The Evolving Pharmaceutical Supply Chain
The Outsourcing Issue Feature: Part 3
Restructuring the pharmaceutical supply chain from its current disparate, siloed nature will be essential to addressing the key vulnerabilities exposed during the COVID-19 pandemic. Reshoring, while part of the solution, is not the only answer. Comprehensive and ongoing supply chain risk assessment and planning will be crucial. Adoption of advanced digital technologies that enable true networking and data sharing across the entire supply chain will also be essential.
Change Driven by More than COVID-19
The need to modify the pharmaceutical supply chain was recognized well before the emergence of the COVID-19 pandemic. Drug shortages due to quality issues at manufacturing sites in India and the closure of plants in China for environmental and other issues; heightened trade tensions; the shift in the industry to small-volume, highly targeted medicines; the growing numbers of biologic drugs that require low-temperature storage and shipment; rising demand in emerging markets in Asia-Pacific and Latin America; the increasing problem of counterfeit drugs; and the advent of personalized medicines and next-generation therapies with very different logistics requirements have all been creating challenges and drawing attention to the need for enhanced supply chain management solutions.1
Flexibility and agility are required across the entire pharmaceutical supply chain, from raw material, intermediate, drug substance, and drug product manufacturing, to the production of materials and components of manufacturing equipment, to the design and manufacture of packaging solutions, and on to warehousing and distribution of all of these important items. The risk of supply interruptions can only be avoided if the challenges faced by the industry are addressed comprehensively.
Flexibility and agility are required across the entire pharmaceutical supply chain, from raw material, intermediate, drug substance, and drug product manufacturing, to the production of materials and components of manufacturing equipment, to the design and manufacture of packaging solutions, and on to warehousing and distribution of all of these important items.
The solution to supply chain qualms isn’t simply reshoring all overseas manufacturing. Global supply chains will remain essential to support the global pharmaceutical market. International companies supplying raw materials to finished drug products and medical devices will require multiple manufacturing sites to support the various markets they serve. What is needed, however, is greater transparency and cooperation across the supply chain, coupled with clear and enforced intellectual property rules, particularly in China.2
Some movement of manufacturing out of China and India and back to the West — and to other overseas locations, such as Vietnam, South Korea, and other Southeast Asia countries, as well as Mexico — will certainly occur. Greater automation and implementation of digital technologies will be equally important. More stockpiling and less reliance on just-in-time delivery will also be essential going forward.
In Europe, for instance, the European Commission’s proposed Pharmaceutical Strategy for Europe sets forth a roadmap for the industry that includes reducing the EU’s dependency on imports of pharmaceutical raw materials, intermediates, and active pharmaceutical ingredients; increasing access to affordable existing and novel medicines; and environmental sustainability.3
Preparing for the New Normal
It is not only at the individual company level that changes will be initiated. Government and industry-wide decisions will also have an impact.4 Glocalization will be encouraged by both governments and industry organizations as they focus more on risk management. Going forward, governments are likely to mandate higher minimum safety stocks for certain medicines. They could potentially mandate flexible manufacturing capacity for certain drugs as well.
At the industry level, the emergence of new technologies will require changing demand for certain production capabilities, such as lyophilization, while the need for flexibility and agility will drive the adoption of continuous processing. Meanwhile, new networks will balance total cost and risk.4
A network approach that leverages a single platform for sharing data between all parties in the supply chain has not been implemented in the pharmaceutical industry before, however. If it can be achieved it would transform the pharma supply chain into a single ecosystem that operates in real time.5 By implementing a single platform, everyone in the network learns of the issue immediately and can take appropriate action to avoid or at least mitigate any supply disruptions, regardless of where a problem occurs.
Planning for COVID-19 Vaccine Launches
Now and in the short-term, one of the biggest challenges will be managing the supply chain to support existing activities, as well as the additional development and manufacturing work associated with the launch of new COVID-19 therapies and vaccines. In addition to fast-tracking regulatory approvals, companies with potential candidates are being forced to rebalance portfolios to ensure access to the necessary capacity and materials.6
The challenge lies in the magnitude of the pandemic and the vast quantities of therapeutics and vaccines required. Even for existing products, such as chloroquine/hydroxychloroquine, ramping up production can be difficult — not only due to limited manufacturing capacity, but also limited availability of specialized raw materials. In this case, the uncertain effectiveness of the drug also creates difficulties in forecasting demand.7 Some of the novel vaccine candidates face additional hurdles, because the technologies employed are relatively new and involve complex manufacturing and distribution processes that require modifications to the pharmaceutical supply chain.8
There are more than 70 COVID-19 vaccine candidates in clinical development.9 When any of these products will receive approval is unknown. Although U.S. government officials are predicting availability by the end of 2020 or early 2021, most experts project a first approval in late 2021 at the earliest, with some saying it could be many months or even years later. When that day comes, however, the second question that needs to be answered is how manufacturing and distribution will be scaled to meet the demand.
In addition to accelerating product development, companies with the most advanced COVID-19 vaccine candidates are already investigating and implementing solutions to ensure manufacturing capability — a risky venture without an approval in-hand. The key to these efforts is collaboration across the supply chain — with raw material suppliers (for drug substance manufacturing through filling and packaging of final doses), contract development and manufacturing organizations (CDMOs), contract research organizations, and other pharmaceutical companies.9 Contingency planning is also important.
All of this work has to take place while the spread of the SARS-CoV-2 virus remains a threat. Approximately 20% of the pharmaceutical workforce must be onsite to carry out their duties, with an additional 60% required to be on-site part time, according to one estimate.10 Pharma companies must be able to manage existing drug production combined with establishing capacity for, and initiating manufacture of, large quantities of COVID-19 therapeutic and vaccine candidates. Pharma companies must ensure the continued safety of their employees while collaborating with suppliers on business continuity plans and developing longer-term solutions that leverage digital and other advanced technologies that will provide agility and resiliency.
While rapidly achieving the required scale for COVID-19 products without affecting the production of other needed medicines will certainly be challenging, the situation is creating opportunities for the industry to improve operational aspects across the board, which will benefit development and production of all new drugs in the future.9
Patient Centricity Will be Part of Recovery
Incorporation of patient input into the drug development process was already a growing trend in the industry before the emergence of COVID-19. Regulatory agencies and drug developers alike have recognized the value of addressing patient preferences for drug delivery and packaging. Increasing digitalization is making it possible to feed patient data from clinical trials and postmarketing studies into discovery and development programs.
Patient centricity is also needed in the supply chain. Access to and sharing of patient data should make it possible to address dynamic demand.8 Using digital technologies (e.g., artificial intelligence, machine learning) and data sharing through cloud-based networks, everyone across the supply chain should be able to monitor demand within specific clinics and hospitals, and at specific distribution hubs, and adjust the supply chain response, from inventory transfers all the way back to drug manufacturing and even raw material supply.5
Digitally Enabled Visibility
Underlying all of the future changes in the pharmaceutical supply chain that are expected to address current challenges is the implementation of advanced digital technologies. The pharma supply chain is one of the most complex but least-connected industry supply chains in the world.5 A single network with all supply chain participants connected through one platform would enable seamless communication and data sharing, providing true visibility into the entire supply chain for real-time monitoring and response to small hiccups and major crises. It would thus create efficiencies while also enhancing resilience.
Digitalization tools generate vast quantities of data, and data-driven technologies enable that data to be converted into valuable insights that can inform decision-making, leading to better pharmaceutical supply chain management from the raw material supplier to the patient.11
Digitalization has already been implemented in the pharmaceutical industry to some degree, helping to reduce transaction costs. But data remains largely siloed, largely due to the resistance of pharma companies to reveal proprietary information and lose competitive advantage. Newer digital technologies can be used to gather both internal and external data regarding manufacturing and related operations, various business processes, regulations, supply chain risks, social media activities, and trends in patient health, helping to break down those silos.11
Big data also supports the vertical merger and acquisition activity taking place in the industry today, enabling the connection of everything from health insurance and retail drug supply to the manufacturer, thus facilitating end-to-end visibility.11
Blockchain technology will perhaps be the most important digital tool for making integration a reality.12,13 Blockchain-based systems allow competitors to collaborate on a shared platform without the risk of revealing proprietary information. They also make it easier and cheaper to verify transactions across many different organizations by using a shared, permanent ledger. In this case, mathematical proof of data serves as a surrogate for the actual data, and all participants govern the network together, with data shared in pieces across the network, not in one location.12 In addition, access to trade finance, insurance, and supply chain finance is integrated within the supply chain, with documentation visible only to the appropriate partners.13 This approach not only reduces friction, but helps to prevent fraud and could have a real impact on reducing counterfeit medicines.12 It also eliminates many manual reconciliations and thus the need for third- or fourth-party logistic systems, leading to the optimization of operational costs and improved working capital.13
A number of pharma companies (Gilead, Pfizer, Amgen, Genentech, AmerisourceBergen, and McKesson, among others) are betting on blockchain through participation in the MediLedger Network.12 Business rules will be enforced in actual time with automated auditing and problem-flagging.
Several other digital technologies will also help improve pharmaceutical supply chain performance.14 Integration of intelligent robotics will increase efficiency and provide relevant data to other systems. Connectivity of devices, machines, and processes through the industrial Internet of things (IIoT) from lab and production equipment, to digitally enabled packaging, will facilitate supply chain planning. Smart transportation or intelligent mobility will ensure safe transportation of complex and sensitive medicines while reducing fraud and the risk of theft.
Artificial intelligence (AI) and machine learning (ML) combined with big data and predictive analytics will improve all operations within the pharma industry and thus enhance supply chain performance.14 AI and ML also have the potential to help companies identify previously unknown patterns, creating significant opportunities for the development of truly novel solutions.15 Beyond blockchain technology, AI and ML may perhaps have the greatest potential to improve the efficiency of the pharmaceutical supply chain; McKinsey and Company has estimated that advanced analytics can improve earnings before interest, tax, depreciation and amortization (EBITA) for pharma companies by 45–75% over 10 years.16
Strengthening Regulatory Systems
Due to the many issues with the current pharmaceutical supply chain, drug shortages have been a major concern during the COVID-19 pandemic. Proposals to improve the FDA’s ability to prevent or mitigate drug shortages have included lengthening unnecessarily short expiration dates, allowing the FDA to require manufacturers of certain important drugs to complete supply chain risk assessments, and to address any identified vulnerabilities. This would grant the FDA the power to collect the information needed to assess critical infrastructure, manufacturing quality, and production capacities, which would expand the agency’s authority with respect to medical devices, including requiring manufacturers to provide information on any meaningful disruptions in supply.17
Much more needs to be done, according to many industry players and observers. For instance, during the COVID-19 pandemic, maintaining pharmaceutical manufacturing quality has been a challenge. The FDA and other regulatory agencies halted facility inspections upon the emergence of the pandemic, and inspections continue to be limited while virus remains a threat. Preventing drug theft and the introduction of counterfeits has also been difficult. The need to rapidly advance diagnostics, therapeutics, and vaccines against the SARS-CoV-2 virus has, meanwhile, led to acceleration of approvals, potentially creating quality concerns. Going forward, regulatory systems must be strengthened to ensure the continued, effective operation and uninterrupted supply of life-saving medicines under both normal and crisis conditions.18
Indeed, when it comes to the pharmaceutical supply chain, risk mitigation has taken on new significance. Risk planning and management is being taken more seriously, and comprehensive approaches that consider the cost of limited access to resources. R&D efforts, and production capabilities due to a wider range of issues (including future pandemics) have been factored in.19
Companies across the pharmaceutical supply chain should be focused on identifying opportunities to mitigate risks to production and delivery of pharmaceutical materials of all types — not just branded drug, generics, biosimilars and medical devices, but all of the materials required to produce them. Strategies could potentially include roles for both public and private stakeholders as the industry seeks to limit risks of future pandemics, natural disasters, and the major trends leading to dramatic changes in the sector.4
The key is to establish proactive strategies for building supply chain resilience.20 The first step for each company is to identify the weak links in their supply chains, such as an overreliance on Chinese and Indian sources. Multiple, alternate sources of supply for all materials should be identified and then approved. Looking in the other direction, suppliers should have systems in place for monitoring of customer behavior to ensure that, in crises, no hoarding or inappropriate diversion of materials is taking place.21
Other aspects of a proactive supply chain management strategy include prediction of demand surges via network visibility, capacity planning that leverages internal and external resources, use of inventory planning tools that prioritize demand, and identification of alternative modes of distribution and delivery.20 Of course, the better the data analytics, the greater the success. Simulating various scenarios can also provide valuable insights and direct the selection of appropriate solutions.
Quelch, Rich. “Supply Chain Trends.” Contract Pharma. 4 Jun. 2020. Web.
Vinoski, Jim. “Post-COVID Supply Chain Changes Probably Won’t Be What You Think.” Forbes. 17 Jun. 2020. Web.
van Arnum, Patricia. “EU’s Pharma Strategy: Secure the Supply Chain & Innovation.” DCAT Value Chain Insights. 15 Jul. 2020. Web.
Kelleher, Katie, Ketan Kumar, Parag Patel, and Ulf Schrader. “Pharma operations: The path to recovery and the next normal.” McKinsey Insights. 12 May 2020. Web.
Gottipolu, Reddy. “New Resilience: How COVID-19 Delivered the Ultimate Stress Test for Pharma Supply Chains.” Pharmaceutical Technology. 27 May 2020. Web.
Neal, John C. Ryan Clements, James Coffelt, and Mark Gooding. “COVID-19 and Its Impact on the Global Drug Supply Chain.” Avalere Insights & Analysis. 29 Apr. 2020. Web.
Ethelbhert, Derrick et al. “Can global pharmaceutical supply chains scale up sustainably for the COVID-19 crisis?” Resour. Conserv. Recyc. 159: 104868 (2020).
Pharmaceutical Supply Chain Trends 2020: Patient-centric supply chains will be key to thrive in the post COVID-19 world, says Quantzig. Quantzig. 15 Jun. 2020. Web.
Carpenter, Gareth. “Scaling up and speeding up: pharma’s manufacturing challenges during COVID-19.” Global Pharma Insights. 1 May 2020. Web.
Henderson, Stuart. “Addressing the pharma supply chain problem during Covid-19: Life sciences companies are not only under pressure to help identify and make available treatments and vaccines for Covid-19, but they also have an obligation to maintain supply chains for existing treatments and services.” Med City News. 22 Apr. 2020. Web.
“The Pharmaceutical Industry and the Digital Supply Chain.” Datex Corporation. n.d. Web.
McCauley, Alison. “Why Big Pharma Is Betting on Blockchain.” Harvard Business Review. 29 May 2020. Web.
Hewett, Nadia and Rasmus Winther. “This Is How Blockchain Can Be Used In Supply Chains To Shape A Post-COVID-19 Economic Recovery.” Forbes. 19 Jun. 2020. Web.
Amelin, Alexander. “6 pharma supply chain innovations that are worth the investment: To increase profitability. The health care industry must leverage advanced technology to create efficient processes and reduce costs.” Pharmaceutical Manufacturing. 25 Nov. 2019. Web.
Hogan, John. “The Future of the Pharmaceutical Supply Chain: Serialization has opened the door for digitally enabled visibility.” Contract Pharma. 20 Nov. 2019. Web.
Darino, Lucia, Adam Knepp, Nicholas Mills and Dan Tinkoff. “How pharma can accelerate business impact from advanced analytics.” McKinsey Insights. 8 Jan. 2018. Web.
Stephen M. “Coronavirus (COVID-19) Supply Chain Update.“ U.S. Food and Drug Administration. 27 Feb. 2020. Web.
Lakavage, Anthony. “Covid-19 has exposed cracks in the global medicines supply chain. We need to fix them.” STAT. 2 Jun. 2020. Web.
Sandler, Susan. “Agility, Communication, & Strategy Are Key for COVID-19 Pandemic Response.” iSpeak. 8 Apr. 2020. Web.
Gedam, Manjusha. “COVID-19 And Pharma Supply Chain Resilience.” Infosys Insights. Mar. 2020. Web.
Durbha, Madhav. “Commentary: Coronavirus exposes the weak links in the pharmaceutical supply chain.” Supply Chain Quarterly. 5 May 2020. Web.