5 Ways Manufacturing Quality Problems Can Take Down a Company

Manufacturing quality issues arise from time to time at pharmaceutical, medical device, and food companies, and if left unchecked, can lead to massive losses.

Analyzing FDA inspections and a company’s performance provides early insights into any potential issues that may be brewing. Almost all quality-related warning letters start with an inspection and a 483. While some warning letters result from years of company mismanagement in responding to the FDA, sometimes warning letters can swiftly follow just one bad 483 report—causing huge financial damage to the company.

Unfortunately, many leaders don’t fully appreciate the multi-pronged ways a “small internal manufacturing issue” can blow up.

Here are 5 factors to consider:

1. Reputation Damage – FDA warning letters are public information, and the business media love to draw attention to these. Even if the warning letter can easily be fixed, companies inevitably take a hit from being in the negative news cycle. This has a ripple effect on shareholder and stakeholder confidence.
2. 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 2 years due to a quality issue at one of their sites. This event cost the company the majority of their market opportunity.
3. 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.
4. Loss of Business – Depending on the severity of the warning letter, 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 3 examples of this kind of sales loss ranging from $270 million to $600 million.
5. 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.

The days of just “reacting” to a manufacturing quality problem are quickly coming to at end.

More and more companies today are pro-actively managing this manufacturing risk with a more data-driven understanding of their own root issues and FDA enforcement areas of focus.