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Regular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.

M&A can put quality compliance at risk

10-Sep-2018
M&A can put quality compliance at risk
In light of the ever-increasing price of drug-development - from $250 million per approved drug prior to the 1990s to $403 million in the 2000s and $873 million in 2010 - the number of merger and acquisition (M&A) activities have skyrocketed in the pharmaceutical industry in recent years, resulting in more than $2.4 trillion spent over the last 10 years . Innovation is not a given, as businesses are struggling to keep up with the demanding costs of R&D which enables them to continue to be competitive in a crowded market; in fact the development of a new active pharmaceutical ingredient (API) might cost up to $2.6 billion . In the attempt to keep up with the industry’s growth, both European and US-based manufacturers are creating increasingly globalised supply chains which open them to risk of mismanaging their compliance procedures ultimately compromising on quality.

In order to improve their performance (e.g. boost their capacity and improve speed-to-market) companies are outsourcing parts of the manufacturing process to capitalise on the availability of new suppliers in Asia. Unsurprisingly this is causing a plethora of issues, especially when it comes to keeping sufficient visibility and control over the newly outsourced activities.

As a consequence of the drop in supply chain’s quality standards and management, we have seen a global increase in warning letters issued by local Administrations to pharmaceutical companies in 2017; in the US this also resulted in a growth of violations of Current Good Manufacturing Practices (cGMPs) - enforced by the US Food and Drug Administration (FDA) as systems that assure the proper design, monitoring and control of manufacturing processes and facilities . The FDA has been firm in saying that the responsibility of manufacturers “extends to the quality and review of any outsourced activities and quality of purchased materials” .

US manufacturers should bear in mind that receiving a sub-par inspection from the FDA instantly puts at risk the business’ reputation resulting in necessary hefty remediation costs. To avoid ending up in a difficult situation manufacturers should face their M&A activities with a proactive approach keeping a close eye on critical areas of non-compliance, such as: systematic data manipulation, failure to exercise sufficient controls over computerised systems to prevent unauthorised access to data as well as failure to dispose of quality-related documents appropriately and violations associated with contamination, hygiene and Quality Management Systems.

Reports show that 75% of companies that acquired a new business over the last year failed to execute proper due diligence and that two thirds of all M&A deals in 2016 failed to deliver on their financial targets because of post-merger integration problems – again a result of poor due diligence . It’s now time for manufacturers to tighten up compliance procedures: this approach will not only ensure a higher level of inspection readiness but also deliver real commercial benefits (e.g. greater understanding of demand and capacity and improved ability to assess and react to disruptions).

To avoid the high costs that comes with failing to undergo proper due diligence, the help of a compliance team is necessary in M&A activities; this will ensure the company is entirely ready to assess the potential risks that may come from the take-over. It will also be the responsibility of the purchasing company to ensure complete due diligence has taken place.

For all pharmaceutical manufacturers – whether or not they are in the process of merging with another company – it’s good practice to implement risk management control strategies which need to be up to date with the regulatory requirements. The way to achieve a successful and ‘risk-free’ business is to ensure that well-planned, well-documented and efficiently executed supplier and quality agreements are in place; in fact these are critical factors to control the quality of the final manufactured product.

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