THE CONTROL ENVIRONMENT OF A COMPANY

The purpose of this article is to provide candidates with a more detailed appreciation of matters pertinent to an auditor, focusing on the need for the auditor of a large limited liability company (in the UK – a limited company) to evaluate the effectiveness of the company’s control environment

ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, sets out the auditor’s responsibility to identify and assess the risks of material misstatement in the financial statements, through understanding the entity and its environment including the entity’s internal control. One of the five components of internal control is the control environment and it is recognised that the control environment within small entities is likely to differ from larger entities. Many candidates have not yet had the opportunity of working in larger entities, or have chosen not to, so have not been exposed to working within the type of strong control environment often referred to in auditing texts. Consequently, they often have limited experience on which to draw when answering exam questions that require anything other than superficial knowledge of an entity’s control environment.

This article aims to provide common examples of matters the auditor needs to consider when assessing an entity’s control environment, and in making an assessment as to their impact on the risk of material misstatement in the financial statements. Reflecting the general trend of exam questions testing knowledge of this area, the article focuses on the need for the auditor of a large limited liability company (in the UK – a limited company) to evaluate the effectiveness of the company’s control environment.

A company’s control environment comprises seven elements each requiring careful consideration by the company’s auditor, recognising that some elements may be more pertinent than others – depending on the subject company. Each one of these elements is identified below, along with an explanation of specific practical aspects that may be considered by the auditor when evaluating its effectiveness. Candidates should be aware that this process forms part of the auditor’s assessment of the overall effectiveness of the company’s internal control, relevant to the audit.

1 Communication and enforcement of integrity and ethical values
Many companies have high values and seek to promote honesty and integrity among their employees on a day-to-day basis. Clearly, if it is evident that such values do exist and are communicated effectively to employees and enforced, this will have the effect of increasing confidence in the design, administration and monitoring of controls – leading to a reduced risk of material misstatement in a company’s financial statements. For example, where a company adopts comprehensive anti-bribery and corruption policies and procedures with regard to contract tendering, and has formal employee notification and checking practices in this regard, it follows that there is reduced risk of material misstatement due to the omission of provisions for fines for the non-compliance with relevant laws and regulations. Alternatively, the existence in a company of comprehensive and ethical procedures with regard to the granting of credit facilities to customers and the pursuance of payment of for goods and services supplied, together with regular supervisory control in this respect, is likely to lead to increased audit confidence in the trade receivables area. This is because the existence of a system allowing goods and services to be a supplied on credit to customers provides the opportunity for fraud to be perpetrated against the company by employees and customers, particularly if controls are deficient in terms of their design or implementation.

2 Commitment to competence
Competence is the knowledge and skills necessary to accomplish tasks that define the individual’s job. It is self-evident that if individual employees are tasked with carrying out duties that are beyond their competence levels, then desired objectives are unlikely to be met. For example, there is an increased probability that the objective of avoiding material misstatement in a set of complex financial statements will not be met if prepared by an inexperienced company accountant. This is simply due to the inexperience (translating to a lower competence level) of the accountant. From this, it follows that the auditor will have increased confidence in internal control relevant to the audit, where management have taken measures to ensure employees who participate in internal control are competent to carry out relevant tasks effectively. Measures taken by management in this regard can cover a range of activity including for example, rigorous technical and aptitude testing at the employee recruitment stage and in-house or external training courses and mentoring from more senior colleagues

3 Participation by those charged with governance
The directors of a limited liability/limited company are charged with the company’s governance. As such, they are responsible for overseeing the strategic direction of the company and its obligations related to its accountability – for example, to governments, shareholders and to society in general. In particular, in most jurisdictions the company’s directors are responsible for the preparation of its financial statements. Given the influence that the actions of directors have on a company’s internal control, the extent of their day-to-day active involvement in the company’s operations has a pervasive effect on the internal control of the company.

The extent to which directors do get involved will, to some extent, depend on legislation or codes of practice setting out guidance for best practice in given jurisdictions. For example, the UK Corporate Governance Code (with which companies listed on the London Stock Exchange should comply) sets out standards of good practice, including those pertaining to board leadership and effectiveness. Notwithstanding legislation and codes of practice, the extent of each director’s participation is largely influenced by the nature of their professional discipline and their individual perspective about how they should carry out their respective roles. Some may see themselves as micromanagers, while others will trust subordinates to carry out defined duties with minimal interference. Frequently, directors will be very experienced and adopt an arms-length approach to getting involved in operational tasks. However, they may insist on monitoring activity by way of receipt of formal narrative reports. Other directors may adopt a more casual (but equally thorough!) ‘working alongside subordinates’ approach as a method of monitoring activities.

All of the variables mentioned above with regard to director involvement, should be important considerations of an auditor as part of the process of ascertaining the extent of internal control in the company and in assessing its effectiveness.

4 Management’s philosophy and operating style
A company’s board of directors will comprise of individuals each with a different mind – set as to philosophy and operating style, manifested in characteristics such as their:

• approach to taking and managing business risk
• attitudes and actions toward financial reporting
• attitudes toward information processing and accounting and functions personnel.

Each of the above characteristics underlie a company’s control environment and it is crucial for an auditor to have an understanding of them. Dealing with each in turn:

Approach to taking and managing business risk. Business risk is the risk inherent in a company as a consequence of its day-to-day operations and it comprises several components. The first of these is financial risk – for example, the risk that the company may have insufficient cash flow to continue in operation. The second component is operational risk – for example, the risk that the company’s product lines may decline in popularity leading to a sharp decline in sales and profitability. The final component of business risk is compliance risk – for example, the risk that the company may be in breach of health and safety regulations, leading to the possibility of hefty fines or even the closedown of operational activity.

Candidates should be aware that a risk-based approach to an audit requires the identification and assessment of inherent risk factors and then of the control risk pertaining to these, in order to determine the risk of material misstatement, prior to carrying out substantive procedures. By adopting a top-down approach to the audit and first identifying business risks, auditors should be able to identify the associated inherent risks arising. They can then progress through the audit using the audit risk model (audit risk = the risk of material misstatement x detection risk) to determine the amount of detailed testing required in each area of the financial statements. To illustrate this approach, referring to the compliance risk example above, an inherent risk arising from the risk of a breach of health and safety regulations. As a consequence, there is a risk that the company’s liabilities may be understated due to the omission of a provision required in the financial statements, in respect of a fine for a non-compliance.

The directors’ approach to taking and managing business risk has obvious ramifications on a company’s financial statements, and the auditor should be aware of the various factors that influence directors in this area, and of applicable controls in place. It is often the case that a newly established company with young entrepreneurial directors and a flat management structure will have a more liberal approach to taking and managing business risk than a well-established company with more experienced directors, and a steep hierarchical management structure. Consequently, it is likely that there would be a lower level of a risk of material misstatement in the financial statements of the latter company.

Attitude and actions toward financial reporting. Financial Reporting Standards exist to help facilitate fairness, consistency and transparency of financial reporting. However, some determinants of profitability such as the measure of depreciation, the valuation of inventory or the amount of a provision remain open to the subjective judgment of management. Consequently, the auditor needs to gain an understanding of directors’ attitudes and actions to financial reporting issues and then make a judgment as to the extent of reliance that can be placed upon these. It may be that a company that is struggling in a faltering economy, and in another driven by a culture to report increasing profits, there is a tendency to adopt aggressive (as opposed to conservative) accounting principles, in order to meet profit expectations. Clearly, on such audit engagements it is important for the auditor to remain resolute in exercising appropriate levels of professional scepticism throughout.

Attitude towards information processing and accounting functions and personnel.Properly financed and resourced with sufficient numbers of appropriately qualified staff and contemporary information and communications technology, the financial reporting (accounting) and information processing functions of a company are vital to a company’s ongoing existence. They are key to the facilitation of compliance with laws and regulations, transactions with third parties, administration and control systems and in the provision of information for decision making. In most very large companies many aspects of the accounting function are inextricably intertwined with specific aspects of the company’s information processing systems, and there is an ongoing programme of investment in these, to ensure that the accounting and information processing systems are contemporary and fit for purpose. This is reflective of a situation where directors recognise that business risk will be significantly reduced, if the company has effective information processing and accounting functions. However, this situation does not apply to all companies. In some, both functions may be seen by the directors merely as necessary functional overhead areas of the business and, as such, they become under-funded and inadequately resourced in terms of staffing and equipment. An auditor engaged on an audit in such a company should be aware that there is an increased risk of material misstatement in the financial statements.

5 Organisational structureISA 315 describes a company’s organisational structure as being ‘the framework within which an entity’s activities for achieving its objectives are planned, executed, controlled and reviewed’. The appendix to the ISA then explains ‘that the appropriateness of an entity’s organisational structure depends, in part, on its size and the nature of its activities’. It follows from this that an international consulting company with offices and operations in several countries has different priorities in terms of organisational structure to a national car sales company with several offices and a number of sales branches in a single country. Similarly, the organisational structure deemed suitable for such a car sales company would not be appropriate for a single site manufacturing company. Generally, an auditor may reasonably expect there to be a positive correlation between the level of inherent risk and the size and complexity of a company’s operations. In assessing, the level of the risk of material misstatement the auditor should consider as to whether the company’s organisational structure in terms of authority, responsibility and lines of reporting meet desired objectives.

6 Assignment of authority and responsibility
Normally, the larger a company’s scale of operations, then the larger the size of the workforce and, inevitably, the larger the amount of assignment of authority and responsibility that is required. Consequently, companies need to deal not only with ensuring that appropriate levels of authority and responsibility are assigned to appropriately qualified and experienced individuals. They also need to ensure that adequate reporting relationships and authorisation hierarchies are in place. Additionally, individuals need to be properly resourced and made fully aware of their responsibilities and of how their actions interrelate with the actions of others and contribute to the objectives of the company. If a company is not successful in meeting each of these needs, then there is an increased probability of ineffective decisions, errors and oversights by employees leading to an increased risk of material misstatement in its financial statements. For example, where a wages clerk is authorised to process the wages payroll and is then assigned the (inappropriate!) authority to enter new employee details into the wages master file.

7 Human resources policies and practices
As explained in ISA 315, ‘human resource policies and practices demonstrate important matters in relation to the control consciousness of an entity’. This implies that if human resources policies and practices are considered to be sound both in design and in implementation over a range of matters, then the risk of material misstatement will be reduced.

Examples of these matters include:

• Recruitment policies and procedures. These should ensure that only competent individuals with integrity are employed by the company. Interview procedures should ensure that only candidates meeting the company’s criteria for recruitment are engaged.

• There should be adequate induction procedures for new employees, such that they can carry out their assigned responsibilities effectively and efficiently soon after being engaged by the company.

• Employees should be provided with ongoing training, support and mentoring as appropriate, such that they can continue to carry out their assigned responsibilities effectively and efficiently.

• There should be regular formal appraisal, at least annually of an employee’s performance. Performance should be measured against standardised criteria authorised by senior management of the company, and there should be ongoing monitoring and feedback to employees about their performance and development needs.

• The company should employ comprehensive and transparent employment grievance procedures, such that employees can be confident that grievances will be dealt with openly and impartially.

• There should be open, transparent and equitable employee disciplinary procedures, such that employees can be confident they will not be treated unfairly by the company in the event that an action triggers its disciplinary process.

• Employment termination procedures should incorporate provision for an exit interview so that the reason for the termination can be confirmed or clarified, all emoluments due to the employee can be settled and arrangements can be made for the return of all company assets prior to the termination date.

While each of the above measures will have a positive impact on the internal control of a company, to some extent they all have the effect of reducing the risk of material misstatement in the financial statements. For example, the existence of fair and robust grievance and disciplinary procedures reduce the possibility of a successful claim against the company for constructive or unfair dismissal, and the absence of a material provision in this respect. Significantly, the existence of human resources policies and practices that are the same or similar to those above should leave a favourable impression with the auditor, as to the directors’ attitude toward their company’s workforce. It is likely that such an attitude would foster good working relationships with employees, leading to an increased likelihood that individuals would reciprocate by carrying out their tasks diligently with integrity in the best interests of the company – resulting in a reduced risk of material misstatement.

Summary
As indicated at the beginning of this article, the purpose of it is to provide candidates with a more detailed appreciation of matters pertinent to an auditor, when evaluating the control environment of a limited liability/limited company. When asked to explain what is meant by the term ‘control environment’, they typically comment that it is a component of a company’s internal control and that it centres around how a company is operated by its management, reflecting such matters as their philosophy and operating style. While there is some merit in this answer, having now read the above commentary, candidates should be aware that the term has much more meaning than that.

Innovation in Quality Metrics

The FDA is collaborating with industry to develop a groundbreaking new set of state-of-quality metrics

By Dr. Prabir Basu, Pharma Manufacturing, OPEX and cGMP Consultant; Dr. Nuala Calnan, Pharmaceutical Science & Regulatory Team at DIT, Ireland; Dr. Thomas Friedli, Professor, Institute of Technology Management, University of St.Gallen, Switzerland

Aug 16, 2016

In the world of pharmaceutical production, it is universally understood that a robust pharmaceutical quality system provides key elements of assurance and oversight for pharmaceutical manufacturing processes. It ensures that patients are provided with medications that are safe, effective, and reliably produced at a high level of quality. However, despite recent advances in the manufacturing sector, quality issues remain a frequent occurrence, and can result in recalls, withdrawals, or harm to patients. Quality issues have also been linked to the rise in critical drug shortages.¹

Regulatory agencies currently assesses the risk profile of manufacturing sites based primarily on their compliance history, as seen in warning letters and field reports, in conjunction with records on product recalls and market-based quality problems. These are not necessarily the most informative measures, and by their nature, provide historical or lagging data or signal detection. More relevant data relating to the state-of-quality, provided in advance, would better inform the risk factors that might predict quality problems and future drug shortages.

FDA’s approach to quality oversight has evolved in recent years, and the new Office of Pharmaceutical Quality (OPQ) has made it a priority to establish a sounder basis for ensuring that pharmaceutical products meet high quality standards throughout the product lifecycle

This FDA led Research Project initiates a program aimed at developing and implementing a set of standardized manufacturing quality metrics. The establishment and collection of these metrics should provide various stakeholders – from industry to regulators – with greater insight into the state-of-quality at a given manufacturing facility, and allow stakeholders to better anticipate and address quality issues while simultaneously reducing unnecessary regulatory burden.

RECENT DEVELOPMENTS IN THE QUALITY METRICS INITIATIVESince early 2013, FDA has been working with the pharmaceutical industry to develop goals and objectives for a metrics program. In response, several industry stakeholder groups have worked with FDA to develop consensus around the goals, as well as identify potential metric sets, including developing recommendations for their implementation and interpretation. Through a series of extensive engagements between industry and FDA there has been an acknowledgement of the complexity of the problem at hand, which is to develop a recommeded set of metrics which are objective and meaningful, easy to capture yet normalized to account for factors such as process differences and technical complexity. Furthermore, it is required that those elements selected will promote acceptable behaviors and not lead to any unintended consquences or unwanted behaviors.

Key Research Questions to Address in the Selection of a Proposed Metrics Set:
1. What is the appropriate set of metrics to collect for establishing the state-of-quality at a manufacturing facility?
2. Will this set of metrics provide adequate information for all types of pharmaceutical manufacturing, such as sterile injectables, bio-pharmaceuticals?
3. How should these metrics be defined?
4. What is the optimal reporting process and what support will be necessary to facilitate timely and uniform reporting.
5. What are the potential unintended consequences which may arise with chosen metrics?
a. Such as measuring OOS rate may result in companies not reporting OOS results or changing their standards of identifying OOS results to minimize the numbers.
b. Review of complaint trending might lead firms to resolve problems superficially without getting to root cause.
6. How can the FDA prevent manipulation of data and its unintended consequences?
7. How does company culture impact the data collection and the metrics?
8. How does the underlying quality culture of a manufacturing facility influence quality performance and how does one correlate its impact through these metrics?
9. How can one represent a set of complex behavior and performance criteria via a set of simple metrics?
10. How can these set of metrics be linked to operating efficiency and performance of the plants? Plants are naturally focused towards improving their profitability and cost. Significant efforts such as six sigma, lean, right-first-time programs are underway across the industry and have deep rooted support in many pharmaceutical operations around the world. Can the reportable quality metrics be a natural offshoot of such improvement programs?

ROLE OF QUALITY METRICS IN RISK-BASED SURVEILLANCE
Quality metrics are widely used throughout the pharmaceutical industry to monitor quality control systems and processes, and many of the components that inform those metrics (e.g., data on process capability output or statistical process control) are already collected and maintained as part of cGMP compliance. Several measures of performance are already common throughout the industry. The challenege is that they are currently defined differently across manufacturers, and even between sites operated by the same manufacturer.

The proposed FDA Quality Metrics program is not the first of its kind; rather, it draws from the example of existing private sector quality improvement programs that collect voluntarily reported, standardized quality metrics from a large and varying array of manufacturing sites, which are then used by participating manufacturers to benchmark their performance against industry standards and their peers.

The collection and analysis of standardized quality metrics can serve several functions:
• At a basic level, metrics should provide a quantitative and objective measure of quality at the manufacturing site, and provide a window at a systems level, to the effectiveness of the oversight and control of operations at a given site.
• Metrics data collection and analysis should also help mitigate or reduce quality related drug shortages and recalls, by allowing for early identification of products at risk of quality failures.
• Metrics provide an opportunity to stratify manufacturing sites according to quality risk and thus prioritize scarce regulatory resources for inspection of plants world-wide.
• Ultimately, these metrics should assist pharmaceutical manufacturers to promote positive behaviors and a corporate culture of responsibility for quality, by providing incentives to improve product and process capability.
Thus, quality metrics may contribute to ongoing broader FDA efforts to reducing risk and improving drug quality.

FDA OPQ OPEX RESEARCH GRANT
The University of St. Gallen is the academic leader today in this effort to establish solid and meaningful OPEX programs around the world. For more than a decade, it has been working hand-in-hand with the pharmaceutical industry globally to assist in developing widely accepted pharmaceutical manufacturing improvement programs. In July, the FDA OPQ granted University of St.Gallen, Switzerland a $468,641 grant to evaluate, enlarge and test the FDA quality metric based on the St.Gallen Operational Excellence database.

St.Gallen will collaborate on this project with Dublin Institute of Technology, Ireland and with Prabir Basu, Consultant and the former Executive Director of the National Institute for Pharmaceutical Technology and Education (NIPTE) in the U.S.A

This St. Gallen research project aims to identify an appropriate set of quality metrics that is integrated with the operation of a manufacturing facility and its underlying quality culture. Over the past 10-15 years the pharmaceutical industry has becoming increasingly aware of and embraced the benefits provided by formal OPEX programs. The initial driving forces behind these OPEX programs were the improvements in operational efficiency and potential cost savings which are often an essential component in the survival for these manufacturing facilities within the competitive global environment. Recent developments in the more mature OPEX programs have shown considerable benefits in the reduction of variation and comensurate improvements in quality through targeting measurable stabilization of the organisational systems responsible for equipment and facilities, quality management, inventory control and mangement oversight.

The significance of the proposed research project is that it will use operational data already available from nearly 300 global plants to establish the metrics, evaluate and validate them. Specifically, since there is extensive buy-in from within the pharmaceutical industry to the existing St. Gallen OPEX program and the benefits from participating in an international benchmarking process, it is believed that industry buy-in for the proposed quality metrics should be easier to achieve. Based on our extensive experience the metrics proposed by the St. Gallen team will also incorporate underlying factors impacting corporate culture such as management commitment and employee empowerment. It is imperative that these underlying factors become an integral part of any meaningful metrics system.

INNOVATION IN QUALITY METRICSThis project builds on a 12 year experience of benchmarking research in the area of pharmaceutical production and management. This database is the one of its kind in the world and is unique in the sense that the data is already widely used by a large number of industry members across the world. The University of St. Gallen has been working together with leading pharmaceutical companies and has great practical and theoretical insights relating to both the current and future challenges in performance measurement for pharmaceutical production.

The evaluation of the proposed metric set will exclusively draw upon the University of St.Gallen OPEX database (no additional data collecting is foreseen). The St.Gallen Global OPEX Database currently consists of more than 300 data sets of pharmaceutical manufacturing sites from plants all over the world, but mainly of US and European based companies. Fig. 1 gives an overview the configuration of the current database: 

Fig. 1: Overview of the St.Gallen OPEX database

The database includes specific measures of both quantitative KPIs and qualitative Enablers of quality. It combines data from across the technical and social sub-systems within pharmaceutical organizations based on the innovative St.Gallen OPEX model shown in Fig 2. 

Fig. 2: The St. Gallen Operational Excellence Model

The technical systems of the St. Gallen OPEX model consists of the elements of:
• Total Productive Maintenance (TPM)
• Total Quality Mangement (TQM)
• Just in Time (JIT)

The first technical system, TPM, consists of measures that are related to the stability of the equipment within a pharmaceutical production facility.  Secondly, the TQM measures consider KPIs and Enablers related to the stability of the relevant quality management processes.  Lastly,  JIT deals with production flow, related inventory levels and lead times.  Available data has consistently shown a positive impact of TPM on TQM, and of both TPM and TQM on JIT. Production sites that have a high TPM performance and a high TQM performance have also demonstrated a high JIT performance.

The Social Sub-system of the model addresses a number of management, leadership and continuous improvement elements at a KPI and Enabler level.  The benefits of using the formal St. Gallen OPEX model is that it provides opportunities to structure the discussion around quality and operational excellence from a system perspective. This is the fundamental basis for the St. Gallen OPEX database and benchmarking study.

This research proposal aims to relate, adapt and improve the existing OPEX research of the University of St. Gallen to the current needs of the FDA’s quality metrics initiative. The research team will investigate wide known excellence frameworks to detail the evaluations on the basis of existing data. Furthermore, it will use established data analysis methods and tools to show significant impacts and correlations between the underlying qualitative Enablers and the related quantitative KPIs in order to identify patterns and trends. The overall goal of the research team is to keep a system perspective of the entire company environment to capture as many influencing factors as possible and not neglect others. The evaluation will allow for exploring and understanding the interdependencies between Enablers and KPIs from this system perspective.

The outcome of this project will be a verified and proven set of quality metrics. Correlations will not only be tested against traditional quality performance figures like customer complaints or rejected batches but also against overall facility performance and cost figures. Furthermore, the Enablers for quality will be defined based on an overall system understanding taking into account key supply chain elements of supplier quality and distribution performance. Furthermore, the St.Gallen research team adresses the aspect of Quality Culture with the requested improvement culture of the employees.

The next generation quality metrics program should support the aim of achieving enhanced product quality without the need for extensive regulatory oversight and should ultimately help to drive responsibilities for the manufacturers that will lead to a reduction in product-related shortages and quality related recalls. The developed concepts and methods will significantly support the further evaluation and use of the quality metrics to have an influence and positive impact on the industry peers. 

1. ISPE. (2013). Report on the ISPE Drug Shortages Survey

What are the major challenges that pharmaceutical end users experience with their packaging systems?

There are a couple of significant challenges that pharmaceutical manufacturers may experience in selecting and implementing packaging systems. One of these challenges is posed by the growing trend toward prefilled syringes for liquid injectables. Prefilled syringes offer a much higher degree of performance than traditional vials by eliminating the dosage preparation necessary at the hospital. However, the implementation of prefilled syringes expands the validation process for the drug manufacturer.

Jerry Martin, pharmaceutical and life sciences consultant to PMMI, The Association of Packaging and Processing Technologies

Another challenge stems from the new standard on the qualification of materials for packaging systems with regard to extractables and leachables. Chemicals that can migrate out of the packaging materials and into the dosage form are a concern. With advancing analytics technology, there is a push from the FDA to understand what risks are posed by packaging ingredient migration. U.S. Pharmaceutical Convention (USP) is actively working on revising its standards for qualifying plastic packaging materials from the raw material to the final format. It's in the process of being finalized and it will be helpful for the industry to follow those standards. The goal is to establish standard evaluation methods and eventually, threshold limits, out of a consensus of experts.

Can you elaborate more on the revision of standards by the USP?

USP has formed an expert committee of volunteers from different reaches of the pharmaceutical and biotech sectors — including testing laboratories, drug manufacturers and component or equipment suppliers — to assess the risks and establish an updated, standardized approach to qualifying materials and packaging systems. The first two new standards published late last year addressed the qualification of component materials and final containers made from those materials. The next standards will address the process equipment side — upstream of filling the final packaging. These are currently in draft form and will be finalized by the end of this year. The next step, slated for 2017, is to generate standards for the suitability of packaging in the final dosage form.

When will drug manufacturers be expected to comply with these new standards?

No deadlines are set for compliance. These standards are voluntary. The USP sets the reference standards for the U.S. Food and Drug Administration (FDA). Therefore, pharmaceutical manufacturers that follow the USP standards will not have to go through any extra steps to meet FDA approval. However, pharmaceutical manufacturers that opt not to abide by USP standards will be held accountable by the FDA to provide other proof that the methods of analysis utilized are at least as effective. The USP's guidelines are treated as expectations. If an FDA reviewer questions a practice that complies with USP standards, pharmaceutical manufacturers have a strong scientific basis to stand on.

At this particular juncture in time, what is driving the need for these new USP standards?

Packaging systems are becoming more and more complex. I recently read about a biological that is packaged in an automatically timed, self-injection device that patients can wear on their stomachs. When a packaging system was just a vial in a box, there were far fewer components to evaluate. We're moving into a domain where the drug and the device are a package deal, but assessed by different teams at the FDA. The trend toward more complex delivery systems just doesn't always fit into the organizational structure of that agency. The FDA addressed this through the Office of Combination Products and new guidance. Creating a standardized set of expectations will make oversight of these increasingly complex packaging systems easier for all parties.

How has this trend toward complex packaging systems affected the general supply chain?

Pharmaceutical manufacturers certainly want to ensure that drugs, especially biologicals, are kept at the right temperature through the course of the supply chain. While we haven't seen many instances where temperature control of the drug has compromised the delivery device, temperature control is becoming more sophisticated with tracers that monitor the temperature and maintaining it through electronic signal so that the operators detect any deviation before the product goes bad. The added complexity is bound to necessitate greater utilization of the Internet of Things (IoT) to provide a higher sense of security and environmental control. These methods are being investigated now. On the topic of track-and-trace, sophisticated monitoring devices can help serve to authenticate original products when the threat of counterfeits loom over a drug.

Establishing a Root Cause Failure Analysis Program at a Pharma Facility

By Anil Agrawalla, CMRP, Life Cycle Engineering

Your clean steam generator system stops and alarms. Production halts; operations quickly calls maintenance. Maintenance jumps into action and determines that the bearing seized in the feed water pump. A bearing order is expedited through procurement, maintenance efficiently makes the repair the next morning, and the production team runs tests before putting the system back into operation. Corrective actions are created to ensure that the bearing is stocked in the MRO storeroom, and to double frequency of the pump’s preventive maintenance. The senior leadership team is satisfied with the response and corrective actions, and praises the team for limiting the production delay to just 24 hours.

Does this scenario sound familiar? A critical piece of equipment fails and the facility scrambles to get the system back to operation. Corrective actions are implemented to reduce future failures, but are done without asking why the equipment failure occurred. Resources aren’t allocated to identify the root cause on a significant failure like this, yet resources are dedicated to other issues that don’t seem as important to the business. This gap creates the opportunity to implement a Root Cause Failure Analysis (RCFA) program.

Implementing an RCFA program at a pharmaceutical manufacturing site can be a large undertaking, especially for failures that don’t affect product quality. Site resources and priority are given to investigations for quality-related issues due to the strict nature of FDA and regulatory requirements for issues that can impact a patient’s health. Non-quality-related investigations can significantly impact business but often don’t get the same scrutiny as quality investigations. 

Including non-quality-related failures in a well-planned RCFA program can bring substantial value to the company. Three factors are key to program success when implementing an RCFA program in a pharmaceutical environment:

• Having a well-defined process that provides a strong foundation / framework
• Aligning the RCFA program with the existing quality investigation process to help ease the introduction to the site and reduce the resources required for implementation
• Communicating the program value to senior leadership and the rest of the site to achieve site-wide adoption and ensure persistency.

A six-step RCFA process will provide the needed framework. Alignment with the existing quality investigations occur within each step. 

STEP ONE: NOTIFICATIONThe notification step is a pre-defined set of triggers that initiate an RCFA investigation whenever a failure event results in significant loss to the facility. As a general note, an RCFA program can investigate any type of significant event. For the scope of this program, events are intended for equipment-related failures. Although the initial failure symptoms experienced are equipment-related, these failures may end up having root causes that are not directly attributed to the equipment.

The triggers used to initiate an RCFA investigation should encompass all aspects of the business including major safety incidents, environmental violations, product quality issues, high maintenance costs, and production downtime events. The triggers should look for single, significant failure events as well as smaller, repetitive failures that occur frequently. Though a single, smaller failure would normally not be investigated, the chronic and repetitive nature can lead to a significant cumulative cost to the company. The type of trigger and its trigger level need to be customized for each company. The triggers should be set so that the cost of the root cause investigation is less than the business cost experienced by the company.

The Quality, Safety, and Environmental departments may already have their own investigation triggers for failure events that have a quality or safety effect. Since the process, tools used, and goals of those investigations are similar to ones used in an RCFA program, a separate analysis is generally not needed. A maintenance or reliability employee trained in the site’s RCFA program should join the existing investigation process to help with identifying and mitigating the root causes. High maintenance repair costs and production downtime can have a significant financial impact, so both of these can be triggers for an investigation. Triggers for chronic events can include repetitive causes that are trended in the CMMS’s failure coding, or excessive stoppages noticed on the production floor during production runs. 

A process map of the Notification step, shown in the figure below, displays an example set of triggers. As the figure shows, there is a clear definition and level for each trigger, which reduces the ambiguity of when an RCFA should be triggered. The success factor for this first step of the RCFA program is to ensure that the rest of the facility is aware of the RCFA program and its triggers. All employees, from operators to directors, are responsible for identifying equipment failures that trigger an RCFA investigation and notifying the RCFA process owner.

STEP 2: CLARIFICATIONClarification entails the gathering of information necessary to analyze the failure events. Once an RCFA is triggered, an RCFA facilitator should be quickly assigned to gather any evidence or data related to the triggered event before the evidence disappears. The evidence can range from physical parts, data logs, manufacturing batch records, or interviews from employees involved in the event. It is critical for the RCFA facilitator to be skilled in investigation techniques, particularly those involving interviewing personnel. The facilitator should be able to gather factual event information without alienating the interviewees. These techniques are often taught through the Quality department for quality investigations, and can be utilized to train the RCFA facilitator.

Three Laws of HVAC Optimization

HVAC systems hold the key to energy efficiency in pharma

By Alaina Bookstein, Optimum Energy

Oct 05, 2016

Pharmaceutical manufacturing facility executives increasingly face demands to cut operational costs and drive down energy and water use to meet corporate sustainability goals. Heating, ventilation and air conditioning (HVAC) systems are a natural place to look for such savings: these systems typically account for 65 percent of the energy used in pharmaceutical manufacturing facilities, according to research by Lawrence Berkeley National Laboratory, and chilled water plants consume large amounts of water every day. Optimizing HVAC systems to minimize energy and water use clearly has enormous financial and sustainability benefits.

HVAC efficiency projects, however, often fail to deliver on their promise. In environments where maintaining precise ambient conditions is essential to product quality, even new, state-of-the-art HVAC systems lose operational efficiency after installation. System operators, faced with pressing operational needs, understandably will take control, overriding set points and sacrificing efficiency.

The HVAC efficiency upgrades that succeed aim for system-level optimization (mechanical systems working at peak effectiveness, all the time) rather than simple individual component efficiency. The engineers at Optimum Energy have broken down this approach into three laws of optimization:

1. Measurement comes first. Without an accurate measure of energy use by each piece of equipment in the system, it is impossible to accurately predict and report the impact of varying conditions on the system. In other words, if you can’t measure it, you can’t optimize it.

2. Focus on the system. If an optimization plan focuses on installing the most efficient pieces of equipment without considering how to maximize performance of the whole system, it won’t capture the total available efficiency. Holistic, automatic optimization of HVAC systems typically increases energy efficiency by an additional 10 to 25 percent over just installing new equipment.

3. Optimization must be automatic, dynamic and continuous. To achieve maximum efficiency, optimization must be a real-time dynamic process, not a static set-and-forget process. Operational control of a pharmaceutical manufacturing plant or research laboratory must be based on real-time inputs and adjustments. Without that data and automation, you cannot fully optimize the HVAC system while maintaining strict environmental conditions.
Following these laws can lead to impressive results. For example, Amgen’s Thousand Oaks campus in southern California improved its average efficiency rating by 33 percent and saved $990,000 and 11 million kWh annually by optimizing three chiller plants and upgrading its building automation system (BAS).

The facility installed Optimum Energy’s OptimumLOOP technology, which works through the BAS to continuously and dynamically adapt the chilled water plant’s operations to conform with fluctuating loads, weather and occupancy conditions. A connection to the cloud-based OptiCx software platform increased visibility into plant operations, which revealed that a lead plant was operating extremely inefficiently.

Pharmaceutical facility directors can wring savings out of even the most demanding environments — with new or existing equipment — by following the laws of optimization.

cell and Gene Therapy Manufacturing 2016

Contributor: Miss Chanice Henry

Posted: 09/20/2016

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Earlier this month, Industry members gathered to tackle challenges and contribute to the discussion surrounding cell and gene therapies and their manufacture.

The dominant notion that emerged from the conference was the emphasis on the management of the product’s starting material in the manufacture of cell and gene therapies. The transit of these therapies should be perceived not as merely shipping but in fact mapping out a chain of identity and custody to ensure materials are fully preserved. Also, considering and planning for scaling-up early on in the process.

A range of topics were addressed on site including, scalability, gene modified t-cells, regulatory requirements, closed system processing and AAV based gene therapy vectors. The logistics of transporting a cell therapy to the patient with a reasonable cost of goods was examined. The reasonable cost of goods is understood as being the total price of all services and goods within the process of the therapy and its delivery. It was noted that logistics costs can extend up to 60% of the overall costs of the therapy.

Many experts at the event stressed that going commercial needs to be considered in the initial outset rather than just when the scaling up is needed.  System integration is vital to uplifting volumes.

Questions were asked on whether the patients should be brought to the therapy at the production site rather than vice versa due to the added controls needed. However, it was noted that this isn't always suitable in some cases as patients can be critically Ill, therefore international travel is not always an option.

Another key subject posed by speaker Dawn Hiles, Senior Biomedical Scientist, Production Manager for Cellular Therapies, Newcastle University was the focus on sterility assurance challenges in the manufacture of advanced therapeutic medicinal products. The entire whole production process needs to be designed to ensure that the product has the most minimal risk of contamination. Contamination can occur at any stage and the initial materials themselves need to be assessed.

Other experts onsite included the likes of, Sascha Sonnenberg, President of Global CTS Sales and Operations, Marken, Elena Meurer, Head of Pharmaceutical and Technical Development at Apceth, Miguel Forte of TXCell and Antoine Heron of Merck Life Sciences.

Companies present included Cell & Gene Therapy Catapult, Plasticell, World Courier and Cellular Therapeutics.

Crystal Clear Imaging for Nanoscale Molecular Arrangements

Fri, 10/14/2016 - 12:38pm

by Glenn Roberts Jr., Berkeley Lab

Infrared light (pink) produced by Berkeley Lab’s Advanced Light Source synchrotron (upper left) and a conventional laser (middle left) is combined and focused on the tip of an atomic force microscope (gray, lower right), where it is used to measure nanoscale details in a crystal sample (dark red). Image: Berkeley Lab, CU-Boulder

Detailing the molecular makeup of materials — from solar cells to organic light-emitting diodes (LEDs) and transistors, and medically important proteins — is not always a crystal-clear process.

To understand how materials work at these microscopic scales, and to better design materials to improve their function, it is necessary to not only know all about their composition but also their molecular arrangement and microscopic imperfections.

Now, a team of researchers working at the Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) has demonstrated infrared imaging of an organic semiconductor known for its electronics capabilities, revealing key nanoscale details about the nature of its crystal shapes and orientations, and defects that also affect its performance.

To achieve this imaging breakthrough, researchers from Berkeley Lab’s Advanced Light Source (ALS) and the University of Colorado-Boulder (CU-Boulder) combined the power of infrared light from the ALS and infrared light from a laser with a tool known as an atomic force microscope. The ALS, a synchrotron, produces light in a range of wavelengths or “colors” — from infrared to X-rays — by accelerating electron beams near the speed of light around bends.

The researchers focused both sources of infrared light onto the tip of the atomic force microscope, which works a bit like a record-player needle — it moves across the surface of a material and measures the subtlest of surface features as it lifts and dips.

The technique, detailed in a recent edition of the journal Science Advances, allows researchers to tune the infrared light in on specific chemical bonds and their arrangement in a sample, show detailed crystal features, and explore the nanoscale chemical environment in samples.

“Our technique is broadly applicable,” says Hans Bechtel, an ALS scientist. “You could use this for many types of material — the only limitation is that it has to be relatively flat” so that the tip of the atomic force microscope can move across its peaks and valleys.

Markus Raschke, a CU-Boulder professor who developed the imaging technique with Eric Muller, a postdoctoral researcher in his group, says, “If you know the molecular composition and orientation in these organic materials then you can optimize their properties in a much more straightforward way.

“This work is informing materials design. The sensitivity of this technique is going from an average of millions of molecules to a few hundred, and the imaging resolution is going from the micron scale (millionths of an inch) to the nanoscale (billionths of an inch),” he says.

The infrared light of the synchrotron provided the essential wide band of the infrared spectrum, which makes it sensitive to many different chemicals’ bonds at the same time and also provides the sample’s molecular orientation. The conventional infrared laser, with its high power yet narrow range of infrared light, meanwhile, allowed researchers to zoom in on specific bonds to obtain very detailed imaging.

“Neither the ALS synchrotron nor the laser alone would have given us this level of microscopic insight,” Raschke says, while the combination of the two provided a powerful probe “greater than the sum of its parts.”

Raschke a decade ago first explored synchrotron-based infrared nano-spectroscopy using the BESSY synchrotron in Berlin. With his help and that of ALS scientists Michael Martin and Bechtel, the ALS in 2014 became the first synchrotron to offer nanoscale infrared imaging to visiting scientists.

The technique is particularly useful for the study and understanding of so-called “functional materials” that possess special photonic, electronic, or energy-conversion or energy-storage properties, he notes.

In principle, he adds, the new advance in determining molecular orientation could be adapted to biological studies of proteins. “Molecular orientation is critical in determining biological function,” Raschke said. The orientation of molecules determines how energy and charge flows across from cell membranes to molecular solar energy conversion materials.

Bechtel says the infrared technique permits imaging resolution down to about 10 to 20 nanometers, which can resolve features up to 50,000 times smaller than a grain of sand.

The imaging technique used in these experiments, known as “scattering-type scanning near-field optical microscopy,” or s-SNOM, essentially uses the atomic force microscope tip as an ultrasensitive antenna, which transmits and receives focused infrared light in the region of the tip. Scattered light, captured from the tip as it moves over the sample, is recorded by a detector to produce high-resolution images.

“It’s non-invasive, and it provides information about molecular vibrations,” as the microscope’s tip moves over the sample, Bechtel says. Researchers used the technique to study the crystalline features of an organic semiconductor material known as PTCDA (perylenetetracarboxylic dianhydride).

Researchers reported that they observed defects in the orientation of the material’s crystal structure that provide a new understanding of the crystals’ growth mechanism and could aid in the design molecular devices using this material.

The new imaging capability sets the stage for a new National Science Foundation Center, announced in late September, that links CU-Boulder with Berkeley Lab, UC Berkeley, Florida International University, UC Irvine, and Fort Lewis College in Durango, Colo. The center will combine a range of microscopic imaging methods, including those that use electrons, X-rays, and light, across a broad range of disciplines.

This center, dubbed STROBE for Science and Technology Center on Real-Time Functional Imaging, will be led by Margaret Murnane, a distinguished professor at CU-Boulder, with Raschke serving as a co-lead.

At Berkeley Lab, STROBE will be served by a range of ALS capabilities, including the infrared beamlines managed by Bechtel and Martin and a new beamline dubbed COSMIC (for “coherent scattering and microscopy”). It will also benefit from Berkeley Lab-developed data analysis tools.

Other contributors to the work include Benjamin Pollard and Peter van Blerkom, both members of Raschke’s group at CU-Boulder.

The work was supported by the National Science Foundation. The ALS is a DOE Office of Science User Facility.

Source: Berkeley Lab