1 Copyrights ©Shridhar Lolla, 2016

What’s Infecting Indian Pharmaceutical Industry? Shridhar Lolla, PhD CVMArk Consulting

Apr17th 2016

Draft:D1

Keywords: Indian Pharma, Pharmaceutical Manufacturing, Generics Pharma, FDA, Operational Management, Operational Excellence, Dirty Medicine, Quality Management, Growth versus Quality

Signs of Implosion

The first slide of the business review presentation was a surprise. The very first bullet point read, “No major 483 observation from FDA Audits during last 15 months!”

It used to highlight the P&L numbers; not just in this large size Pharmaceutical Company but many others too. Amidst the cautious elation and clapping that followed the slide, palpable was the inner discomfort of the constantly dangling sword of the US FDA, the United States Food and Drug Administration. Suddenly, Indian Pharmaceutical Industry, ‘the Pharma Factory of the world’ seems to be folding into compliance mode.

Indian Pharma companies accounted for 14 of total 90 first-time generic drug approvals granted by, the FDA in the year 2015. Paradoxically, more than 15 plants of Indian Pharma companies received severe warnings from the FDA in 2015 alone. Of more than 500 FDA approved sites, currently, 42 Indian manufacturing sites are listed on FDA’s import alert list, which bars them from shipping products to the US, their key market.

This round of indictment from the FDA includes the Who’s Who of the Industry, and the recent upsurge in warnings from the FDA has made them to run helter skelter. So much so that Indian Regulator (CDSO) is forced to announce a training program to address the gaps in Indian Pharma plants. The extent of damage the Industry could suffer can be gauzed from the fact that consumers in India are getting ready to file PIL (Public Interest Litigation) against defaulting companies.

The typical response from the faulted companies has been very common. Like, “The company is fully and wholly committed to cGMP compliance...and is fully committed in resolving this issue at the earliest.” (The situation is so grave that it makes one to read the response as ‘the company is forced to comply with regulation and will respond as soon as possible. If regulations were not there, the company would not care anymore...’.)

Inadequate Actions, as Root Cause Remain Illusive!

Following these indictments, the typical ‘heads will roll’ syndrome prevailed across the industry! Leaders blamed the Management and the Management blamed the staff... and the staff waited for their turn to give back. Droves of QA officers, QC inspectors, chemists and analysts are seen leaving one organization to join another, only to leave further to join yet another. In fact, the waves created by massive movement of QC teams is causing its own problems in the industry, making the industry feel that QC skills are in shortage, which in reality, is not.

Some companies have taken the route of having regulatory consultants, some to automation, some to the next level of digitization, some to training, some to better housekeeping, while others to buying more advanced equipments.

The fundamental reason why Indian companies are failing FDA audits is that they are at the first place, failing to find an adequate answer to the question, “why your analysts, chemists, operators,

2 Copyrights ©Shridhar Lolla, 2016

and managers are hiding truth or taking short cuts?” Of course, in vast majority of cases, people themselves do not have the answer to, ‘why did they do so?’, they were just busy doing their work.

Companies are trying to beat quality function as much as possible to improve quality of drugs. In desperation, they are trying to look into each and every corner of the organization to make it quality conscious. Alas! Quality is not built like that!

One thing is true, until recently, most of Indian Pharma companies were built with chemical industry than life science industry in view. Further, it seems that Indian drug manufacturing systems were designed and operated with low cost as priority when the thrust should have been on streamlined operations.

Is Commitment of Organizations to Quality Questionable!

A majority of these companies has well laid cGMP procedures and systems, people are well trained and qualified, and people (including) managers and leaders, are aware of the consequences of poor quality and failing regulatory audit. But, the type of mistakes made, excuses given and actions taken including, chucking out people from the organization in the aftermath of FDA rulings, do not make sense.

The charges by FDA include deliberate manipulation and falsification of records, to hiding defects to as serious as hiding parallel facilities. Firms have been found to frequently perform 'unofficial testing' of samples, disregard the failed results, and report results from additional tests. Cases after cases suggest a general lack of reliability and accuracy of data generated by the laboratories of the companies, “a serious deficiency in manufacturing practices that raises concerns about the integrity of Indian firms”. Reports reveal that the regulator is tired of ordering these organizations to address the root cause of the system failure to detect and control the manipulation, alteration or premature destruction of cGMP records and provide systemic actions to prevent recurrence.

Albert Einstein once said, “We can't solve problems by using the same kind of thinking we used when we created them.” If Indian Pharma Companies are not able to find the answer to the problem within themselves, they must attempt to look outside, perhaps to other industry. For example, the case of Toyota the legendary maker of cars could be apt to consider here. In manufacturing, Toyota = Quality. (Period)

In 2010, Toyota had a major safety failure in its cars in the US. The first thing, Akio Toyoda, the chief executive of Toyota Motor Corp did was, he apologized to customers. How many chief executives of Indian Pharma companies have said a statement about their concern for patient safety, leave alone tendering an apology. This speaks a lot about the mindset of Indian Pharma industry.

In a statement, Akio Toyoda went ahead to pinpoint where the problem was. He said, “...Toyota has, for the past few years, been expanding its business rapidly. Quite frankly, I fear the pace at which we have grown may have been too quick. ... priorities became confused, and we were not able to stop, think, and make improvements as much as we were able to before...”

No Indian company thinks that its drive to volume growth and market expansion has anything to do with the deteriorating levels of ultimate quality. That’s either their short sightedness or ignorance. Least they are ready to accept that they are blind-foldedly running after stock market valuation.

Economic Times article mentions, "There are some deep-rooted culture-related issues that are holding back companies to tackle quality issues head on". "Employees are overworked and underpaid, when it comes to quality, companies have seen it as a cost centre”. "So, willingness to spend proactively for quality or compliance is at times not considered a high priority amongst some drug makers".

3 Copyrights ©Shridhar Lolla, 2016

Revisiting the Dilemma of Growth versus Quality

The Indian Pharma Industry is stuck with the mental model that says ‘you can either have quality or growth, you can’t have both’. And in their inability to resolve this dilemma, they may be wrongfully making the world believe that quality medicines (from India) can’t be cheaper, and vice versa. But Toyota showed that volumes (revenues), quality and cost all can go together and the company can grow dramatically for decades not just few years.

The secret of triumphing over the Growth versus Quality dilemma, is in the understanding of fundamentals of operations, the so called back end of the organization. Companies must believe that Quality is a part of Operations Management. You can’t develop Quality conscious organization by only focusing on quality, rather it must be seen as a part of your operating system. We must remember that no company in the world is built with quality as its objective. Objective and purpose of companies are what they are, and quality a part of the process of achieving the objective and doing justice with the purpose. Quality is not a standalone item or agenda, and it will never be.

Why is Indian Pharma Stuck with Growth versus Quality Dilemma?

It is normal for organizations to think that since they invest in employees and infrastructure, they (the assets) must be utilized to the maximum. So, they follow a ‘policy to push’ as much work (raw materials) inside the plant to keep everybody as much busy as possible. However, in doing so, they seldom realize that due to various reasons, a lot of these materials (work, documents etc.) get stuck mid way instead of getting out of the plant.

Pushing too much work (too many batches) into shop floor results in building up fat WIP (work in progress) inside the plant, with several batches of drugs waiting for days before they are packed for sale. Then, there are pressures on managers, operators and chemists to deliver numbers towards the month end. Having too much of work in front of them to deliver in a short time, makes plant staff confused a lot.

This situation and the underlying phenomenon not easily comprehensible to most of us, is central to the practice of operations management. Operations Management states that under such a situation, the attention of people is ‘dramatically crippled’ as they struggle to switch between tasks. Despite having best qualified staff, the environment presented to them by the management, becomes such that the staff just can’t pay enough attention to all the work in front of them. Pl see figure 1.

Figure 1: Placing excess work in que dramatically dilutes attention; remember the month end and quarter end pressure, ref. Building Manufacturing Competitiveness

Since, ensuring quality is a matter of diligence and details, and attention of the staff is awfully diluted amongst too much work in front of them, it is quite natural that people make mistakes, and often more than normal. This happens just because they are forced to complete their work

% of generally acceptable average work load

Ind

ivid

ual

’s A

tte

nti

on

an

d Q

ual

ity

of

Ou

tpu

t

80%

4 Copyrights ©Shridhar Lolla, 2016

somehow. They do not intend to do a poor quality work but are in no position to realize that they are paying less attention to many things. The book, ‘The Path’ describes this phenomenon in great details. It shows how growing pressure to overwork the Pharma plant and people, results in excessive retests, obsolescence, out of trend (OOT) and out of spec (OOS) drugs. In fact, this extends to finger pointing and spoils the bonhomie in the organization. This is exactly the ‘disease’ plaguing vast majority of Indian generic pharma companies.

Thus, despite their best intentions, staff in these Pharma plants can’t avoid poor quality drugs delivered to the market. The classical theory (which is not just theory!) of operational management reveals that whenever there is excessive inventory in the shop floor (or any other work area), defects get hidden and quality takes a beating. Want a proof, check what happens when there are too many cars on the road, when there is heavy rush to catch a local train in Mumbai or a BMTC bus in Bangalore, when there are too many people in the shopping mall or airport etc. Inside your plant, check how many of retests, OOSs and OOTs, coincide with batches handled during calendar end.

Figure 2 Trying to push too much of work leads to huge blockade of materials and hidden problems, ref. The Path – Leveraging Operations in a Complex and Chaotic World

Good Operational Practice

In order to deal with such a situation, good practice of operations management states that an organization must have a simple mechanism to keep work in progress under control. It says, which is counter intuitive, never releasing a batch earlier than it is due is a good strategy to deliver more and deliver faster with less defects. Kanban is the methodology invented by Toyota to take care of the undesired mess and ensure that the flow of material (and information) across operations is streamlined and quality issues are addressed well in time.

When people are not flooded with work, defects are clearly visible and effective actions can be taken ahead of time than waiting till the month end or quarter end or in the worst case, getting exposed during an audit. The level of maturity of operations management, where most of Indian Pharma companies are, it does not need ultra sophisticated IT technologies to trace and track batches, rather having a simple and intuitive system to control inventory will go a long way.

Further, instead of pushing batches into the shop floor the fundamental principle of operations management says that there must be a system to pull the batches into manufacturing plant than push them relentlessly at the gating operations. Such a pull is always based on a limit on the inventory in the shop-floor and thus a high visibility to quality defects and flow.

When inventory is well regulated, it reflects in people’s behaviour and their quality of the work. This is quite contrast to what Indian organizations are doing... making employees to think quality and operations in isolation while providing them an environment full of chronic fire-fighting.

MarketWIP in shop floor (Plant)RM

Waiting for packing material, 120days

Waiting for change parts, 70days

Waiting for repair of coating machine, 70 days

Waiting for License, 210 days

Waiting for retest, 275 days

Waiting for clearance from delivery team, 40days

Sticking problem; waiting for product specialist, 140 days

5 Copyrights ©Shridhar Lolla, 2016

Cardinal Principles of Operational Improvement

So, here is the single most recommendation to Indian Pharma companies if they are really serious in coming out of the blot of dirty medicine faster, without costly trade-offs and burn-outs. And, of course, if they truly mean when they say, ‘employees are central to our organization’.

Move away from push mentality to pull based dispensing of material into the plant (operations). In a subsequent attempt must develop a pull based operating system for the whole company.

There are two more steps the industry need to undertake once they implement the above step#1, for details pl refer Building Manufacturing Competitiveness. Implementing just this one step, though, will solve significant problems inflicting the image of Indian Pharma Industry. As you would notice, these simple steps do not even mention about quality and cost. The truth is that while achieving growth, these steps automatically make your operations a quality one, while being cost effective. When these steps are followed, the company dramatically improves speed of operations (read lead time and productivity), and people get enough time to pay attention to the clearly visible quality problems. With less inventory, the load is balanced and people pay ‘adequate’ attention to solve quality problems, the cost of operations as well as that of quality reduces. Toyota started its world class journey from nowhere with just a few thousand cars sold cumulatively in its history, today it makes around 10 million cars per year and leads the industry.

Note: Indian companies are not the only ones indicted with FDA rulings, there are companies from other countries as well. But it so happens that India leads the pack of generic drug supplies by volume and therefore, when its companies make mistake, the impact, reaction and backlash is so strong that one might feel that Indian drug companies are being targeted in isolation.

About Shridhar Lolla, PhD

Shridhar is a business coach with over 24 years of experience in R&D, Product Development, Manufacturing, Service Operations and Management Consulting industry. He holds a PhD from IIT Delhi, an MTech from IIT- BHU Varanasi and a BE from MANIT Bhopal.

Shridhar has strong demonstrated capabilities in Operational Excellence, Execution of Organization’s Business Strategy and Business Model Innovation.

While Shridhar's engagements span across industries, for past decade his focus has been on Indian pharmaceutical industry, handholding practitioners to dramatically improve impact of

their operations on business results. His working on operational excellence projects in pharma industry brought him into collaboration with over 100 practitioners of operations management, with whom he brought out the game changing book for Indian pharma industry, 'The Path - Leveraging Operations in a Complex and Chaotic World'.

Earlier in his career, he worked with Swiss multinational ABB in various capacities. In his last assignment with ABB, he was member of the management team at its global corporate research center and was responsible for creating advanced programs in Manufacturing, Industrial Automation and Power.

In addition to the book 'The Path', he authored a second book, 'Building Manufacturing Competitiveness - The TOC Way', that introduces focusing mechanism to Indian industry in the wake of India's ongoing thrust on manufacturing. His name also finds a reference as a co-creator of the innovative book, the 'Business Model Generation.'

Shridhar is also a mentor to first generation entrepreneurs and advices organizations in medical device, hospital

management system, IT and manufacturing industries.

Linkedin: https://in.linkedin.com/in/lolla