April 8, 2014

5 Reasons Pharmaceutical Companies are Missing out on Significant Cost Savings—Cost Control Strategies for Pharma Part 1

Many pharmaceutical companies look at cost controls as a means of bolstering their bottom line in the face of increasing competition and external pressures to reduce the price of medications. Yet many struggle to identify and implement significant savings. CECON consultant 1569, specializing in the formulation, manufacturing,  packaging, and dosage development of pharmaceuticals , lays out the top five reasons why.  Next week, in Part 2 of this series, we’ll provide a personal example of leading a pharma company to significant cost savings.

1.      Reluctance to make changes that might create risk

Pharmaceuticals is a highly regulated industry that requires companies to use approved grades of raw materials and components in processes which must be validated and employ qualified equipment systems and facilities. Additionally, raw materials, components, intermediates, and finished products must be analyzed and released using sophisticated, qualified instrumentation and validated methods. It takes years and millions of dollars to conduct the studies necessary to establish these levels of control before a company is authorized to sell a product. Consequently, companies are reluctant to make changes that might risk the quality and commercial availability of their products.

2.      Executive management does not appreciate the potential cost savings within their organizations, and as a consequence, has not made cost control a major business objective of the entire organization.

From the board room to the mail room, commitment to a comprehensive cost control program has to be communicated to and embraced by all employees. Management has to make cost control not only a business objective, but also every employee’s personal performance objective. Each employee should have a job performance objective of actively participating in the company’s cost control program. Companies should seriously consider rewarding employees with a portion of the savings they identify and implement.

3.      Companies do not have the proper structure in place to identify and implement significant cost savings.
Because of the vast number of regulations governing pharmaceutical products as well as the inherent complexity in these products’ development and production, it is not realistic to assume that one department (let alone one person as is the case in many companies) can effectively evaluate and implement significant cost savings. An effective cost control program must be a team effort and the team must minimally consist of personnel from R&D, Engineering (Process and Facilities), Operations, Quality, Purchasing, and Regulatory Affairs. These individuals should be cross-trained in basic skills such as Current Good Manufacturing Practices (21 CFR Parts 210 & 211), ICH Quality Risk Management, basic accounting principles, and Return On Investment (ROI) principles. Management needs to empower the team in its work and stand-up for the team when it questions and evaluates a company’s “sacred cows” for potential slaughter.

4.      Comprehensive data needs to be collected, maintained, and analyzed with respect to a company’s costs.
To perform an effective evaluation of the best opportunities for cost savings and their potential impact; comprehensive data needs to collected, maintained, and analyzed. In many organizations where I see great opportunities for cost savings, I also see poor documentation and accounting practices. Frequently, expenditures are mis-categorized and as a result, the spending habits and patterns of the organization are not truly known.  

5.      Like quality, cost, needs to be a characteristic designed into a product

Because of regulatory constraints, and the inherent expense in both time and money, to make changes to approved products; cost must be a design consideration in the development of new products. Companies should evaluate the potential benefit to added product features relative to their cost and ultimately the impact to the profitability of the organization.

There’s no question that there are inherent challenges to identify and implement significant cost savings in pharmaceuticals companies. However, these challenges are not insurmountable. Companies that make a commitment to cost control, set-up the cross-functional teams needed to identify, assess, and implement them, and consider cost in the design of their products can realize significant savings. In my next article, I will offer an example of a pharmaceutical company who cut costs while improving quality.

Since 1985, The CECON Group has been placing experts in over 200 scientific disciplines. CECON consultants include pharmaceutical consultants, clinical trials experts, and chemistry experts.




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