Developing a Business Case for RMMs

These are tough times for the introduction of new technologies. When proposing a change in the manufacturing environment, today's economic climate forces us to debate between scientific opportunity and validation costs, improving product quality versus return on investment (ROI), and moving toward a model of continuous improvement without impacting the bottom line. When it comes to the implementation of rapid microbiological methods (RMMs), pharmaceutical microbiologists and QC managers have been challenged by their finance departments and manufacturing site heads over the potential costs associated with the evaluation, qualification and installation of these novel technology platforms. If the industry is going to move into the 21st Century with regard to the implementation of RMMs in Process Analytical Technology (PAT) and Quality by Design (QbD)-driven surroundings, then we must be prepared to use appropriate financial models to economically justify the time and expense in qualifying and utilizing these new approaches.

Where Can Savings Come From?

Where can we realize the greatest savings when implementing a RMM? One obvious expense is personnel, which can account for the majority of the costs associated with manual sampling and testing in the traditional microbiology laboratory. Next, the overhead associated with maintaining the laboratory and testing equipment, in addition to the consumables and media required to conduct the assays, contribute additional monies that need to be considered. Therefore, a RMM that reduces headcount, eliminates the need for consumables and minimizes overhead may be a good candidate for additional consideration from a financial point of view. Additional business benefits a firm may realize when implementing a RMM are numerous, and may include reduced testing time and testing costs, a reduction or elimination of off-line assays, lower cost of product sold, a reduction in manufacturing and product release time, a decrease in response time and corrective action for contamination events, lower rates for re-sampling, retests and deviations, and a reduction in rework, reprocessing, lot rejections and plant downtime.

The technical benefits associated with RMMs can also contribute to potential cost savings. These may include significantly reduced time-to-result or results in real-time, more sensitive, accurate and reproducible results when compared with conventional growth-based methods, enhanced detection of stressed, damaged and viable but non-culturable (VBNC) organisms, increased sample throughput and automation, continuous sampling and data collection, and improved data handling and trend analysis.

Let's take a microbial excursion or out of specification finding in the manufacturing environment as an example. By the time a positive result is obtained using a traditional growth-based method, which can be anywhere from a few days to over two weeks, the opportunity to respond to the excursion has long passed. The impact of a contamination event on an existing manufacturing process could be significant, resulting in a potential hold on all products manufactured in the suspect area, not to mention shutting down a line or entire plant as lengthy investigations and retest strategies are initiated. Because many RMMs provide a significantly faster time to result with greater accuracy, precision, sensitivity and reproducibility as compared with conventional methods, the use of these new technologies can allow a firm to immediately respond to these contamination events, thereby reducing or even eliminating the impact to impact to the site, product and/or in-process material.

There are obvious costs involved with the purchase, qualification and implementation of RMMs. Depending on the capital expense and the process required to adequately validate the system for its intended use, the cost associated with implementing a RMM can be significant. However, it is important to fully understand all of the financial components that should go into an economic analysis before a decision is made on whether to proceed with a formal qualification program.

Creating an Economic Analysis

Creating an economic analysis involves comparing the overall costs associated with a conventional method with the benefits and savings when implementing a RMM. This can be accomplished by understanding all direct and indirect costs associated with the conventional method, followed by an understanding of the costs associated with the qualification and implementation of the RMM, as well as the savings and/or cost avoidances afforded by the RMM. Each of these financial components will then be incorporated into an appropriate financial model to determine the economic feasibility of qualifying and implementing the RMM. The following are examples of the types of financial components you may be using in your calculations:

Operating costs associated with the conventional method

  • Cost of consumables, regents and supplies
  • Sampling, preparation, testing, data handling and documentation resource time
  • Cost of labor (salary and benefits)
  • Media, reagents and consumables disposal costs
  • Laboratory equipment depreciation, calibration and qualification
  • Overhead for laboratory and storage space
  • Data management and record retention
  • Preventive maintenance and service contracts

Operating and investment costs associated with the RMM

  • Same as the conventional method plus:
  • Capital costs during the initial investment
  • Technology and software training
  • System qualification and method validation costs
  • Regulatory filing costs, if applicable (changes to in-process microbiological methods or methods that are not specified in an NDA or marketing authorization may not require a formal regulatory submission to implement the change)

Cost savings/cost avoidances associated with the RMM

  • Reduced testing and finished product release cycle times
  • Reduction or elimination of laboratory equipment and overhead
  • Lower headcount
  • Reduced repeat testing and investigations, lot rejection, reprocessing and rework
  • Reduction in plant downtime
  • Increased yields and lower cost of product sold
  • Reduced raw material, in-process and finished goods inventory holdings

Each of the identified operating costs and cost savings will have an associated monetary value that can be entered into an appropriate financial model. Three financial tools that can be used to calculate whether there is a financial advantage for implementing a RMM include the return on investment (ROI), payback period and net present value (NPV).

Return on Investment (ROI)

ROI is the ratio of money gained or lost on an investment relative to the amount of money invested. For RMMs, the cost of performing the conventional method (CM) with the cost (and savings) of using the new method are compared. The information is reported as a percentage (%) and usually represents an annual or annualized rate of return. The ROI is calculated using the following formula, where CM = the conventional method and RMM = the rapid micro method:


The ROI can be calculated for the first year (where the initial capital investment will be made) and then every year thereafter once the RMM is routinely used. The rate of return can take on any value greater than or equal to -100%. A positive value corresponds to an investment gain, a negative value corresponds to a loss, and a value of 0% corresponds to no change. Therefore, the higher the ROI number is, the greater the return the firm will realize on the initial investment for the RMM.

Payback Period (PP)

The PP is the time required for the return on an investment to "repay" the sum of the original investment. In the context of implementing a RMM, this would be the time (usually in years) required to realize sufficient cost savings to pay for the initial investment of the RMM capital equipment, qualification and implementation activities. The formula used to calculate the PP is the inverse of the ROI formula:


Net Present Value (NPV)

NPV is an indicator of how much value an investment or project adds to the company. It is the total present value of a time series of cash flows, and is a standard method for using the time value of money to appraise long-term projects. The NPV may provide information as to whether the investment in implementing a RMM would add value to, or subtract value from, the company over a period of time. NPV is represented by the cash inflows generated by the RMM investment minus the RMM investment (taking inflation and return into account) and is calculated using the following formulas:

where T = total period of time to consider,
t = time of the cash flow,
r = discount rate (e.g. company's investment yield rate), and
Ct = cash amount at time t

If the period to consider is a 5 year investment for RMMs, NPV =
   Year 1 cash inflow / (1 + discount rate)1
+ Year 2 cash inflow / (1 + discount rate)2
+ Year 3 cash inflow / (1 + discount rate)3
+ Year 4 cash inflow / (1 + discount rate)4
+ Year 5 cash inflow / (1 + discount rate)5

or, as illustrated in the following equation:


When evaluating a new RMM, if the NPV is less than zero, the investment in the RMM would subtract value from the company and the project should not move forward. If the NPV is greater than zero, then the investment in the RMM would add value to the company and the project would be accepted. If the NPV is equal to zero, the RMM investment would neither gain nor lose value for the company and the decision to implement the RMM should be based on other criteria, such as technical, quality, regulatory and/or strategic positioning or other factors not explicitly included in the calculation.

It may be appropriate to involve your finance department to ensure that the appropriate information is correctly used when using these or other investment models. This is especially true when calculating NPV, as your company's discount rates may not be readily available. In any case, a robust financial assessment, coupled with a comprehensive validation plan, is the key to a successful RMM implementation strategy and the continuous improvement of manufacturing processes and efficiencies.

A number of case studies on the development of RMM financial analyses have recently been published, and a list of these papers is provided on the References page. If you need assistance in developing a return on investment strategy for your RMM program, our Consulting Team is available to help.