ED 19.98L: Bioengineering and Environmental Health: Production Group
Protease Inhibitor (Ritonavir)
Production Plant Cost Analysis
By:
Siranee Sreesai
Department of Environmental Health Science
Faculty of Public Health
Mahidol University
July, 2000
Siranee Sreesai
1. Introduction
Production cost analysis is one part of micro-economic analysis. It has been
performed in order to assess the feasibility of production to serve patient needs.
Figure 1 shows the entire system of production, which cost of every activity has to be
analyzed. All the determined costs are used for defining the optimum production
capacity and prioritizing costs among production activities. The analysis results will
be used for maximizing benefits of public health, economic and environment.
Process
Equipment/Plant
Infrastructure
Water
Electricity
Fuel Oil, Gas
Admin
Production
Maintenance
QC/QA
Imported chemicals
Synthesis
Other Raw Materials
Packaging Materials
Purification
By Product
Product
Waste
Packaging
Waste Treatment
Distribution
The protease inhibitor, Ritonavir, is selected for this study. This report is
focused only on production cost which come from the capital investment and
operating costs. The computer program namely SuperPro Designer (version 4.32) has
been used for the synthesis processes simulation and economic evaluation. According
to the program, all of database for cost analysis is designed base on U.S. basis at the
prices of year 2000. Since the production group members agree to locate the
production plant in Thailand, these acquired results have to be recalculated again in
the future in order to fit with Thailand situation.
Due to the limitation of database relating to the market needs, economic and
SuperPro Designer computer program knowledge, time and other constrains, the
report may not give the accurate numbers of production costs. However, it is very
good learning experience for the beginner and this could express some critical issues
for producer.
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Siranee Sreesai
2. Production Cost
There are two major costs of production, capital investment and operating
costs.
The capital cost comprises of 1) Direct cost which is also called the physical
cost. These are the components, which are physically noticeable when one considers a
production plant. The bricks and mortar of the building, the stirred vessels, mixers,
distillation column, ultra-filter, and so on that needed to run the chemical processes,
and the piping to transfer the chemical streams all fall into this category, 2) Indirect
costs which are often overlooked piece of the overall plant cost. These are the fees,
which are needed to make the physical structure possible including engineering fees
and contractor fees. Contingency cost is also belonging in this group.
Operating cost are those variable costs which are calculated from 1) Raw
materials. There are various chemicals used such as dimethyl sulfoxide, oxalyl
chloride, dichloromethane, citric acid and others. The selected chemicals and other
raw materials have to have good quality in order to minimize waste generating and
reduce production costs as the whole. 2) Labor costs. There are several level of hired
human resources such as worker, technician, engineer, scientists ect. Each kind of
labor has different costs and hired conditions. Thus, the labor cost is differ depends on
norm of production company and law of the country. 3) Equipment related which
include upkeep, cleaning between batches, replacing malfunctioning parts on the
expensive machinery. Due to the large amount of machinery in this plant, this
maintenance cost is expected to be around 5% of equipment cost per year. 4) Quality
Assurance (QA)/Quality Control (QC). QA/QC include cost for auditing system,
chemical inventory and others. 5) Utilities and consumables. Utilities are power,
water and fuel. Consumable material are filter materials, resins etc. 6) Transportation.
The transportation cost covers the cost for all kind of transport for raw materials,
products and by-products. If there are many imported materials from outside the
country, this cost will be the critical part of production cost. 7) Waste
treatment/disposal. The concern of environment friendly production is needed and
will make the acceptable and successful production. Beside this, there are other
important environmental management such as the work on occupational health and
safety, environmental monitoring and by-product management. They also contribute
significant reduction of production cost from intervention of waste minimization and
by-product management. 8) Miscellaneous.
3. Steps for Production Cost Analysis
There are 12 important steps required for production cost analysis.
3.1 Know chemicals and raw materials to be used and operation steps such as store,
blend, reaction, homogenization, chromatography, distillation, extraction, drying,
absorption, filtering and packaging. The synthesis processes are acquired from
published literature and patents.
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3.2 Choose the operation process. The production can be either batch or continuous
process. In this case, the batch operation is selected.
3.3 Make flow sheet. From the synthesis processes simulation of Ritonavir, there are 9
sections of production process (see process flowsheets from report of Ratanachoo K.).
3.4 Solve mass balance and energy balance to know:
 Ratio of various chemicals to put into process, and when to put in,
 What are the chemicals, by-product or waste obtained from the process,
 How much energy to put into each step to initiate reactions and
 How much energy to obtain from each reaction step
3.5 Obtain quantity of each raw material for the required throughput and the cost
3.6 Obtain amount of energy to be used and the costs
3.7 Obtain size of equipment to be used in each process step, and the cost of
equipment
3.8 Obtain waste treatment process and the cost
3.9 Know what to do/check/analyze, and how many people needed, obtain labor cost
3.10 Adjust process flow sheet if necessary
3.11 Calculate costs, obtain unit cost
3.12 Sensitivity analysis and scale-up or scale-down to get the curve “Economy of
Scale”
4. Summary of Production Cost
Base on assumption of drug production for 30% of HIV positive patients in
Thailand, the amount of Ritonavir production rate is 93,138 kg/yr. Using flow
diagram from the design of Ratanachoo K. and follow the steps in topic 3, then cost
analysis has been performed by SuperPro Designer computer program. Capital
investment and operating costs are summarized below:
4.1 Total capital investment
120,649,000
$
4.2 Operating cost
192,202,000
$/year
4.3 Production rate
83,546
4.4 Unit production cost
2,301
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kg/year
$/kg
Siranee Sreesai
Batch size is 309 kg and production is estimated at 270 batches per year. Table
1 and 2 show detailed capital investment and operating cost for the whole steps of
Ritonavir production.
Table 1. Capital Investment
Cost Item
Cost ($)
1. Total Plant Direct Cost
Equipment purchase cost
Installation
Process piping
Instrumentation
Insulation
Electrical
Buildings
Yard improvement
Auxiliary facilities
54,815,000
16,562,000
7,115,000
5,797,000
6,625,000
497,000
1,656,000
7,454,000
2,485,000
6,625000
2. Total Plant Indirect Cost
Engineering
Construction
Contractor’s fee
Contigency
46,045,000
13,704,000
19,185,000
4,386,000
8,770,000
Fixed Capital Cost
Working Capital and Startup Cost
Total Capital Cost
100,859,000
19,790,000
120,649,000
Table 2. Operating Cost
Cost Item
$/year
%
Raw materials
Labor-dependent
Equipment-dependent
Laboratory/QA/QC
Consumables
Waste treatment/disposal
Utilities
153,608,000
7,293,000
18,975,000
1,094,000
9,947,000
1,174,000
108,000
79.92
3.79
9.87
0.57
5.18
0.61
0.06
Total Operating Cost
192,202,000
100.00
Note: This operating cost does not include transportation, advertising and selling,
running royalties, failed product disposal, and miscellaneous expenditures.
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To address major costs, each reaction is analyzed in detail. There are all
together nine-reaction steps in which chemicals are added, mixed, and processed as
shown in the flow diagram of Ratanachoo K. Each reaction step has different
operating cost since there are different chemicals, and different equipment to run the
process as summarized below:
REACTION STEP
RX1
RX2
RX3
RX4
RX5
RX6
RX7
RX8
RX9
OPERATING
COST
($MILLION/YEAR)
67.7
5.4
36.2
7.4
33.1
27.8
1.4
10.7
2.4
OPERATING COST OF EACH REACTION STEP
RX7 RX8
RX9
RX6
RX1
RX5
RX2
RX4
RX3
From the graph, reaction step 1 is the most expensive operation. Operating
cost in this step is $ 67.7 million per year. The next expensive steps are reaction step 3
and reaction step 6 respectively. In order to see detail in the step 1, detailed operating
costs are illustrated below:
RX1 OPERATING
COST TYPE
RAW
MATERIAL
LABOR
WASTE
TRT/DSP
EQUIPMENT
DEPENDENT
LAB/QC/
QA
CONSUM
ABLES
UTILITIES
$ MILLION/YEAR
64.1
1.6
1.2
0.6
0.2
0.0
0.0
OPERATING COST /YEAR FOR RX 1 BY COST TYPE
RAW MATERIAL
LAB/QC/QALABOR
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Raw material, various kinds of chemicals, is a major cost in this step since this
is the first step of the process where most of the chemical is fed. In general, main
operating cost in other step is also from raw material. The organic solvents and
chemicals used for synthesis contribute to about 60% of raw material cost.
Capital investment is also analyzed in the same way, reaction by reaction as
show below:
REACTION STEP
RX1
RX2
RX3
RX4
RX5
RX6
RX7
RX8
RX9
INVESTMENT
COST
($ MILLION)
0.4
0.7
5.4
0.4
0.4
2.9
0.5
1.8
0.8
INVESTMENT COST OF EACH REACTION STEP
RX 9
RX 1
RX 8
($ MILLION )
RX 2
RX 7
RX 3
RX 6
RX 5 RX 4
Reaction step 3 has the most cost of equipment since there are the biggest Gel
Filtration and Drum Dryer units here. Reaction step 1 has less cost although operating
cost in this step is highest.
Comparing all costs, it is obvious that cost for raw material is the highest
priority to be focused. Thus, keep as less raw material as possible on site would be
critical to decrease operating cost to hold the raw material inventory. Just In Time
delivery and good logistics practices for the raw material and finished product would
be important to keep financial healthy.
5. Sensitivity Analysis
Since basis for the process design is that we would produce 93,138 kg/year,
then what if we produce only 50% or even 25% of the above number. In addition,
what if we produce 2 times or 3 times that number. How would the unit cost change if
designed production capacity changed. Would this sensitive or still make the
economic feasible? To answer such questions, the re-computations are done by
varying batch size from the base case of 309 kg/batch to 77 kg/batch and 928
kg/batch. Data is collected and plotted in below graph:
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BATCH SIZE
CAPITAL COST
($MILLION)
OPERATING COST
($MILLION/YEAR)
UNIT COST ($/KG)
77 KG/BATCH
52.7
54.4
1198
309 KG/BATCH
120.6
192.2
1014
928 KG/BATCH
307.1
566.3
1000
COST AT VARYING BATCH SIZE
1500
1000
500
0
77 KG/BATCH
CAPITAL COST ($ MILLION )
309 KG/BATCH
OPERATING COST ($ MILLION )
928 KG/BATCH
UNIT COST ($/KG)
Unit cost increases when batch size decreased. When batch size decreases by 4
times smaller than the original design capacity of 309 kg/batch to 77 kg/batch unit
cost increases approximately 20%. However, when batch size is 3 folds larger than the
original design capacity, unit cost drops only 1.4 %.
Roughly, this also illustrates economy of scale that unit cost decreases
noticeably when increasing capacity from 77 to 309 kg/batch, and it wouldn’t
decrease much after this point. Thus, 309 kg/batch seems to be a minimum production
capacity to start with.
Unit Cost
Optimum Capacity
Production Capacity
The higher capacity the lower unit cost.
The higher capacity the higher financial burden.
Similarly, this is the way to analyze “What if production yield could not be
obtained per assumption, would the unit cost change significantly?”.
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Siranee Sreesai
From the design stage we assume 90% yield from each reaction step, however,
if we couldn’t find raw material with high purity, or there is incomplete reaction due
to uncontrollable factors, the yield would drop e.g. to 70% or even 60%.
Below table shows combination of operating cost, reaction step, and batch size
in order to further analyze the affect by selecting the most expensive operation cost
among various reaction steps:
BATCH SIZE
(KG/BATCH)
RX1
RX2
RX3
RX4
RX5
RX6
RX7
RX8
RX9
77
17.4
2.5
9.5
2.4
8.7
7.4
1.0
3.4
1.9
309
67.7
5.4
36.2
7.4
33.1
27.8
1.5
10.8
2.4
928
201.6
12.6
107.8
20.5
97.9
82.0
2.3
38.2
3.3
OPERATING COST OF EACH REACTION STEP WITH VARYING BATCH SIZE
250
200
150
100
50
0
77 KG/BATCH
RX1
RX2
309 KG/BATCH
RX3
RX4
RX5
928 KG/BATCH
RX6
RX7
RX8
RX9
From this graph, the most costly step is reaction step 1. If yield reduces from
90% to 60%, raw materials have to be used up 33% more than that of design. In
addition, total capacity would also drop. To solve this problem, reactor size and other
equipment size have to be enlarged to maintain the design capacity. Costs for such
much change in equipment size and raw material quantity would be recalculate to
obtain the new unit cost.
7. Conclusion
As the optimum production capacity is 309 kg/batch, 270 batch/year and the
unit cost is $2,301/kg or $1.4/pill of 600 mg. This is not include other operating costs
such as transportation, advertising and selling, running royalties, failed product
disposal, and miscellaneous expenditures. The market selling price at the year 2000 is
around $ 12/pill, and this would cost patient $ 720 per month.
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Siranee Sreesai
From the analysis, the more production the fewer units cost. The operating
cost, especially from raw materials, will dramatically reduced if material management
and logistic are practiced. However at a very high production capacity the computed
selling price is quite high and the drug would be affordable only by handful of
patients. This should be improved by various measures i.e. reduction of investment
risks by supporting from the government, tax measures, government to government
cooperation to eliminate export barriers.
8. Reference
Guidelines for the clinical management of HIV infection in Children/Adults. Fifth
Edition, Ministry of Public Health, Thailand. 1997.
Ratanachoo K. Production plant design and pollution control. Final report for the
course ED 19.98L: Bioengineering and Environmental Health, an education
partnership between the CRI and MIT, May 27-July 24, 2000.
SuperPro Designer computer program, version 3.05.
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