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One recent case in point is Emergent Biosolutions (NYSE:EBS). Early in the pandemic, the company inked deals to contract manufacture COVID-19 vaccines for Johnson & Johnson (NYSE:JNJ) and AstraZeneca (LON:AZN). Shareholders were enthralled with Emergent’s growth prospects. And on August 14, 2020, the company saw its share price hit a record high of $133.42.
The situation quickly changed when the company admitted that it had to dispose of millions of vaccine doses because of possible quality problems. Emergent has seen its share price consistently fall in the aftermath, including a congressional investigation and investor lawsuits. In early June 2022, EBS shares were priced near $32.
In 2013, FDA warned Novo Nordisk (CPH: NOVO-B) received a warning letter after an FDA inspection at a facility in Bagsvaerd, Denmark, uncovered cGMP violations. The saga caused Novo Nordisk shares to tumble after disclosing that it delayed the agency’s review of two long-acting insulins.
A common problem
While such examples may be striking, many pharma companies have had similar stumbles on a smaller scale.
Craig Wylie
“In the first consent decree I worked on, the company had huge growth, but they forgot to keep their manufacturing processes up to speed with their commercial processes,” Wylie said. “So they started selling things where they couldn’t guarantee that the label that was on it — or in it — was the label that was approved.”
After securing a significant increase in the number of their markets and products, the company went from having all of their entire regulatory team sitting in a single room to their regulatory team sitting on five continents. “The regulatory employees didn’t know the people they needed to talk to anymore, and they didn’t know the people in the plants,” Wylie said.
It is more likely that pharma companies encounter quality problems in a growth phase than from FDA changing rules. “FDA tends to give you tons of notice,” Wylie said. “And emergency changes happen about once a generation.”
The FDA did evolve considerably in the 1960s in the aftermath of the thalidomide scandal. In many parts of the world, thalidomide found widespread use to treat nausea, but it was later linked to severe birth defects. In the U.S., FDA reviewer Dr. Frances Oldham Kelsey refused to approve the drug. After that, the agency redesigned itself to become more structural. “One of the things the agency introduced to the pharma industry was self-regulation through standard operating procedures (SOPs),” Wylie said. “The idea was to have a quality management system that you could explain to the regulator.”
The FDA’s evolution in the 1960s entrusted pharma companies to design a quality management system that the agency would qualify. “Then, all you had to do was demonstrate that you had worked according to your own quality management system,” Wylie said. If such a system works appropriately, FDA could trust the process.
And yet many pharmaceutical companies encounter problems with such systems. Arthur D. Little has collected statistics over the past 12 years summarizing the most frequent causes of inspection deficiencies. “The most common problem is that companies either didn’t have written processes or when they did, they didn’t follow them,” Wylie said. “Everything else is noise compared to that. From an FDA perspective, the problem is basically, ‘You didn’t do what you said you would do.'”
Quality focus offers an ROI
After doing a sentiment analysis of the top 20 publicly-owned pharmaceutical companies, Arthur D. Little saw that the higher the positive culture of compliance and quality, the higher the return on investment.
“We’ve demonstrated that if there’s a positive attitude towards quality and you empower quality team members to do risk management, you tend to get a better return on investment,” Wylie said. “The quality organization is supposed to manage risk. They can show that getting quality right actually creates real value.”
And yet, quality is rarely even mentioned in pharma presentations to investors. “Everybody assumes that quality will be fine,” Wylie said. “We know that’s not true.”
Pharma companies in a growth phase should understand that quality will require extra effort and a continued focus on compliance.
“There is a tendency to fall in love with science. Quality is a bit boring,” Wylie said. “But if you just assume that quality will be fine and you don’t put an investment into it, it’s not going to be fine.”
Filed Under: Drug Discovery and Development
