Disclaimer

All opinions are my own.

Wednesday, October 16, 2019

Are USFDA 483 Citations a "Medal of Honor" or “Rite of Passage” to Disgrace for the Pharma companies?

Lately frequency of FDA 483 (1) citations for companies from China and India have increased. Should they be considered a badge of honor for making the elite club or sign of poor management? Conclusion depends on reader’s perspective. Perspective presented here is mine and there is no financial or any other obligation with any educational/commercial or regulatory body.

To each engineering purist and practitioner every process’s design and practice are execution of precise science. Defined practice results in repeatable quality product. Any deviations will result in off-specification results. Corrections to produce quality are expensive and negatively impact financial results of every operating company. This is a known fact and does not need to be repeated over and over again.

Getting a 483 citation is telling of mindset and culture of every manufacturing company. It is an indication that they have difficulty living up to their commitment they have made to the regulators and their shareholders. They also tell everyone that their manufacturing and product quality has issues and every element of the manufacturing process needs attention. Without crossing every “t” and dotting every “i” they will suffer on an ongoing basis. Corrective actions are needed for their mind set, thought process and execution of their strategies. All this might seem demanding and difficult but would be needed for their longevity. Corrective effort is needed. 

As they say it takes two to tango. My conjecture is that manufacturing companies and the regulators are equally responsible for 483 citations. For product quality each has a role to play. Best is to start with the regulatory approval process as it defines expectations for the product quality and manufacturing behavior. 

Current ANDA Filing Process:

FDA’s current ANDA approval process is cumbersome and iterative at best. FDA might believe that it has a simple and precise filing and approval process but unfortunately the overall process is long and expensive. Since it takes few multiples of 90 days to get an approval, everyone calls the process burdensome and festered with “continuous back and forth busy work”. Simply, I call the current process a “Quality by Analysis (aggravation)” exercise. USFDA needs to simplify the process, define a clear road map and directions to facilitate the process (2,3,4,5). FDA has been preaching companies to practice QbD (quality by design) but it cannot follow it. They have to practice if they want companies to follow (6). Once such practice is put in place, my hope is we will see increased competition and significant drug cost reductions. 

Manufacturing Company Obligation:

Generally ANDA approval process demands manufacturing company using FDA instructions detail what and how it intends to manage and control every nuance of their manufacturing process, product quality as well as the needed paperwork. It is company’s moral as well legal obligation to abide by all of its commitments that are spelled out in their ANDA application. 

If any company for any reason does not and cannot follow its commitment outlined in its ANDA, regulatory body should not be suggesting repeated “voluntary corrective actions (7)” but issuing “official action (8)” to stop manufacture and shipments. Prolonged voluntary actions and ensuing corrective action delays suggest that the company is playing with the regulators. In addition, I believe regulators are also hesitant to make hard decisions. 

My conjecture is that 483 citations should not happen at all if company clearly knows and understands its manufacturing process, all of its nuances and files all of the necessary information from the get go for regulatory approval. Process centricity at companies is the key for a robust process (9)

It is very possible that FDA personnel due to lack of manufacturing experience might not understand technology innovations. Companies might have to prove their value to FDA. Companies know more about their process than the regulators. I believe repeat product quality from such processes should be proof enough. 

Since the ANDA filing and approval process is long, a blatant question needs to be answered. Does FDA have people who have hands on chemists and engineers who understand nuances of manufacturing. Can they lay out necessary and simple road maps for ANDA filings? If not, the ANDA approval process will remain flawed and prolonged like we have.                

Can 483s be Minimized/Avoided?

Answer is unequivocal YES. If I was running a pharma company and received a 483 citation, it would be the most humiliating thing happened. This would be totally unacceptable as we failed to live to the commitment made. To avoid 483s from happening again, situations that led to citation have to be corrected. This would include a complete review of products, their process design, manufacturing practice, equipment design and production scheduling. Their batch process instructions have to be reviewed and everything has to be electronically recorded and monitored. Process might sound stringent but is necessary for continued success. 

I can see why these citations are happening. They could be combination of too many products being produced in the same equipment, scheduling, raw material, cGMP and personnel issues. Training might be an issue also. Equipment upgrades might be necessary and that could be a financial strain. Operating strategies and methods have to be reviewed. 

Based on my experience if a company does not have control of its manufacturing process and related actions, the process will deviate from its established norms. These deviations will show up in its paperwork no matter how much effort is made to conceal them. This is normal. 

Companies have to be on top of their game 24x7x50 hours per year. They have to be held responsible and accountable for every processing step. Product quality is serious business especially in healthcare. “C” and “E” levels at every company understand the ramifications of less than quality. 

Companies have to bear financial consequences of repeat 483s and their shareholders should question company’s management on a corrective action schedule. If I were a regulator, after the first 483, I would recommend Official Action be taken against the site. Only then companies will understand that product quality is critical for their own ongoing existence. 

Unless regulators take a tough stand, I just don’t see much changing. To companies repeat (1) 483s are just a game of “cat and mouse” as they can get away with minimum compliance. 483’s now are Medal of Honor. 

Girish Malhotra, PE
EPCOT International

1.     Frequently requested or proactively posted compliance records, FDA.gov, October 14, 2019 
2.     Malhotra, Girish: What Is Needed for a Regulatory Approval of NDA/ANDA Filings in 90 Days? Profitability through Simplicity, October 24, 2018
3.     Malhotra, Girish: ANDA (Abbreviated New Drug Application) / NDA (New Drug Applications) Filing Simplification: Road Maps are a Must, Profitability through Simplicity, Amy 11, 2017
4.     Malhotra, Girish: Simplified Roadmap for ANDA/NDA Submission and Approval will change Pharma Landscape, Profitability through Simplicity, November 25, 2018
5.     Malhotra, Girish: Can the Review and Approval Process for ANDA at USFDA be Reduced from Ten Months to Three Months? Profitability through Simplicity, March 25, 2017
6.     Malhotra, Girish: Impact of Regulations, Drug Manufacturing and Pharma Supply Chain (PBMs and allies) in Drug Shortages and Affordability Part 1, Profitability through Simplicity, March 9, 2019
7.     Volunteer Action Indicated, FDA.gov Accessed October 14, 2019
8.     Official Action Indicated, FDA.gov Accessed October 14,  2019
9.     Malhotra, Girish: Process Centricity is the Key to Quality by Design, Profitability through Simplicity, April 6, 2010

Wednesday, October 2, 2019

Systematic Demystification of Drug Price Mystique and the Needed Creative Destruction

In the United States better than 90% of the population does not know the real price of drugs they use. It is not their fault. It is the system they have to live by. Purpose of the exercise is to ask the question “are the patients are paying too much for the convenience of the current mutually subsidized healthcare system?” In the current system everyone pays their monthly insurance premium and when they purchase of their prescription drugs they pay certain amount as copay for each drug. Folks, who do not have healthcare insurance, can pay an exorbitant amount for their medicines. What transpires between the drug manufacturer and the patient is explored in this blog. There is no financial interest/conflict with any educational/commercial or regulatory body.

Not much effort, at least I have not seen it, is made/published to decipher the price movement from API manufacturer to the patient. It is considered by many an arduous exercise. An attempt to unravel the drug price mystery is made. It may not be totally accurate but most who understand costing, profits, manufacturing and economics will understand the process. They would appreciate who are the players in the pricing jungle and how their behavior impacts drug prices for the patients. 

Drugs are priced such that each player, manufacturer and supplier, make their respectable profit to stay in business. This is global phenomenon for every sale. Following entities participate in the drug manufacture and distribution. 

·       API (Active Pharmaceutical Ingredient) Manufacturer 
·       Drug Formulator
·       Pharmacy Benefit Manager
·       Insurance company 
·       Pharmacy

Schematically Figure 1 illustrates elements of price and margin flow for API manufacturer and formulator. Formulated drugs are acquired by PBMs and supply chain and distributed to patients. Even with a good understanding of the distribution process drug pricing to the patients is still a mystery. 

Price mystery can be un-layered to a point. Every company that is involved in drug distribution sees the cash cow and every intention to make drugs affordable gets thrown out the window. Every effort is made through political pressure and otherwise that the current cash cow is not disturbed. 

Prices of API manufacturer and their formulations are not difficult to calculate and decipher as they are like pricing are like pricing of any saleable product. Each has three elements: raw materials are reacted or blended in right proportions, package and conversion cost and profit (1).

Unraveling of drug pricing begins with API and formulator costs and profits. It is not very difficult to calculate the factory costs and after margin addition, one can calculate APIs and their formulations selling price prices within +/- 10%. Chemical engineers, chemists and cost accounting professionals who are well versed with manufacturing processes are familiar with the process (1, 2). 
Figure 1: API Manufacturer to Patient Product Flow Distribution

Many most likely wonder how the drugs are priced. Based on what one reads, it seems that patients in the United States are being taken for a ride by the PBMs. This seems very possible and math along with pricing at API and Formulation levels confirm it. The best way to recognize the existence of the BLACK BOX is through calculations and comparing the price differentials.

Drug pricing for Metformin hydrochloride, Ciprofloxacin, levothyroxine and atorvastatin are used as an illustration example in Table 1. API (active pharmaceutical ingredient) are average prices (2). Costs of excipients, formulation and packaging costs and profits are based on certain known assumption for other manufactured products. Resulting formulated drug costs could be with in 15-25% of actual costs. API costs include API manufacturer’s profits. Instead of accuracy, pricing concept is illustrated. Idea is to demonstrate how the drug prices progress from PBMs and the supply chain to the patient. 

API and formulation costs are not based on the most optimized processes. This is due to these being produced at too many plants and they don’t have the most optimized processes due to lack of economies of scale (3). Opportunities to lower the costs do exist. 

Drug
Metformin HCl
Ciprofloxacin
Levothyroxine
Atorvastatin
API cost $/kg (2)
4.00
25.00
4400.00
310.00
Inert excipients $/kg (@40%API cost)
1.60
10.00
1760.00
124.00
Conversion cost, $/kg(@40%API cost)
1.60
10.00
1760.00
124.00
Profit (@ 40% above)
2.88
18.00
3168.00
223.20
Total. $/kg
10.08
63.00
11088.00
781.20
Average Dose
500 mg
500 mg
0.112 microgram
20 mg
Formulator Sale price per tablet, $
0.005
0.032
0.001
0.008
Patient purchase price, $/tablet    
Walmart
0.07
1.04
0.11
0.30
Rite-Aid
With insurance
0.07
0.2
0.17
0.31
Rite-Aid
Without insurance
0.7
4.77
0.82
3.97        
Table 1: Formulator Drug Selling Price $/kg and Patient Purchase Price

Table 2 illustrates the percent price markup of the four drugs between the manufacturer selling price to patients. One can see that the supply chain and that includes PBMs and other distributors are profiting heavily (4) in the current drug distribution process. This is the “THE BLACK BOX” of Figure 1 which is seldom discussed and least understood by most. 

% Mark-up from Formulator Selling Price
Walmart %
1322.75
3314.29
8947.18
1920.12
Rite-Aid %
With insurance
1322.75
634.92
13411.83
1969.90
Rite-Aid %
Without insurance
13888.89
15130.16
66200.20
25387.58
Table 2: Percent Price Differential between Formulator and Patient

Patients need different dose drugs. Sale prices for metformin illustrated in Table 1 e.g. are same from 100 to 1000 milligram tablet. This might seem to be an oddity but since the PBM/seller sale prices are so high, they can use game of averages and easily absorb variable dose sale prices. With averages, PBMs even can give away drugs for free through their mail order system. All said and done drug priced in Table 1 are such that they deliver their expected profits. 

Patients in addition to paying the price differential also pay per month premium to enroll in a drug insurance program whether s/he uses any drug or not. This premium is also profit assurance for PBMs and insurance companies. Monthly insurance premiums cover any profit shortfall. 

PBMs are there to assure supply of the necessary drugs at the best prices. However, based on Table 2 price markups (@1,300 to 66,000 % for the four drugs) between manufacturer and the patients, distributors of drugs have enslaved US population in a fa├žade of being their friend. Markups (@1,300 to 66,000 % for the four drugs) in Table 2 suggest that patients are not seeing the savings they should get if they could get drugs directly from the formulators. It seems that the intermediaries are keeping these markups to enhance their own profits (5,6)Some of the PBMs even formulate the products the sell in the United States adding further to their profits. 

In the US’s current mutually subsidized system drug companies and PBMs have created a system which does not allow patients to have quality drugs at competitive prices. The juggernaut, through legal lobbying (legal corruption) system, is so strong that constituents cannot and will not see any drug price relief unless the current mutually subsidized healthcare system is dismantled. Possibility of any reform is dismal. 

Creation of Drug Formulary, in my mind, is an artificially created system that prevents patient’s choice and competition between the drug suppliers. Drugs approved by USFDA should be available to US patients. Doctors should prescribe brand or generic drug that are best for the patient. Patient should decide whether they want brand or generic and pay the necessary copay for drug of their choice. If only drugs of greatest value to the insurance company are listed on the drug formulary, then USFDA should not be approving every drug. 

The current mutually subsidized system prevents competition and promotes listing and dispensing of drug that offer the highest rebates to the PBMs and intermediaries. Lack of competition in pharma companies prevents adoption of best manufacturing technologies and practices which lower selling prices. Simply said “BLACK BOX” participants are more interested in their profits. Patients are just the media for their profits. 

It should be noted that three PBMs (7) adorn the top TEN Fortune 500 company list and their revenues are higher than the largest pharma manufacturers (8). It seems that occupants of the “Black Box” are capitalizing on patients desire to get well and extend their life. 

If drug are to be made affordable, alternate “creative destructionists” to the current distribution system have to be created, tested and adopted. Two companies (9) have started such exploration in specialty needs. They could expand beyond special needs if successful in their current venture. An alternate plan called GEN Plan outlined in “Improving Drug Affordability for the United States Populous through Alternate Business Models” could be considered (10)

Civica Rx (11) after its sustained success with injectables could adopt GEN Plan (10) or its elements to serve generic drug needs of the US population. Amazon, Berkshire Hathaway and JPMorgan plan (12) consortium although geared to their employees, if successful, could be also be expanded to the general populous for generic drugs. 

Open drug sale competition, better manufacturing technologies and improved regulations can also be used to lower drug prices (1, 13)The current markups (illustrated in Table 2) can be significantly lower, thereby lowering drug prices. 

Vested interests will exercise every possible influence to prevent any change to the current cash cow model. Creative destructionists will be plenty of naysayers and all of the legal hurdles will have to be overcome, conformed and some may have to be changed to dismantle the current barriers and juggernauts. 


Girish Malhotra, PE
EPCOT International 

1.     Malhotra, Girish: Chemical Process Simplification, John Wiley & Sons., 2011 
2.     API Prices https://www.pharmacompass.com September 20, 2019 
3.     Malhotra, Girish: Impact of Regulations, Manufacturing and Pharmaceutical Supply Chain (PBMs) on Drug Shortages and Affordability Part 2, Profitability through Simplicity, April 3, 2109 
4.     Ollove, Michael, Drug-Price Debate Targets Pharmacy Benefit Managers, www.pewtrusts.org, February 12, 2019, Accesses August 10, 2019
5.     Langreth, Robert, etal: The Secret Drug Pricing System Middlemen Use to Rake in Millions, Bloomberg, September 11, 2018, Accessed March 22, 2019 
6.     Schladen, Marty: US military community beset by pharmacy-middleman headaches, The Columbus Dispatch, September 29, 2019 Accessed October 1, 2019
7.     The Top 10, Fortune 500, Accessed October 1, 2019
8.     Pharmacy Benefit Managers, Wikipedia, Accessed October 1, 2019
9.     HIMSRo, Accessed October 2, 2019
10.  Malhotra, Girish: Improving Drug Affordability for the United States Populous through Alternate Business Models, Profitability through Simplicity, May 4, 2018
11.  Civica Rx, https://civicarx.org
12.  Malhotra, Girish: Could Amazon (A), Berkshire Hathaway (B) and J.P. Morgan Chase (M) be the Anti-Ballistic Missile (ABM) needed to Control/Curb Rising Healthcare Costs?, Profitability through Simplicity, February 9, 2018 
13.  Malhotra, Girish: Profitability through Simplicity, Accessed October 2, 2019