A recent empirical study of continuous manufacturing (CM) versus batch processing of US and non-US pharmaceutical manufacturing facilities suggests that CM would be more economical than batch facilities, at least for the production of oral solid dosage products. This has important implications for policies and strategies aimed at reducing supply chain disruptions due to pandemics, climate change or geopolitical unrest. Dr. Clifford Rossi, professor of practice and executive-in-residence at the Robert H. Smith School of Business at the University of Maryland, tells us more.
THE COVID-19 PANDEMIC has highlighted the vulnerability of global supply chain networks, including those supporting the pharmaceutical industry, to significant external shocks. Disruptions to labor and shipping early in the crisis forced countries to scramble to ensure continued access to essential medicines, raising questions about the resilience of pharmaceutical manufacturing over the long term as that climate change and rising geopolitical tensions weigh on a global scale.
Continuous Manufacturing (CM) is a cutting-edge technology that processes inputs and materials continuously unlike batch processing which is more sequential in nature. My latest empirical research suggests that the use of CM processes for facilities producing oral solid dosage (OSD) pharmaceuticals may hold the key to replacing decades-old batch technology that is more labor intensive. work, less effective and more likely to lead to product defects. .1 Comparisons of net present values of investment in CM versus batch manufacturing in a U.S. Food and Drug Administration (FDA)-funded research study provide the most comprehensive analysis to date on that question.2 Considering a range of possible scenarios, the analysis demonstrates that saving investment in CM installations over batch installations is a winning investment strategy, but also one that can reduce disruption to the flow of pharmaceuticals due to global risk events.
To better understand the economics of CM compared to batch technology, I focused on developing a Net Present Value (NPV) simulation model of a large OSD manufacturer from a investment in a new CM installation or in batches. CM and lot CAPEX and OPEX estimates for this facility were derived from a fundamental engineering cost study.3 Revenue estimates and other non-manufacturing expense information used in the calculation of NPVs for CM and Batch investment options were derived from historical financial statements of pharmaceutical manufacturing companies.
Continuous Manufacturing (CM) is a cutting-edge technology that processes inputs and materials continuously unlike batch processing which is more sequential in nature”
The analysis generated NPVs for CM and batch technologies in the United States as well as Ireland, China and India; countries with large pharmaceutical manufacturing footprints. Modeling also produced NPVs for branded and generic manufacturers. To give an idea of the scope of the analysis, a total of 156 different combinations of US and non-US scenarios were examined and for each of these scenarios 10,000 different NPVs were generated, allowing the costs to be calculated. investment and operating and income to vary. Corporate tax rates and even currency hedging costs were factored into the analysis.
Unlike most investment analyzes that typically generate a few different NPV scenarios for decision making, the simulation approach used in this study produces a NPV distribution. The NPV distribution allows for a more robust way to assess the relative investment value of CM versus batch processing. It can compare expected NPVs as well as more extreme negative NPV results between technologies. Drawing inspiration from the value-at-risk (VaR) concept widely used in commercial banking, I looked at the worst 95th and 99th percentile NPVs between CM options and batch options to understand how pharmaceutical companies could be confident to invest between the two manufacturing technologies. For example, if 99% of 10,000 NPV scenarios for CM resulted in a positive NPV, while only 95% of NPV results per batch were positive, a manufacturer might be safer to invest in CM than per batch.
The results of the analysis were striking. First, whether the company manufactures branded or generic products, investing in CM resulted in higher-than-lot NPVs in almost every scenario. In addition, these results take into account several sensitivity analyzes that vary CM’s capital and operating costs due to the uncertainties inherent in the costs of this technology. While the outcome for branded companies was unsurprising, given their generally higher profit margins, it was somewhat telling that CM technology might be a more cost-effective option over the lot for generic companies that tend operate in a more competitive market with lower profit margins.
Since the study was largely focused on the United States, it analyzed scenarios in which investments were made in CM technology at U.S. facilities rather than investments in batch processing at non-US manufacturing sites. Americans. In all scenarios, given differences in tax rates, among other factors, investing in CM in US facilities was more profitable than investing in new batch facilities in China or India. However, even taking into account CM’s lower initial and ongoing operating costs compared to batches, manufacturing CM in the United States was not as attractive as investing in batch processing in Ireland. The combination of manufacturing costs and lower tax rates in Ireland appears to be behind these results.
Further work needs to be done to understand the economic benefits of advanced technologies such as CM”
Other factors certainly weigh in the decision to invest in CM rather than lots. These include the cost and investment uncertainty associated with CM where there has been less experience with the cost structure of this technology. There are also issues related to regulatory uncertainty associated with the use of this technology; although in the United States, the FDA has cultivated industry interest in CM through its emerging technology program, for example, to help pave the way for the development of advanced technologies for pharmaceutical production.4
Further work needs to be done to understand the economic benefits of advanced technologies such as CM; however, this research suggests that CM is clearly worth considering in pharmaceutical plant investment decisions. Investing in domestic CM facilities, at least for US sites, could further reduce the risk of supply chain disruptions in pharmaceutical manufacturing, regardless of the catalyst.
About the Author
Clifford Rossi PhD is a Professor of Practice and Executive-in-Residence at the Robert H. Smith School of Business at the University of Maryland. Prior to joining academia, he spent over 25 years in the financial industry, both as a C-level risk manager at several large financial institutions and as a federal banking regulator. He is the former CEO and CRO of Citigroup’s Consumer Lending Group.
- Rossi C. A comparative analysis of pharmaceutical batch and continuous manufacturing technology investments. Journal of Pharmaceutical Innovation. 2022 January Available at: https://doi.org/10.1007/s12247-021-09612-y
- This project is supported by the United States Department of Health and Human Services (HHS) Food and Drug Administration (FDA) under a Financial Aid Award (FAIN) U01FD005946 in the total amount of $285,000. $, 100% funded by FDA/HHS. The contents are those of the author and do not necessarily represent official opinions or an endorsement by the FDA/HHS, the US government.
- Schaber SD, Gerogiorgis DI, Ramachandran R, et al. Economic analysis of continuous and discontinuous integrated pharmaceutical manufacturing: a case study. Research in industrial and technical chemistry. 2011. (50)17:10083-10092.
- United States Food and Drug Administration, Emerging Technologies Program. Available at: https://www.fda.gov/about-fda/center-drug-evaluation-and-research-cder/emerging-technology-program