How to Evaluate the Cost Impact of Using Disposables in Biomanufacturing

June 1, 2008
Andrew Sinclair

BioPharm International, BioPharm International-06-01-2008, Volume 21, Issue 6

The current focus on cost-of-goods (COGS) models is underplaying the benefits of disposables technology in biopharmaceutical manufacturing. The best method for accounting for the benefits of reduced and delayed capital expenditures is through the use of NPV analysis.

The growing acceptance and adoption of disposable technologies raises the question, What is the cost impact of these technologies? This question sounds simple but hides complexity, in terms of what is included in the cost evaluation and the evaluation methods used.

Andrew Sinclair

METHODOLOGIES TO EVALUATE COSTS

Disposable technologies have the potential to significantly reduce plant complexity and initial start-up capital costs.1 The benefits of disposable technologies, however, extend beyond reducing start-up costs, and also can include:

  • reduced time to market, based on a quicker build and validation of facilities

  • reduced capital investment, resulting from reduced capital infrastructure

  • reduced cost of operations

  • improved flexibility in operation, in terms of managing process and product change

  • improved compliance

  • simpler material and people flows.

As a result, many companies now wish to understand the broader cost impact of disposables. The critical question is, What is the best evaluation method?

To evaluate costs, a robust cost model is required, in which the methodology and assumptions are transparent. Such a model will provide managers with better insight into the key cost drivers of the manufacturing process and the sensitivity of the overall cost of goods to changes in these key parameters. A good model helps evaluate the cost impact of implementing different technologies and the effect of process changes, such as increasing product titers and yields, and can be validated with financial accounting data.

Some of the commonly used methods for evaluating projects are net present value (NPV), internal rate of return (IRR), return on investment (ROI), and cost of goods sold (COGS). In biopharmaceutical manufacturing, the COGS model is by far the most commonly used method. Although the COGS model has the merit that most people in the industry understand it, it is not the most rigorous or sophisticated method. For example, a COGS model should not be used when there is a need to understand the interplay among the expenditures, timing, and project risk.

The other three methods, NPV, IRR, and ROI, all provide useful tools for decision-making, particularly for capital investment and project approval. NPV and IRR are particularly useful for evaluating potential long-term projects because they account for the upfront investment required as well as the timing of future cash flows and the risk and opportunity cost of the project. Given that disposables can delay and reduce capital expenditure, these methodologies are able to capture that benefit together with the cash flows associated with manufacturing operations.

The NPV methodology is the best technique to analyze alternative technologies and manufacturing strategies, because it accounts for the impact of delays in expenditures and properly accounts for the time value of money.

No matter which manufacturing cost model is chosen, it is important that certain management accounting techniques, such as lifecycle cost analysis and activity-based costing, be incorporated into the model to account for the significant effect manufacturing efficiency has on the cost of goods. For example, the number of successful production runs per year and the cost of facility downtime and batch failure often have a much greater effect on overall manufacturing costs than changes in raw material or labor costs. Also, one should exercise care in comparing cost figures from different sources. Common problems when comparing data relate to consistency in methods and assumptions, especially when it comes to handling capital costs.

THE SCOPE OF THE ANALYSIS

Once the optimum cost analysis model has been identified, the next step is to define the purpose of the analysis, for example, technology evaluation, supplier evaluation, or operations optimization.

Table 1. Operating sequence for a typical reusable column

The purpose to some extent determines both the detail and the scope of the analysis. If, for example, one wished to evaluate the operational effectiveness of an individual operation, such as buffer preparation, then it is often appropriate to look at the operation in isolation. It is also important, however, to consider all the affected systems. In the following example, we compare a disposable chromatography cartridge as a replacement for a conventional chromatography column in flow-through mode (Tables 1 and 2). This example compares the Sartobind module (Sartorius Stedim Biotech, Goettingen, Germany) with a reusable column processing 6.5 kg of monoclonal antibody (MAb) per batch in a flow-through anion column.2

Table 2. Operating sequence for a typical disposable column

The simple approach would be to compare the two operations in terms of the stage throughput, labor, column costs, other consumables, and material costs. To properly compare these two options, however, the scope of the cost model needs to be wider. It should also address the impact on the buffer preparation and buffer hold operations and on maintenance and quality operations. It can also raise other questions. For example, Does the disposable column need a chromatography skid? By taking a broad approach and considering all the factors, it is possible to show the full impact of disposables. The results of our example are illustrated in Figure 1, in which the dramatic reduction in capital and materials is evident.

Figure 1. A comparison of the costs of the conventional and Sartobind disposable membrane chromatographic technologies, according to four major categories: capital charges, consumables, materials, and labor.

Taking the analysis one step further, to understand the overall impact of disposable technologies on manufacturing costs it is necessary to build a cost model that covers the entire manufacturing process. A comprehensive analysis makes it possible to assess a particular technology on the overall COGS and thus helps determine whether the technology should be pursued. For example, referring to the previous analysis, does the membrane chromatography significantly reduce overall COGS, or should alternative technologies, such as storing buffers in bags, be pursued instead? Another benefit of a model that covers the whole process is that if constructed correctly, it should provide a framework for "what if" analyses to examine the cost impact of changes in

  • scale of operation (e.g., bioreactor volumes and titers)

  • process options and improvements (e.g., changes in materials, efficiencies, titers)

  • suppliers

  • cost assumptions.

WHICH UNIT OPERATIONS PROVIDE THE GREATEST SAVINGS

When assessing the impact of disposables on manufacturing costs, it is interesting to consider that for a stainless-steel MAb manufacturing operation at large scale, most of the capital investment is in support infrastructure (e.g., preparing buffers, media, utilities, clean-in-place [CIP], and steam-in-place), followed by the bioreactors and then by downstream processing. Based on some capital breakdown figures presented in 1999, these areas amounted to about 52%, 32%, and 16%, respectively of capital investment.3 In addition, if one considers that most (between 55% to 85%) of the water used in a stainless-steel biotech facility relates to cleaning reusable equipment (i.e., CIP), then it follows that technologies that reduce the extent of the support infrastructure (e.g., buffer and media preparation and the holding of buffer media and product-containing solutions) will reduce overall costs. Based on capital dominance, one would expect the technology with the next largest impact to be bioreactors. Therefore, one can propose the technologies with the most potential to reduce MAb operating costs to be:

1. holding bags and associated fluid management

2. mixing systems for solution preparation (non-aseptic)

3. bioreactors.

The most mature technology listed above is item 1. The benefits of fluid-handling technologies have been demonstrated in practice, with data in recent papers showing that if the scale fits, storing solutions and products in disposable bags can significantly reduce both operating and capital costs.4 For example, operating costs can be reduced by about 17% and capital costs by about 40% (based on a 1,000-L scale perfusion MAb process).5

SUMMARY

I hope I have given some insight into how cost models are being used to evaluate the use of disposables technologies in biopharmaceutical manufacturing. I believe that the current focus on COGS models is underplaying the benefits of disposables technology. Typically, disposable technologies result in quicker builds of new facilities or manufacturing suites and reduced capital expenditures. The financial analysis should capture these benefits by accounting for this delay in spending (thereby reducing the project risk). The best method for accounting for these benefits is through the use of NPV analysis.

Andrew Sinclair is the managing director of Biopharm Services, Chesham, Bucks, UK, +44 1494 793 243, disposables@biopharmservices.com

REFERENCES

1. Sinclair A, Monge M. Biomanufacturing for the 21st century: Designing a concept facility based on single-use systems. Bioprocess Int. 2004 Oct supp;26–31.

2. Lim J, Sinclair A, Kim D, Gottschalk U. Economic benefits of single-use membrane chromatography in polishing: a cost of goods model. Bioprocess Int. 2007 Feb; 5(2):48–56.

3. Van Reiss R. Genentech. IBC IBC Bioeconomics Conference; 1999; Washington, DC.

4. Lim J, Sinclair A. Process economy of disposable manufacturing. Process models to minimize upfront investment. Amer Pharm Rev. 2007 Sept/Oct;10(6):114–21.

5. Sinclair A, Monge M. Concept facility based on single-use systems, part 2. Leading the way for biomanufacturing in the 21st century. BioProcess Int. 2005 Oct supp;51–55.