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Feb 8, 2012

U.S. Drug Manufacturing Decline Reflects Wage Gap and Regulatory Scrutiny

  • Last week’s Congressional hearing on the fifth authorization of the Prescription Drug User Fee Act (PDUFA V) didn’t get much news coverage beyond outlets covering the industry. Some sobering statistics brought out by FDA Commissioner Margaret A. Hamburg, M.D., didn’t get the attention and discussion that they deserved.

    Commissioner Hamburg also testified that about 40% of the drugs consumed in the U.S. are manufactured outside these United States, while up to 80% of the APIs in those drugs come from foreign sources, as Pharmaceutical Technology noted. At the same time, IMS Institute for Healthcare Informatics statistics cited by the publication points out that the U.S. is the largest national market for pharmaceuticals.

    It accountis for 36%, or $310.6 billion, of the $856 billion global market in 2010. The U.K., France, Germany, Italy, and Spain, the top five markets within the EU, accounted for 17%, or $147.4 billion, in 2010. Emerging pharmaceutical markets, a category in which IMS combines the BRIC countries with 13 other regions, collectively accounted for $150.5 billion, or nearly 18%, of the global pharmaceutical market in 2010.

    There are really two problems in one: The first is the well-reported macroeconomic problems associated with keeping manufacturing stateside, led by the lure of cheaper costs overseas, especially labor. Hourly compensation for manufacturing workers in the U.S. stood at $34.74 as of 2010, the U.S. Bureau of Labor Statistics reported on December 21. The US actually ranked 14th among 34 industrialized nations studied by BLS. Still, that's well above China’s $1.36 per hour (a 2008 figure) and India’s $1.17 per hour (2007 figure).

    The second problem affecting U.S. manufacturing is a series of quality-control breakdowns that have affected numerous U.S. pharma plants. FDA made no fewer than 483 observations in an inspection of the Novartis Consumer Health plant in Lincoln, NE. Here’s just one of them: “Your Quality Unit has failed in the responsibility and authority to monitor Quality systems designed to assure the quality of drug products manufactured and packaged at your firm.” The company voluntarily closed the facility on December 19, following troubles that led to recalls of over-the-counter medicines such as the entire Excedrin line.

    This failure, according to FDA, was reflected in failures to adequately investigate consumer complaints, to assure processes remain in a current validated state, to conduct complete annual product reviews, to train employees within the operations and quality systems, to extend investigations of known problems to all lots potentially affected, to file adequate NDA Field Alerts in a timely manner, and to have an adequate number of trained personnel in the Quality Unit.

    “This is also evidenced by continued incorrect/incomplete/untimely NDA Field Alerts and numerous product recalls for similar problems over the last several years,” FDA added.

    Novartis responded February 6 with a statement declaring its commitment “to ensuring the highest standard for consumers who rely on our products" and stating that it "will continue to work with the FDA to fully address their concerns.” CEO Joseph Jimenez, who has already committed $120 million to fix the plant’s problems, has told analysts that the plant will reopen later this year.

    Novartis seems determined to avoid to the after wave of manufacturing problems incurred by Johnson & Johnson (J&J) since 2009, which has led to spot shortages of Tylenol, Benadryl, Motrin, and Zyrtec, prompting more oversight by FDA and hearings by Congress. J&J seems finally to be getting the message that quality should be priority one, judging by recent departures of two longtime executives, one of the them the head of McNeil Consumer Healthcare, Patrick Mutchler, who took the helm just last April. J&J has said its manufacturing facility in Fort Washington, PA, shut down since April 2010, will be closed for yet another year.

    In a few instances, big biopharma continues to invest in U.S. manufacturing. Sanofi’s Genzyme unit last month won FDA approval for a new Framingham, MA, plant that the company will use as its new home for producing Fabrazyme for Fabry disease. Before the Sanofi acquisition, Genzyme wrestled with quality problems for a plant in the Allston section of Boston that included a 2009 FDA warning letter and, later that same year, a shutdown of that plant due to viral contamination. Genzyme has since entered into a remediation program under a consent decree with FDA.

    Quality control problems along with labor tensions cost the U.S. its leadership in the automobile industry a generation ago; GM and Chrysler took taxpayer-funded bailouts to survive the recession. For biopharma to continue growing in the U.S., it won’t be enough to either focus solely on R&D or wring our proverbial hands about China and India. Biopharma will need to pay extra attention going forward to what comes out of the plant as well as what it does to the financial bottom line.


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