cumulative costs of fines imposed by the decree, product recalls and withdrawals, lower or even absence of production, and the required payments to outside consultants can be astronomical and have a major impact on profitability and survival of the company.

Many companies have recently been targeted and warned by FDA for non-compliance of regulatory requirements that resulted in compromise with product quality. These issues have resulted in many recalls, the closure of manufacturing facilities, civil monetary penalties, and the possibility of regulatory actions under criminal liability provisions. Some companies, such as Ben Venue Laboratories, have ceased production and recalled products, others have either been closed for years or have agreed to larger penalties (5).

The Johnson & Johnson unit McNeilPPC provides a good example of implications of such a punitive action on the business entity (6). After adverse publicity, numerous recalls, plant closures, loss of sales, and heated congressional hearings, FDA announced that they finalized the terms of a consent decree against the J&J unit and two of its officers for failing to comply with current good manufacturing practice requirements (7). In the consent decree that was filed with the US District Court for the Eastern District of Pennsylvania in Philadelphia, if the defendants violated the decree, the court may order McNeil to cease manufacturing, recall products, and take other corrective action, including levying fines of $15,000 for each day and an additional $15,000 for each violation of the law, up to $10 million annually. Manufacturing deficiencies at McNeil's facilities resulted in extensive recall of several lots of liquid products such as children's Tylenol, Motrin, Zyrtec, and Benadryl products. It is believed that this consent decree may have added to the company's woes after the initial product recalls had lowered sales significantly (7).

Ranbaxy held a first-to-file status for the generic equivalent of Pfizer's Lipitor and according to press reports, recently agreed to pay $500 million to resolve its long-outstanding manufacturing issues and clear the way for FDA approval for its generic version of the mega-blockbuster drug used for the lowering of elevated cholesterol and triglycerides in patients (8).

According to press reports, drug regulators cited Novartis AG for "significant violations" of manufacturing regulations at its three generic drug plants in the US and Canada, several of which were repeat offenses. "We are concerned that your firm lacks process understanding to consistently manufacture" the particular injectable, FDA wrote in the letter dated November 18-2011 to Novartis CEO Joseph Jimenez in Switzerland (9). A Novartis spokesman said the company was "working closely with the FDA to ensure all observations regarding its US and Canadian production facilities are resolved to the Agency's full satisfaction. (is this the end of the quote?" Recently, there have been announcements regarding recalls of products manufactured at Novartis' Lincoln, Nebraska facility and the temporary closure of that facility (9).

These are not isolated examples. Recalls, plant closures, and civil penalties have become common for domestic and overseas plants manufacturing products for sale in the US as FDA regulators have paid increased attention to process-drift-related issues and expect that companies are proactive in their approaches to avoid and address product quality issues for products intended for sale in the US.


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