Competition and Government Regulations Forcing a New Pharmaceutical Business Model The US Food and Drug Administration (FDA) recently announced progress toward 21st century regulation of the pharmaceutical industry, outlining new steps in its strategic initiative to modernize regulation of pharmaceutical manufacturing. The FDA believes this initiative will enhance safety and quality in drug manufacturing as well as increase manufacturing efficiencies. ARC believes that the single most important part of this initiative is the issuance of five new guidelines. The guidance on e-records and signatures makes it clear that Part 11 is alive and well and will continue to evolve with technology. The four draft guidances indicate that the FDA is serious about creating a regulatory program that encourages and simplifies the adoption of process analytical technology. ARC believes the FDA’s PAT initiative may soon have more impact on the pharmaceutical industry than 21 CFR Part 11.

1. THOUGHT LEADERS FOR MANUFACTURING & SUPPLY CHAIN
ARC INSIGHTS
By John Blanchard
21 CFR Part 11 is alive and well with
minor changes from its original intent.
But the US FDA’s Process Analytical
Technology initiative may soon have
more impact on the pharmaceutical
industry than Part 11.
INSIGHT# 2003-39MP&H
SEPTEMBER 17, 2003
Competition and Government Regulations
Forcing a New Pharmaceutical Business Model
Keywords
21 CFR Part 11, Process Analytical Technology, PAT, Pharmaceutical
Summary
The US Food and Drug Administration (FDA) recently announced progress
toward 21st century regulation of the pharmaceutical industry, outlining
new steps in its strategic initiative to modernize regulation of pharmaceuti-
cal manufacturing. The FDA believes this initiative will enhance safety and
quality in drug manufacturing as well as increase manufacturing efficien-
cies. ARC believes that the single most important part of this initiative is
the issuance of five new guidelines. The guidance on e-records and signa-
tures makes it clear that Part 11 is alive and well and will continue to evolve
with technology. The four draft guidances indicate
that the FDA is serious about creating a regulatory
program that encourages and simplifies the adop-
tion of process analytical technology. ARC believes
the FDA’s PAT initiative may soon have more im-
pact on the pharmaceutical industry than 21 CFR
Part 11.
Analysis
The US FDA’s regulations and initiatives like 21 CFR Part 11 electronic re-
cords requirements, a risk based approach to compliance, quality assurance
through use of process analytical technology (PAT), and similar European
initiatives have become or are becoming regulatory requirements through-
out the global pharmaceutical industry. In addition, science and
technology, high barriers to market entry, and governmental protection
policies are no longer obstacles to increased competition.
Reliance on blockbuster drugs, mergers and acquisitions, and continuing
price increases are no longer sustainable business strategies. Most large
therapeutic categories are crowded, while the needs of smaller therapeutic
categories remain unfulfilled. On a macro level, healthcare costs approach-

2. ARC Insights, Page 2
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ing 25 percent of gross domestic product (GDP) are not sustainable in any
country. Cost shifting, promotion of drug development in smaller thera-
peutic categories, improved quality, and improved efficiency are required.
Competitive Landscape
The rising cost, limited availability, and demand for new drugs is driving
increased competition. Generic competition capable of devastating a fran-
chise is increasing as patents expire or are successfully
challenged. Large pharmaceutical companies that did not
invest in biotechnology now find themselves at a disad-
vantage as over 40 percent of new drug entities are
expected to be biotechnology products. Europe’s promi-
nence in bulk active ingredient manufacturing is being
challenged by the growing expertise and lower cost in
Asia. This can be expected to increase as India and China
begin to enforce more rigid intellectual property protection
rights. As large therapeutic categories become crowded,
large companies are protecting blockbuster drugs with an
over-the-counter (OTC) strategy or are forced into smaller
therapeutic categories where they have less expertise.
Contract manufacturing is now commonplace and grow-
ing at 4 percent per year.
Guidance for Electronic Records and Signatures
Part 11 is alive and well with minor, but significant, changes. These changes
are consistent with its original intent to encourage the use of new science
and technology to improve public health and safety. This includes respon-
sibility to ensure an affordable health care system. The first significant
change is that the FDA will exercise enforcement discretion on most sys-
tems that were in operation before August 20, 1997, essentially a
conditional grandfather clause the industry expected. The second signifi-
cant change is that the FDA re-enforced their traditional risk-based
approach so that Part 11 now applies to fewer documents, essentially elec-
tronic quality documents in high risk processes. Finally, the FDA states
that hybrid systems are acceptable under certain conditions.
After promulgating the US 21 CFR Part 11 ruling and realizing there were
still some challenging technical and fiscal issues, the FDA has been consis-
tent in its general guidance. It requires that pharmaceutical companies use
API Manufacturing
Discovery
Clinical Trials Drug Manufacturing
Global Competition
Branded
R&D ManufacturingGeneric
New Proteins & Biologics
Global Regulatory Initiatives
Part 11SOA HIPAA cGMPsPAT
Product Safety Directive2001/95/EU
Annex 11
Data Protection Directive95/46/EC
API Manufacturing
Discovery
Clinical Trials Drug Manufacturing
API Manufacturing
Discovery
Clinical Trials Drug Manufacturing
Global Competition
Branded
R&D ManufacturingGeneric
New Proteins & Biologics
Global Regulatory Initiatives
Part 11SOA HIPAA cGMPsPAT
Product Safety Directive2001/95/EU
Annex 11
Data Protection Directive95/46/EC
Competition and Regulations Are
Driving a New Pharmaceutical
Business Model

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good scientific methods to interpret the ruling, conduct a risk-based system
by system gap analysis, develop a risk-based compliance or remediation
plan based on this, and begin a good faith documented
effort to execute the plan. It also requires a multi-
disciplinary team approach that the industry has not gen-
erally used.
FDA PAT Initiatives Drive New Business Model
In the traditional pharmaceutical industry business model,
multi-disciplinary teams are rarely used, organizations are
isolated, and patient information is less than satisfactory.
Scientists in drug discovery would typically toss a promis-
ing new chemical entity (NCE) over the organizational
wall to the clinical medical researchers. Manufacturing
people knowledgeable in current good manufacturing
practices (cGMPs) would not be involved until there was
little ability to simplify process validation and compliance.
This situation, coupled with FDA regulations, resulted in
de facto quality control rather than quality assurance and
placed little emphasis on manufacturing efficiency.
The rising cost and increased complexity of protein and biological processes
and drugs requires a dramatically different business model. In the new
model there are multi-disciplinary teams, close coupling of discovery, clini-
cal trials, manufacturing, and patients to affect reduced time to market of
higher quality, more effective, and less costly drugs. In this model, more
rigorous clinical data, process data, and post-production patient data are
used for continual process optimization with minimum cost and time for
process revalidation.
ARC believes the following FDA draft guidances are a major step toward
achieving this.
• A draft guidance for Process Analytical Technology (PAT).
• A draft guidance on a process for resolving disputes arising over scien-
tific and technical issues related to pharmaceutical current good
manufacturing practices (cGMP).
Most systems older than August
20, 1997 are grandfathered
Part 11 applies to newer high risk
systems and non-compliant older
systems
Part 11 applies to fewer documents
Hybrid systems are acceptable
under certain conditions
E-Copies and archiving require-
ment are clarified, but still evolving
with available technology and
financial viability
Until revised GMPs and changes to
Part 11 are resolved, FDA intends
to exercise enforcement discretion
with regard to validation, audit
trail, records retention, and copies
of records
Highlights of August 2003 US
FDA 21 CFR Part 11 Guidance on
E-Records and Signatures

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• A draft guidance on preparation and use of comparable protocols for
assessing chemistry, manufacturing, and control changes to protein
drug products and biological products.
• A draft guidance on the aseptic processes used in the manufacture of
sterile drugs, emphasizing current science and risk based approaches.
Commercial
Manufacturing
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CAPA
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Robust Clinical Trials
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Process Optimization
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21st
Century Integrated Pharmaceutical Enterprise Business Model
Recommendations
• Use a multi-disciplinary team approach to regulatory compliance and
operational excellence across discovery, clinical trials, and commercial
manufacturing.
• Successful deployment of PAT technology for process optimization will
require improved automation evaluation and support capabilities.
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