“Forget about actual warning letters. The cost of us receiving a moderately bad 483 is roughly $250,000.”
I heard this from a reputable Head of Manufacturing of one of the largest biopharma companies in the world. While most pharma and med device companies seems to learn quickly from everyone else’s mistakes, companies still occasionally get a “moderately bad” 483. And then what happens after that?
Internal teams are put together to address the issues. (Expensive) External consultants are brought in for specific expertise. Hundreds, if not, thousands of hours of remediation, training, process redesign, process implementation, and meetings. It’s not hard to imagine the bill running up to $250,000.*
(*Update (September 16, 2016): I spoke to a former VP of quality this past week at the PDA/FDA Joint Regulatory Conference. He said one of his bad 483s probably cost him $5 million. The 483 was simply the symptom of a deeper problem that he decided to proactively fix across all 40 sites.)
And that’s cheap – that’s just a 483. What about a warning letter? The impact is orders of magnitude greater in the following ways:
- Reputation Damage – FDA warning letters are public information, and the business media love to draw attention to these. Even if the warning letter can be easily fixed, companies inevitably take a hit from being in the negative news cycle. This has a ripple effect on shareholder and stakeholder confidence.
- Impact on New Drug Approvals – In many cases, the FDA can put on hold any New Drug Applications that may be impacted by the site in question. For instance, one Wall Street Journal article discussed an instance in which Boston Scientific was forced to delay the launch of a new product by two years due to a quality issue at one of their sites. This event cost the company the majority of their market opportunity.
- Competitive Response – In some instances, competitors will leverage the opportunity provided by the warning letter’s effects by implementing a short-term marketing or promotional push to grab additional market share. This can further damage the company’s prospects.
- Loss of Business – Depending on the severity of the warning letters, state and federal governments, insurance companies, and other business entities may cancel, postpone, or delay business contracts with the company. Tied to reputational damage, consumers may simply opt for the competitor product. A McKinsey Case Study on the medical device industry provides three examples of this kind of sales loss ranging from $270 million to $600 million.
- Management Attention – Once a 483 or warning letter is received, companies must dedicate management time and resources to solving the urgent matter at hand. In the most ideal case, management will also dedicate resources to solve any systemic problems through a deeper root cause analysis. The WSJ article cited above notes a case in which Stryker spent $200 million in an attempt to fix compliance/quality issues.
One of my colleagues once walked through the parking lot of a large biopharma company and saw a mid-tier Porsche with license plate “Zero483s.” Now we know – that’s an achievement worth at least a $100,000 car.
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