Cell & Gene Companies
April 12, 2024

Moving from Clinical to Commercial in Cell & Gene Therapies:  Supply Chain Considerations

By Joop Wijdeven, Tjarda Kasteel, MD, and Peter Martens

“Moving from clinical trials supply into commercial supply is just doing more of the same.”  That’s a statement we often hear when talking to potential clients or when visiting cell and gene conferences.  In some ways, especially for cell-based therapies, the statement is correct.  It is true that there is a significant amount of overlap in the physical aspects of clinical and commercial supply operations.  This especially applies when compared to “traditional” biopharma products, where (for example) packaging, distribution channels, and product volumes may be vastly different.

However, the “more of the same” statement is an oversimplification.  A clinical phase company will likely design its supply and treatment process in cooperation with several key clinical sites. Much of this experience will also be applied during commercialization, but on a larger scale. There are however key differences that a company must consider.  Focusing on cell-based therapies, this short article explores where and how a commercial supply chain can differ from a clinical one.

More Patients = Less Predictable Demand

In the commercial phase, the patient numbers for cell and gene therapies will obviously increase, though the rise will be less steep than it is for traditional biopharma products. However, the influx of patients will be less controlled than in a clinical trial.  The increase in patient volume may create challenges in securing sufficient manufacturing capacity.  In addition, demand will be less predictable, and we have seen cases in which development / clinical and commercial volumes were competing for scarce manufacturing capacity within an organization.

More Treatment Centers = Greater Logistical Challenges

The number of treatment centers also increases during the commercial stage.  In the clinical trial phase, biopharma companies are very selective in the number of sites to ensure optimal coordination and the quality of the trial. In the commercial setting, however, more treatment centers are required to fulfill the treatment need.

Of course, selecting the right treatment centers depends on their capabilities.  However, it also depends on their locations. New, sometimes more remote locations may create logistical challenges, especially for products with tight “vein-to-vein” lead-times.  Those challenges can become more acute if the supply chain depends on one or a few manufacturing sites.  Expansion may require upgrades to logistical capabilities, potentially including additional contracting and qualification efforts, sometimes even including test runs before initial commercial shipments.

As treatment centers cannot be in every geographical location, many patients will not have a treatment center close by.  In a clinical trial setting, patients are typically willing to travel for a potential lifesaving treatment and the biopharma company is willing to pay for it.  However, in the commercial setting, logistical and financial solutions must be found for patients that do not have a treatment center nearby.

There are several potential ways to address the challenge.  A company can choose to not have the cells travel from center to lab (bound to time restrictions), but to have the patient travel to a treatment center close by the lab, further away from home (or even abroad). This brings logistical and financial challenges that requires close collaboration between payor, biopharma company, and patient organizations.  Some companies have chosen for a “hub and spoke” set-up. In this case, the hub (the central treatment center) has close collaboration with more local centers that can perform apheresis, so the patient does not have to travel for every step of the treatment. All the above needs to be considered when planning and selecting potential treatment centers in the commercial setting.

Additional treatment centers also mean expanding onboarding, qualification, and training efforts. Another aspect is that, while clinical trial centers often are quite willing to follow sponsor procedures, this may be different in the commercial setting.  Biopharma companies mostly develop their own onboarding, qualification, and training programs, and have specific preparation and treatment procedures.  Hospitals, on the other hand, will want to establish a standard process as much as possible and are likely to push back. 

Also, onboarding and training processes can be cumbersome and take up valuable time depending on the approach.  This may vary from digital training to on-site training to a biopharma company staff member being present to support each treatment. We see hospitals expressing the need for simplification and standardization as the experience and number of different treatments grows.

More Complex Patient Engagement and Consent Processes

Processes and procedures for patient engagement and consent, patient and product journey, and related data management flows are different in the clinical and commercial phases. This means that new processes and procedures need to be established.  An example of this is the set-up of Chain of Custody and Chain of Identity management procedures.

Whereas these processes the clinical trial setting can often be handled in a manual or semi-manual manner, in the commercial phase with higher patient and treatment center numbers, a more robust set-up is needed. This may trigger expanding the use of IT tools.  In addition to working with an IT solutions provider, this requires implementation, training, and operational support efforts with multiple stakeholders (internal, hospitals, contract manufacturers and packagers, logistics service providers). Again, hospitals may push back to use yet another therapy-specific solution.

More Complex Labeling Requirements

We already mentioned how larger and less predictable volumes can create challenges in manufacturing and logistics, as well as increasing lead times. Another attention point relates to the labeling requirements for commercial product, especially with regards to variable data elements (e.g., patient identifiers), which are more extensive than for traditional biopharma products.  They are also more extensive for commercial vs. clinical packs. This requires a robust data exchange with the packaging site and well-designed data management processes.

More Complex Order-to-Cash Processes

Finally, a main difference between clinical and commercial supply chains is the payment process, also referred to as the order-to-cash process. For traditional biopharma products the commercial set-up is relatively straightforward with an invoice that corresponds to the amount of product shipped. For cell therapy products, this may be more complicated due to variations in product amounts and the number of treatments, as well as the increasing focus on pay-for-performance and complicated confidential pricing agreements.  All this means that the invoice and payment often cannot be directly linked to order shipments. This gets even more complicated when cross-border treatments come into play.

Thinking Ahead

In conclusion, there are a number of attention points when preparing the commercial supply chain for a cell-based product. Some of the elements related to those points are determined when setting up the supply chain for a pivotal clinical trial.  Our recommendation is to start design work early, probably at the end of phase 1 clinical trials.  It’s essential to think through the various challenges that will be specific to your therapy when it reaches the commercial stage and formulate solutions proactively.

As 2024 progresses, AIM will be publishing more information and resources related to supply chains for cell and gene therapies, so be sure to follow AIM’s LinkedIn page to stay up to date.  To discuss the contents of this article, or to inquire about how AIM can help you design and develop the optimum supply chain for a cell-based therapy, contact Joop Wijdeven at joop.wijdeven@aimconnection.eu.

November 20, 2023

Adding (Ultra-) Rare Disease Products to Your Company’s Portfolio: It’s a Whole New “Ball Game” (Part 2)

By Rolf Wildeman, Ronald van Zitteren, and Joop Wijdeven

In part 1 of this series, we described some of the special supply chain challenges that can apply to rare disease (RD) therapies.  Now, we turn our attention to some solutions.

Below, we outline a multi-step process that we’ve evolved over the course of more than 75 RD supply chain development engagements.  This process is intended to help decision-makers identify and address the critical aspects of supply chain development. It’s important to remember that in this article, we can only offer a general overview, as every product has its own unique characteristics and needs that must be addressed individually.

Typical Steps, Activities, and Deliverables

Step 1 – Achieve Strategic Alignment

Senior corporate and functional leaders must be aligned on how important RD therapies will be to the company, how much latitude is allowed in development of solutions, and how scalable the solutions need to be. For example, will supply chain capabilities only be used for one RD product or does the company anticipate a growing portfolio of RD assets?

Step 2 – Conduct initial data gathering

Building an effective supply chain will require

  • Forming a cross-functional project team
  • Defining a project charter
  • Setting up a governance structure

These things cannot happen in a vacuum, so some basic information is needed before doing so. To start, it’s important to conduct an analysis to understand the company’s existing commercial distribution network, the capabilities and performance of that network, and the new product’s characteristics and requirements. One aspect that we sometimes encounter is the “me-too” approach when robust competition is present in the market. No company wants to offer services that are viewed as inferior to the competition, so the presence of competitors may necessitate the addition of specific services, which can drive increased costs. The initial data gathering phase will uncover these types of situations and provide a solid foundation of knowledge on which to build.

Step 3 – Gather specialized information from key multidisciplinary SMEs

Going a level deeper, it’s important to gather input relevant to the supply chain from various subject matter experts who work in a range of functions across the company.  These include Sales and Marketing, Medical Affairs, Supply Chain, Commercial Distribution, Logistics, Quality Assurance, Regulatory Affairs, Finance / Tax, IT, and others. AIM leverages function-specific questionnaires to help facilitate this part of the process. Besides the collection of relevant and necessary information, this activity also serves as a signal to the wider organization that the specific commercial distribution needs of the new RD product(s) are being investigated, thereby supporting awareness-building and helping pave the way for the change management initiative that may be needed when a solution is implemented.

Step 4 – Analyze RD product commercial distribution requirements

Using the information gathered in the steps above, the project team must create a specific commercial distribution profile for the new RD product, bringing together relevant aspects from all sides of the business. The goal is to achieve a 360-degree view of the patient, the product, and the elements needed to bring them together in the most efficient and effective way.

At this point, it’s also important to ensure that any potential benefits and requirements of a possible “orphan drug” regulatory status are covered, as they may influence the set-up of the (downstream) supply chain and the commercial distribution network. The key deliverable from this step is a distribution profile that is shared with leadership and approved for use in subsequent steps. It helps clarify what the new therapy will need to succeed from a commercial distribution standpoint and paints an initial picture of the optimal supply / distribution network.

Step 5 – Analyze capabilities of existing commercial distribution solutions (including vendors)

With all relevant information about the existing network and the new RD therapy now available, this step basically involves a fit-gap analysis to highlight the differences between the status quo and the desired commercial distribution infrastructure.  This analysis is another deliverable, which paints a clearer picture of what the company must do to get to the desired state.  

Step 6 – Create high level solution options

During this step, it’s time to define the solution options. This can include using all or part of the existing commercial distribution network combined with actions to close the identified gaps. Or, it can involve setting up a new commercial distribution network. For each potential option, project leaders must build a high-level implementation and operational impact overview. Each overview will address areas such as project cost, required resources, capabilities and processes, the order-to-cash solution, and so on. Overviews should also outline the expected product physical, title, and financial flows, and summarize the required commercial and GMP/GDP license landscape. AIM employs benchmark data during this part of the process to help inform development of the overviews. These overviews provide leaders with a deeper understanding of each potential solution and help facilitate subsequent decision-making.

Step 7 – Prepare and present the recommended solution

In this step the project team will

  • Select the preferred option
  • Create a high-level road map with timelines and milestones for implementation
  • Outline the next steps to be taken

Once approved by leadership, the implementation phase can begin.

Some Thoughts on Typical Outcomes

In our experience, the company’s existing distribution network can meet the requirements of the new RD products in about 50% of cases, though small adjustments may be needed. The other 50% of the time, all-new or partially-new solutions are necessary to enable successful commercial distribution of the new products.

Most often, some form of change management initiative and clearly-voiced senior management support is necessary to achieve success. The need for—and scope of—this effort will be influenced by the organizational set-up of the company (e.g., product franchise versus country organizations, allocation of P&L responsibilities, etc.).

Common Pitfalls and Key Takeaways

Common pitfalls include the following:

  • Failing to sufficiently investigate whether the existing commercial distribution solutions can meet the requirements of the new RD products.
  • Investigating the fit referenced above too late, resulting in launch delays.
  • Failing to provide enough senior management backing and operational support to the team responsible for the new products, resulting in sub-optimal solutions and/or implementation results.
  • Underestimating the commercial potential of “small products” and the importance of right-fit solutions for their commercial success, even if this may take longer to be achieved.

To summarize, below are a few key takeaways:

  • Rare disease products often have specific commercial distribution requirements, which usually differ from existing products and thus require a level of operational change (and change management) to support their commercial success.
  • A timely and thorough review by an objective and experienced (external) expert will help ensure that decisions will be based on complete sets of facts covering all relevant aspects and not on assumptions or pre-defined / political positions that have not been challenged.
  • Acquisition or internal development of RD products is resource-intensive, therefore these new products deserve fitting and optimal solutions to support their commercial and medical success.

The launch of these complex products can indeed represent a “new ball game” for a biopharma company that has a pre-existing portfolio of more traditional therapies.  If your company is considering such a strategic move, then AIM is here to help.  To connect with our team, feel free to contact us via our website or direct an email to info@aimconnection.eu.

November 16, 2023

Adding (Ultra-) Rare Disease Products to Your Company’s Portfolio: It’s a Whole New “Ball Game” (Part 1)

By Rolf Wildeman, Ronald van Zitteren, and Joop Wijdeven

Many advanced pharmaceutical and biotech companies are moving into (ultra-) rare disease markets. High levels of unmet need are translating into steadily growing R&D expenditures and increasing revenues in rare diseases (RDs), so interest is not expected to wane any time soon.

Figure 1 – Key figures on the European Medicines Agency’s (EMA) recommendations for the authorisation of new medicines in 2022; Source: EMA report, Human Medicines Highlights 2022, page 1, published 2023.

Additionally, one-product RD companies are increasingly partnering with—or are acquisition targets for—midsize and larger pharmaceutical companies, who are interested in expanding their portfolios into markets with smaller patient populations. The increased focus on this space is all good news, especially for patients who suffer from RDs.  However, there is a potential catch when it comes to the commercial distribution of these new products.

In this short article (part 1 in a 2-part series), we describe the special challenges associated with distributing RD products.  Next week, in part 2, we will outline the key steps and deliverables for developing and implementing supply chains for RD therapies.  In addition, we will summarize some of the pitfalls that biopharma companies must avoid when working to establish reliable supply chains in rare diseases.

What’s the Catch?

Globally, biopharmaceutical supply chains and commercial distribution processes have generally been designed to meet the requirements of medium- to high-volume products for larger patient populations, with (relatively speaking) medium to low prices and requiring standard conditions for their storage, handling, and distribution. This typically involves maintaining temperatures of 2-8 °C or 15-25 °C, the use of conditioned trucks and/or (more than) pallet-sized active or passive cooling solutions, and handling systems targeted towards volume rather than value.

When it comes to RD products, however, the characteristics and requirements can be far from what most would consider normal. They often involve:

  • Low volumes for low numbers of patients
  • High values
  • Highly specific—and often challenging—requirements for storage, handling, and distribution, often with (temperature excursion) specifications that are much “tighter” than traditional norms
  • Special requirements when it comes to Patient Support and/or Home Care Services, customer training and certifications, etc. 

In addition, dosage forms may be non-standard, and prescription, treatment and reimbursement processes may require specific or additional steps to be taken. Besides all that, the distribution channels for RD products are generally more focused on Direct-to-Hospital, Direct-to-Pharmacy, and Direct-to-Patient models (the latter sometimes in combination with Home Care solutions and/or Patient Support Services necessary for providing the treatment). A consequence of using these channels is that sufficient access to “local languages” in the selected customer service model is often of key importance, as professional command of the language considered to be “international” (English) at the customer side is not always a given.

The combination of distribution characteristics and channel choices typically leads to limited (or no) stocks being held in the channels or being present at the point of use. The amount of working capital locked up, the high storage cost, the risk of shelf life expiry, and high potential write-off costs are the main drivers of keeping such limited stocks. This makes it much more challenging for companies to meet target delivery performance levels and to achieve reliable fulfillment without the implementation of RD-focused solutions.

While the above list of challenges is not exhaustive, it does show that adding RD products to a company’s existing portfolio can be a very complicated endeavor.  For any given product, it requires an in-depth assessment and analysis to determine the “best fitting” supply chain distribution model.

Coming Next

To date, AIM has helped more than 75 companies design and build supply chain and operations infrastructures for RD products.  By using the insights gained from those experiences, we’ve evolved a multi-step process to help decision-makers identify and address the critical aspects of supply chain development for therapies with such unique and/or specialized requirements.  In part 2, we provide a high-level description of the key steps, activities, and deliverables in this process.

September 25, 2023

Ensuring a Reliable Biopharmaceutical Supply in the EU, Part 3: “Downstream” Strategies for Dealing with Complexity

By Peter Martens, Sander Smit, and Ronald van Zitteren

A range of factors are boosting the complexity of biopharmaceutical supply chains and making it increasingly difficult for manufacturers to maintain a steady, reliable supply of therapies.  Over the past couple of months, we’ve been publishing this series of articles to explore the situation and hopefully to provide some guidance that manufacturers can use to overcome their supply chain challenges.

In part 1, we introduced the economic and regulatory factors that are driving the current challenging supply chain environment.  In part 2, we began to explore potential solutions, focusing on “upstream” supply chain strategies that manufacturers can potentially use to manage complexity.  Upstream strategies are those that relate to the manufacturing and packaging steps in the value chain.

In this third and final installment, we discuss some high-level “downstream” strategies.  Here, “downstream” refers to all that happens with a packed and labeled product until delivery at the point of dispense. The strategies we outline below do not comprise an exhaustive list.  However, they do provide a solid starting point for enhancing supply chain security while also helping to mitigate costs and risks.

Supply Chain Distribution Strategy

One key factor to investigate early in the supply chain design process is the customer channel that’s to be served and the matching distribution model.  As with many things, this involves a tradeoff between control and complexity.

For example, if a product will be dispensed through the retail channel, then the company will be faced with a very widespread customer base that will likely order in small quantities or even single units. Depending on the prevalence of the indication and the price point of the product, retail pharmacies may or may not hold any stock of the product. That said, it’s likely that retail stocks will be relatively low and thus that particular customer channel will require frequent, fast, low-quantity shipments.

This creates a lot of complexity from a customer approval and order-to-cash point of view. A manufacturer launching its product across Europe will have to review, approve, and set up many thousands of retail customers which can put a strain on the company’s resources during launch. At the back end, the accounts receivable (AR) processes for all these small orders will be quite resource-intensive.

One strategy that a company could consider is the use of wholesalers. Aside from having the “right to be supplied” in some markets, wholesalers are typically very strong in the retail channel. They can offer a high service level, potentially delivering multiple times per day. For the manufacturer, this would limit the number of customers to be approved. Plus, wholesalers typically order in higher quantities, thus reducing the total number of transactions that the biopharma company must manage.

One potential downside of this strategy is that a manufacturer will likely have to contract with the wholesaler to get the in-market sales data for its product (something they would have direct line of sight to in the case of a direct sale to an end customer). As with any trade off, contracting one or multiple wholesalers by market will also take considerable resources from a company.

So how does this translate into a distribution strategy? Well, if a company’s customer base is limited to a handful in each market that would order infrequently (for example every two weeks) in larger quantities, then it may make more sense to have one central stock point in Europe. Within 48 to 72 hours, the company should be able to fulfill wholesaler demand across most of Europe which, considering wholesalers typically hold stock, should be acceptable.

But what if a company’s product is dispensed via a hospital channel and it may need to serve a thousand customers across Europe? In this case, it might be better to hold stock in several key markets or even in each market.  Hospitals will typically ask for delivery within 24 to 48 hours, which may be achievable from a central location.  However, that may not be the most cost-effective way nor give the company the optimum level of control from a temperature requirements perspective.

Another perspective involves parallel trade.  Selling in bulk to another actor in the supply chain will increase the chance that this actor may decide to distribute the product in another market. As we described in part 1, this makes demand more unpredictable and therefore increases a company’s supply risk. Selling direct to an end customer, hospital, or retail pharmacy may offer a company a better understanding of the in-market demand and enable it to spot demand anomalies earlier on so it can more quickly adjust supply to match.

Supply Management by Quota Allocation

When managing supply, it is imperative to limit volatility as much as possible. One way to achieve this could be to install a stock allocation system (also referred to as sales quotas). Stock allocation systems are designed to ensure that customers receive enough product to meet their actual demand without introducing volatility that can make supply chain management more difficult. For example, some customers may over-order by a large margin to “stock up” on a product before an announced price increase takes effect.  This can end up diverting too much product to those customers and cause supply shortages in other markets due to the inherent scarcity of product supply.  A stock allocation system is designed to control this.  

Cross-border trade, driven by different pricing across markets and/or exchange rate fluctuations, can also drive volatility in the supply chain. This is a legal practice, but it can be challenging for manufacturers to manage. Stock allocation systems may be able to help.

As part of Good Distribution Practices (GDP), wholesale distributors–which can refer to anyone holding a Wholesale Distribution Authorization (WDA)–must ensure that a sufficient amount of product reaches the customers within a satisfactory time-period. One way to achieve this is to truly understand the patient-driven demand, exclude inventory stocking effects, and be able to recognize any other abnormalities. This doesn’t come for free though, and it requires an Integrated Business Planning approach to align teams within the business. These typically include Finance, Supply Chain, Marketing, and other operational departments.

It is sometimes argued that stock allocation systems are a root cause of supply availability issues. While we do not agree with this statement, we do acknowledge that it is essential for each pharmaceutical company to be able to ensure supply in all cases, and especially in medical emergencies. For that reason, various safety nets should be implemented.

Some of these safety nets can include:

  • Maintaining safety stocks in various strategic locations or dedicated emergency stocks, especially for critical medications – Sometimes, these emergency stocks are legally required
  • Using late-stage customization to enable rapid response to shortages – For example, this could include adding final labels at the latest possible stage so that stocks originally intended for one market can be easily diverted to other market(s) that are experiencing shortages
  • Building safety margins into the stock allocation quotas mentioned above

These safety nets are typically implemented in collaboration between the manufacturers, their third-party logistics service providers, and local wholesalers or distributors. Even though the EU is one jurisdiction, local or country-specific regulations are common, and it takes time and effort to implement this properly in all member states.

Product Life Cycle Management

The topic of product life cycle management can be looked at from an upstream as well as a downstream perspective. For example, a company will often need to closely manage a product’s SKU mix throughout its life cycle, which requires—and can help facilitate—a strong understanding of demand patterns and trends. There will often be competing factors for managers to consider, as medical and commercial personnel will typically argue for more SKUs (to make things more convenient for prescribers and patients) while supply chain leaders are usually seeking to minimize SKU’s (to reduce complexity). 

As a product moves through its life cycle, the optimum balance can shift from one side of the scale to the other. A common—but not universal—pattern can involve fewer available SKUs as a therapy comes on the market, followed by a proliferation of SKUs as it matures, and finally a contraction in available SKUs as it nears the end of its life cycle. It’s important to remember that every product has its own market situation and requirements, though.

The following illustrates some of the factors that decision-makers must juggle when optimizing the number of SKUs. Consider a medication that requires a gradual buildup in dosing for the patient’s body to get used to it. A company has a few options regarding SKUs. It could:

  • Offer small “starter” packs that get a patient started on therapy, then transition them to the regular dosage form afterward.
  • Create one—or multiple—strengths that make it convenient for patients to “double up” and increase their dose appropriately.
  • Introduce a titration pack with multiple strengths to support the process for the patient

It’s easy to imagine that each option could have its own effects on demand fluctuations between SKUs as the market matures.

One potential challenge with introducing multiple strengths in a market may be that—depending on a company’s pricing strategy—some cannibalization can occur. For example, patients may be instructed to double up on a lower dose versus transferring to a higher dose. This can make it difficult to predict the demand for the lower dose vs. the higher dose. In this case, the result could be over-supply and ultimately wasted product in the higher dose form. Similar situations can occur when a higher dose has a different indication approved or vice versa if a lower dose, for example, has been approved for pediatric use.

Minimizing the number of available SKUs will lead to higher demand (and higher inventories) on a per-SKU basis. Consequently, that lowers complexity and reduces the risk of stock-outs. However, one should be careful to ensure that medical compliance remains possible with the SKUs available. In addition, there can be commercial reasons to broaden the SKU portfolio, such as a pediatric SKU to increase the intellectual property rights by 6 months via the Supplementary Protection Certificate (SPC).

In any case, decisions around SKUs should be endorsed cross-functionally with a pivotal role for Supply Chain in connecting the dots. Throughout the product life cycle, it makes sense for supply chain leaders to coordinate with their commercial and medical colleagues to understand what’s happening in the market and act accordingly. They should revisit the topic of SKU rationalization on a regular basis to ensure the most appropriate combination is available on the market.

Remaining Shelf Life

One trend that we observe is that remaining shelf-life requirements are increasing.  Remaining shelf life requirements dictate the minimum time required between the delivery and expiration date, normally described in months or as a percentage of the product’s maximum shelf life.  Although it makes sense on an individual level to aim for the highest possible overall shelf life, it is counterproductive on a macro level, as it could lead to premature scrapping of perfectly good product.

Another issue is that the industry typically uses planning systems that cannot distinguish between the various customer types.  For example, a patient that needs an urgent product for treatment tomorrow has different shelf-life needs than a large distributor that is serving many different individual countries over the next few months.

There are various technical mitigations in place that are too detailed for this short document, but one obvious mitigation, which is sometimes overlooked, is to negotiate lower required remaining shelf-life once the need arises (for example, in situations of unexpected supply shortages due to unforeseen issues). This calls for good coordination between the supply chain team, commercial leaders, the purchasing customers, and often local Health Authorities.

Final Take-Aways

As we conclude this 3-part series on building reliable and affordable supply chains in the EU, several key takeaways are worth emphasizing:

  • When seeking opportunities to manage complexity and risk—and control costs—be sure to consider all components of the supply chain, both upstream and downstream.  It’s very likely that a combination of strategies across the full spectrum will be the key to success.
  • To work well, the strategies that a company uses must fit with the product’s profile, market requirements, and pricing, as well as the company’s level of maturity and capacity for implementing them.
  • Be flexible and willing to shift from one strategy to another as new insights are gathered and as the product moves through life cycle periods.
  • Determining the optimum level of control for your company is critical.  A virtual manufacturing and supply chain may limit options on the one hand but can also offer opportunities on the other.
  • Maintain a solid data infrastructure.  To maintain a secure and reliable supply, ongoing and sound data analysis—combined with agility in leveraging the data to make decisions—is key.

AIM will continue to develop information and resources useful to biopharma supply chain professionals.  Check our LinkedIn page or the Insights section of our website to see our latest publications.

Note: To connect with AIM to discuss strategic and operational issues related to biopharma supply chains, please click here.

September 5, 2023

Ensuring a Reliable Biopharmaceutical Supply in the EU, Part 2: “Upstream” Strategies for Dealing with Complexity

By Peter Martens, Sander Smit, and Ronald van Zitteren

Ensuring a safe and reliable supply of needed therapies is critically important, but the rising cost and complexity of managing supply chains in Europe has biopharma companies straining to handle the pressure.  In part 1 of this 3-part series, we introduced the economic and regulatory factors that are driving the situation.

The major economic factors include Europe’s aging population, rising healthcare costs, and the impacts of parallel distribution.  The regulatory factors include the EU Falsified Medicines Directive, growing requirements regarding out-of-stock (OOS) reporting, the increasing mandatory application of digital ordering, and various green policies.

These factors combined push up inventory levels and increase supply chain complexity while also requiring biopharma companies to invest more in tracking and reporting technologies, Sales and Operations Planning (S&OP) / Integrated Business Planning (IBP) processes, and additional supply chain infrastructure components.  As a result, biopharma companies face rising costs and eroding profit margins. These factors also create additional barriers to potential new entrants.

The remainder of this series will outline some strategies that biopharma companies can use to manage this complexity.  Part 2 focuses on “upstream” supply chain strategies while part 3 will focus on “downstream” strategies.  For our purposes here, “upstream” refers to the manufacturing and packaging steps in the value chain, while “downstream” refers to all that happens when transferring a packaged and labeled product to the point of dispensing it to a patient.

In this paper, we discuss a range of potential upstream strategies.  This list is not intended to be fully comprehensive. However, we think it represents a robust range of ideas for helping mitigate complexity, cost, and risk.

Manufacturing Strategies

To Outsource…or Not?

A company must plan its approaches to manufacturing and packaging—as well as risk mitigation in those areas—very early.  This is true regardless of whether the company plans to manufacture in-house or rely on outsourcing.  Obviously, creating in-house manufacturing is a time-consuming, complex, and lengthy process.  However, the same is true for outsourcing.  Identifying, evaluating, selecting, contracting, qualifying, and ramping up a contract manufacturing organization (CMO) takes a lot of time and effort. 

Moreover, once choices are made, they will be essentially fixed for a number of years.  Manufacturing and packaging steps must be included in the regulatory dossier submission process, and making changes can result in dossier approval delays, launch delays, or supply issues after launch.

Determining what to keep in-house vs. external is not always easy to do.  Such decisions require leaders to explore capabilities, conduct analyses, build business cases, and shepherd their decisions through vetting with executive leaders and even the Board of Directors in some cases.

Building in-house capabilities requires high up-front investments and potentially involves a long learning curve, but it allows the company to keep control over its technology / intellectual property and the manufacturing capacity of the asset.  Outsourcing can offer more flexibility, faster ramp-up, and a lower financial burden, but it makes the company fully dependent on its external vendor(s).  It also requires intensive and ongoing vendor management once things are up and running. 

Single-Sourcing vs. Multi-Sourcing

Apart from the outsourcing question, the next question is whether to use single sourcing or dual (or even triple) sourcing approaches.  Single sourcing, although the “leanest” and easiest to set up, also means a single potential point of failure with limited opportunities for back-up.

On the other hand, it’s more likely to afford the company better volume leverage, a faster learning curve, and the chance to build better partnerships. Dual/multiple sourcing allows for better risk mitigation, cost negotiation leverage, and higher available capacity for demand surges.

The Need for Understanding Risk and Business Continuity Planning

When planning for manufacturing and packaging, leaders must make well-informed decisions, with a strong understanding of the potential implications of their choices.  It’s always advisable to perform a thorough risk assessment, weighing in on best and worst case scenarios.  Ultimately, any decisions should be backed up with a strong business continuity plan (BCP).

A good BCP should allow a manufacturer to understand and manage risk across the full manufacturing and packaging chain at any time. BCPs might include elements such as capacity reservation, inventory policies, dual sourcing, options to extend capacity (e.g. by increasing production shift hours), set up of back-up vessels, mixers, lines, etc., and also well-informed location choices (e.g. one CMO in Europe and one in the US).

Finally, for Europe, the Manufacturing & Importation Authorization (MIA) strategy must be well thought through. This is essential to fulfilling GMP requirements. A MIA can be obtained by biopharma companies but can also be outsourced (which is often the case with start-up companies) to a CMO. Outsourcing, however, limits the ability to change if a second  source is sought and also increases the dependency on the CMO.

De-Bottlenecking Strategies

Another method for ensuring a secure supply is to address bottlenecks in the process. Here, we highlight three ways to “de-bottleneck” upstream:

  1. Decoupling manufacturing from packaging
  2. Applying a kind of “takt time” concept
  3. Optimizing batch-sizes for packaging runs
Decoupling Manufacturing from Packaging

When we refer to “decoupling manufacturing from packaging,” we basically mean two things:

  1. Having different entities or work centers manufacturing active pharmaceutical ingredients (API) and/or bulk drug product (DP)—whether in-house or via a C(D)MO—vs. performing labeling, packaging, and serialization operations
  2. Splitting the manufacturing step from the packaging step; For example, a company may produce tablets in bulk and then store them in inventory before placing them in bottles or blister packs followed by packaging them in cartons and applying labeling and serialization, which would make them country-specific.

API and bulk DP manufacturing processes are heavily governed by GMP, often involving long lead times and resulting in batches that bring fairly long forward demand coverage. Process hiccups are somewhat common, resulting in deviations and delays, hence schedule adherence is always a big challenge.

Labeling, packaging, and serialization are not as strictly governed by GMP, more distinct, and organized per stock keeping unit (SKU).  They can be planned on short notice and—once set up—are easily repeatable.  Unlike DP and manufacturing, they don’t typically come with many deviations and corrective and preventive actions (CAPAs).  This allows for more agility and can result in specific and smaller batches for certain markets or groups of markets. Furthermore, rework is fairly easy to organize.  Ideally, packaging runs are automated, but rework can be set up semi-automated or even fully manual.

Hence, this final step in the manufacturing process is where a company can gain flexibility for reacting to changing market dynamics.  Of course, that assumes that the prior steps resulted in sufficient stocks of base material (in particular API and DP bulk stocks).

Applying a “Takt Time” Concept

The “takt time” concept basically sets the pace and rhythm of a manufacturing process and aligns it with customer demand. As a metric, it represents the amount of time “budgeted” to manufacture each part—in this case an SKU—such as producing one part every x seconds. It is typically applied in discrete manufacturing environments, of which drug packaging is an example.

A company can “tune” its packaging operation to market demand by (for example) creating a concept much like a bus schedule.  This involves mapping distinct SKUs across the available scheduling hours per packaging line, with regular timeslots that can be used, reserved, or remain flexible.  A key condition for success is to have a sufficient inventory of packaging components at all times. That’s a fairly low-cost investment, and ordering lead times for packaging components are relatively short (typically 4-6 weeks). 

Optimizing Batch Size

Optimizing the batch size for packaging runs can be achieved, for example, by combining smaller volume SKUs with larger volume SKUs, based on market forecast. This means that multi-market packs need to be created, which is allowed within the regulatory frameworks. A key element to watch is the available space on the artwork components, which is not unlimited.  There must be room to fit all the required languages or pictogram components as well as to fulfill serialization requirements.

Strengthen (or Develop) S&OP / IBP

An essential enabler to recognizing and mitigating potential supply chain challenges, especially in the mid- to long-term, is to have some form of a Sales and Operations Planning (S&OP) process in place.  In its most mature form, which few companies actually achieve, such a process is referred to as Integrated Business Planning (IBP).

Even though the process is not always liked—typically because it requires a significant level of commitment across functions—it can be key to driving the right executive, tactical, and operational decisions to prevent situations with short supply, whether due to unexpected high demand, manufacturing or distribution issues, or other unexpected disruptions.

Proper S&OP / IBP identifies upside / best case scenarios and downside / worst case scenarios and evaluates their likely respective impacts on the organization, supply chain, and so on.  Via a cross-functional process, planners document the desired expectations and outcomes, then develop action plans (complete with supporting business cases) for achieving their goals. 

This type of cross-functional planning provides a forcing function that drives leaders to think through possible scenarios ahead of time, be proactive about how to deal with them, stay focused on generating the desired results, and be more conscious of the trade-off decisions required.  It integrates perspectives related to product development, regulatory needs, commercial issues, technical operations, supply chain needs, and finance. 

In simple words, “to govern is to predict.” S&OP / IBP builds in preparation time, helping the organization to be proactive and ready to act, rather than reactive and always trying to play “catch-up.”

SKU Clustering and Artwork Exemptions

There are various packaging and SKU-related measures that could be used to ensure a more reliable supply.  A quite common approach is to create a single package design that can be used in multiple countries, thus reducing the total number of independent SKUs that the company must manage.  For example, one larger country could be combined with typically one or two smaller countries to ensure supply in each of the markets.

However, that solution might not be as simple as it seems, as there could be differing serialization, distribution, blue box, and other constraints that make it difficult to create packaging that satisfies the requirements of multiple countries.  A thorough analysis is needed to identify the best opportunities for clustering and working out the details.  Having the right combination of countries clustered will help to level out demand fluctuations in different markets.  As we will explore in part 3, it is essential to keep stock in the right places to ensure the company’s ability to leverage SKU clusters as much as possible.

Another strategy that can help limit the number of SKUs or increase cluster size could be to request exemptions to the labeling and package leaflet obligations based on Directive 2001/83/EC article 63.  Although there are limited formal regulations to fall back on, companies may request translation exemptions or ask to omit part of the information on the artwork.

For example, an English or German language package could be made available in the Czech Republic, provided the relevant authorities approve and certain local measures are taken to safeguard the safety of the product.  This may involve providing the package leaflet in the local language separately.  Especially in early access, ultra-low prevalence, or unforeseen stock-out situations, this could be a feasible solution to ensure supply.

A manufacturer should do the necessary work to understand its opportunities for clustering and for exemptions.  It should then develop a clear plan of action and request exemptions in a timely manner.  Both strategies can help reduce SKUs and complexity while serving to proactively smooth out supply issues.

Coming Next

In part 3, we will explore “downstream” strategies.  Specifically, we will offer some perspectives on topics such as

  • Active SKU management
  • Product life cycle management
  • The potential to apply direct delivery models
  • The introduction and management of supply allocation models

That’s a relatively extensive list.  The key to success for any company will likely be finding the right combination of upstream and downstream strategies.

Note: To connect with AIM to discuss strategic and operational issues related to biopharma supply chains, please click here.

June 19, 2023

Ensuring a Reliable Biopharmaceutical Supply in the EU, Part 1: Understanding the Challenge

By Peter Martens, Sander Smit, and Ronald van Zitteren

When a patient receives a prescription from his or her doctor, the expectation is fairly straightforward:  the pharmacy will have the medicine in stock and will be able to fulfill the prescription in short order.  Of course, there are a host of “unseen” players operating behind the scenes that make all of that happen, including the biopharma company, wholesalers, distributors, transportation companies, payment processors, regulators, and so on, but from the patient’s standpoint, it just happens.  And that’s how it should be.

However, making that “simple” process work so seamlessly is becoming increasingly difficult for biopharma companies. A combination of economic and regulatory factors are ramping up the complexity involved.  Often, companies must contend with factors that are beyond their control just to maintain a secure supply, driving up their costs and stress levels.  The prevailing environment is boosting the likelihood of out-of-stock (OOS) situations while also raising the stakes of those situations for manufacturers.  Being able to predict and prevent them is more important than ever.

This article is the first in a three-part series that will address the challenges biopharma companies face when it comes to ensuring a secure, reliable supply of medicines in a market with increasing requirements and reduced financial attractiveness.  In this installment, we focus on the challenge.  In particular, we explore the causes behind the rising complexity and the resulting impacts on the biopharma companies that must navigate it.  In parts two and three, we will dive more deeply into the solutions.

The Economic Factors

The economic drivers of complexity are well known individually, though many people may not be aware of how they can affect pharmaceutical supply chains and costs for biopharma companies.

Aging Population and Rising Healthcare Costs

In 2012, 18% of the EU population was aged 65 years or older.  By January of 2022, the 65-and-older contingent had risen to 21.1% of the population.  The trend is expected to continue, with that segment expanding relative to the overall population at least until 2100.  At that point, the World Economic Forum predicts this group will comprise 30% of the population.  Related to this trend, the EU Dependency Ratio was 32 in 2021, meaning that for every 100 working age people, there were 32 elderly people.  That ratio is also rising and is expected to reach 57 by 2100.

The impacts of these trends are predictable.  An aging population means, on average, a less vital population with more diseases, more comorbidities, and a greater demand for pharmaceutical therapies.  This greater demand is already a well-known reality.  The resultant increase in supply chain volume that biopharma companies must manage is just one aspect of the challenge.  It’s compounded by the increasing diversity of dosages and dosage forms that are becoming available for many therapeutics.  This challenge is further boosted by the broader introduction of personalized medicines and therapies.

Greater demand for pharmaceuticals is also one of the factors that contributes to higher healthcare costs.  As costs rise, policy makers and national payers push back, working to control costs and keep their budgets in line.  A good example of this is Germany’s effort to tighten pharmaceutical pricing and reimbursement laws.

Efforts such as those result in downward pressure on drug prices, the increased use of public tenders when it comes to acquiring medicines, and a greater emphasis on biosimilars and generics.  All these factors work to constrict biopharma companies’ margins at a time when they must invest more resources to maintain supply in the face of growing demand and complexity.

Parallel Distribution

Parallel distribution, also known as parallel trade,  is a well-known factor.  Due to different pricing policies from country to country, the EU enables parallel distributors to purchase therapies in lower-priced markets (such as Italy or Greece) and resell them in markets that are higher-priced (such as Germany).  Even though parallel trade is a perfectly legalized activity, it has several less desirable effects.

On the positive front, it can reduce healthcare spending in higher-priced markets.  However, there are downsides, the most visible being more frequent shortages and OOS situations in lower-priced markets.  In an environment of rising demand, these situations can be especially acute.

Parallel trade’s negative effects are not limited to lower-priced markets, though.  The supply dislocations it causes make market demand more unpredictable and harder to manage across lower- and higher-priced markets.  A few real-world examples show how confusing it can be for a biopharma company to manage this.  We have seen:

  1. Product that was originally packaged by the manufacturer in the Netherlands, then sold through Greece, and repackaged in the Czech Republic, only to end up back in the Netherlands due to pricing differences.
  2. Customers in Italy order 100 times more product than they need for their local patients, all destined for parallel distribution to other markets.
  3. Product in Germany being 5 times more expensive–in some cases–than in neighboring Poland (which shows how strong the incentives for parallel distribution can be).

For the biopharma company, it can be very difficult to predict how much parallel trade will take place in a given area and adjust raw material allocations, production schedules, and inventories to accommodate local demand.  Regardless, it’s imperative that companies get highly proficient at analyzing parallel trade and market demand to properly scale their inventories and meet their responsibilities as Marketing Authorisation (MA) holders.  OOS situations often happen because of actions taken by other players (upstream or downstream) in the supply chain, but the biopharma company will always get the blame in the court of public opinion.

The Regulatory Factors

As the frequency of product shortages and OOS situations rises, regulators have acted in an effort to address the situation.  While the effectiveness of any given action is typically open to debate, one thing is not:  they almost always increase complexity for biopharma companies, who must invest in processes, people, and technology to comply.  Below, we describe a few examples that stand out.

The Falsified Medicines Directive (FMD)

The FMD was developed to help ensure a safe, properly controlled drug supply.  It has been in existence since 2011, though the serialization requirements outlined below came into effect in 2019.  The FMD bears mentioning here as a key driver of supply chain complexity.  It requires tamper evident packaging on pharmaceutical products, as well as unique identifiers for each package that identify the medicine’s name, dosage form, strength, package size and type, expiry date, batch and serial number, and so on.

While the FMD does help provide a safer drug supply for patients, it also generates additional cost and complexity for biopharma companies to manage, e.g. the requirement to manage alerts.  In addition, because the information flow is only one way, it does not help biopharma companies better analyze the flow of their goods.

OOS Risk Reporting

In a more direct effort to combat shortages, the EU is using and proposing measures that would require manufacturers and their downstream business partners or channel partners to hold larger reserve inventories and implement systems to predict upcoming shortages and issue warnings.  Much of this is related to Article 81 of EU Directive 2001/83 EC.

While this could help on some level, critics of such measures argue that they fail to address the root of the problem:  rising demand in an environment that forces downward pressure on prices, which ultimately makes it cost-prohibitive for manufacturers to boost their capacity.  It can cause a sort of vicious circle on product availability until the balance between demand, price, and supply is restored.

Making the situation more complex, is that rules regarding OOS reporting–and even the definition of what constitutes an OOS situation–are not uniform across the EU, as each country (and even regions within countries) can interpret rules differently and/or add more requirements.  The EU and individual countries sometimes work independently to solve the same problems, and the efforts can be counter-productive.  The resulting patchwork of regulations can be very difficult to understand and manage, and working with multimarket SKUs results in even more complexity.

Mandatory Digital Ordering

To keep better track of the real-time movement of medicines through the supply chain, some countries (such as Poland and Bulgaria) want to see daily reporting on pharmaceutical transactions.  Others, such as Italy, are mandating the use of digital ordering through centralized databases.  As with OOS risk reporting, the lack of uniformity across country markets makes it even more challenging for companies to manage.  In the end, the added complexity of these measures can bring more visibility into stockouts, but they don’t give biopharma companies the additional tools and analysis needed to prevent them.

“Green” Policies

The push to implement more environmentally friendly policies related to biopharma supply chains is another factor driving complexity.  Just-in-time (JIT) inventory management approaches have been used for a long time to help drive efficiency and deliver high service levels.

Unfortunately, these approaches involve making many smaller shipments of product over time, which tend to be “carbon intensive.”  As companies face pressure to reduce their overall “carbon footprint,” they are exploring the use of fewer—but much larger—shipments.  This may reduce carbon emissions, but it can also make inventory management less efficient and potentially drive up inventory carrying costs.

“Going green” also raises questions about how inventories should be stored.  Maintaining a large, centralized inventory can make it easier to be flexible when dealing with unpredictable demand (e.g., with regards to repurposing, repackaging, creating multi-country packs, etc.).  But, it increases the typical distance and duration of shipments, which is carbon-intensive.  On the flip-side, maintaining many localized stock points could help address the carbon issue, but it makes inventory management more complex and, in general, slightly increases overall inventory levels and the associated carrying costs.

Interestingly, we’ve also seen that local in-country retail pharmacies and wholesalers often refuse to hold significant stocks, especially for slow-moving expensive medicines.  They do not like the risk of having to write off inventories that do not sell before they expire.  This is not driven by “green” concerns, but it’s worth mentioning here, as it relates to inventory management.  As a result, it typically falls back on the manufacturers to install <24-hour delivery systems throughout Europe to deliver the service levels that patients expect as well as to meet local service compliance regulations.  Maintaining this level of service is not only expensive, it also circles right back to the challenge outlined in this section:  it can be carbon-intensive.

What to Do?

All the factors mentioned above combine to push up inventory levels (which brings added costs and risks) and increase supply chain complexity.  The added complexity drives biopharma companies to invest more in tracking technologies, Sales and Operational Planning (S&OP) / Integrated Business Planning (IBP) processes, and other components of supply chain infrastructure, which is also costly.  As a result, profit margins for biopharma companies are constricted, and they can’t just raise prices to recover.  In a sense, biopharma companies appear to be caught in a financial vise.

This situation not only drives complexity for existing companies in the market, it also acts as a significant barrier to entry for new players and therapies.  Given these challenging realities, what should biopharma companies do to meet the market’s needs and regulatory requirements while remaining profitable?  In the next installment, we’ll explore some high-level strategic approaches.