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2017 Industry Specific Predictions- Pharmaceutical and Drug Supply Chains

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Thus far, we have posted deep-dives on the first nine of our 2017 Predictions for Industry and Global Supply Chains.  The one prediction remaining is our final Prediction Ten, which for each year, dives into what we foresee as unique industry-specific supply chain challenges or environments for the coming year.

As Editor, I have also decided for the purposes of brevity and reader interest, to present each industry in a separate Supply Chain Matters blog posting. We will be also posting these industry-specific predictions in a faster cadence.

In prior industry-specific predictions posting, we dived into Automotive Supply Chain Residing Across North America.

We then dived into Commercial Aerospace Manufacturing Supply Chains.

Next came B2C, B2B-to-C and Traditional Retail Focused Supply Chains.

We then moved to Apparel and Footwear Producers and Respective Supply Chains.

Next-up:

Pharmaceutical and Drug Supply Chains DSC0083 300x245 2017 Industry Specific Predictions  Pharmaceutical and Drug Supply Chains

For the first time, we are including pharmaceutical and drug supply chains in our industry-specific predictions for 2017. The principal reasons are twofold and somewhat inter-related. The increasingly global reach of the industry’s various supply chains is adding continued possibilities for risk and disruption. Second, within the U.S. especially, there remains an enormous groundswell of political and social backlash directed at what is perceived as artificially high and inflated pricing stemming from conflicting buyer self-interests across the industry’s extended supply chain.

Global Sourcing

Today’s manufacturing and drug capacity profiles among proprietary or generic drug brands span countries such as Ireland, India, Israel, China, Singapore, and the United States. Some produce drugs for their immediate regions, while many export globally. Of late, there has been a shift of manufacturing away from the U.S. to take advantage of lower manufacturing cost and tax savings. The bulk of active pharmaceutical ingredients, the primary raw material compounds related to other drugs, are sourced in China and India.

According to the U.S. Department of Commerce, the United States is now the biggest importer of pharmaceuticals from other countries. Incidents of counterfeit drugs and medicines have been a constant challenge and lately, conformance to generally accepted production practices have become troublesome from production facilities across India, where many generic drug production facilities are located. The government of India recently cited 200 India based drug manufacturers for high risk in compliance standards.

Ongoing Business Challenges

In 2011, the industry reeled from an average of over 250 shortages of critical drugs as monitored by the U.S. Federal Drug Administration.  Much has been accomplished to alleviate drug shortages since that time but continued work remains. As of the end of January 2017, the FDA was reporting 57 drug shortages, the bulk of which were included in categories such as Pediatric Medicine (26), Oncology (6), Gastroenterology (9), Endocrinology (6), among others.

For years, the industry has danced around or delayed responses to mandates for implementing item-level traceability and tracking of life-saving drugs and medicines. By November 2017, pharmaceutical companies will be required to mark their products with a National Drug Code (NDC), serial number, lot number and expiration date in both machine-readable and human-readable format according to the Drug Supply Chain Security Act (DSCSA) of 2013. A diverse group of 44 companies, from manufacturers to wholesalers to solution providers, have further come together to develop updated GS1 guidelines on the use of GS1’s Electronic Product Code Information Services (EPCIS) for lot-level management and item-level traceability of pharmaceuticals. DSCSA is planned to be implemented over the next 10 years in three different phases while companies are transitioning their systems and preparing for the various requirements. Ten years is a considerable amount of time and some on the customer and patient side continue with frustrations as to the industry’s overall progress.

This is an industry that continues to demonstrate a general lack of common goal collaboration across an extended supply chain with conflicting stakeholder interests. Thus, the challenge of business transformation or faster momentum can continue to be bogged down.

A recent wave of high-profile, large global-scale mergers and acquisitions have further disrupted individual supply chains in areas of assimilating business and supply chain processes, procurement software systems technology and talent.

Geopolitical Forces

The new Trump Administration and the U.S. Congress have cited the pharmaceutical and drug industry in the context for both new healthcare care reform, excessive drug pricing and in current sourcing practices of drugs globally. In late January 2017, President Trump, at a meeting in the White House with a group of high-lever pharmaceutical drug company executives, indicated that he wanted more manufacturing to occur in the United States.

As noted in our other industry-specific predictions, if the U.S. Congress were to adopt business tax reform legislation that could impose a multi-industry import tax, pharmaceutical and drug companies importing raw compounds and medicines could be financially impacted. We therefore predict the need for a lot of product sourcing scenario planning and analysis in the coming months.

For all the above, we include pharmaceutical and drug supply chains in our 2017 Industry Unique prediction category.

 

This concludes our Supply Chain Matters series of ten 2017 Predictions for Industry and Global Supply Chains, predicting a year that promises to be:

  • Consumed by global uncertainty
  • Somewhat challenged in terms of supporting business top-line growth
  • Sure to place supply chain sourcing teams in constant scenario analysis and business advisor roles to senior management
  • Noticeably higher in the supply chain risk potential

Again, our goal is to provide clients and blog readers insights and helpful information in setting agendas and initiatives for the existing year. Throughout 2017, Supply Chain Matters will be publishing periodic updates related to each of our predictions.

Our full 44-page Research Advisor Report is now available for complimentary downloading in our Research Center. We do ask that you provide basic contact information as well as a valid email address and phone number. As a reminder, we do not sell or offer reader and contact information to any third-party.

If we can be of any assistance to your organization in the coming year, give us a call or email us at: info <at> supply-chain-matters <dot> com .

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


India Regulators Cite 200 Drug Makers for High Risk in Compliance Standards

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Here is some rather troubling news for pharmaceutical and life sciences supply chains.

FDA News and other India news outlets report that 200 drug manufacturers have been now cited by India’s national drug regulator for noncompliance and “high risk” for quality control lapses as part of an initial effort to crackdown on the country’s pharmaceutical sector.  At face value, that represents a troubling portion of domestic capacity.

According to the report, The Central Drugs Standard Control Organization joined forces with state regulators to inspect upwards of 135 drug production facilities across India. Regulators initiated these steps to follow U.S. Federal Drug Administration (FDA) enforcement model guidelines and to address what was described as rampart quality control problems in the country’s drug market.

Apparently, none of the cited drug makers have been publicly named.

A Times of India report published in June indicated that the 200 drug manufacturers were scheduled for risk-based inspections based on an analysis of regulatory data recorded over the prior 5 years.

Global based pharmaceutical and life sciences companies that are currently outsourcing API or drug manufacturing within India should obviously take notice of this development.


Continued Rant for Pharmaceutical and Drug Industry Supply Chains

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Supply Chain Matters has highlighted a number of supply risk and potential ingredient safety challenges impacting pharmaceutical and drug supply chains of life-critical medications and yet such challenges seem to persist, often in the same dimensions. A recent Bloomberg published article highlights the latest involving cancer-drug shortages with supply chain ingredients continuing to be sourced from banned Chinese producers. The open question is why the industry continues to foster such sourcing practices.

When we launched Supply Chain Matters back in 2008, one of our first series of commentaries concerned supply chain risk management, specifically the issue of the tainted pharmaceutical drug heparin that originated from Chinese based suppliers.  At the time, tainted batches of the prime API compound that produces heparin, a key life-saving drug utilized as a blood thinner, were found to later contain over sulfated chondroitin, an altered version of the required chondroitin sulfate.  Instead of sourcing this active API from designated pig intestines, the tainted API apparently came from shark cartilage.  This specific incident was directly attributed to the death of 80 persons and many others became seriously ill. Our 2008 commentary, Will FDA Inspectors in China Solve Product Safety Issues?, questioned whether regulatory agencies were ill equipped to keep up with the pace of global outsourcing of pharmaceutical compounds and specifically getting a handle on the increasing occurrence of counterfeit or non-conforming products.

In 2012, the pendulum shifted towards global-wide shortages of life-saving drugs due to a number of domestic and global-based API suppliers either unable to produce required quantities or having to temporarily suspend production operations because regulatory inspections citing lapses in good manufacturing practices. Agencies subsequently had to alert doctors and healthcare providers that in the light of severe shortages of hundreds of drugs, there were clear signs that unauthorized or counterfeit versions of these drugs had infiltrated global supply chains. The U.S. FDA alerted to the appearance of “non-FDA approved injectable cancer medications” and later, patients and drug companies were subjected to counterfeit versions of the drug Avastin, widely prescribed to treat brain, colon, lung and kidney cancers.  Swiss drug maker Roche, and its Genetech unit, the global producers of Avastin later indicated that counterfeit versions of its top-selling cancer drug, ones without any active ingredient, were being circulated in the U.S. Patients receiving this counterfeit version would thus not have received required therapy, or worse, could suffer potential harm.

The latest iteration outlined in a recent Bloomberg Businessweek article cites data from the National Academy of Medicine indicating that more than 80 percent of ingredients used in drug manufacturing are now produced externally, primarily in China and India.  Further cited is an incident where the U.S. FDA inspected a Chinese production facility in early 2015 and uncovered what was termed “broad data manipulation” resulting in a warning letter to plant owner Zhejiang Hisun Pharmaceutical. That subsequently led to an indefinite ban for this facility in September 2015, a first for one of China’s leading exporters of pharmaceuticals. However, according to this report: “…to avoid possible drug shortages, the regulatory agency allowed the Hisun facility to continue to export about 15 ingredients used for drugs produced in the U.S., including nine components of cancer medicines.” The report goes on to explain the delicate balancing act regulators currently face in insuring adequate supplies of life-saving drugs while de-facto transferring the burden of assuring safety and quality inspections to end-item drug manufacturers themselves. End-item drug producers are therefore asked to perform additional inbound testing, hire independent auditors or take other mitigative actions. Overall, Bloomberg indicates that the FDA has for the current year added 13 plants to its listing of banned plants, with a cumulative total of 52 classified banned plants.

We found that statistic to be staggering and alarming. Once more, we wonder aloud about the strategies that have led to increased outsourcing to lower-cost production regions, especially for drugs that are held to such high specification standards and currently sold for staggering margins in developed countries. One has to wonder aloud as to why.

According to the Bloomberg report, among the 15 API’s from the subject Hisun Taizhou plant that can be exported by exception, most are widely used for producing chemotherapy treatments for leukemia, breast and ovarian cancers. One would surmise that these drugs are expensive. A former FDA official who once was responsible for domestic and international investigations indicated to Bloomberg of his belief that not all U.S. companies are ensuring the safety of ingredients purchased from known banned factories.

Regulators such as the U.S. FDA are indeed placed in a rather difficult position in trying to assure that life-saving drugs remain in adequate supply in the light of an overall industry trend to source compound ingredients from lower-cost production regions. Critical drug shortages of expensive drugs lead to the creation and distribution of counterfeits which obviously adds to overall safety concerns.

Yes, drug markets serving China and India should come with government controls that require far lower costs to healthcare providers and patients. Drug companies continue to extract far higher end-item drug costs for distribution among highly developed countries and economies. Ingredient sourcing and quality conformance strategies should align.

The pharmaceutical and drug industry has often been in media headlines portrayed as profit-grubbing villains. In some cases, that may be underserved, since research, development and production costs for life-saving drugs are rather expensive.  However, when the industry continues to pursue supply chain sourcing strategies that are driven more by lower-cost and do not insure adequate safeguards, than they need to be called out. Armies of FDA inspectors chasing endless foreign producers are a Band-Aid to a broader challenge of supply chain sourcing.

Bob Ferrari

 


A Good Reference for Opportunities and Risks Regarding Supply Chain Activities Within Cuba

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In the first three months of 2016, media has been abuzz with the news that the United States elected to ease its business and trade relations with Cuba. The March visit to Cuba by President Barack Obama reflected a noted sea change in US-Cuban relations. Already, there are reports of pending new airline service, the opening of expanded tourism and the potential for new opportunities in supply chain and manufacturing sourcing.

Supply Chain Matters recently received notification from Knowledge@Wharton of a newly published E-Book, The Road to Cuba, The Opportunities and Risks for US Business, Revised and Updated Edition. This Editor had the opportunity to review this E-Book publication and we are passing along a reference for those multi-industry readers who may be thinking of Cuba as a potential for added business and supply chain activities.

The Wharton School authors point out in the document Forward:

While significant political and ideological differences still separate the two governments, Obama’s historic visit, the first to Cuba by a US head of state since Calvin Coolidge traveled there in 1928, is an opportunity to widen the space for unfettered communication, trade and business between the United States and Cuba, for the mutual benefit of their citizens.

Further noted:

Whether you run a US business, are an investor, or are interested in exploring the opportunities, you need to know what now can and cannot be done in Cuba amid the complexities that surround the constantly evolving negotiations and normalization process between the two countries. If you already do business in Cuba, you need to understand the competition that is on its way.”

We specifically reviewed two pertinent chapters: Longer-Term Prospects: Manufacturing/Retail, along with Longer Term Prospects: Pharmaceuticals/Biotechnology.

From the manufacturing lens, Cuba’s close proximity to large U.S. consumer markets indeed makes this country attractive as a production and assembly center for consumer goods that are exported to the U.S. Noted is the current establishment of the Mariel Special Development Zone at Mariel port just west of the city of Havana. This development zone, initiated in 2013, offers tax breaks and duty-free concessions is already the home of food and beverage processing, light industry assembly, vehicle assembly and alternative energy ventures. The report cites Cuban authorities as indicating that more than 400 companies including US firms have expressed interest the Muriel Zone.

In January, Unilever, which has been investing in Cuba since 1994, announced an intent to build a $35 million soap and toothpaste processing facility within the Muriel Zone. The consumer goods producer established a 60-40 joint venture with the Cuban state company Intersuchel SA as a means to expand its presence. There is also mention of Nestle’s production of soft drinks and mineral waters with a Cuban partner as well as AB In-Bev, whose Cerveceria Bucanero venture distributes beer to the local market.

Another promising opportunity is that of biotechnology and pharmaceuticals and the report indicates that pharma exports are big business for the island. This sector is noted as growing with sales made to emerging market economies in Latin America, Asia and Africa. The report notes:

Fidel Castro’s government pumped billions of dollars of domestic investment into the development of Cuba’s biotechnology industry, mostly based in Western Havana but with outlying clusters in other parts of the island.

Main products thus far have been developed vaccines for combating Group B meningococcal meningitis, hepatitis B along with PPG, cholesterol –lowering product developed from sugar cane.  Further noted is ongoing development of potential vaccines to combat HIV/AIDS, cholera, leptospirosis, dengue fever, hepatitis C and cancer.

Cuba also represents a market for U.S. medical and pharmaceutical exports.

The report includes noted words of caution: “The Door has Opened, But needs to Swing Wider.”

An important insight:

However, an early boom in interest by US companies and entrepreneurs to trade and invest in Cuba has yet to be fulfilled in terms of concrete business deals and opportunities. These are still being held back, both by the persisting economic embargo, which can only be completely lifted by Congress, and by the Cuban government’s own apparent reluctance to fully embrace liberalizing reforms that would open up the state-run economy.”

We interpreted that statement as indicating that more time and patience is required in order to fully evaluate or take advantage of investment and new business opportunities for the island. It has over a year since the U.S. government announced its intention to loosen restrictions, and the actual visit by the President, and perhaps, the next phases will come sooner rather than later. The current U.S. Presidential and Legislative election cycle, currently underway, has to run its course as-well.

The overall transportation and logistics infrastructure for the island further needs modernization as witness to existing vintage delivery vehicles.

However, after our review, we certainly sense lots of long-term potential from product export and import lenses, and especially from a pharmaceutical supply chain perspective. Check it out for yourself by clicking on this web link.

Bob Ferrari

 


A Tour of Healthcare Supply Chain Innovation in Action

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According to a 2015 survey of hospital executives commissioned by Cardinal Health, services reimbursement followed closely by the increasingly higher costs of supplies are two of the biggest challenges facing these executives. Financial issues, drug shortages and efficiency of the overall organization follow as major concerns.

One can notice a common theme among hospital executives that are often directly related to lack of supply chain efficiencies.

A 2015 white paper, 10 Barriers to Effective Inventory Management, points to the continued need for addressing barriers to effective supply chain and inventory management in hospital settings.  This is especially important in operating room or cardiac catheterization settings where medical devices are expensive and inventory management policies often stem from individual physician or surgeon relationships with individual device manufacturers. Cardinal’s white paper cites one report as indicating that supply chain inefficiency, waste and lack of visibility result in a $5 billion in inefficiencies each year in the implantable device market alone.

In operating room settings, surgeons, scrub technicians, resource nurses or operating room managers assume responsibility for maintaining relationships with manufacturers of implantable devices. They do so to insure access to the latest technology and patient safety innovations as well as surgeon preferences for certain devices. In emergency surgery situations, adequate inventory takes on an all-important life and death dimension, one that must be supported by accurate data related to demand incidence.

These complex relationships often extend to rendering orders and managing inventory. The result can often lead to lack of visibility of existing inventory in terms of expired, obsolete or recalled devices. There are also miscommunications and emotion among clinicians and hospital procurement professionals as to inventory exposure and cost. This is an area that has long been fertile for improvements in inventory management, particularly in advanced methods of item-level tracking.

As a major healthcare products distributor for hospitals and health care providers, Cardinal Health is working with hospitals in availability of more innovative inventory management practices in this area.

In November, this author had the opportunity to visit the Cardinal Health Healthcare Supply Chain Innovation Lab located in Concord Massachusetts.  This is essentially an R&D facility dedicated to reducing waste in the health care supply chain for implantable devices utilizing an Internet of Things (IoT) item-level technology approach. The lab serves as a hub to explore innovative technology approaches such as smart sensors and near-field communications (NFC) in addressing healthcare supply chain product demand and supply inefficiencies.

At the conclusion of the tour and a comprehensive briefing from Jean-Claude Saghbini, Cardinal Vice President and GM for Inventory Management Solutions, this author was impressed.

My impressions stemmed not only from the leveraging of advanced technology to challenging healthcare focused inventory management process needs, but in the notion that healthcare supply chains as a whole, and we as healthcare consumers, can greatly benefit from the application of such technology.

Cardinal’s approach to inventory management is described as product agnostic and can include devices not distributed by Cardinal.  The initial focus on medical, orthopedic and implantable device inventory is obvious, in that this inventory is expensive and as noted above, there has been a long history of process inefficiency. While surgeons strive to be up-to-date with the latest in medical technology, their concerns should not be inventory and supply chain management.  That is the purview of hospital administration.

We observed RFID enabled storage cabinets where inventory is RFID tagged by either suppliers or hospital teams. Storage cabinets constantly monitor item-level inventory including serialized devices.  An operating room nurse or physician removes an item from the cabinet and inventory status is immediately adjusted. Within the OR setting, a nurse scans a bar code affixed to the patient and the inventory transaction is  RFID SmartCabinets 250 167 A Tour of Healthcare Supply Chain Innovation in Action automatically updated to include association with a patient.  If the item withdrawn is not accompanied by a patient scan, an inventory alert is generated.

Cabinets monitor and report inventory balances at prescribed intervals and can automatically generate replenishment orders when inventories drop to prescribed levels. If one particular hospital does not have a particular implantable device on-hand, a quick search of other networked cabinets quickly indicates which nearby or healthcare network hospitals have the specific device. The process works similarly for consignment inventory placed adjacent to operating rooms, helping hospital administration to control premium inventory costs.

Analytics associated with this automated process that are available to hospital administrators include open and completed inventory withdrawals, device consumption patterns to calculate replenishment thresholds, inventory nearing shelf-life expiration, inventory subject to product recall, or data needed to ascertain opportunities for specific device standardization.   RFID tag 250 87 A Tour of Healthcare Supply Chain Innovation in Action

Physicians and care givers can also take advantage of embedded analytics in searching for specific devices implanted in patients by serial number, or in queries related to historic procedures, or proper item stocking levels based on actual consumption data.

The value-proposition of Cardinal’s approach is that technology allows care givers more opportunities to better concentrate on patient care and patient outcomes, removing the administrative burden of inventory management. Hospital administrators and procurement team’s in-turn gain valuable efficiencies and inventory knowledge to help in improving overall efficiencies.

This author remains convinced that healthcare product suppliers, product distributors, hospitals and caregivers must continue to come together to collaboratively address the chronic inefficiencies of today’s healthcare supply chains. The visit to Cardinal’s Healthcare Supply Chain Innovation Lab and the exchange of ideas with staff convinces me that today’s advanced supply chain item-level and IoT focused technology can and will provide significant strides in overcoming such inefficiencies.

As our blog nameplate connotes, supply chains do matter in many industry settings and in healthcare supply chains, the opportunities for increased efficiencies and process innovation are vast.

Bob Ferrari


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