Globalisation and supply chain security: the view from Interphex

The topic of supply chain security weaved its way throughout the programme at the annual Interphex pharmaceutical manufacturing exhibition in New York. A recurrent theme was the impact of globalisation on lengthening supply chains, particularly from suppliers of starting materials, to the pharmaceutical manufacturing facility.

In the current operating environment, “even the smallest company is a global player from day one,” said renowned venture capitalist Steven Burrill in a keynote address which predicted that the drug industry was in the throes of the biggest change ever encountered in its history.

Personalised medicine, where medicines target fewer, more targeted patient populations, will demand major change in manufacturing approaches and could render plants set up to make blockbuster medicines obsolete. And with the financial crisis restricting access to capital investment one solution will be to outsource manufacturing to contractors, particularly for smaller companies.

“It makes sense to let other companies make the capital investment in manufacturing facilities,” said Burrill, who believes that Big Pharma companies will eventually morph into horizontally-integrated, large-scale drug distributors, making best use of their scale and access to patients around the world.

But this shift to outsourced production and more complex supply chains could mean the risk of mislabelling, contamination or substitution of one substance for another is increasing.

Last year’s contamination scandal affecting heparin and several major public health incidents involving excipients in recent years – most recently a 2008 case in Nigeria which left more than 80 infants dead after contamination of a teething syrup product with diethylene glycol – have brought these risks into stark relief.

The issue of supply chain security was taken up at Interphex by an eminent panel of executives across the biopharmaceutical industry in a session on the future of biopharmaceutical manufacturing.

“Operating margins in the pharmaceutical sector have been historically high, but are declining fast,” said Michael Kowolenko, senior vice president of technical operations and product supply of the BioTech Operating Unit at US drugmaker Wyeth.

The reasons are well-established and often cited: losses in patent protection, restructuring of healthcare systems and cost-cutting efforts by healthcare payers, as well as a drop in the number of new products coming through pharmaceutical companies’ pipelines.

“That is creating a need for more efficiency in manufacturing,” said Kowolenko.

One consequence of that is an added emphasis on tightening up in-house manufacturing – the adoption of lean manufacturing practice and divestment of facilities for example – as well as increased use of outsourcing partners, according to Divakar Ramakrishnan, executive director of manufacturing, science and technology at Eli Lilly.

But events such as the heparin contamination tragedy have emphasised the importance of risk assessment, he said, adding that Lilly immediately undertook its own review of supply chain integrity in the wake of the scandal.

“You can’t just outsource and test for quality,” said Ramakrishnan. “A fundamental change in business practices is needed to provide confidence in internal quality systems and to ensure the reliability of suppliers.”

“It’s all about managing risk,” agreed Tim Moore, senior vice president, global supply chain, at Genentech. The risk-averse regulatory environment means that doing so adds cost, but saving a few dollars is not the answer, he stressed.

The heparin case – in which the contaminated material as sourced to a sub-supplier – raises the big question of how far you can go with overseeing suppliers.

Supplier agreements "under pressure"

That view was echoed at other times during the Interphex show. Brian Lange, director of quality engineering at Merck & Co’s West Point Quality Operations, told SecuringPharma.com that the relationship between suppliers and buyers is under pressure.

“Right now, supplier agreements that are typically in place for the purchase of components or raw materials are being stressed because of more stringent regulatory requirements,” he said.

The heparin case – which involved a supplier of a supplier – raises important questions about how far you can hold your suppliers accountable, said Lange.

Giving the example of sodium chloride, Lange said that Merck is a tiny customer for its main supplier – a fraction of a per cent of its overall sales.

“If you then say to your supplier ‘you need to certify for me the origins of that salt’ – down to the guy with the truck who digs it out of the ground – you can cause problems.”

“Often the problem is that the supplier is meeting the incoming specifications laid out in signed contracts, so to go back and open up existing supplier agreements to look further back in the chain is a difficult thing to do,” said Lange. “But its clear the expectation now is you should go back to the source.”

In addition to straining corporate relationships, that clearly adds cost, according to James Kimmel, director of engineering and maintenance at US biopharmaceutical company Cephalon.

As well as being pushed to look backwards down the supply chain, pharma companies are also being asked to look forwards at what is happening in the wholesalers, distributor and retail pharmacies in order to guard against the entry of counterfeits. “That’s a big cost issue too,” he said.

Meanwhile, the financial climate causes another set of problems for pharmaceutical companies trying to maintain supplies of key ingredients, according to Lange.

“It can take 14 months to qualify a supplier,” he said. “If a company has just three months’ supply of a component, the consequences can be huge if that supplier files Chapter 11 or shuts down product lines because they are not profitable anymore.”

That hypothetical scenario became a reality for many companies towards the end of last year. Worldwide shortages of acetonitrile, widely used in pharmaceutical manufacturing, came about as a result of decreased output of the chemical from China as production was shut down for the Olympics, as well as hurricane damage to a US factory in Texas.

The question is whether this fragility of supply could in itself raise the risk of substandard materials finding their way into the supply chain.

Lange does not believe so, saying it is likely that companies – at least in Big Pharma - are spending more time on risk-management approaches – such as those laid out in ICH Q9 and Q10 - than before to limit vulnerabilities in supply.

“I see a significant uptick in companies internally looking at business risks and managing them more closely than they have in the past.”