The cost of GMP compliance

GMP compliance cost highlights

In 2003, the National Nutritional Foods Association (NNFA, since renamed Natural Products Association, NPA) hosted a webcast and conference call to bring together industry members and FDA representatives in hopes of fostering a better understanding among all participants about not only the proposed GMP (good manufacturing practice) regulations, but what they might mean for industry's future. Carl Reynolds, then of EAS Consulting and now with FDA, said the proposed dietary supplement GMPs were likely to be more rigorous than industry had requested, calling them "analytically intensive." Scott Bass, of Sidley Austin Brown & Wood, predicted ingredient suppliers and private label manufacturers would be the most affected by the eventual supplement GMPs and advised companies to take immediate steps toward meeting the GMPs before the expected compliance date, which was thought to be three years away at the time.

Bass also tackled the touchy subject of costs, saying in its proposed rule, FDA likely underestimated the cost very small- and small companies (fewer than 500 employees) would face to achieve compliance. In its 2003 proposal, FDA estimated this cost to be about $100,000 per year, but many industry members disagreed, especially in the area of testing ingredients and finished products. In its final supplement GMP rule issued years later, FDA in fact amended its cost estimates to $46,000 per year for very small companies (fewer than 20 employees) and $184,000 per year for small companies (more than 20, fewer than 500 employees).

Another change FDA made in its cost analysis in the final rule was to amend its estimates for the average number of batches per year per company size category; industry heavily criticized FDA's 2003 estimates as too low in each category and illogical in estimating more batches for small companies (554 batches) than for large companies (309). FDA changed this to 444 for very small; 2,436 for small; and 1,164 for large firms. The reason for the persistent discrepancy between small and large estimates, according to FDA, was information from self-proclaimed small companies that said they produce more batches of smaller size than do large firms, due to differences in equipment capacity. This increase in batch estimates across the board is one reason why overall cost estimates rose, as testing batches is a primary cost in GMP compliance.

In amending its projections, FDA acknowledged numerous comments submitted by industry detailing the "burdensome" testing requirements and warning the GMPs, as proposed in 2003, would drive small companies out of business and push the price of supplements up possibly over the price of some drugs. In the final rule, the agency also noted compliance efforts may steal companies' resources from areas such as worker safety, product development, marketing and voluntary product testing. This is an often overlooked cost of becoming GMP compliant, especially for companies on tight and small budgets, which includes just about every company in this current economy.

"Our customers have been telling us they've come across other manufacturers who are no longer in business," said Shabbir Akand, vice president of sales and marketing at NHK Labs, a  private label and contract manufacturer. He said the situation might be a case of expectations verses true costs, and investments needed to reach GMP compliance. "Early on, before the final rule, we envisioned where the GMPs were going, and we were able to spread the cost of compliance over a number of years."

As for the more obvious financial burden of bringing a company into compliance, FDA recognized many companies will have to make capital investments in the physical facilities and equipment, as well as spend money, "to perform additional maintenance, establish written procedures, keep records, carry out tests, monitor production and process controls, or execute a variety of additional tasks that they may not have previously performed."

"The actual cost of compliance is greater than anticipated in many areas," said Jeff Wright, president of the Natural Products Association (NPA), who noted the cost of testing, as well as the related quality systems that are part of the testing, is greater than anticipated. "Additionally, the overall cost of developing and maintaining compliant processes and required GMP-related documentation is proving more resource-intensive that originally anticipated. There also is more clarity regarding the responsibilities of each link in the manufacturing chain, which is resulting in more GMP-related responsibilities for all parties involved, particularly in ensuring ingredients and products meet their specifications at each step of production and before shipping."

Several industry members who have had an FDA dietary supplement GMP inspection have highlighted testing as a primary area of cost concern. "In my opinion, the part of the GMPs that costs the most for compliance relates to finished product and shelf-life testing," said Michael Schaeffer, president of Pacific Nutritionals Inc. It is important to note the final rule does not require shelf-life dating, but if a company chooses to put expiration dating on the finished product label, shelf-life testing is required. Practically, many manufacturers feel market pressure to include shelf-life dating, making this testing a virtual requirement, or at least a likely cost to incur in GMP compliance.

However, the agency noted its final rule decreased the number of required tests from the proposed rule. Specifically, it listed the expected tests as: one identity test for each shipment lot of incoming dietary ingredients; tests of subsets of lots by suppliers to create certificates of analysis (CofA) for identity of other components; tests of lot subsets for other specifications in the CofA; tests of batch subsets for specifications as well as for microbial, chemical or physical contaminants; and tests for meeting requirements that water used to manufacture dietary supplements complies with federal, state and local requirements, and does not contaminate the dietary supplement.

A frequently expressed concern from industry was the smaller companies without testing equipment and facilities would have to invest way more money than was estimated by FDA. In fact, many industry members told FDA the cost of new equipment would run anywhere between $50,000 and $1 million, with annual costs between $15,000 and $100,000. FDA contends a capital investment in response to the rule would affect about 10% of a company's plant, with an estimated cost of $50 per square foot (some companies said the cost of a new laboratory could be $200 per square foot). FDA said for a very small company with an average facility size of about 25,000 square feet, the investment would be about $125,000. Small companies with an average facility size of about 70,000 square feet would have about a $350,000 capital investment; and large companies (600,000-square-footaverage size) could expect to make an investment of about $3 million. However, the agency stressed most facilities would not need such capital investments in existing facilities, noting its estimates for such were based on improvements for sanitation purposes, not for expanding laboratories or other technical processes. In fact, FDA said it expects companies should be able to meet testing requirements by existing labs either inside or outside the manufacturing facilities.

The industry hoopla over testing has been primarily over 100% identity testing of every incoming dietary ingredient. FDA contends the final rule allows for use of CofAthis requires pre-qualification of the supplierand also allows for use of statistical sampling for finished products. FDA also points out its interim final rule allowing for petitioned exemption from 100% testing. To date, industry reports this exemption has not been a useful or realistic tool for companies.

FDA said the final rule decreased the amount of required batch testing from the proposed rule: "The number of required identity tests per batch of final product will equal the number of dietary ingredients per batch, divided by the average number of batches per shipment lot (to account for the production of multiple batches of dietary supplements from single lots of components)." In the agency's eyes, this should reduce the costs companies expected from the proposed rule.

FDA said based on a 10% sampling of dietary supplements on the market, vitamin and mineral supplements (VMS) contain an average of 13 listed dietary ingredients, while other supplements, including herbal products, contain about four such ingredients; they also estimated about zero to six unlisted components (solvents, binders, processing aids, etc.) for VMS and zero to four for herbal and other supplements. More difficult is finding an average lot number, which varies greatly depending on ingredient type and various facility capacities. Based on consultation with industry, the agency assumes one to 12 batches per lot, with the average at 6.5 batches. On the cost per test, FDA said it researched real prices and set a range of $20 to $150 per test, settling on $50 per test as the average cost. Industry has said this cost estimate is wrong, with many companies saying the tests can be hundreds of dollars each.

FDA also said the final rule reduced the required testing of finished products: "We assume that establishments will test a representative sample of batches to ensure that the final products meet specifications. We do not specify any particular statistical sampling plan."

Still, the industry has reported high costs from exhaustive requirements. "The level of in-process testing and the amount of required documentation is extensive," said Bob Green, president of Novel Ingredient Services. His company is a raw materials supplier, but while the supplement GMPs are primarily the responsibility of manufacturers, the requirements for testing incoming raw materials and CofA components will leave many manufacturers demanding their suppliers rise to GMP standards. For this reason, ingredient suppliers are not safe from increased costs associated with GMP compliance.

In fact, one of the most confusing aspects of GMP compliance for many companies was figuring out what costs were associated with their specific business. This was the case for Bioforce USA, which exclusively distributes finished dietary supplements made by a network of manufacturing partners, many of whom are in Europe and adhere to pharmaceutical GMP standards. "The biggest headache was figuring out which areas of GMPs applied to us," confirmed Eileen Sheets, managing director for Bioforce USA. "I sat through several webinars and seminars to get an idea of what we were facing, and I had my operations manager also sit in on some."

Sheets said she would have liked to utilize a third-party consultant to help figure out what the company needed to do to comply or even to get a boilerplate for standard operating procedures (SOPs), but she found the prices too expensive. Instead, she made use of industry resourcesthe trade organizations, especially American Herbal Products Association (AHPA), did a good job preparing companies and providing useful resources, she notedand capitalized on existing company personnel who had experience in SOPs and FDA inspections from prior employment. They spent weeks detailing all their quality control (QC) processes, using this as the basis of SOPs, and isolated areas FDA would likely inspect. They passed the final document around to key people involved in the processes before finalizing all documentation. In the end, she said the FDA inspector looked at the company's ordering and receiving procedures, product documentation, warehousing and shipping, as well as how it handles customer complaints. However, the inspector's first glimpse into the company's GMP compliance was to look at its documentation and records. "She looked very carefully at our GMP book and remarked that it was well-thought out," Sheets reported. "I think this set the tone for the rest of the inspectionit showed we took GMPs seriously."

Making use of industry resources and finding expertise helped Bioforce cut costs, although as a distributor, it was not required to conduct extensive testing of product. "The cost was not so much monetary expense but a lot of time," Sheets noted. "We spent weeks of time learning GMPs and figuring out how to meet them."

Green agreed the cost isn't full dollars and cents. "The investment isnt strictly monetary; the cost of GMP compliance also involves additional, knowledgeable staff andespecially for finished goods manufacturersgreater lead-time built into the production schedule," he explained. Green also pointed out one way to derail GMP compliance is looking only at the cost of materials. "If a manufacturer is making purchases primarily based on price, jumping from factory to factory, the raw materials arent likely to meet its specifications," he assured.

Green further highlighted the importance of a good supply chain in GMP compliance. "Think of it this way: to be GMP compliant, in-process testing has to begin at the farm," he said, noting companies that dont maintain stable supplier relationships take huge risks. "Theres no guarantee that the CofA will be accurate." He also addressed the impact of the quality of ingredients from overseas suppliers. "[Manufacturers] have to be prepared to quarantine the materials when they enter the country and run batteries of tests for purity, potency, authenticity, microbial load, etc.," he said, adding if an ingredient doesnt meet U.S. quality standards, the company has to start over, which would be an obvious expense.

Schaeffer explained cost considerations should be divided into two categories: fixed (assets such as buildings and equipment) and variable (human resources). Labor costs were another point of contention between industry and FDA, as the original agency estimate of the average manufacturing wage associated with new labor would be just under $16 per hour, much lower than industry said is realistic. In the final rule, FDA increased this wage estimate to $26 per hour and claimed, contrary to some industry assertions, Ph.D.-level personnel additions would not be commonly necessary to adhere to the GMPs, as new labor would mostly be for ordinary labor tasks such as sanitation, monitoring and record-keeping. In other words, skilled labor would be the exception as far as additional workforce needed for GMP compliance.

Overall, FDA combined its estimates for testing, labor, facilities improvements, equipment, sanitation, record-keeping and other procedures important to GMP compliance, and placed total industry set-up costs at $41 million spread out over three years following the publication of the final rule. It set annual costs at $164 million, including $52 million for testing and $24 million for records. "Using plausible assumptions about the uncertain variables, we estimate that total quantified costs most likely will fall within a range of $104 million to $322 million per year," it concluded.

"It is truly difficult to define an exact cost figure in order to become GMP-compliant," Schaeffer said, adding once the first GMP draft was proposed, Pacific Nutritionals continually improved its processes to enable them to economically implement changes. "Following the publication of the final regulation, it was necessary for us to incur additional costs to address the differences from the draft proposal."

Schaefer said he believes the industry has underestimated the costs required for GMP compliance. "However, industry should recognize there are efficiency savings with well-designed GMP operating procedures," he added. "For smaller companies to trim costs, I would recommend redesigning product formulas/labels and partnering with third-party services. In addition, I would advise that the quality department be well-educated in the requirements for compliance."

Green also said it is hard to put a dollar figure on his company's compliance with supplement GMP regulations. "But in general, I would say it costs a mid-size company at least $500,000 per year in increased testing, documentation, employees, expenses, etc.," he offered. "The larger the company, the greater the investment due to the shear volume of transactions."

Despite the increased number of FDA inspections conducted each year, the rule has only been effective for the entire industry for a relatively short period of time, making it difficult to accurately assess the compliance costs companies are really facing. The costs would obviously differ relative to company size and scope, as well as the degree to which companies were compliant before the rule became effective. It appears the industry offers numerous resources and services to help companies become compliant, although some of these may undeniably result in increased costs, while others are the cost of trade organizationmembership. It is safe to say all dietary supplement companies subject to the law will face some additional costs, but these costs also bring benefits beyond the relief of passing an FDA inspection: more efficient and effective manufacturing, improved reputation for dietary supplements, the creation of analytical methods that previously didn't exist, improved supply qualification and increased quality across the industry.

Additional resources

INSIDER's special report on Cost of Quality, which will include more information on GMP costs, is due out in March 2012.

The SupplySide Store offers on-demand videos, including "GMP Compliance and Contract Manufacturers: The Legal View" and "The FDA Speaks on GMP Inspections."

INSIDER online has on-demand webinars, such as the recently held "Premium SeriesDietary Supplement GMPs: What Can Industry Do Better?" and "Partner SeriesApplication of FTIR and NIR to Meeting the 100% Identity Requirement for Dietary Supplements: Which Technique is the Right Choice."

The recent INSIDER Digital Issue on "Understanding the Economies of Outsourcing" includes info on outsourcing SOPs, analytical testing and Safety/toxicology research.