Costs of Failure in Product Quality

Published on: 
Pharmaceutical Technology, Pharmaceutical Technology-04-02-2012, Volume 36, Issue 4

The authors detail the possible consequences of noncompliance and a lack of quality control.

Advances have been made in the understanding and effective handling of quality issues in the manufacture of pharmaceutical products in the past decade. Sources of quality deficiencies are largely a result of manufacturing processes that lack sufficient risk mitigation, intended and unintended changes in process, inadequately planned equipment budgeting, changes in quality of active and inactive ingredients or their suppliers, and human error. All factors, individually or together, may result in variability in quality, even in routinely manufactured products.

Understanding the major sources of variation is essential to the design and control of robust processes. Over time, a component of a process may drift from its target because of intrinsic or extrinsic factors. These factors may be either unknown initially or considered to be insignificant during development and manufacturing.

Pharmaceutical manufacturing companies must be prepared to face internal and external audits and, most importantly, withstand rigorous regulatory audits without notice. Often a firm will use audits to gather information to correct unknown errors and shortcomings in routine operations to meet cGMP requirements. It is possible, however, that even with careful monitoring and good training, deficiencies in products may occur due to changing regulatory requirements, unknown ingredient changes, modifications in process, equipment changes, increased scientific awareness, and unintended employee negligence. A pharmaceutical manufacturer that lacks quality control may face difficult regulatory issues with unpleasant ramifications, including recalls and FDA Warning Letters. This article highlights some of the key issues that may impact a company that does not ensure quality.

Consumer safety

Product safety is a key focus of all regulatory agencies and drug manufacturers. All drug products must conform to approved or established standards of quality, be safe and effective, and be manufactured according to cGMP requirements per FDA mandate. All lots of drug products released by a company must meet all FDA-approved specifications and standards as well as company requirements, and be supported by required data and proper documentation. Failure to meet a specification of a marketed drug product must be reported to the regulatory agencies promptly and corrective and preventive actions must be initiated immediately.

Common examples of consumer complaints about drug products

Complaints by wholesalers, distributors, pharmacies, or consumers often occur upon noticing products with faulty appearance. Such a product may be defective and result in unnecessary adverse reactions and inadequate efficacy that may lead to direct risk to the well being of the consumer. The obvious inadequacy of the product could be due to one of many reasons (e.g., inadequate formulation characterization or optimization, change in grade of active or inactive ingredients, foreign contaminants, inadequate packaging or manufacturing controls, poor maintenance, manufacturing process changes, and packaging issues such as faulty containerclosure system).

Poor quality in pharmaceuticals is often not visible or otherwise obvious to the consumer, so the quality control and quality assurance (QA) activities performed by the manufacturer are crucial. All products must be manufactured under strict cGMP guidelines and require extensive controls and testing prior to release of the product. Extensive testing is necessary to determine if a product is defective. When a quality issue is suspected at any time, there must be proper investigations, root-cause analyses, and action plans to address issues (1). In addition, if the products do not meet specifications, all affected lots of the drug products must be recalled from distribution after informing FDA and other regulatory agencies. Lots that have not been distributed should be quarantined to prevent distribution.

Common examples of how a lack in quality can affect company personnel

Moral and morale issues

Moral issues are determinations of what is ethically right or wrong. Even if a product meets specifications, there may be lingering doubt regarding the product, and the "right thing" may be not to release the product or to have a market withdrawal. Morale issues, on the other hand, are internal issues that keep the employees dedicated and happy with their employer.

Morale and moral problems are not easily measured in financial terms. The short-term and long-terms effects could be devastating for a company's competitive superiority, new product development, and associated product quality. Recurring recalls, a regulatory notice about a company's product quality, adverse publicity, and imminent punitive actions can have a negative impact on the morale of company personnel. These actions adversely affect all personnel across the organization including R&D, operations, sales and marketing, and other departments.

Insufficient attention to quality may lead to distrust between workers and their management. Failures to meet acceptable quality guidelines (i.e., cGMP) and failure to develop and follow proper guidelines and standards may be perceived by some employees as a direct consequence of lack of proper support by management. This may result in the loss of key employees and lower productivity by employees who choose to stay and remedy the deficiencies. Loss of knowledgeable and experienced people also results in loss of know-how and technology to competitors eager to attract experienced and talented workers. The damages resulting from such loss may be significant but hard to quantitate. Overall, the productivity of the company may drop significantly not only due to lost employees but also due to negative impact on employee behavior. This need may result in overburdened employees taking on additional workload to support ongoing and future business needs. These potential problems can be avoided, or at least minimized, by strong governance by top management, and a relentless focus on quality as an overarching business objective to ensure satisfied customers, government regulators, and satisfied employees.

Reputation and credibility

Negative regulatory actions (i.e., audits by regulatory authorities pointing to noncompliance observations, excess recalls, warning letters, and product seizures) cause extreme stress on the company, its management, and its employees. Customers question the quality of production of not only a product that failed specifications or had to be recalled, but also the company's operations in general. FDA may decide to not approve or accept any new filings, and the various government organizations (e.g., Veterans Administration) may not accept any product from a company that is under a warning letter or other punitive actions from FDA. Management concerns include loss of confidence in certain areas, moral issues concerning product safety, and their own image in the regulatory, professional, and business worlds. Management must develop strategies to address the situation on hand, to motivate employees, to communicate with suppliers and vendors, and to deal with national and international regulatory agencies where company products are sold. They also have to deal with ever-present challenges to keep employees motivated, productive, and dedicated to resolving regulatory problems. In addition, they must develop plans to alleviate employee issues and stop the loss of talent and technology to competition. The situation may deteriorate to an extent that a good number of experienced employees leave the company and key supervisors must be replaced. This may have a significant negative operational effect with an immeasurable cost to the company. Replacing an experienced employee is not only financially costly but may lead to lower employee morale. If not well trained and sufficiently experienced, a new employee may have a relatively small chance of success under difficult circumstances and may introduce his own issues in dealing with other employees and management with preconceived expectations.

Examples of challenges faced by a company after receiving an FDA Warning Letter or a similar regulatory noncompliance notification

Financial impact


Often the financial cost of quality deficiencies is measured by lost sales, lower production with increased production costs, and increased costs of material. Although these may represent direct cost, the indirect loss may be devastating for some companies and to a lesser extent for others with large cash-balance. However, on a relative basis, all companies will suffer tremendous loss that may be in tens of millions for smaller companies and in hundreds of millions or even more for larger companies. In the past several years, in addition to regulatory and monetary penalties, several companies became take-over targets and smaller companies have altogether disappeared because of inadequate quality in their operations and an inability to rectify the situation.

The management team of a company, under constant internal and external pressures, has to develop effective plans and support mechanisms to address regulatory challenges, become fully compliant, and thwart competitive pressures with a positive influence on company's current and potential customers. Also, plans may have to be developed to address concerns and alleviate challenges raised by regulators, employees, financial institutions, public interest groups, investors, and stockholders.

Examples of the operational and financial impact of Warning Letters or other regulatory actions due to product quality issues

Cost of outside consultants and higher production costs. The costs of bringing in outside expert consultants are high for big and small companies. Costs include not only those to resolve the immediate issues, but additional costs to have the appropriate proactive controls to avoid recurrence at all company facilities. Some companies may not have sufficient means to bear this cost. Although absolutely necessary for a long-term recovery and future profitability, hiring external experts impacts day-to-day work, output, efficiency, and morale. Personnel, equipment, and other resources need to be set aside and dedicated to the needs of the outside experts that may impact output and efficiency of the employees. Rebuilding proactive culture that avoids future problems and attends to moral and morale problems may be quite expensive and time consuming. This endeavor may also include consultants' expertise to build systems, troubleshooting emerging problems, and implement new technologies. The time taken and the cost of reactive remediation are several times more expensive than a proactive culture that avoids future problems (2). Due to specific goals, external experts may initiate different work orders or tasks and thus establish a significantly different work culture that may exert additional pressure and impact the productivity of the employees while the needed positive transformation gradually occurs. A great deal of employees' time is invested in the extra workload generated, which will impact their assigned tasks and goals. Thus, the employees' burnout rate escalates, and output is further compromised. Some of these are reflected as increased number of mistakes, lack of ownership, loss of initiative, and decreased interest in innovation to sustain business needs.

Higher production costs appear to be an inevitable result of recovery from regulatory and product issues. A drug manufacturer must be aware that each company must have proactive programs that may lead to additional production costs (3, 4). Thus, seemingly innocuous differences in an ingredient, active or inactive, may have a crucial effect on product quality and, therefore, result in higher production costs. For example, a small difference in the grade of petrolatum and even a different supplier with the same grade and specifications in a semisolid product may significantly change the product's appearance and long-term stability. A slight change in the particle size distribution of an ingredient may significantly affect product's quality and bioavailability.

As a result of such changes, even if the problem does not show out-of-specification results at the time of batch release, all dispatched or released batches need to be recalled, returned, or replaced with acceptable lots. Other contributing factors that increase production costs may include lower yield, higher scrap, more deviations and rejections to investigate, longer costly inventory hold times, production downtime to troubleshoot, and perhaps more complaints. Although such issues cannot be eliminated, proactive programs should be able to reduce their frequency and, therefore, minimize their effects.

As often stated in FDA Warning Letters, the company must re-evaluate its entire operations and quality procedures even for the products for which no problems have been noticed either by external auditors or using internal QA. Thus, company's overall productivity and profitability is seriously compromised.

Loss of trust

A company that receives an adverse quality communication (i.e., a warning letter, excess recalls, and seizures) faces mistrust and questions from everyone that has business dealings with the company. For example, will the company not be able to produce quality products and have adequate supply to satisfy the need in the market? Would the company be able to obtain an approval and supply a new product(s)?

A company may lose its influence with vendors to negotiate aggressive pricing and priority supply of materials. Vendors may ask to be paid in advance before supplying raw materials, and may become slow in responding to concerns about technical support of respective raw materials. Financial institutions may reduce credit, demand payments earlier than scheduled for financial services, and may even raise their interest rates. They may also refuse to provide additional credit and funds to satisfy current needs of the company.

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

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.

Examples of business losses due to lack of quality

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.

Consequences of violations of the Food, Drug, and Cosmetic Act

Violations of the Food, Drug, and Cosmetic Act are not only expensive but may lead to extensive civil as well as criminal liability against the products, the companies, and individuals deemed responsible (10). While a product recall is generally a voluntary action by the distributor, the Act provides the authority for a seizure action against the product. This would occur if, for any reason, there were a refusal to recall or a recall was ineffective. In addition, the Act authorizes actions to enjoin the parties involved in the violations of the Act. Such injunctive actions by the courts includes court ordered plant closures and enjoining individual defendants for violations of the Act or even operating a pharmaceutical company in violation of the statues. The Act also authorizes the criminal prosecution for violations of the Act. A person may be prosecuted and serve a term in prison even if they can demonstrate they had no intention to violate the Act. While such strict liability may be quite onerous, the legislation deemed this necessary to protect the public health.

Finally, perhaps one of the strongest and most widely used action in the FDA arsenal is to issue (or share its intention to issue) a press release to alert the public of regulatory violations by a company. Press releases lead hesitant distributors to decide on recalling a nonconforming product (and therefore, avoid a seizure action against the product) and even to close plants for taking corrective and preventive measures to bring the manufacturing facilities into compliance.


Often, the financial cost of a failure in quality is measured by lost sales and increased costs of material. While these may represent direct cost, the indirect loss may be devastating for some companies and damaging to a lesser extent for others with a large cash-balance. Understanding the major sources of variation is essential to the design and control of robust processes in the manufacture of pharmaceuticals. Failure to adequately detect emerging problems, control processes, and prevent defects can pose risk to consumers, affect product availability, and yield undesirable regulatory and business outcomes. Sources of variability may include inadequate training, poorly understood standard operating procedures, processing parameters that are not well understood, lack of skill sets, lack of procedural control, and inadequate resources. A key source is possible human error and inadequate change control management and risk management. Unsuitable equipment, deficient preventive maintenance, and inadequate equipment calibration also lead to process variability. Inadequate understanding of the inherent variability and inappropriate characterization of excipients, APIs, and components can lead to an unacceptable process variation, and can be one of the most complex areas to track during the lifecycle of a pharmaceutical product.

If not controlled, these factors may lead to poor quality, product failure, regulatory enforcement actions, and ultimately have significant impact on profitability and potentially on the viability of the manufacturer. Notwithstanding the financial impact, for recurring and serious regulatory violations resulting in harm, the manufacturers and their senior executives are liable for civil as well as monetary penalties to consumers, to regulators, and to their shareholders.


The authors would like to thank Rick Friedman (US FDA), Rajendra Uppoor (US FDA), Margaret Szymczak, and Vinod Shah (USP) for their invaluable input, comments, and suggestions for this paper. Friedman, Uppoor, and Szymczak participated with Avraham Yacobi on the first PQRIFDA workshop on Process Drift.

Satish Asotra is an independent consultant and founder of Pharmaceuticals Development, Regulatory and Process Management Consulting Group. Alexander Cossin is an independent consultant. Avraham Yacobi* is an independent consultant and a member of the Board of Directors, Product Quality Research Institute, and founder of Pharmaceuticals Development, Regulatory and Process Management Consulting Group,

*To whom all correspondence should be addressed.


1. "Drug Makers Catch FDA's Drift, Look to Reduce Variability," The Gold Sheet, 45, (1), 2011.

2. Jeffrey Macher, "A Practical Approach to Effective Lifestyle Implementation of Systems and Processes for Pharmaceutical Manufacturing," Business Case for Quality, Pharmaceutical Quality Systems (ICH Q10) Conference, Arlington, VA, Oct 46, 2011 and Brussels, Belgium, Nov. 1416, 2011.

3. PQRIFDA Workshop on Process Drift: Detection, Measurement, and Control in the Manufacture of Pharmaceuticals (Bethesda, MD, Dec. 13, 2010.

4. Margaret M. Szymczak et al., Pharm. Tech., 35 (10) 70-74 2011.

5. FDA, The Small Biz Buzz, CDER Small Business Update Thursday December 22, 2011; "Ben Venue LaboratoriesVoluntary Shutdown;" FDA Recalls, Updated Jan. 12, 2012.

6. FDA, Subject Drug Information UpdateFDA, Justice Department Take Action Against McNeil-PPC Inc., Mar. 10, 2011.

7. Expert Briefings, Dec. 22, 2011.

8. FDA, Press Release, "Department of Justice Files Consent Decree of Permanent Injunction Against Ranbaxy," Jan. 25, 2012.

9. Novartis Consumer Health Press Release, Jan. 12, 2012, issues voluntary Nationwide Recall of Certain Over-the-Counter Products.

10. Citations, Federal Food Drug and Cosmetic Act (21 U.S.C. 331337): Prohibited Acts and Penalties Sections 301-307.