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Internal Due Diligence

Understanding Your Company’s Shortfalls before Others Find Them


The Board of Directors (Board) of a US-located drug company with a diverse mix of commercially approved drugs wanted to position the company for sale. Before doing this, they wanted to understand why more than 50% of the company’s drug application submissions were progressing through FDA review so slowly. Some applications had been pending FDA review up to three years and were essentially stalled. The majority of the other pending applications had been in the review process for at least 1-1/2 years.


Magnifying Glass Due Diligence


The Company’s CEO retained the Ayd Group to find the reasons why this situation existed. After much discussion between the company’s Board, CEO and Ayd Group, it was agreed that the initial part of the engagement would involve a period of discovery. Ayd Group identified an internal group of key stakeholders who they believed could shed the most insight and details on what the underlying issues could be. The plan was to conduct interviews with a number of the company employees who worked in the Regulatory Affairs and Quality and Compliance functions. Following the initial discovery phase of the engagement, there would be a pause during which Ayd Group would analyze the insight gained, then report back to the Board and CEO with the initial findings.

A number of employees from the two functions were interviewed by Ayd Group over a three-week time period. The discussions were rich with useful information and resulted in specific details on what the underlying issues seemed to be. The following were among the most important of the key findings:

  1. The pipeline of pending drug approvals contained a mix of applications, including 505(b)(2) NDAs, first-time ANDAs, some with paragraph 4 certification and ANDA supplements. The client company’s operations did not include an internal Research & Development organization or a Clinical Development group.
  2. All of drug products affected by the delayed application approvals had been developed by third parties. The type of third-party organization(s) that conducted the development work were defined in, and dependent on, specific details of each business deal that governed them and how it was negotiated. The company’s business development group had filled the development pipeline by executing many third-party deals for drugs already under development. This practice had been the norm for almost a five-year time period which occurred 3-8 years prior to the current situation.
  3. In some situations, business development executed an agreement between the company and a Finished Drug Formulator (FDF). In most instances, the FDF was the responsible party for all product development, while the company was responsible for the drug submission as well as all regulatory interactions and communications with the FDA. In other situations, there was an agreement whereby the company would assume the rights to license a drug product once FDA authorization was granted. The company would then private-label and sell the drug as its own. It was disconcerting to learn that there was not a lot of consistency across the many business deals when it came to extremely important issues such as what quality standards would govern the work. As can be imagined, critical issues were either missed or left open to interpretation.
  4. Employees in the client company’s Regulatory Affairs group were aware of the problem(s) and had communicated their concerns up through the company ranks. The CEO of the company at that time was not overly concerned as this business practice was one that had been used and worked in the past. As it turned out, that CEO did not keep the Board as informed as they should have been. When the Board learned of these business practices, they removed the CEO from the company. The current CEO (at the time this engagement was undertaken) was hired and, together in a joint effort with the Board, was seeking to understand the depth and breadth of the issue.
  5. The Regulatory Affairs team members we spoke to felt they had little or no control over the content, thoroughness and, in some cases, the quality of the applications that they were required to submit to then FDA for review. One example was cited where, in some cases, the third party provided all of the documentation for the CTD modules to the client’s regulatory employees, and they were responsible for pulling the application together and submitting it. In another example, the third party compiled the full application and submitted it to the FDA for review. The client’s regulatory employees only received periodic updates from the third party about the review status. Very little additional information was provided on what the FDA’s objections or deficiencies in the submission were.
  6. Because there were many different third-party organizations, the variation across the submissions was significant. The thoroughness of the application was a result of each third party’s interpretation of, and adherence to, ICH and FDA requirements. This became more and more evident as each submission progressed through the FDA review process. Some fared better than others, but the Regulatory Affairs group found it impossible to know which would receive complete response letters (CRLs) or how significant the deficiencies would be.
  7. Further light was shed on the situation by the company’s Quality & Compliance employees. They, too, had been negatively impacted by the poor business deal-making practices. They felt constrained in their ability to prevent issues from happening in the first place. Some mentioned that they were frequently sent to some of the third party’s manufacturing locations to manage situations such as failed FDA inspections.

Once the discovery phase was completed, Ayd Group had a representative snapshot of the current state of affairs in regard to product development, quality oversight and regulatory affairs. A comprehensive report of interim findings was compiled and submitted to the Board for review. The Board requested that there be a deeper dive into the pending applications. They wanted to understand more fully what they were facing. They requested that Ayd Group conduct an assessment that would be representative of all submitted applications pending approval without actually looking at them all.

With ~75 applications in the mix and uncertainty about how many different manufacturers were involved, this seemed like a daunting task. In order to make such a complicated situation as simple as possible, we decided to use a comprehensive “Score Card” approach. A finite number of variables were identified as having the major impact on the outcome of the pending submissions. The following multi-step process was used:

STEP 1. Place each pending application into categories based on the submission date of the application. This helped to define what specific PDUFA and GDUFA performance metrics were in place at the time of the submission.

STEP 2. Further subcategorize applications in each category using the following criteria:

  • Rank order applications based on how long they had been pending approval
  • Rank order applications by market value on market formation day and contribution to first year sales

STEP 3. Group applications by common key factor causing delays. For example:

  • Same active pharmaceutical ingredient (API) or molecule
  • Same manufacturing facility location
  • Similar bio/BE study requirements

STEP 4. From each resulting subcategory, select a number of applications for which the CRLs had been received from the FDA, and for which the CRL responses had been submitted to the FDA. Before proceeding with review, speak with the Regulatory Affairs employees to gain insight on what to expect in terms of the FDA communication. Pay attention to the following:

  • What module the CRL deficiencies stemmed from. Example, Module 3 (Quality or CMC) or Module 5 (Clinical Reports)
  • Identify the main area(s) of concern. For example:
    • Qualification of the drug API
    • DMF deficiencies
    • Qualification of the finished drug product
    • Clinical section/Bio-equivalency outcome
    • Manufacturing Plant issues

STEP 5. Identify a reasonable number of applications for which a deep dive into Module 3 or 5 of the application could be completed in a reasonable timeframe. Then, develop an impartial opinion of quality of original submission.

STEP 6. Use a three-color scoring system to denote risk where:

GREEN = Average to moderate risk, and is assigned 1 point

YELLOW = Greater than average, but less than substantial risk, and is assigned 2 points

RED = Substantially greater than average risk, and is assigned 3 points

A pending application with any combination of yellow or red risk associated with the DMF, Product Development or Manufacturing components of the submission was an immediate area of concern. The higher the total points, the greater the concern. An application with any unexpected change in litigation risk was also an area of immediate concern. The relative risk associated with the quality of the application in conjunction with any additional litigation risk was combined and used to make a subjective assessment on what the time delay in approval date could be. For simplicity, the allowable choices for this exercise were six months or less delay or greater than six months delay.  The delay in approval date was then taken into consideration along with the ranking for percentage contribution to first year of sales market value. The final risk score was the resulting value of the (application risk score) X (delay to approval date) X (percent of first-year sales) and is shown in the last column in the table. The last column was rank-ordered from highest to lowest value, and this score card was presented to the Board and CEO as the deliverable.

The table below is an example of the “Score Card.” (The example below is for illustration purposes only.) As shown, it contains a row for each possible combination of risk assignments (columns 4-6) for the three components of the CTD. Column 7 contains the combination risk score.

The Score Card was completed in part by the Regulatory Affairs team who filled in the details for columns 1-3 and 8. The head of sales and marketing completed column 10. Ayd Group assigned the values to columns 4-7 and 9. The values in column 11 resulted from multiplying the values in columns 7 by column 9 by column 10.

Score Card


A completed version of the Score Card shown above was completed and can be found below. For the purposes of this case study, the numbers in the table are fictious and were chosen to illustrate how the Score Card might be interpreted. Using the combination of simple color coding and a simple point system, it was possible to quickly communicate where the areas of highest concern existed. The color codes and the numerical scores which Ayd Group assigned were based on decades of previous experience in understanding the degree of complexity of issues needing to be addressed. Ayd Group’s insight was combined with internal knowledge from the client’s sales and marketing team and legal team to assign an overall risk score for each pending application. The contents of the score card were rank ordered from highest to lowest. This is an example of what was presented to the Board and CEO:

Completed Score Card

After further discussions with many remediation experts, the company Board and CEO were able to make informed decisions of their own on a product-by-product basis and identify which applications would need to be withdrawn. This was a very difficult process, but once the determinations were made, it was easier for the client’s work force to focus on a slimmer pipeline of pending approvals with a higher likelihood of approval. 

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