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http://www.nytimes.com/2002/05/17/business/17DRUG.html

Drug Makers and F.D.A. Fighting Hard Over Quality

By MELODY PETERSEN and REED ABELSON

ajor drug makers and federal regulators are increasingly squaring off over problems at factories that could affect the quality of medicines being produced.

Two companies, Schering-Plough and Abbott Laboratories, announced this week that the Food and Drug Administration was continuing to scrutinize their factories or products. Schering said the F.D.A. was conducting a criminal investigation in Puerto Rico, where it operates two factories. Abbott said one of its plants had failed an F.D.A. inspection despite a three-year effort to make improvements that the agency had demanded.

Wyeth, Eli Lilly and several other large drug makers have also recently been criticized by federal regulators, who have found numerous problems with how they make prescription drugs and other medical products.

Because of the manufacturing problems, some badly needed products are in short supply. For example, hospitals have complained they cannot get enough of Celestone, an injectable steroid from Schering often used to speed development of the lungs of premature infants.

Some new drugs, including potential blockbusters like Cialis, a Lilly drug similar to Viagra, have been delayed.

And more than 300 prescription drug products were recalled last year, significantly more than the average number of recalls in the mid-1990's. Only last month, Wyeth recalled certain forms of Heparin, an anticoagulant.

The reasons for the growing number of manufacturing problems are hotly debated. The industry has tended to attribute the rise to what executives describe as overly aggressive regulators, while the F.D.A. has said that drug companies have failed to keep their factories up to date. At a meeting earlier this month, Dr. Steven Galson, deputy director of the F.D.A.'s Center for Drug Evaluation and Research, said the agency and drug manufacturers were at a stalemate. He said that the industry had been reluctant to make innovations in its factories and that regulators had been forced to use their authority to press the companies to make the improvements they say are needed.

"I think there is the sense by the F.D.A. that big pharmaceutical and biotechnology companies have not paid enough attention to manufacturing," said Paul Heldman, a health care analyst for the Schwab Washington Research Group, which held the meeting this month in Washington with F.D.A. officials. "They are sending a very clear message that this should be a focus."

In the last few years, the F.D.A. has begun levying huge fines against companies that have repeatedly failed to fix problems that government inspectors have found. Schering-Plough, for example, said late last year that it might have to pay up to $500 million to the government to settle the agency's concerns. Abbott paid $100 million in late 1999, and Wyeth paid $30 million in 2000.

The agency has also begun holding up approval of new drugs until the companies can convince it that they have fixed manufacturing problems — an action that gets investor attention quickly and can send the price of a company's stock down.

"Those actions have had a significant impact, and companies are paying attention," an agency official said yesterday.

The agency says it has become more aggressive with repeat violators and is focusing on products that pose the highest risk to human health, in part to compensate for the declining number of factories it is able to inspect each year because of limited resources. Drug officials performed 1,497 inspections last year down from 2,072 in 1997.

Some industry analysts agree with the F.D.A. that many manufacturing problems may also be a result of years in which drug companies did not spend enough money to upgrade manufacturing techniques.

"I think there is an industry tendency to underinvest in manufacturing," said Ira S. Loss, an executive vice president at Washington Analysis. Such investments are not as "sexy" as spending money on advertising or marketing, he said.

Over the years, the number of employees working in pharmaceutical factories has declined from a recent peak of 67,000 in 1993 to 58,800 in 2000, according to the Pharmaceutical Research and Manufacturers of America. At the same time, overall employment by the pharmaceutical companies increased from 215,000 in 1993 to 224,000.

The trade association said no one was available yesterday to discuss the industry's relationship with federal regulators and concerns about its manufacturing techniques.

While advances in technology and other factors may have led to some decline in manufacturing jobs, many companies are now adding people in response to regulators' concerns.

Schering-Plough has said it will hire 500 people as it brings its factories up to date. And Wyeth said it had added 1,400 people dedicated to quality control in response to the consent decree it reached with the government in 2000.

In fact, Wyeth said it caught the problems with Heparin during routine testing, which, it says, shows its quality control system works.

Eli Lilly said it had hired hundreds of new quality control employees as it works to address the F.D.A.'s concerns. Lilly has five new drugs that will not be approved until the F.D.A. says that widespread problems in several factories in Indiana have been fixed.

"Not only have we heard the F.D.A.'s message," Edward A. West, a spokesman for Lilly, said yesterday, "we understand that message. We need to keep investing."

But some argue that the current regulatory environment discourages companies from improving their manufacturing processes because any change requires approval from regulators. Companies worry about possible delays if inspectors are confronted with new technology, and they may be reluctant to spend on obtaining approval on drugs that may soon lose their patent protection.

What is more, the regulations may simply be outdated, said William Vodra, who worked on them about 25 years ago as a lawyer for the F.D.A. "They have not been fundamentally rethought," said Mr. Vodra, who now works for the law firm of Arnold & Porter and represents several drug companies.

The regulations do not take into account changes in how companies view quality control, he said.

The F.D.A. has also taken to task biotechnology companies that contract with other companies to manufacture their drugs for not ensuring that those companies are complying with federal regulations, said Mr. Heldman, the Schwab analyst.

F.D.A officials say they are looking at how the agency's enforcement policies can be changed to give pharmaceutical companies more incentive to upgrade their factories.

But it is clear that the F.D.A. and many companies are still far apart.

Abbott, for example, has dedicated hundreds of employees and spent tens of millions of dollars over the last three years trying to appease the regulators, only to come up short.

The company said it was surprised and "deeply disappointed" by the F.D.A.'s latest inspection.

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