The audit objective was to assess the effectiveness of the Therapeutic Goods Administration’s (TGA) application of the Code of Good Manufacturing Practice (Code of GMP) for prescription medicines.
1. To safeguard the health of Australians, the Therapeutic Goods Act 1989 (the Act) establishes a framework for regulating all therapeutic goods, including prescription medicines, that are manufactured or supplied in Australia. Prescription medicines1 are those for which consumers require a prescription from an authorised medical practitioner or that are dispensed in hospital settings by authorised health care professionals, with community pharmacies dispensing 271 million prescriptions for such medicines in 2010. The Act makes provision for the Department of Health, through the Therapeutic Goods Administration2 (TGA), to assess whether therapeutic goods have been manufactured in a way that provides the public with confidence about their safety, quality and efficacy. It is the responsibility of each prescription medicine manufacturer supplying the Australian market to adhere to the established regulatory standards. The Act also includes provisions enabling the TGA to recover the full cost of its regulatory activities through fees and charges on the manufacturers and sponsors3 of therapeutic goods.
Good manufacturing practice
2. All therapeutic goods available in Australia must be manufactured in accordance with the Australian Code of Good Manufacturing Practice for Medicinal Products (the Code of GMP).4 Good manufacturing practice (GMP) is a set of principles and objectives that seek to ensure products are manufactured consistently and to a standard appropriate for their intended use. Most countries, including Australia, have legislated that manufacturers of therapeutic goods must meet acceptable standards of GMP through the use of quality systems, controlled manufacturing processes, trained personnel, appropriate facilities and equipment, and documented procedures.
3. The TGA licenses Australian manufacturers that comply with the Code of GMP and requires overseas manufacturers to meet an equivalent standard before they can supply prescription medicines in Australia. When a manufacturer is not compliant with the Code of GMP, the TGA may adopt measures to reduce possible risks to public health and safety, including the restriction, suspension or cancellation of a manufacturer’s licence or product approval. As at 30 June 2013, 1519 sites were approved to manufacture registered medicines (including prescription medicines) for supply in Australia. Of these, 154 were Australian sites licensed by the TGA, 327 were overseas sites inspected and certified by the TGA, and the remaining 1038 sites were certified by overseas regulators.
4. The TGA’s Office of Manufacturing Quality (OMQ) has responsibility for licensing domestic manufacturers, and certifying overseas manufacturers, against the Code of GMP and implementing a risk‑based program of surveillance inspections. The OMQ also grants GMP clearances to sponsors importing prescription medicines from overseas manufacturers that have been approved by a regulator with which Australia has formal recognition arrangements.
5. All therapeutic goods carry potential risks, many of which can originate in the course of manufacture. A robust framework for assessing and monitoring compliance with the Code of GMP assists in mitigating these risks. Key features of an effective framework include: mechanisms to assess and monitor compliance; procedures to support a quality system; and graduated responses to address non‑compliance.
Audit objective and criteria
6. The audit objective was to assess the effectiveness of the Therapeutic Goods Administration’s (TGA) application of the Code of Good Manufacturing Practice (Code of GMP) for prescription medicines.
7. To assist in evaluating the TGA’s performance in terms of the audit objective, the ANAO developed the following high level criteria:
- only manufacturers who have been rigorously assessed as meeting the Code of GMP are eligible to supply prescription medicines in Australia;
- the TGA has a risk‑based approach to monitoring compliance of prescription medicine manufacturers against the Code of GMP, to enable the TGA to target resources effectively and respond to priority risks;
- the TGA has implemented policies and procedures to respond to manufacturing non‑compliance of prescription medicine manufacturers, which are proportionate to the risks presented; and
- the TGA’s regulation of the Code of GMP is supported by appropriate structures and processes.
8. The Department of Health, through the TGA, administers the Australian regulatory framework for therapeutic goods, providing assurance to the community that prescription medicines, whether of Australian or overseas origin, are manufactured in accordance with a formal Code of Good Manufacturing Practice (Code of GMP). Experience has shown that risks arising during manufacture, such as ingredient substitution or breaches in the quality system, may have potentially serious consequences for patient and public health and therefore require the ongoing attention of manufacturers and regulatory authorities.
9. The TGA has been generally effective in applying the Code of GMP for prescription medicines manufactured or supplied in Australia. The TGA applies a well‑developed and structured process for licensing and monitoring manufacturing sites in Australia, and has adopted a viable approach to the certification of overseas manufacturing sites, drawing on the work of selected overseas regulators. However, the audit identified a number of shortcomings in the TGA’s administration of the Code of GMP which highlight the need for greater internal discipline and management attention to: strengthen the documentation of key decisions relating to licensing and certification processes; and enhance arrangements for information security and management. There also remains scope to realise the full benefits of TGA initiatives to: reduce duplicated effort in granting clearances for the supply of imported prescription medicine; and implement more equitable cost recovery arrangements.
10. The TGA licenses Australian manufacturing sites and certifies overseas manufacturing sites against the Code of GMP. These regulatory functions are supported by standard operating procedures (SOPs), providing a good starting‑point for the TGA’s application of the Code of GMP. However, the ANAO’s review of licensing and certification records indicated that TGA staff have not always documented key decisions or consistently maintained inspection files, as required by the SOPs. The TGA should strengthen its quality assurance processes to provide greater confidence that staff formally document key decisions, particularly when discretions are exercised, and maintain complete and accurate records to enhance the transparency and accountability of the licensing and certification process.5
11. The TGA monitors the ongoing compliance of licensed and certified prescription medicine manufacturers with the Code of GMP through a systematic and risk‑based inspection program. The ANAO’s review of inspection documentation indicated that while inspection procedures are mostly followed, there remains scope to refine aspects of the SOPs, which do not require inspectors to record the basis on which they have verified whether corrective and preventive actions identified during previous inspections adequately addressed deficiencies. Further, the timeliness of issuing inspection reports and closing out inspections is well below the TGA’s targets.6
12. Manufacturing sites inspected by the TGA account for only one‑third of sites supplying registered medicines (including prescription medicines) in Australia, with the remainder certified by overseas regulators. All prescription medicines supplied in Australia must have an Australian‑based sponsor, who applies to the TGA for GMP clearance. At present, the TGA processes each clearance application individually, even where other sponsors have recently obtained clearances for the supply of identical products from the same manufacturing site. The OMQ advised the ANAO that approximately two‑thirds of the effort spent processing clearance applications is a duplication of previous work, and it is considering a model to enable the reuse of current evidence of a manufacturing site’s compliance with the Code of GMP in subsequent assessments of the same site. If adopted, this initiative will improve the efficiency of regulatory processes, to the benefit of industry and the TGA.
13. The TGA undertakes regulation of the Code of GMP on a cost recovery basis. However, the TGA’s current fee structure for regulating compliance with the Code of GMP is such that domestic manufacturers with ‘good’ compliance7 are cross‑subsidising the effort spent by the TGA to regulate manufacturers with ‘basic’ compliance, as the licence fee is fixed and inspections identifying a high number of deficiencies require considerably more resources to finalise.8 The TGA has acknowledged there is scope for improvement and advised that it plans to revise fees and charges in 2014–15, pending the outcome of a structural review of fees, charges and activity based costing.
14. The OMQ operates a Manufacturers Information System (MIS) intended to support the compliance program. However, the MIS does not capture key information required to monitor administrative performance and staff adherence to SOPs relating to the Code of GMP. Further, the compliance information contained in the MIS is not aligned with other TGA information holdings to ensure that publicly accessible information on prescription medicines is current and reliable. More generally, the OMQ has not assessed its IT network security controls against the risk of cyber intrusion. To enhance its operational effectiveness and the security of its data holdings, the OMQ should review its information management arrangements in support of the Code of GMP compliance program, particularly the MIS.
15. The ANAO has made two recommendations to improve the TGA’s administration of the Code of GMP for prescription medicines, focussing on: strengthening processes for recording key decisions and maintaining inspection files, and refining the quality assurance process to support staff adherence to SOPs; and reviewing information management arrangements to more effectively support the OMQ’s application of the Code of GMP and improve the security of data holdings.
Key findings by chapter
Licensing and Certifying Manufacturing Sites (Chapter 2)
16. The licensing and certification of regulated bodies enables regulators to manage regulatory risks by controlling entry to the market.9 The TGA’s licensing and certification functions are supported by a detailed set of SOPs, providing a good starting‑point for the TGA’s application of the Code of GMP.
17. Approximately 32 per cent of sites manufacturing registered medicines for supply in Australia are directly licensed or certified by the TGA through on‑site inspections.10 The ANAO’s review of this initial inspection process indicated that some key decisions had not been supported by formal documentation, and electronic inspection files were not consistently maintained, in accordance with the TGA’s SOPs. Further, quality assurance reviews are not structured to verify whether staff have fully documented the inspection process, in line with the TGA’s requirements.
18. Approximately 68 per cent of the manufacturing sites supplying registered medicines in Australia are located and regulated overseas. These sites are certified by regulators with which Australia has a Mutual Recognition Agreement (MRA), Memorandum of Understanding (MOU) or cooperative arrangement.11 As part of an international engagement strategy to mitigate the risk of ‘unjustified approval of foreign manufacturing sites’, the TGA participates in joint and concurrent inspections, conducts regular teleconferences and exchanges detailed annual reports in order to verify the standards applied by its MRA partners.12 However, any differences observed during joint inspections are not documented and brought to management attention by TGA inspectors so that significant discrepancies in approaches and conclusions can be addressed through inter‑agency coordination.
Monitoring Compliance Of Licensed And Certified Manufacturing Sites (Chapter 3)
19. The TGA monitors the compliance of licensed and certified prescription medicine manufacturers through a systematic and risk‑based program of on‑site inspections. An inspection frequency matrix is used to determine the frequency of these inspections, having regard to the risks associated with: the product type; the manufacturing process; and the manufacturer’s compliance rating from the previous inspection.
20. Compliance monitoring is also supported by a detailed set of policies and procedures to guide staff in scheduling, planning and conducting manufacturer inspections, as well as classifying levels of compliance. The ANAO’s review of inspection documentation indicated that while inspection procedures are mostly followed, there remains scope to refine aspects of the SOPs. While most inspections allocate time to verify whether previous deficiencies have been addressed, there is currently no requirement to record the basis of this assessment and therefore limited means to subsequently evaluate the adequacy of corrective and preventive actions and inform future inspection teams.
Addressing Deficiencies In Compliance (Chapter 4)
21. Almost all inspections conducted on sites manufacturing prescription medicines identify at least one deficiency against the Code of GMP.13 To respond appropriately to the risks presented by compliance deficiencies, the TGA has developed graduated responses to support its risk‑based compliance strategy.
22. The TGA’s general approach is to use lower level responses to address most deficiencies and reserve enforcement measures for serious non‑compliance or when lower level responses are failing to achieve the desired outcome.14 The TGA employs a risk‑based strategy, known as inspection close‑out, that allows most manufacturers to continue production while also correcting deficiencies. An inspection cannot be closed out until the lead inspector reviews and accepts information from a manufacturer on the corrective actions it proposes to address deficiencies. However, the timeliness of issuing inspection reports and closing out inspections is well below the TGA’s targets. Further, while the TGA’s approach has been generally effective and has helped avoid disruption to manufacturers’ business operations, its approach to compliance has not led to improvements in the case of several domestic manufacturing sites with a history of ‘basic’ compliance, with one of these sites dropping from ‘basic’ compliance to a provisional rating15 of ‘unacceptable’ at one inspection.
23. Where required, review panels are convened following an inspection to provide an independent assessment and recommendation to the delegate on an approach to address ‘unacceptable’ compliance.16 In a minority of cases, the TGA does pursue stronger enforcement measures but advised the ANAO that, with the exception of legal proceedings, it does not collect information on administrative compliance measures, including those recommended by review panels, centrally. The TGA could therefore not advise the ANAO on the number or type of actions previously used to address sites with a history of compliance that has been less than ‘satisfactory’. Accordingly, the TGA is not well placed to evaluate the effectiveness of actions taken to address poor levels of compliance. A Compliance Unit established by the OMQ in late 2012 for the purpose of addressing such sites has made limited progress to date, and there would be benefit in TGA management revisiting this approach.
Supporting the Compliance Program (Chapter 5)
24. The TGA’s current fee structure for regulating compliance with the Code of GMP results in some regulated Australian manufacturers paying significantly more per hour of inspection effort than others. The TGA has recognised that its cost recovery arrangements for regulating compliance with the Code of GMP are in need of revision, and advised the ANAO that it plans to revise the structure of fees and charges over three years from 2014–15.
25. The OMQ’s primary IT system supporting its compliance program, the Manufacturers Information System (MIS), was built on legacy platforms and has not been fully modified to meet business requirements. Consequently, it does not capture key management information required to monitor performance and adherence to SOPs, and the TGA should enhance the system to record the dates on which inspection reports are sent, manufacturers’ responses are received and inspections are closed out. The TGA has not assessed its IT network security controls relating to OMQ’s data holdings to ensure that commercially sensitive information is protected against cyber intrusion, and should review relevant system controls. Further, the compliance information contained in the MIS is not aligned with information held on the Australian Register of Therapeutic Goods (ARTG)17 to ensure that publicly accessible information on prescription medicines is current and reliable.
26. The TGA reports on its regulatory performance through the Department of Health’s Portfolio Budget Statement. The TGA identified three quantitative key performance indicators (KPIs) for 2013–14, one of which relates to the timeliness of inspections.18 The TGA has acknowledged the limitations of its current KPIs and has advised that it plans to develop revised performance measures by December 2015.
Summary of agency response
27. The Department of Health’s covering letter in response to the proposed audit report is reproduced at Appendix 1. The Department of Health’s response to the proposed audit report is set out below:
The Department of Health notes the audit report and agrees with the recommendations.
To provide additional assurance on the integrity of the Therapeutic Goods Administration’s (TGA) process for assessing compliance with the Code of GMP, the ANAO recommends that the Department of Health improve existing processes for, and oversight of:
Department of Health response: Agreed.
To improve the security and utility of the Office of Manufacturing Quality’s (OMQ) information management arrangements, the ANAO recommends that the Department of Health enhance the OMQ’s processes for:
Department of Health response: Agreed.
 In Australia, prescription medicines fall under a category known as registered medicines, which are assessed by the TGA as having a higher level of risk and are therefore individually examined for safety, quality and efficacy. Examples of prescription medicines include antibiotics, contraceptive pills, and strong painkillers.
 The TGA is part of the Department of Health, notwithstanding its distinct branding.
 The sponsor of a therapeutic good is a person or company who either exports the goods from Australia, imports them into Australia or manufactures them for supply in Australia or elsewhere.
 Section 36 of the Act enables the Minister for Health to determine which principles will be observed in the manufacture of therapeutic goods supplied in Australia. The TGA currently administers the 2013 version of the Guide to Good Manufacturing Practice for Medicinal Products, issued by the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co‑Operation Scheme (PIC/S).
 At present, the OMQ’s quality assurance process focuses on staff competencies and does not require detailed review of the way in which staff have documented the inspection and close‑out process in accordance with standard operating procedures.
 In the ANAO’s random sample of 58 inspection reports, only 26 per cent were provided to the manufacturer within the four‑week target timeframe. In a random sample of inspection close‑outs, which have a target timeframe of between six to 14 weeks depending on the number of responses sought by OMQ, the ANAO calculated an average of 14 weeks for sites with ‘good’ or ‘satisfactory’ compliance and 41 weeks for those with a ‘basic’ compliance rating.
 The TGA has a system for classifying each deficiency against the Code of GMP according to its potential risk and subsequently provides the manufacturer with a compliance rating of either ‘good’ (A1), ‘satisfactory’ (A2), ‘basic’ (A3) or ‘unacceptable’ (U).
 The cost of domestic inspections is recovered through a fixed licence fee that includes a specified number of inspection hours, and an hourly fee once this allocation is exceeded. The TGA may not use all available inspection hours in the case of manufacturers with ‘good’ compliance.
 ANAO Better Practice Guide—Administrating Regulation, March 2007, Canberra, pp. 43–49.
 Of this figure, 10 per cent are located domestically and 22 per cent overseas.
 Australia currently has MRAs with 22 European Union countries, and with Switzerland, Canada and Singapore. It also has a MOU with New Zealand, a cooperative arrangement with the United States and, informally, with the 14 PIC/S members who do not fall within the above categories.
 TGA, TGAInternational Engagement Strategy 2013–15, Canberra, 2013.
 In the five years to 30 June 2013, 96 per cent of inspections of sites manufacturing prescription medicines identified at least one deficiency against the Code of GMP, with 60 per cent identifying at least one major deficiency.
 The TGA advised the ANAO that in the five years to 30 June 2013, it had not brought legal proceedings against any manufacturer of prescription medicines regarding non‑compliance with the Code of GMP.
 A compliance rating is provisional until the inspection has been closed out and a final compliance rating is assigned.
 An inspection report is referred to a review panel before it is finalised if: there is a provisional compliance rating of ‘unacceptable’; the manufacturer’s response cannot be accepted; or the lead inspector or their manager consider it useful to determine if a follow‑up procedure is required.
 The Australian Register of Therapeutic Goods (ARTG) is a register published on the TGA website containing information about all therapeutic goods approved for supply in Australia.
 The 2013–14 KPI relating to the performance of the manufacturing compliance program measures the ‘Percentage of licensing and surveillance inspections completed within target timeframes’.