Learning risk management lessons from pharma recalls

The pharmaceutical industry is a very highly regulated industry, where quality control is extremely important and high profile. But as a recent series of recalls has shown, even in this industry, quality control can fail and after impurities are discovered, contaminated products can hit the market with expensive and damaging consequences.

Last year, we at Zurich started to see massive recalls of drugs involving even giants in the pharmaceutical industry. The recalls involved generic drugs used for the treatment of high blood pressure and heart failure, containing Angiotensin II Receptor Blockers. The Active Pharmaceutical Ingredients (APIs) and/or finished generic drugs were produced in China and India for a number of pharmaceutical companies. In 2011, the recipe was changed and APIs started to be contaminated with nitrosamines, substances classified as “probably/possibly carcinogenic to humans”. All affected pharmaceutical companies had to recall contaminated drugs because they posed an unacceptable safety risk to patients.

Quality control
Potentially cancer-causing impurities were the result of the recipe change for the synthesis of these APIs dating back to 2011. It was only raised with a company in China in 2016, and even then nothing was done before a sudden flurry of recalls occurred in 2018.

It is common practice and really important, that if a company changes the synthesis procedure, the quality control procedure is adopted accordingly. A similar scenario could impact any other industry where quality control fails.

What is additionally surprising is that if companies have to recall a drug, they are expected to do it in one go if an appropriate product recall plan is in place. On the contrary, what we were seeing in this instance was a series of expended recalls for number of companies, dragging on for more than a year and still ongoing.

This case also reveals how fragile supply chains can be for any industry, even for those where high-level quality controls are expected. Supplier quality management is expected to be one of the crucial quality-control tools.

An additional problem is also the geographic divergence of the supply chains, with companies in the US or Europe dealing with companies producing products in Asia. In this case, it ended up being a catastrophic scenario because companies in China and India were producing these APIs and/or drugs for many companies and hence, they were all affected.

Responsibility for safety
Ultimately, it is the responsibility of a pharmaceutical company to ensure that the products are safe but they could ask for certain tests from their suppliers, depending on their contractual agreements. It is vital to keep on top of outsourcing and ensure that there are sufficient checks, controls and audits. Companies have to be hands-on when it comes to their supply chains, to maintain quality and ensure safety.

There is recourse to the manufacturers but it can be a complicated situation – for example, what happens if the suppliers produce the product according to the specification? It may be the fault of the pharmaceutical company if its specifications were not good enough, or detailed enough in terms of testing etc.

Managing supply chains
So how can companies manage their supply chains in cases such as this? It is all about quality control and contractual agreements – both are vital. It is very important to ensure that the contracts are written correctly and that protections are in place.

The costs involved in dealing with the consequences of a contaminated product are potentially huge. There is the cost of a recall, costs of any bodily injury payments, and ultimately, potential reputational damage. Insurance can help with the costs of bodily injury payments and recalls through product liability policies and extensions, with product recall coverage. Companies should ensure that they have appropriate limits for product recall as this can be very expensive, in terms of marketing, communication and the physical recall.

In this particular case, the issue seems to have been compounded by the fact the companies knew for quite some time that there was a problem, and let it go on for too long. The lesson for all companies and industries is that it always comes back to quality control. And that means taking a much more hands-on approach to supply chains. There is also a danger that companies believe that compliance with regulations is enough, but they need to realise that they are ultimately responsible for the quality of the products they produce and distribute. And when an industry known for its quality control can be affected, as we have seen with contaminated products, it is a warning for other industries and simply highlights the need for and value of the right insurance cover.

Contributed by Jelena Buha, PhD, senior risk engineer, practice leader pharma/chemicals/food liability, Zurich Insurance Company