Sanat Chattopadhyay knows what it is like to face difficult tasks in the biopharma industry. When he was just 30 years old he was tapped to be the CEO of a small, wholly owned subsidiary of Hoechst Pharmaceuticals, India, engaged in manufacturing and selling of semisynthetic beta lactum antibiotics. The company wasn’t doing well, but he was expected to create something that he would be asked for over and over during his future career — a transformational turnaround.
“To return the company to profitable growth in the shortest period of time, I knew that I needed a new team,” he recollects. “But with the current state of the company, it was difficult to motivate and recruit more talented leaders. I quickly learned the importance of earning the confidence of others, and I gained a deep understanding of the value of humility.”
Fast forward to April 2016 when Chattopadhyay was named president of Merck* Manufacturing Division (MMD) and an EVP on the Big Pharma’s executive committee. He’s learned a lot in between that first CEO job and now, and we were lucky to sit down with him to hear some of the stories that have shaped him as a leader and prepared him for his current transformational turnaround challenge — reshaping MMD to be ready for its biopharmaceutical manufacturing future.
With Every Challenge Comes A New Lesson Learned
While still at Hoechst, Chattopadhyay experienced a series of mergers and company restructurings (i.e., Hoechst Roussel merger with Marion Merrell Dow, which later merged with Rhône-Poulenc Rorer to form Aventis, and eventually Sanofi). While at Hoechst Marion Roussel, as the head of Indian subcontinent manufacturing operations, he had the opportunity to restructure the company’s manufacturing footprint which consisted of five sites and about 4,500 employees. Oh, and do so while reducing costs and improving gross margins.
“We ended up closing most of the sites, reduced the workforce by 70 percent, and radically expanded our external manufacturing capabilities,” he recalls. In addition to contracting with about 50 CMOs, Chattopadhyay says the company also embarked on building a new greenfield manufacturing site. It was a complex and stressful experience that further honed his leadership chops — especially in terms of talent management. “I also learned how to negotiate with a very aggressive unionized workforce.”
In his next position as head of manufacturing operations at Aventis Europe, he learned an important tenet of biopharmaceutical manufacturing leadership. “Senior manufacturing leaders should not only solve problems when they occur, but be able to sniff out the glitches before they happen,” he says. “Very often, supply is interrupted by a variety of technical issues in quality and compliance or in process and analytical robustness.” The better a leader is at doing Failure Mode Effect Analysis (FMEA) of business operations, the better they will be at understanding the single points of failure — and the less likely they will be surprised by unexpected manufacturing interruptions. “One of the best ways for manufacturing leaders to help their organizations is to become champions of the unsung ‘fire prevention’ heroes.”
Understanding Manufacturing’s Role
Those past positions led to him being hired at Wyeth where, after a few years, he was put in charge of transforming the company’s commercialization organization. Although this experience was similar to those past projects, he calls it “a defining moment” in his career.
“In a research-driven pharmaceutical company, it is clear that the R&D enterprise creates value by building a company’s pipeline,” he states. “Marketing enhances that value by building brand equity through market penetration and expansion. I didn’t fully understand either of these concepts until I was at Wyeth.” With this challenge, he earned a much deeper understanding of the role played by each of a company’s organizations/ divisions and how they need to work together. He even earned greater insight into his own discipline. “Manufacturing’s role is all about value preservation,” he explains. “Ensuring the best manufacturing quality, compliance, and supply at a competitive cost prevents disrupting and eroding all the value and trust created by the R&D and marketing sides of the business.”
A Difficult Balancing Act
According to Chattopadhyay, failure rates are extremely high for small molecule products to make it all the way to approval. “You have to be very careful about how you invest in manufacturing capabilities because if it is too much too early and the product fails, the write-off could be very high.” Conversely, sometimes between Phases 1 and 3 there can be a dramatic acceleration of timelines resulting from very positive data readouts. Receiving a breakthrough therapy designation from FDA with accelerated approval timelines requires having a very speedy product launch capability.
While at Wyeth, to deal with such a balancing act, Chattopadhyay tried a few things. First, they tried to outsource post-Phase 2b process development activities to variabilize costs along with establishment of in vitro/in vivo correlation to develop and optimize drug formulations. Then they focused on solid-phase chemistry, namely crystallization, in order to create the right particle size that allowed for the most forgiving formulation designs for broader specification for dissolution. Such approaches helped to improve agility and speed with developing process and analytical robustness for the launch of new small molecule products.
Merck Vaccines — A Lesson Learned The Hard Way
When Chattopadhyay was hired by Merck in November 2009, he was given the challenge of transforming vaccine manufacturing and supply. Success in the previous few years, namely the launch of four new vaccines (i.e., GARDASIL, RotaTeq, ProQuad, and ZOSTAVAX) had made Merck the largest vaccine company in 2007. But the overnight success also created a gap between its value creation (i.e., R&D) and value preservation engines (i.e., manufacturing). That gap had caused a succession of technical problems. From 2007 through 2010 the company experienced frequent supply interruptions and prolonged stock-outs of its vaccines, which was reflected in the FDA’s drug shortage listing. There were recalls (i.e., 1.2 million doses of pediatric vaccines) and numerous supply interruptions for its shingles vaccine ZOSTAVAX.
At all of those previous companies, Chattopadhyay noticed that much of the success for those transformation projects depended on talent management, talent recruitment, and team creation. And at Merck he knew there was a tremendous amount of preexisting technical talent. “What we lacked was a few leaders with deep vaccine manufacturing operations experience,” he says. “So, while I built on the great foundation given by my predecessor, most importantly I also hired some enormously talented leaders and tasked them with getting the best from the people we already had.”
The leaders were given some autonomy on how to best achieve the goals of the initiative, and one manager opted to use the book QBQ! The Question Behind the Question: Practicing Personal Accountability at Work and in Life by John Miller. The book was used to help communicate Chattopadhyay’s leadership philosophy of personal accountability. At Merck’s Pennsylvania West Point vaccine manufacturing facility, at least 400 copies were distributed to team members. “By the end of 2012, we had a very different face, and all of the vaccine shortages had practically vanished from the FDA website,” Chattopadhyay concludes.
He says 99 percent of the Merck vaccine and manufacturing operations talent remained unchanged during the transformation. So, there was no need to “slash and burn” to achieve success of this magnitude. “The new leaders were great at reminding everyone after the transformation not to give credit to the newcomers, but to congratulate those doing the work,” he explains. “After all, these were the same people who had done the work in the past, only now they were reporting to new leaders.”
Avoiding The Manufacturing Challenges Of The Past
Like many of the iconic pharma companies that have traditionally focused on small molecule drugs, Merck is becoming more biologically focused (e.g., KEYTRUDA). As such, it’s up to Chattopadhyay to make sure MMD’s biologic manufacturing capabilities don’t suffer from the same challenges that affected its vaccines division.
If Merck R&D continues to deliver results, Chattopadhyay believes MMD can ensure access to these therapies only if it achieves the following:
“This is our manufacture-the-future model, which was previewed in October 2015 and then formally rolled out in October 2016,” he shares. The strategy is all about compliance, supply, profit plan, and people — four elements that should remain constant for nearly every biopharmaceutical company’s manufacturing division.
The Five Pillars of MMD’s Strategy
There are five pillars of Chattopadhyay’s MMD transformation strategy: stability, responsiveness, innovation, biologics, and talent diversity. “For me, stability is number one because we want to have the mindset of safety first and quality always, which go hand in hand. As a pharmaceutical manufacturer, if you cannot guarantee the safety of your employees or the quality of the product to the consumer, then you should be in another business,” he advises.
MMD is aiming for very high standards of compliance, including top-quartile performance in on-time-in-full (OTIF) and line-item-fill-rate (LIFR) greater than 98 to 99 percent, right-first-time of 85 to 95 percent, with zero market actions and zero safety incidents. In 2015, the division installed a “Safe by Choice” program to build accountability, conviction, and commitment into every MMD employee. “We’re creating extreme vigilance and remediation in high-risk areas (e.g., hazardous energy, spillage of solvents, confined areas),” he explains. “A focus on safety will create a very high right-first-time attitude, minimize recalls, redefine inspection excellence, and improve customer service.”
MMD is striving to be in the top quartile in terms of cost of goods sold and inventory. “To do this we need to become much more agile, which will be evidenced by end-to-end lead-time reduction,” he states. “As for speed to market, we will have to be enormously good at this because we are looking at a large number of potential breakthrough therapies in the pipeline, and you cannot underestimate the advantage of being the early mover.”
Chattopadhyay expects technology platforms to change dramatically in the future and continuous manufacturing to become more pervasive. “The future will belong to small, agile, and modular formulation facilities that can produce four times more volume at a fraction of existing setup and changeover times — and do so for even one batch.” He believes such changes will crash direct costs and lead times while also changing the competitive field, especially the difference in capital and conversion cost between the western economies and India and China.
This pillar has its roots in the highly successful clinical trials for KEYTRUDA in 2012. The company needed to create a robust manufacturing process for a monoclonal antibody in lyophilized formulation in less than 24 months — “which was a huge challenge for Merck,” Chattopadhyay notes. Still, the product was successfully launched in 2014 and is expected to generate between $6 and $8 billion by the year 2020. “In KEYTRUDA we have more than 500 clinical trials in 32 different tumors with more than 60 mono and combo therapies involving more than 8,500 patients. That’s why biologics is an MMD strategic pillar.”
Shifting MMD toward a biologics culture requires a new kind of mindset that is focused on developing a long-term biologics network. “For example, we are working on mammalian cell culture and striving to develop high-titer product that can get produced in single-use systems (SUS) in a modular format so we can continuously grow the cell mass very high and continuously crystallize those antibodies,” Chattopadhyay explains. “To do all this we need to change the paradigms of talent diversity at MMD, not just skill diversity, but gender and generational diversity as well.”
Like any seasoned biopharma industry veteran, Chattopadhyay knows his days of facing seemingly insurmountable challenges are far from over. This is a fickle and constantly changing industry where transformational turnarounds are inevitable. Luckily for Merck, with Chattopadhyay at the helm of this $40 billion enterprise, they have a leader who is not only up for the challenge, but also well prepared for it.
In the last 10 years there has been tremendous focus in Big Pharma on restructuring. “Companies were primarily looking to reduce the size of their manufacturing footprint with an outcome of reducing the conversion cost,” explains Sanat Chattopadhyay, president of the Merck Manufacturing Division (MMD). “The conversion cost is basically the value-added cost.” Thus, if a company reduces the number of its internal manufacturing sites, it reduces the number of people, thereby lowering its conversion cost and improves the network capacity utilization. “Whether it's product life cycle management, improving a product’s gross margin, enabling speed to market, or any of the things that can make a meaningful improvement in profitable growth, the biopharmaceutical world has been captivated by the thesis of attacking primarily the conversion cost, which is best achieved through outsourcing and/or low-cost country sourcing.”
Chattopadhyay believes this trend resulted from companies not looking for other ways to reduce cost of goods sold. By closing down a few manufacturing sites, companies were able to not only reduce their fixed costs, but convert some of what was left to a variable cost via outsourcing. “But we didn’t pause, think, and explore what companies in other industries were doing to try to reduce costs,” Chattopadhyay says. “A manufactured pharmaceutical tablet is essentially 80 percent material cost and only 20 percent conversion cost, on an end-to-end basis. Why are we so focused on attacking the smaller of the two percentages?” He feels biopharmaceutical companies need to consider deploying new technology platforms, innovation in manufacturing and analytical processes, and other means (single-use technology, etc.) by which they can reduce the 80 percent material cost and radically improve gross margins. “In biologics, there are examples of companies creating massive plants only to end up mothballing them for many years because the company was able to increase the yield of a manufacturing process so astronomically that they were able to be much more efficient on a much smaller manufacturing footprint.” With cell lines capable of yielding >40 gms/lts titer, one can try to grow the cell mass continuously and crystallize the antibodies also continuously to drastically reduce the cost of monoclonal antibodies to < $10/gm, for both small and large volumes, depending on whether it is an acute care or a chronic therapy product — that is the kind of future the pharma industry should gear up to create.
While it is more common to have such surprises in biologic processes, Chattopadhyay feels companies should not ignore trying to make process improvements in small molecule manufacturing. He is not alone. Frank Gupton, Ph.D., a former pharmaceutical manufacturing executive turned professor at Virginia Commonwealth University (VCU), has been exploring how to do this very thing through the Medicines for All Initiative (M4All), a project supported by the Bill and Melinda Gates Foundation and the Clinton Health Access Initiative (CHAI). According to Gupton, the cost of producing a wide range of pharmaceutical products is higher than it needs to be, particularly in the area of APIs, which make up 60 to 70 percent of a drug’s cost. But the initiative is also looking at reducing costs in starting materials and pharmaceutical manufacturing processes. Thus far the project has achieved dramatic yield improvements, waste minimizations, and cost reductions for three high-volume HIV drugs.
Outside of Gupton’s work, Chattopadhyay believes the focus on product and process improvement tends to be much more prevalent in countries such as China and India. “In the United States, we are too intoxicated with the concept of reducing the conversion cost via outsourcing,” he says. “I expect this trend to change as people realize the limitations of this as a means of reducing the conversion cost.” Since a huge amount of the site closures have already happened, companies will be looking for other means to reduce costs. Questions being explored at MMD to reduce material and manufacturing costs (i.e., non-conversion costs) include:
“Many of the concepts we are investigating (e.g., combinations of lean capabilities, novel ways of looking at technology platforms, adaptive formulation, and filling technologies) will not only enable speed and flexibility at low cost, but become commonplace in industry,” Chattopadhyay affirms. “The advanced analytics are getting leveraged a lot more to improve production yield and reliability.” As such, Chattopadhyay expects the following manufacturing support areas to experience significant growth: rapid micro methods, sterility testing, mass spectroscopy (MS), Raman spectrometry, nano screening, ultra-performance liquid chromatography (UPLC) for extended characterization of biologics, and various raw-materials screening devices. “The manufacturing industry of pharma will look a lot different in the future, as the concepts of miniaturization, continuous manufacturing, and single-use systems (SUS) become commonplace,” he concludes.