The German advertising tagline "greed is good" is now outmoded as a basic principle of purchasing. A low purchase price does not mean that a product is actually inexpensive. Therefore the saying, "Those who buy cheap buy twice" often applies. As it would seem, this commonplace insight for consumer goods also applies in the chemical and pharmaceutical industries. Quality obviously does not always correlate with price.

Time and again, reports surface in the media about injuries and even deaths resulting from counterfeit or contaminated medicinal products. But in addition to medicines, there are other products that have also made the headlines, ranging from food to clothing, chairs and toys. In these cases, which were not driven by criminal intent, the causes of the problems were an incorrect understanding of quality and the major consequences of seemingly minor deviations.

The European Fine Chemicals Group (EFCG), a sector group within the European Chemical Industry Council (Cefic), has long pointed out the problems that have taken hold in company supply chains. Ultimately, these problems result in counterfeit, low-quality or contaminated products reaching the market. To address this problem, the EFCG has developed various approaches that take into account the justifiably varied regulatory requirements for products. After all, there are differences in the manufacture of high-quality products, for example between a pharmaceutical product and a pigment for automotive coatings.

The EFCG is well aware that not every deviation can be completely regulated under standards set by law or specifications. While the manufacturers of fine chemicals agree on the necessity of greater involvement by governmental authorities, they believe foremost in voluntary commitment by the producers in the supply chains.

CHEManager Europe invited three representatives of member companies of the EFCG to a round-table discussion to talk about the differences and similarities in the approaches. This will elicit the perspectives of manufacturers of active pharmaceutical ingredients (APIs) as well as manufacturers of pharmaceutical auxiliaries and carriers (excipients) and other intermediates and end products.

Dr. Michael Reubold discussed with Dr. Burghard Freiberg (Merck KGaA), Dr. Lukas von Hippel (AllessaChemie) and Dr. Heinz Sieger (CU Chemie Uetikon) positions they share and where they differ.

CHEManager: Counterfeit or contaminated products and their components, as well as products manufactured under different production standards for different quality requirements, cause injuries and even deaths. How widespread is this problem around the world?

H. Sieger: The number and frightening scale of the incidents such as adulterated heparin, contaminated pharmaceuticals in Haiti and Panama, gentamycin, and the melamine scandal involving contaminated and diluted baby formula in China are well known and documented. The heparin incident made it very clear to us that despite controls, the criminal intent and profiteering among some manufacturers are so great that they knowingly and willingly put peoples' lives at risk.

In our view, in Europe this problem continues to receive inadequate recognition and is sometimes downplayed. The question remains: How many more incidents of this sort must occur, with how many victims and injuries, until the situation is finally rectified?

L. von Hippel: There are unfortunately even more examples, and not all of them have immediate bearing on consumer health. Beyond the examples of contaminated pharmaceutical active ingredients, tablets containing either no or the wrong active ingredient, and in addition to the results of criminal activity such as in the melamine scandal, we often encounter problems in the manufacture of products where environmental protection is disregarded or safety standards are violated. We must detach ourselves from the delusion that we can simply look at a product to discern the quality standards it was produced under. Instead, we must actively prepare ourselves to also check what conditions the substances were produced under.

Health effects up to and including death are tragic, but the economic damage is also enormous. Can they be quantified?

H. Sieger: The most recent warning from the EU Commission makes the scope of the economic damage clear. More and more instances of counterfeit medicines are being uncovered, said the outgoing Industry Commissioner Günter Verheugen, in early December 2009. He stated that targeted customs inspections in all member states had seized 34 million counterfeit tablets in just two months. Further, he stated that counterfeiting medicines is a serious crime that must be severely punished.

L. von Hippel: The consequences are in fact varied and difficult to quantify, and they affect more than just the pharmaceutical industry. Just recall the toy scandal of Christmas 2007 or the baby formula contaminated with melamine. Health or economic damage should not occur. Our supply chain activities continue to be a significant cost factor in our books. And we all know that the supply chain and its quality worldwide are becoming ever more important, as it is often the only place where we can still achieve added value.

H. Sieger: The issue here is not merely one of health and economic losses, but also of the very reputation of the chemical and pharmaceutical industries. These scandals have also confronted us with a massive image problem. The shift of production activities to Asia has in most cases meant that production occurs in significantly worse conditions. Thus far, the European public has barely perceived this fact, or is simply not aware at all.

B. Freiberg: I, too, see the loss of reputation - which cannot easily be expressed in euros - as the real economic damage resulting from this problem, though the end manufacturers of course also suffer a directly quantifiable loss.

Where have the regulations thus far proven to be adequate and consistently enforced? One would expect that Europe and North America are already relatively advanced in this regard.

H. Sieger: We already have several regulations, but they obviously do not go far enough. The critical issue is poor or simply non-existent enforcement, which governmental authorities often attribute to a lack of resources.

There is, however, another particular aspect that hinders the consistent enforcement of existing regulations. The cost pressure in the healthcare sector continues to increase, and the one-sided focus by the health insurance providers on drug prices, which only account for about 15% of the overall budget, distracts from the actual structural problems in the sector. This cost pressure also encourages the import of cheap medicines from unsafe sources. But safe medicines from GMP-compliant sources do not necessarily lead to higher costs for patient care, of which we can cite specific examples.

L. von Hippel: The position is entirely understandable for active pharmaceutical ingredients, and the authorities are capable of inspecting the production standards because there are only a few hundred companies worldwide that manufacture APIs.

We take a very different view of materials for industrial applications and of regulated intermediates that are not subject to cGMP production standards: Here, we believe the legal regulations are good and sufficient. The problem lies in whether and how these regulations are actually enforced and observed, though we consider calls for greater governmental authority to be misplaced, as stronger regulations do not necessarily deliver improved quality. Instead, they incentivize companies to deal creatively with the truth. In all cases, they increase the costs to those who actually observe the regulations while enriching those who take a "creative" approach.

One must also be mindful of the fact that tens of thousands of companies around the world are active in the chemical sector, and that this number alone makes it impossible for any authority or company to inspect and audit all companies and their standards.

B. Freiberg: At Merck, we are positioned between the fields of active ingredients and fine chemicals. Excipients are a focus of our business, and they have thus far not been subject to significant regulation. There are already adequate legal regulations covering medicinal products and active ingredients, while there are merely recommendations for excipients at the moment, even though a medicinal product consists mostly of excipients. A further problem is counterfeit drugs, which are of course prohibited, but the punishments do not sufficiently reflect the hazard posed by such offenses. Violations are generally just punished under trademark law. We have already described the effects this has.
At the same time, we do note that the new EU initiative to subject excipients to a similar regulatory framework as APIs demonstrates awareness by lawmakers of the need for action. Together with other responsible companies in the Excipient Certification Project, organized by the EFCG and IPEC (International Pharmaceutical Excipients Council), we have campaigned for universally applicable standards.

So you are all pursuing different paths to improving the situation: regulation, monitoring, voluntary efforts. With the Voluntary Guidelines, the EFCG has initiated a commitment by the industry to voluntary inspection of its production facilities that covers all manufacturing processes for fine and specialty chemicals that are not otherwise regulated. Can you briefly outline the approach pursued under the Voluntary Guidelines?

L. von Hippel: The Voluntary Guidelines are based on current practices and the best practices followed by many, but unfortunately not all, companies around the world. They integrate the elements contained in ISO 9001 and ISO 14001. Forward-looking aspects related to ethics and sustainability are also taken into consideration. We also made sure that the principles of the Voluntary Guidelines can be followed and pursued practically in everyday business life, and that we did not establish any new hurdles.

In other words, we did nothing more than, for the first time, use a common-sense approach to arrange the elements that describe the various quality standards and are inspected. We designed them such that every experienced purchaser in the sector can quickly find the answer as to whether a certain company should become part of its supply chain and where there is potential for improvement.
In doing so, we aim to increase the reliability of supply chains in an ever more complicated world, which will benefit everyone.

How is this model being received?

L. von Hippel: When we developed the Voluntary Guidelines, we wanted to create an instrument that is universally applicable for the specialties sector of the chemical industry. The reasoning was that this improvement would benefit all processing industries. Our considerations were certainly not limited to or even focused on the pharmaceutical industry. Rather, we worked more from the premise that it must be prevented that toys contain lead, that entire stretches of rivers become polluted and that people fall ill after consuming food.
We were surprised and pleased when the U.S. Food and Drug Administration was the first foreign organization to show interest. Since then, we have also received invitations from China and India to speak to their respective organizations about the Voluntary Guidelines, and we have already held the first presentations in India. During the Informex in February, we presented the concept to the Socma - the Society of Chemical Manufacturers and Affiliates - which also showed great interest and is now considering propagating it in the U.S.

With the Business Integrity EvaluatioN template - BIEN for short - you have developed a tool that makes it easier for manufacturers to check whether a company that has made the voluntary commitment actually upholds these standards. Does this mean that you are also targeting other application areas such as pharmaceutical precursors and agricultural chemicals?

L. von Hippel: In the end, it doesn't really matter which market segment performs high-quality work. As you can see from the examples, there is a universal need for action to improve quality. Cheap is not everything and greed is no longer good, as the German advertising slogan once professed. The Voluntary Guidelines tool applies to all market segments, and the evaluation form is accordingly general. We developed it in cooperation with the BSI consulting firm and an independent consultant. The name BIEN is pronounced like the French word for "good," because we want the supply chain to be good or become good.

What do you hope to achieve with these Voluntary Guidelines, considering their name states the "non-binding" nature?

L. von Hippel: We already have a large number of national and international regulations. Unfortunately, we must recognize that we do have issues with quality and the supply chains that we would not have if all the laws and regulations were observed.
As we have already discussed, changes to the laws can enforce high standards for a relatively small number of companies that produce active ingredients, but they cannot do the same for the many thousands of companies that manufacture other products, for the simple reason that they are so numerous that they will evade global control and inspection. So more laws and regulations will not help us if the standards cannot be verified at the same time, or if the verification simply increases costs without providing real added value. That is the situation as it currently stands: An honest company is a foolish company, as it incurs the costs without necessarily getting the orders.

Does it make sense to regulate the manufacture of APIs more strictly than that of inactive components, which typically constitute more than 90% of a medicine?

H. Sieger: It does not make any sense at all, and the EFCG supports the application of similar standards to excipients as for APIs.

B. Freiberg: We see a clear need for action, for example because several of the largest scandals of recent years were caused by excipients. We are evidently not alone in seeing this need for action. A recently published draft of an amendment to Directive 2001/83/EC, which previously applied only to active ingredients and presentation forms, expands the Directive to cover excipients.

With regard to excipients, do you therefore support the introduction of stricter production standards and legal regulations to ensure them?

B. Freiberg: There is an industry guideline for excipients, the IPEC/PQG Guide for Pharmaceutical Excipients. The benefits of this guideline are currently somewhat limited, as it does not include any obligations. One option is to make this guideline into a standard which can be audited against - comparable to the ISO 9000:2002 audits by certified authors, but specifically for the requirement for excipients. This could lead to a certificate that the pharmaceutical manufacturer submits, together with its registration documents, to the competent authorities. The benefit for the pharmaceutical manufacturer is tested and certified quality, which should simplify registration with the authorities. We are currently working on a concept for excipient certification with the IPEC. In a second step, such a standard might be codified in law, as was done for active ingredients.

Some observers see in your initiatives a form of Western protectionism against substances from more economical Asian producers. After all, the EFCG was formed in 2005 to improve the competitiveness of its members - the European fine chemicals manufacturers.

H. Sieger: The German Federal Agency for Civic Education defines protectionism as the protection of domestic producers from foreign competition, including by means of special regulations such as special standards, safety regulations or approval procedures, etc. Protectionism is thus not a priori "bad." We have no problem with "competition" as such. What we want is a level playing field, i.e., equal competitive conditions and fair requirements - and safe medicinal products for the protection of EU citizens. Protectionism is occurring elsewhere, as seen in the most recent instance in China, where a new regulation to protect domestic Chinese products is planned.

L. von Hippel: Thank you for choosing the word "economical" in the question. Yes, we want to be economical, and I, too, am no fan of subsidies. I am also not a fan of export subsidies that are not countered by import duties. The same applies to import duties by countries that subsidize their exports. It is strange that we, as exporters, pay duties to the countries that can export to Europe duty-free, although they still subsidize some of their exports. The practices of the World Trade Organization, the European Commission and some national governments would be a good topic for a separate discussion.

But back to "economical": I would like to provide an example from my own experience. For many years, a major pharmaceutical industry customer told me we were too expensive. However, a few years ago, he let me know that he wanted to do more business with us.
Internally, they had switched from a purchasing budget to a "cost of goods" method now evaluating only the actual costs of a purchased product. A cheap purchase price often leads to follow-on costs: increased costs for analysis, quarantining, complaints, returned goods, reworking, and even yield losses and loss of production. For more than 10 years, we had supplied the customer with products of renowned high quality without receiving a single complaint, and as such we were the most economical supplier, but not the cheapest. This is not protectionism but a standard of quality.

B. Freiberg: One could only speak of protectionism if various yardsticks had been defined. But what we want is that the same rules apply to all producers in order to protect the consumer. As already mentioned, these are not standards from Cloud Cuckoo Land. They are rules that should allow the consumer to take his or her medicines without worry.

The authorities are obviously already overwhelmed with enforcing the existing rules. How optimistic are you that, if additional regulations are introduced, their observance can even be monitored and enforced?

H. Sieger: The implementation of existing legislation and any improved legislation in the future is one of the main challenges in Europe and is, in fact, a mandatory precondition for a level playing field and safe medicinal products. We are therefore specifically calling for mandatory and periodic API-GMP inspections and certifications as part of the new pharmaceuticals legislation, the new Directive On Falsified Medicines in the European Parliament. This will require that sufficient resources be made available to the supervisory authorities. There is no other way if we want to protect patients by changing the unacceptable situation where we are being inundated with counterfeit medicinal products and those not manufactured according to a GMP minimum standard.

L. von Hippel: I am certainly not the right person to comment about whether authorities are overburdened. At Allessa, we have for years cooperated very well with the authorities that monitor us, and we have a good basis for a trusting relationship. I therefore do not see any need for further tightening of the rules for our kind of non-GMP production.

B. Freiberg: In terms of monitoring, we are definitely far from where we would like to be. But in many instances, not just in the field of drugs, we see the authorities trying to put their limited resources to optimal use. Greater international cooperation among various authorities, for example the EMEA and the FDA, could provide greater safety.

So you mean on a global, instead of European level?

B. Freiberg: Global cooperation is desirable and also necessary, as we are, after all, talking about a global problem.

H. Sieger: This issue is of course not limited to the EU. It reached international dimensions long ago. In the U.S., for example, a new "FDA Drug Safety Bill" has been proposed in Congress and will soon be voted on. A pilot project to harmonize and establish suitable programs for international API inspections has already begun with participation by the EMEA, the U.S. FDA, Australian TGA, EDQM, GB, Ireland, France and Germany. The time to act is now!

L. von Hippel: Pursuing a "niche" strategy is of course not enough. This applies to the necessary changes, both in regulated production and the general manufacture of chemicals. Regarding chemical production in general, we considered whether new and different laws would encourage the necessary changes. We reached the conclusion that the power of laws is limited in their scope, which does not cover the need for market participants to pursue proper practices. We therefore rely on the market participants voluntarily modifying their own conduct.

Do the EFCG and other industry associations or institutions such as the FDA and World Health Organization share experiences or coordinate objectives and actions worldwide?

H. Sieger: Yes. It is only through alliances and cooperation by all stakeholders in the entire API supply chain that we can be successful. In Europe, experiences are shared not just with the individual national associations in the member states, but also in diverse working groups that are actively working to optimize programs. Joint campaigns are held at conferences and trade fairs with international organizations outside Europe, for example with the Socma in the U.S.

How optimistic are you that the efforts you have described here will sustainably improve consumer safety?

L. von Hippel: If we were not optimistic, we would not have invested the time and effort. It will of course be complicated if companies such as the members of the EFCG and the AIME develop new positions that will therefore be subjected to scrutiny. For this reason, we chose the broadest meaning of the term "consumer safety" thus far, because we are concerned not only with the actual product sold but also with its manufacture and the manufacturers of products that we process.

H. Sieger: I agree completely. If we were not convinced that our work would pay off eventually, we would not have kept up our commitment within the EFCG for a safe provision of drugs and a level playing field. This is a commitment that we pursue in addition to the rather substantial obligations and tasks in our company. The consequences of the global financial and economic crisis did not make the situation any easier. We look forward to involvement by colleagues who are likewise ready to commit themselves to the goals we have discussed here. We will only be satisfied once we have achieved a level playing field and a safe supply of medicines.

B. Freiberg: We are well aware that it is a long way off, but we are confident that common sense will eventually prevail worldwide, as these issues affect all of humanity in the most literal sense. It is not acceptable that the production of active ingredients in China for the domestic Chinese market is highly regulated while the manufacture of APIs for export from China is only subject to the standards for chemicals. We therefore hope that such systemic distortions will soon be a thing of the past.

L. von Hippel: We would like to see far more courage in handling deviations from production standards. Only once we have the same environmental protection standards worldwide and they are actually observed, once we have the same safety standards and they too are observed, and once we have equally well-qualified employees at our facilities and the same ethical standards apply worldwide - only then will we be spared news about polluted rivers, sickened workers and poor-quality products.