The ‘supply chain’ patient is sick: is there a cure for the Pharma Supply Chain? (part 1)
The Pharmaceutical supply chain has never been in such turmoil and under such attack from governments and regulators globally. The evidence is stark and mounting. Supply chain shortages in the US have moved even the President to demand urgent remediation, high level congressional committees have also asked searching questions of FDA and other involved stakeholders, in an attempt to discover what has been going on with high profile supply chain failures. Counterfeiting has become almost endemic, with detection and enforcement efforts stretched to the limit. Finally, and possibly most worrying of all, are the cases where materials have been adulterated or substituted with toxic alternatives (for economic gain) and have progressed undetected through one or more stages in the supply chain causing eventual patient death.
In response, regulators are demanding tightened controls on the global supply, manufacture, movement and storage of goods intended for human consumption. The FDA has produced an important report titled “Pathway to Global Product Safety and Quality” and the European Medicines Agency (EMA) is consulting on radical tightening of Good distribution Practice (GDP) Guidelines, as follow-on to the Falsified Medicines Directive. Vitally important though this is to reduce the risk of possible further death or injury to patients, these issues are symptoms of an underlying pathology borne of a modus operandi that is no longer ‘fit for purpose’. The supply chain patient is sick and in need of treatment.
“…regulators are demanding tightened controls on the global supply, manufacture, movement and storage of goods intended for human consumption.”
How did the patient get sick?
It can be summed up metaphorically in two words – parental neglect. In the same way deeply distracted parents often raise dysfunctional children, so can an industry, otherwise occupied, find itself producing unintended behaviours in its offspring. The single minded drive to meet clinical end-points and gain regulatory approval has resulted in the industry paying scant attention to the good practices and processes required to build and manage robust, secure and high performing supply chains. The associated industry dynamic (disease progression) has debilitated the performance of our supply chains.
To gain a proper understanding of this disease progression, it is necessary to study some history of the industry. In the late 1970’s / early 1980’s, big Pharma began to jettison what it considered ‘non-core’ activities (clinical / non-clinical research, development, manufacture, logistics) by outsourcing on a massive scale. This created a rapidly spiraling contract services sector. Unfortunately, this was a heavily tactical exercise, rather than strategic make vs buy decision-making. The result was hands-length, cost-based relationships between the various players in the Pharma supply chain, each operating within their own separate organizational structures, quality systems and information technology investments.
The contract supply base thus created needed to win customers to survive, spawning a symbiotic expansion of the ‘virtual’ business model. These companies could use the contractors to develop an early stage compound without investing in facilities themselves – selling on to larger Pharma companies and eventually making an ‘exit’ for the equity investors. This meant the critical early stage where the supply chain is being formed is undertaken by those with little interest in the long-term view. In addition, another business model was on the up. Since Big Pharma was in the habit of dropping supply of drugs once out of patent, a plethora of generics companies rapidly grew, taking over these compounds. They created new and less mature supply chains of their own, operating to significantly reduced margins. Many sought low-cost country supply as a means of maintaining slim pickings. This all took place as storage, distribution and customer handling facilities were also part of the fixed asset disposition and major players emerged through consolidation (e.g. McKesson, Cardinal Health and AmerisouceBergen) that had no ownership connection with the drug manufacturers and license holders. There remains very limited two-way interaction at this critical interface between those developing / supplying drugs and the patient experience of their products.
“There remains very limited two-way interaction at this critical interface between those developing / supplying drugs and the patient experience of their products.”
The net result has been severe diminution of the ability of product license holders and clinical trial sponsors to exercise oversight and control over their supply chains. To use a well-known phrase, ‘everyone’s responsibility is no-one’s responsibility’. We now live with excessively multi-staged, heavily-outsourced supply chains, with arms length customer-supplier relationships that lead to poor upstream and downstream visibility – providing perfect opportunity for counterfeiters and adulterators to do their worst. Globalization does not automatically mean disconnection – but for Pharma, sadly it has. We now have such stark divides between the various players in the supply chain that it is difficult to see how the malaise can be reversed.
The underlying ‘pathology’ and its effects
Probably the best way to characterize the underlying condition is through the metaphor of addiction – a gambling addiction. As is the case with many gamblers, the roots of their demise lay in early successes. Seduced by the ‘rush’ of easy money, it becomes a way of life. They don’t feel the need to go out and work, preferring to focus on beating the odds. Nothing is as important as the next win and often possessions and relationships are discarded in order to fuel the habit. By the time the writing appears on the wall, it is all too late. No home, no family and few friends, little money and no prospect of being able to hold down a job in the competitive world of employment.
This may seem an extreme comparison and in some ways it is, pharmaceuticals is still a relatively rich and successful industry. However, it does exhibit some of the characteristics we see with the gambler above. An obsession with chasing the big win (blockbusters), low level engagement in key relationships (patients and their stakeholders) and divestment of life-possessions in order to fund the stake and hedge the uncertainty. These are all recognisable in the Pharmaceutical industry of today. We hear talk of the patent cliff, low R&,D productivity rates, generic substitution…the list goes on.
“Globalization does not automatically mean disconnection – but for Pharma, sadly it has.”
Whether all these can be attributed to the speculative life style is hard to determine, but one thing is certain – the issues we now see in our supply chains have their roots here, and this is why. In a regulated industry, every aspect of the end-to-end supply chain is initially specified and approved through the product development phase (including manufacturing methods, suppliers, specifications, analytical methods, contractual agreements and process details). That means those developing drugs are creating our future commercial supply chains – but the industry has them focussed on something else – the holy grail of regulatory approval. They have little training or awareness of how supply chains should be constructed and managed. The net result is that potential problems and issues that could have been avoided with some ‘supply chain thinking’ are carried forward until too late to correct without major cost and disruption. Once on the market, there is little appetite to remediate the issues – rocking the boat within patent coverage is not a popular option, to say the least. So we live with flaky, disconnected supply chains that are now starting to creak.
Is there a treatment option? Find out in part 2.
Part 2 of this article can be viewed here.
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About the author:
Hedley Rees is author of “Supply Chain Management in the Drug Industry: Delivering Patient Value for Pharmaceuticals and Biologics” (J. Wiley 2011) and is a practising consultant, coach and trainer. He helps healthcare companies build, manage and continuously improve their clinical trial and commercial supply chains and risk profiles. He has his own company, Biotech PharmaFlow Ltd, based in the UK and handles assignments across the spectrum from top ten Pharma’s through to highly virtual early stage start ups. Prior to this, Hedley held senior supply chain positions at Bayer, British Biotech, Vernalis, Johnson &, Johnson and OSI Pharmaceuticals. His skill set covers the range of supply chain management processes from strategic procurement, production and inventory control, distribution logistics, information systems and improvement. His specific interest is in driving industry improvements through the regulatory modernization frameworks of FDAs 21st Century Modernization and ICH Q8 – Q11.
Hedley holds an Executive MBA from Cranfield University School of Management and is a corporate member of the Chartered Institute of Purchasing and Supply (MCIPS). He is a member of the UK BioIndustry Association’s (BIA) Manufacturing Advisory Committee and also regularly speaks at international conferences, being co-chair of the FDA/Xavier University sponsored Global Outsourcing Conference held in Cincinnati in October each year. He is also widely published in US and EU pharmaceutical journals.
Is there a treatment option for pharma’s supply chain issues?