www.pwc.com/pharma2020                      Pharma 2020:                      Supplying the future                      Wh...
Previous publicationsin this series include:Pharmaceuticals                                          Published in June 200...
Table of contents                                      Introduction	                                       2              ...
Introduction        The pharmaceutical industry is experiencing major upheavals, as        PwC* noted in earlier Pharma 20...
The times they are a-changin’A supply chain is the means by which             When the ‘blockbuster’ paradigm             ...
Figure 2: Numerous forces are dictating the need for a different sort of supply chain                                     ...
New drugs and devices                                                                                                     ...
2. Live licensing     The launch process will also become                Once this happens, the ‘big bang’ launch     much...
3. The increasing emphasis on outcomesFinancially stretched governments and        The ability to provide demonstrable val...
Designs for the developing                                                                                                ...
Water is the new gold                                                                                               About ...
Removing the roadblocks  Timely access to various emerging  technologies will help Pharma manufacture  and distribute its ...
Biologics in a bottle                                                                                                     ...
2. New manufacturing technologies  Flexible production  Virtual engineering will not only accelerate   Collectively, these...
Transgenic productionSimulation and automation aren’t the only      Other examples include the Netherlands-tools to hand; ...
Tablets go high-tech                                                                                                      ...
Creating an integrated healthcare products    With access to each roadmap for eachand services supply chain would not be  ...
Collaborating to cut the                                                                                                ki...
Choosing among the options                                      There are two options for companies              Companies...
Recommendations  for becoming  a virtual  manufacturer  Our experience suggests that there are  several key steps a would-...
In order to manage the risks associated                                                   Figure 9: Most pharma companies ...
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
Pharma 2020-supplying-the-future
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Pharma 2020-supplying-the-future

  1. 1. www.pwc.com/pharma2020 Pharma 2020: Supplying the future Which path will you take?Pharmaceuticals andLife Sciences
  2. 2. Previous publicationsin this series include:Pharmaceuticals Published in June 2007, this Pharmaceuticals and Life Sciences Fourth in the Pharma 2020 paper highlights a number of series and published in April issues that will have a major 2009, this report highlights bearing on the industry by how Pharma’s fully integratedPharma 2020: The vision Pharma 2020: Challenging business modelsWhich path will you take?* 2020. The publication outlines Which path will you take? business models may not be the changes we believe will best the best option for the pharma help pharmaceutical companies industry in 2020; more creative realise the potential the future collaboration models may be holds to enhance the value they more attractive. This paper also provide to shareholders and evaluates the advantages and society alike. disadvantages of the alternative business models and how each stands up against the challenges facing the industry.*connectedthinking Pharma 2020: The vision #Pharmaceuticals and Life Sciences This report, published in June Pharmaceuticals and Life Sciences The fifth report in our series, 2008, explores opportunities published in December 2009, to improve the R&D process. It focuses on the opportunities proposes that new technologies Pharma 2020: Taxing times ahead and challenges from a taxPharma 2020: Virtual R&DWhich path will you take? will enable the adoption of Which path will you take? perspective. It discusses how the virtual R&D; and by operating political, economic, scientific and in a more connected world social trends currently shaping the industry, in collaboration the commercial environment, with researchers, governments, together with the development of healthcare payers and new, more collaborative business providers, can address the models, will exert increasing changing needs of society more pressure on effective tax rates effectively. within the industry. It also shows how companies can adapt their tax strategies to support the provision of outcomes-Pharma 2020: Virtual R&D 1 based healthcare and remainPharmaceuticals and Life Sciences Published in February 2009, this competitive. paper discusses the key forces reshaping the pharmaceutical marketplace, including thePharma 2020: Marketing the futureWhich path will you take? growing power of healthcare payers, providers and patients, and the changes required to create a marketing and sales model that is fit for the 21st century. These changes will enable the industry to market and sell its products more cost-effectively, to create new opportunities and to generate greater customer loyalty across the healthcare spectrum.All these publications are available to download at: www.pwc.com/pharma2020
  3. 3. Table of contents Introduction 2 The times they are a-changin’ 3 • New product types • Live licensing • The increasing emphasis on outcomes • New modes of healthcare delivery • The growing importance of the emerging markets • Greater public scrutiny • Environmental pressures • The collective impact of these trends Removing the roadblocks 10 • New development technologies • New manufacturing technologies • New distribution technologies • New patient interface technologies • Greater collaboration Choosing among the options 17 • The virtual manufacturer • The service innovator • The low-cost provider • The profit centre Managing the movement of information 24 Restructuring the asset base 25 Conclusion 26 References 28Pharma 2020: Supplying the future 1
  4. 4. Introduction The pharmaceutical industry is experiencing major upheavals, as PwC* noted in earlier Pharma 2020 papers. Many companies have responded by trying to discover, develop and market medicines more efficiently, but they’ve invested relatively little effort in reconfiguring their manufacturing and distribution operations to date. Yet the supply chain is just as important; it’s the link between the laboratory and the marketplace. Unfortunately, it’s a link that frequently We’ve identified four potential supply- doesn’t work very well. Most pharma chain options from which pharma companies have complex supply chains companies can choose. Those that focus that are under-utilised and inefficient. on specialist medicines can either delegate Worse still, they are ill-equipped to cope all their manufacturing and distribution with the sort of products that are coming to trusted contractors or build service- down the pipeline. By 2020, many of the oriented supply chains to enhance their medicines the industry makes will be brands. Those that focus on mass-market specialist therapies that require totally medicines can either become low-cost different manufacturing and distribution providers or build supply chains that techniques from those used to produce generate a profit by servicing both internal small molecules. and external customers. In short, the pharmaceutical supply chain We’ll discuss the main trends dictating needs a radical overhaul, and we predict the need for a new approach to the that it will undergo three key changes over manufacturing and distribution of the next decade: medicines, together with some of the techniques and technologies that will help • It will fragment, with different models the industry make the necessary changes, for different product types and patient in more detail in the following pages. We’ll segments also look at the key characteristics of each • It will become a means of market of the four routes we’ve identified, and the differentiation and source of economic implications they carry. value; and • It will become a two-way street, with information flowing upstream to drive the downstream flow of products and services. * PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as “ the context requires, individual member firms of the PwC network.2 PwC
  5. 5. The times they are a-changin’A supply chain is the means by which When the ‘blockbuster’ paradigm Asset utilisation rates have improved.a company transfers its products from prevailed, this wasn’t a serious problem, Between 2004 and 2009, overalldevelopment to the marketplace in order but the situation is now changing equipment effectiveness in packagingto sell them and generate a profit. It dramatically. Generic competition has increased from 36% to 51%, for example.includes all the organisational, operational already dented Big Pharma’s revenues – a Quality has also risen, with the percentageand value-adding activities needed to trend that will continue, as the patents on of rejected batches falling from 1.00%manufacture those products and get them products with sales of more than US$267 to 0.74% over the same period. Butto the customer. So, for a pharma company, billion expire over the next six years.3 So average set-up times have increased fromit covers everything from new product the economies of scale the industry leaders 79 minutes to 93 minutes, and the vastdevelopment through to delivery to the have traditionally enjoyed are rapidly majority of pharma companies are still farhospital, retail pharmacy or patient (see diminishing. from having any kind of ‘continuous flow’,Figure 1). smooth production scheduling or make-to- Many pharma companies have as a result order manufacturing. Instead of producingSome companies have superb supply started refining their supply chains. But on demand, they must hold large quantitieschains. Fashion retailer Zara is renowned most of the changes they’ve introduced of inventory, which drives up their workingfor the speed and agility of its supply chain, have been short-term measures to capital and overheads.4for example.1 Apple, Procter Gamble, address immediate challenges like theCisco Systems and Wal-Mart also rank rationalisation of larger manufacturingamong those regarded as leading examples.2 networks as a result of acquisitions. This isHowever, most pharma companies have reflected in the progress – or, rather, lack ofsupply chains that are neither flexible nor it – they’ve made in recent years.cost-effective.Figure 1: The supply chain is the backbone of a pharma company Planning and Collaboration New Product Active Secondary Wholesaler Pharmacy Pharmaceutical Development Ingredient Manufacturing Distribution Patient Innovation Manufacturing and Packaging Direct-to-pharmacy People and Skills Information SystemsSource: PwCPharma 2020: Supplying the future 3
  6. 6. Figure 2: Numerous forces are dictating the need for a different sort of supply chain • More complex manufacturing and distribution processes 1 New product types • Different supply chains for different product types • Shorter product lifecycles • Incremental launch of new medicines 2 Live licensing • Ability to scale up and down very rapidly • Step changes in the revenue curve Even more importantly, few, if any, pharma companies have supply chains capable Increasing • Expansion into health management service of meeting tomorrow’s needs. Numerous forces – both internal and external – are 3 emphasis on outcomes • Leaner and more adaptable cost structure that preserves gross margins at every stage of the product lifecycle reshaping the environment in which the industry operates, with profound consequences for the way in which it • Blurring of the boundaries between primary and acute manufactures and distributes its products care New modes of 4 (see Figure 2). • Much wider distribution network healthcare delivery • Demand-driven manufacturing and distribution processes Growing 5 • Offerings designed for patients in emerging markets importance of • More widely dispersed and more robust supply chain emerging markets • Heavier regulation Greater public 6 scrutiny • Robust risk assessment and risk-management capabilities across the extended supply chain Environmental 7 • Sustainable eco-friendly processes pressures • Relocation of plant to less vulnerable regions Source: PwC4 PwC
  7. 7. New drugs and devices Biologics are in general more susceptible to impurities in the production process and damage during shipping1. New product types than chemical entities. Making gene- and tissue-based therapies is evenPharma’s portfolio is changing substantially. However, many of these new therapies more difficult. Each sample must beIndustry analysts predict that, by 2016, and the devices used to deliver them will individually extracted, propagated,bioengineered vaccines and biologics require more complex manufacturing and prepared and tested before it can bewill account for 23% of the global market distribution processes than conventional administered, so it must be treated as a(measured by value), up from 17% in 2009.5 chemical entities. Indeed, some separate manufacturing lot and finishedThe product base will become even more personalised medicines and poly-pills will at a location near the patient.diverse, as advances in nanotechnology, have to be ‘finished’ at the pharmacy ortissue re-engineering, stem cell research point-of-care (see sidebar, New drugs Many of these specialist treatments willand other such disciplines start to yield fruit and devices). Such challenges will not also need novel delivery devices, since it(see Figure 3). be enough to prevent product lifecycles is difficult to produce oral formulations getting shorter, though; greater competition of large molecules. Micro needles, both from similar new products and from magnetically targeted carriers, nano- totally different product types will reduce particles, polymer capsules and multi- the period of exclusivity all but the most layered medicated patches are likely to personalised therapies enjoy, as it has in the predominate, but such devices are much case of conventional medicines. more complex than those that are used today.Figure 3: By 2020, Pharma will be making a much more diverse range of products2010 2012 2015 2020 Fixed dose combinations Pharmacogenomics Recycling existing drugs First fully integrated PGx with greater expected product propositions health benefits Imaging Therapeutic monoclonals Biomarkers Better real time imaging for New antibody treatments First wave of clinically diagnosis, monitoring and for cancer and validated biomarkers treatment of multiple diseases inflammatory disorders Human cell therapies Gene-based therapies First stem cell therapies for Tissue engineering First gene-based therapies diabetes, Alzheimer’s disease, First tissue engineering or for diseases such as Parkinson’s disease and xenogenic therapies oncology and cardiovascular vascular injuries Nano-carriers Nano-pills Targeted drug delivery Oral imaging diagnostics systems for Alzheimer’s ‘pills’ for gastrointestinal and disease, Parkinson’s other conditions disease, cancer and strokesKEYMainstream technologies already happening Gene/Cell/Tissue technologies Nanotech-related technologiesSource: PwCPharma 2020: Supplying the future 5
  8. 8. 2. Live licensing The launch process will also become Once this happens, the ‘big bang’ launch much more incremental, as new methods will give way to a phased approach in for assessing, approving and monitoring which demand for a new product rises medicines emerge. At present, the as the licence is extended. The interval marketing applications for most new between the initial launch and peak medicines are either approved or rejected; sales point will thus be much longer; the the supply chains for manufacturing and revenue curve will climb more slowly; and distributing them are designed to support the payback period for capital expenditure peak sales volumes; and the revenues they on plant and equipment will be more generate climb in a relatively simple curve. protracted (see Figure 4). So, rather than making a large upfront investment in a But the binary system of authorising new supply chain designed to cope with peak medicines is becoming more graduated. volumes, any company launching a new The European Medicines Agency (EMA) medicine will need to build a supply chain and US Food and Drug Administration that can be rapidly adjusted as the licence (FDA) introduced conditional approvals alters. for certain products some years ago.6 Both agencies are also placing much more emphasis on post-marketing surveillance, and we believe that the current system will eventually be replaced by a system in which new therapies are granted ‘live licences’ contingent on further testing to confirm their safety and efficacy in different patient populations.7 Figure 4: The revenue curve will climb more slowly, when ‘live licences’ replace Option 1 the binary system of approving new products Build one facility to accommodate peak sales Advantages: • Low scale-up risks. Peak Sales • Big site drives operational efficiencies. Disadvantages: • Large capital outlay for un-proven demand. Understanding the 40% 80% Revenue • Low utilisation during growth of the product. cost of capital and impact on margins is Option 2 critical to managing product profitability Adopt a modular manufacturing platform scaling up to support each volume plateau Advantages: • Capex linked to known market demands. Time • High site utilisation. Disadvantages: • Cost and risk of commissioning more sites. • Many small sites increases cost base. Source: PwC6 PwC
  9. 9. 3. The increasing emphasis on outcomesFinancially stretched governments and The ability to provide demonstrable valuehealth insurers are simultaneously for money will thus become a criticalbecoming much more demanding; differentiating factor, and the supply chainthey now want clear evidence that the will play a key part in providing that valuemedicines they buy are really effective. by commissioning and supervising aspectsThis has huge implications for Pharma. of the services patients need to manageThe industry will not only have to manage their health.the manufacturing and distribution ofmedicines and companion diagnostics, itwill also have to ensure that patients getthe most from the therapies they receiveby supplementing its products with a widerange of supporting services. 4. New modes of healthcare delivery The drive to cut costs and improve outcomes The digitalisation of healthcare delivery, underlies several other changes taking with greater use of electronic health place in healthcare delivery, with equally records, e-prescribing and remote momentous consequences for the industry. monitoring, will reinforce the drive to Most of the OECD countries have been push healthcare into the community. trying to reduce reliance on hospitals However, it will also provide Pharma with and specialists since the 1980s.8 Self- one of the key components needed to administration of medicines is also on the make the transition. E-prescriptions are rise, as patients are encouraged to take a effectively point-of-sale data. Access to more active role in managing their own care. this data will enable pharma companies Both these trends will continue as clinical to build demand-driven supply chains in advances provide better medicines for which healthcare packages for different acute conditions and patients become more patients are assembled at ‘super hubs’ empowered. Many diseases which must at before being delivered to their homes. present be treated in hospital will then be By 2020, information about patients and treated at home. the medicines they need will thus be as important as the products themselves. But migrating from a system in which care is provided in a relatively small number of hospitals, clinics and surgeries to one in which care is provided through a diffuse network of nurses and community carers has enormous ramifications. Pharma will need to distribute its products to many more locations, including patients’ homes. It will therefore have to harness the most efficient ‘final mile’ distribution networks in order to deliver medicines to the door as economically as possible.Pharma 2020: Supplying the future 7
  10. 10. Designs for the developing economies Several medical device companies are already designing and manufacturing 5. The growing importance of the products specifically for people living in the developing economies. Freeplay emerging markets Energy has, for example, developed foetal heart rate monitors and pulse The growing importance of the emerging If Pharma is to market its products oximeters that are driven by human markets will accentuate these challenges. effectively in the developing economies, power and designed to cope with Although patients in the developing it will have to understand the needs of harsh conditions. Mindray Medical economies are becoming more prosperous, patients living in these countries and International, one of China’s biggest they typically pay more than half the cost tailor its offerings accordingly; and it can medical equipment manufacturers, of their medicines themselves – and few learn from the medical device industry in also specialises in making inexpensive can afford to pay as much as patients in the this regard (see sidebar, Designs for the patient monitoring and life support mature economies.9 Moreover, the choices developing economies).10 It will also devices. And cardiologists at India’s they make are often based on different have to build a supply chain that is both Care Hospitals have designed cheap values from those that influence the more geographically dispersed and more heart valve replacements, minimising design of products and services intended secure. The number of recorded cases of the number of disposable parts to keep for consumption in the developed world. counterfeit, stolen or illegally diverted costs down. Pharma can learn from Cost and the ability to buy on a daily or medicines has already soared nearly nine- such role models. It can, for instance, weekly basis are more important than fold since 2002.11 develop economical formulations and convenience, for example. stripped-down services for patients who can’t afford its most expensive offerings. 6. Greater public scrutiny In fact, by 2020, the ability to manage risk Other administrations are also tightening and compliance throughout the supply the rules. The Indian government chain will be more crucial than ever before. recently passed a law mandating the use While globalisation is increasing the of track-and-trace barcodes on all drugs risks, greater public awareness and more meant for export, with effect from July diligent enforcement are raising the bar. 2011, following reports that Chinese In 2009, for example, the FDA recalled a counterfeiters were selling fake medicines record 1,742 medicines. A single company labelled ‘Made in India’ in several African accounted for more than 1,000 recalls but, countries.14 even when these are stripped out of the picture, the number of recalls still rose by 50% year on year.128 PwC
  11. 11. Water is the new gold About 20% of people live in countries that don’t have enough fresh water, but the situation will get much worse over the next decade. The global population is projected to rise from 6.8 billion to 7.6 billion by 2020. The amount7. Environmental pressures of food needed to sustain mankind is thus increasing – and farming alreadyThe Green agenda presents other Indeed, some companies may have to accounts for about 70% of the world’sdifficulties. All pharma companies already relocate some of their production facilities total fresh water consumption. Rapidoperate under strict environmental to completely different places. Global urbanisation is also driving up demandcontrols, for obvious reasons. But these warming is changing the world’s weather for safe drinking water and sanitationregulations are likely to become even patterns and many of the traditional facilities, and environmental changestougher, given the international drive to centres of pharmaceutical manufacturing, like deforestation and global warmingcurb carbon emissions. Taxes on water such as Singapore, lie in regions that are exacerbating these pressures.consumption are also likely to rise, as will become more vulnerable to extreme Water shortages will have a seriouspopulation growth, increased farming, weather events. Even if it proves possible to impact everywhere. The Unitedrapid urbanisation and climate change engineer a better climate – e.g., by locking Nations predicts that, by 2025, 1.8exacerbate the shortage of fresh water (see up the ice caps or using plants to suck up billion people will be living in regionssidebar, Water is the new gold).15 excess carbon dioxide – geoengineering where water is very scarce, while experts widely agree that the effectsHowever, many of the assets pharma 5 billion could be living in ‘water would be limited. Such measures would,companies own are designed to support stress’ conditions. The problem will at best, reduce peak temperatures duringspecific manufacturing processes be particularly acute in China, India, the transition to a low-carbon world.16– processes that typically consume sub-Saharan Africa, South Asia and But relocating a plant to a new country orconsiderable amounts of energy and some parts of Latin America. But even region is a complex business; numerouswater. If the industry is to reduce its countries in more temperate zones political, financial and commercial factorsenvironmental footprint, it will have to will suffer. One recent study suggests, must be looked at, as we indicated inadopt new, more eco-friendly processes for example, that large swathes of the “Pharma 2020: Taxing times ahead.”17and that will require a substantial south-western US will be at risk ofinvestment in new equipment. water shortages by mid-century. The collective impact of these trends To sum up, the current model for The change in the industry’s remit has even manufacturing and distributing medicines more fundamental implications. Pharma isn’t fit for Pharma’s future needs, as many companies will have to manage a vast industry executives recognise. The high network of service providers, as well as margins that made it feasible to tie up manufacturing and distributing their own capital in large stocks of raw materials and products. They will also have to acquire a finished goods are ending. Most companies much deeper understanding of patients. also have asset bases that are ill-suited In a world where outcomes count for to produce the sort of therapies that are everything, it’s not molecules that create now in the pipeline or to cope with new value but, rather, the ability to integrate environmental regulations, so they’ll have data, products and services in a coherent to sell or re-engineer much of their existing business offering. Understanding this plant. shift of emphasis from products to patient outcomes is critical; those firms that can develop and supply integrated product- service packages will be able to deliver significant benefits to every stakeholder in the healthcare value chain.Pharma 2020: Supplying the future 9
  12. 12. Removing the roadblocks Timely access to various emerging technologies will help Pharma manufacture and distribute its products more efficiently. Some of these technologies will enable it to build quality into its manufacturing processes, while others will enhance its throughput or facilitate collaboration to realise economies of scale (see Figure 5). Figure 5: Significant opportunities for improving the supply chain exist ‘Assembly line’ production Distribution E-prescribing (POS ‘Self service’ (the patient Formulations that are (disposable components, Quality by structure and Flexible data for supply as an integral component easier to manufacture Design PAT) and continuous manufacturing technology production chain planning) of the supply chain) Planning and Collaboration Sales Marketing Patient Patient Raw Secondary/ RD Materials/ API Packaging Distribution Service Intermediates People and Skills Information Systems Computer modelling Flexible Dynamic sourcing, Aligned New ‘patient Internal and (virtual process development, production micro-processing performance interface’ external facility design and validation, technologies and management technologies collaboration Quality by Design) numbering up Source: PwC10 PwC
  13. 13. Biologics in a bottle One of the main obstacles in developing oral biologics is the fact that proteins break down in the gastrointestinal tract and cease to be active. Some proteins also have a very narrow therapeutic1. New development technologies index and must be delivered in doses too precise to be orallyFormulations that are easier to manufacture administered. Nevertheless, numerous companies are trying toDuring the past 60 years, audio technology Researchers are also working on the ‘holy create pill-based proteins.has evolved from the vinyl record to the grail’ of oral biologics, and industry expertsiPod, but the way in which medicines believe it will eventually be possible to Bangalore-based Biocon is testingare delivered has stayed much the same. produce stable, pill-based versions of an insulin pill in the US and India,Compressed tablets containing a mixture some proteins (see sidebar, Biologics in a for example, with promisingof active ingredients and excipients are still bottle).18 preliminary results. Meanwhile,the most common dosage form. Novo Nordisk is conducting a Using formulations that can be more Phase I study of an oral insulinHowever, more sophisticated drug delivery easily manufactured will enable Pharma pill formulated using Merriontechniques will provide the means with to minimise its investment in product and Pharmaceuticals’ gastrointestinalwhich to create formulations that are easier process development until the later stages permeation enhancementto manufacture – e.g., powder in vials and of the product development lifecycle, when technology. Several oral biologicsliquid droplets on blank tablets. it’s easier to estimate the potential value of for the treatment of autoimmune new products. And the development of oral diseases are also in the pipeline, biologics will eliminate the need for cold- including a new class of drugs chain distribution of such therapies. called JAK inhibitors. One such instance is tasocitinib, which was developed by Pfizer and is now in Phase III trials. Virtual process design and validation Meanwhile, computational modelling The conventional process of scaling up will will enable Pharma to design and validate also be replaced by ‘numbering up’ – i.e., manufacturing processes virtually, using using microreactors in parallel arrays. Quality by Design (QbD) principles. In-line Numbering up has several significant process monitoring via process analytical advantages over traditional techniques. technologies (PAT) will generate the data It dispenses with the need for costly and needed to validate these models and secure time-consuming studies to devise a process regulatory approval. for scaling up chemical reactions, since the process that was used to produce a few The FDA has already published a draft grams of product in the laboratory is the guidance in which it proposes replacing same one that is used to synthesise larger ‘three-batch validation’ with a three-stage quantities. In addition, using microreactors methodology that involves designing a makes it much easier to control key suitable process, using the knowledge parameters and thus improve yields. gained in development and scale-up; ensuring the process is capable of reproducibly manufacturing commercial batches; and validating it continuously during routine production.19 By 2020, this approach is likely to be the norm.Pharma 2020: Supplying the future 11
  14. 14. 2. New manufacturing technologies Flexible production Virtual engineering will not only accelerate Collectively, these improvements will allow the validation of new processes, it will pharma companies to create different facilitate the rapid reconfiguration of supply chains for different product types existing manufacturing lines for different and markets, manage sudden shifts products. With flexible processes and in demand such as the step changes miniaturised, modular components that associated with live licensing and reduce can be quickly connected or disconnected their manufacturing costs. They should like pieces of ‘Lego’, it will be relatively simultaneously help the industry fulfil easy to alter the order in which specific its social responsibilities, including the unit operations are performed. Widespread need both to pioneer more sustainable use of disposable technologies will manufacturing processes and to produce likewise reduce changeover times (and the medicines the entire world can afford. consumption of clean water). Continuous processing and automation By 2020, most medicines will also be Micro-containers with embedded manufactured continuously. Process superparamagnetic nano-particles can be tomography and other such technologies treated with an alternating magnetic field will enable companies to capture real-time to release materials encapsulated in bubbles data on critical processes, develop complex within the material and thus converted into multivariate models and automatically micro-reactors for the efficient production compensate for unexpected process of thousands of individual doses of tailored disturbances. Process data generated biological products.20 during the development phase will be Micro-processing will even make it possible used to ‘teach’ process control systems to formulate some medicines and poly-pills to respond to process disturbances even at the point at which they are dispensed. before commercial manufacturing begins. Several companies have already started Meanwhile, advances in colloidal and foam providing pharmaceutical compounding systems will facilitate the micro-processing services, one such instance being Fagron, a of active pharmaceutical ingredients subsidiary of the Belgian Arseus.21 But, by (APIs). 2020, the pharmacist will be able to ‘mix’ medicines individually on the premises, using validated formulation equipment – much as DIY stores mix paints to produce customised colours.12 PwC
  15. 15. Transgenic productionSimulation and automation aren’t the only Other examples include the Netherlands-tools to hand; transgenic engineering offers based Pharming, which uses transgenica fundamentally different way of producing rabbits to make the C1 inhibitor protein.23many therapeutic proteins. The process Transgenic production has severalinvolves inserting foreign genes into host significant advantages over moreanimals or plants so that they express traditional methods for producingproteins they wouldn’t otherwise express therapeutic proteins, such as mammalianand then using them to ‘manufacture’ large cell culture and bacterial systems.quantities of these proteins. It requires substantially less capitalGTC Biotherapeutics has already expenditure, is easy to scale up or downdemonstrated the commercial viability in line with demand (by increasing orof transgenic production techniques with decreasing the size of the herd) and canits recombinant human antithrombin be undertaken in rural environmentsATryn, which is extracted from the milk of where the infrastructure for more high-genetically modified goats.22 tech manufacturing techniques may not be available. 3. New distribution Fingering the fakes technologies Various new tracking technologies are in the works. One such Just as new technologies are emerging example is the ‘bokode’ – a to help pharma companies manufacture kind of data tag that can hold a wider and more complex range of far more information than a medicines, so new technologies are conventional barcode and be read emerging to help them distribute those from much further away. DNA medicines. Cloud computing will provide labelling could also provide a way the information platforms they need to of fingerprinting proteins and share data securely and economically determining where they have been with suppliers around the world, analyse manufactured, if the problems the data very rapidly and respond to with selecting a DNA fraction sudden changes in supply and demand, that doesn’t affect a protein’s while advanced tracking technologies performance can be overcome. will enable them to monitor products DNA fingerprinting has already from the factory gate to the patient – an been used to identify ‘counterfeit’ increasingly important feature, as the foods; researchers in Spain industry manufactures more biologics with recently used a technique called high unit values and specialist delivery forensically informative nucleotide requirements (see sidebar, Fingering the sequencing to test nine commercial fakes).24 seafood samples containing shark meat and isolate those that were incorrectly labelled.Pharma 2020: Supplying the future 13
  16. 16. Tablets go high-tech Proteus Biomedical has developed a miniature digestible chip which can be attached to a conventional medicine and used to monitor patient compliance. The chip sends a signal to a sensing device worn 4. New patient interface technologies on the skin, which records the time and date at which the medicine has New ‘patient interface’ technologies are By 2020, there will be many such patient been ingested as well as measuring likewise being developed, some of which interface technologies on the market certain vital signs. The information will bring pharma companies closer to and the information they generate will is then forwarded, via wireless patients than ever before. One instance is help patients manage their health more technology, to the patient’s doctor. the prototype chip and receiver devised by effectively, as well as allowing healthcare Novartis has previously tested Proteus Biomedical, which records exactly providers to monitor their compliance the chip on 20 patients who are when a tablet is metabolised (see sidebar, in real time. But they will also provide taking its blood pressure treatment Tablets go high-tech).25 pharma companies with information Diovan, with impressive results; the they can use both to design more robust company reported that compliance products and services, and to develop more could be improved from 30% to accurate production and distribution plans. 80% in six months. 5. Greater collaboration Technology isn’t the only answer to At present, there are three distinct supply Pharma’s problems, though; greater chains for designing, manufacturing and collaboration with the other parties distributing pharmaceuticals; designing, involved in healthcare provision will also manufacturing and distributing medical help the industry become more efficient. devices; and providing healthcare services (including laboratory work and pathology). Integrating these supply chains so that all the upstream and downstream partners can see the full picture would enable them to plan ahead more accurately and manage demand more cost-effectively (see Figure 6). Figure 6: By 2020, the pharmaceuticals, medical devices and healthcare services supply chains will be fully integrated Current Situation Situation in 2020 Pharmaceutical Supply Chain Integrated Supply Chain Pharmaceuticals + Medical Devices + Healthcare Services Pharma Intermediate Hospitals warehouse Pharmacies Patient Intermediate Hospitals Pharma warehouse Pharmacies Medical Devices Supply Chain Intermediate Manufacturers warehouses or Hospitals Intermediate Pharmacies warehouse or Hospitals Patient wholesalers Manufacturers Pharmacies wholesaler Patient Primary care (Doctor or Healthcare Services Supply Chain Hospital) Primary care (Doctor or hospital) Secondary care Patient (Hospital or Secondary care (Hospital or community care) community care) Areas of full supply chain visibility Source: PwC14 PwC
  17. 17. Creating an integrated healthcare products With access to each roadmap for eachand services supply chain would not be illness, and data on the incidence ofeasy. But one of the main tools used to each illness in a given population,manage healthcare quality could prove pharma companies and medical deviceinvaluable here. Healthcare providers in manufacturers will be able to predictmany parts of the world are developing demand for their products much moredefined care pathways to standardise accurately. They will also be able tothe treatment of patients with the same define a supply pathway for each product,illnesses and thus improve outcomes. This depending on whether it’s a one-offwill ultimately result in the creation of treatment (such as a prophylactic vaccine,defined healthcare packages for each care gene therapy or anti-infective) or apathway. recurring treatment for a chronic condition, which must be supplied on an ongoing basis (see Figure 7).Figure 7: The development of care pathways will provide greater supply chainpredictability Structured Interventions Defined Care Pathway Healthcare Tests/ package Doctor Diagnosis Drug Device Outcome Unwell Physician Chronic Care Labs/Assay Healthy Prevention Compliance/Outcome CureSource: PwC There is potential for collaboration in other Some companies may choose to establish ways, too. Most pharma companies at joint ventures, while others turn to third the moment manufacture and distribute parties. Abbott Laboratories and Boehringer their own products, for example, but this Ingelheim already manufacture for other reduces asset utilisation rates and drives organisations, for example.26 And the up distribution costs, as well as causing contract manufacturing sector is expanding unnecessary environmental damage. very rapidly. In fact, market research firm Conversely, sharing manufacturing and BCC Research estimates that the bulk- and distribution resources would be much more dosage-form drugs segment will be worth economical. A few pharma companies about $73 billion by 2014, more than double have started experimenting with ‘shared the $36 billion it was worth in 2007.27 services’, primarily to support joint product development initiatives. However, the vast majority of companies still build, own and operate their own supply chain infrastructure.Pharma 2020: Supplying the future 15
  18. 18. Collaborating to cut the kilometres In September 2009, confectionery giants Nestlé and Mars joined forces with a leading British supermarket chain to synchronise deliveries of their products over the busy Christmas period and reduce their environmental footprint. The two manufacturers worked closely together to coordinate their deliveries to Experience in other industries has also Moreover, some of the most sophisticated three regional distribution centres demonstrated the benefits of managing third-party logistics (3PL) providers so that any part load order that distribution collectively (see sidebar, – i.e., companies that offer freight either company received could Collaborating to cut the kilometres).28 management and warehousing – are be combined in one truck load. And increasing demand for biologics has expanding into supply chain management By dint of collaborating, they stimulated the development of specialist and coordination services. And it is eliminated over 12,000 kilometres logistics providers capable of handling very arguably these fourth-party logistics of duplicate journeys. sensitive pharmaceutical freight. Many (4PL) providers, as they are known, that provide specialised service where each can deliver the greatest improvements. shipment is transported in temperature When telecommunications equipment – and humidity – controlled conditions, manufacturer Alcatel turned to a 4PL to monitored from a dedicated call centre manage the supply chain for its e-business using web-based tracking and reporting, networking division, for example, its and delivered directly to the customer’s supply chain costs fell from 5.8% to 5.1% door.29 of revenues within two years in that division.30 In other words, the contract manufacturing and logistics industries are both maturing and, by 2020, some of the biggest providers will offer integrated supply chain services. This will enable pharma companies to share resources and capitalise on economies of scale throughout the value chain.16 PwC
  19. 19. Choosing among the options There are two options for companies Companies that concentrate on mass- We’ve discussed why the vast focusing on specialist therapies and market medicines, including generics and majority of pharma companies treatments for orphan diseases, and two over-the-counter (OTC) products, can options for companies focusing on mass- either become low-cost manufacturers will have to build supply chains market medicines. We believe that most or build supply chains that service other with new manufacturing, companies will fall into one of these two organisations and create a profit in their distribution and service- categories by 2020, although the very own right (see Figure 8). management techniques, and largest companies may cover both ends Companies with a broad range of products some of the developments that of the spectrum. But they will still have that present different characteristics and can help them. But what route to develop different supply chains for therefore supply chain needs, will in the different product types. should they take? future need to segment their supply chain More specifically, companies that operation, aligning to the unique demands concentrate on specialist therapies can of the product group. Pharma companies either exit from manufacturing and that operate more than one supply chain operate virtual supply chains or become option will increase with the breadth and service innovators. demand of the portfolio. Figure 8: Four options exist for restructuring the pharmaceutical supply chain Operations Strategy Specialist Therapies Mass-Market Medicines Virtual Service Low-Cost Profit Manufacturer Innovator Provider Centre Create a virtual Build a service- Build a reliable, ‘no- Combine agile, network of integrated oriented supply chain frills’ supply chain economic supply partners to enhance brands to deliver products manufacturing and and differentiate as economically as distribution with the company from its possible provision of satellite competitors services to generate profits Source: PwCPharma 2020: Supplying the future 17
  20. 20. Recommendations for becoming a virtual manufacturer Our experience suggests that there are several key steps a would-be virtual manufacturer should take. It should start by defining what it is and does, including its business strategy, aspirations and corporate 1. The virtual manufacturer culture. Then it should identify the financial The first option for companies making However, despite these advantages, no and technical demands its portfolio specialist therapies is to outsource the Big Pharma company has virtualised its presents, and how those demands are likely entire supply chain from production whole network yet. Concerns about the to change over time. Once it’s looked in the of the earliest clinical batches to calibre of the contract manufacturing mirror and analysed its requirements, it can full-scale manufacturing, packaging sector, supply integrity, quality and crunch the numbers, with a detailed study and distribution, and become virtual compliance persist. In one recent survey, of its internal capabilities, product flows manufacturers. This is very different for example, 91% of the firms that relied and costs, and compare its own capabilities from engaging in the sort of tactical on outsourcing reported experiencing a and costs with those of potential suppliers. outsourcing most pharma companies ‘significant incident’ as a result of quality Any company planning to become a virtual now employ currently. Becoming a problems or delays, compared with only manufacturer should also hire good virtual manufacturer isn’t a short-term 59% of those that performed most of negotiators, because it’s the deal – not the fix to address cash, capacity or capability their manufacturing in-house.32 science – that will ultimately determine constraints but, rather, a deliberate The consolidation of the contract whether it succeeds. So it needs people who strategy. And executing that strategy manufacturing sector will alleviate some can forge strong commercial contracts. And successfully involves building a network of these difficulties. A small cadre of it should make sure it retains enough know- of fully integrated supply partners. global players will replace the multitude how both to evaluate its suppliers properly A number of small firms have already of local providers that currently exist. and to track their performance, including taken the virtual route, but several large The evolution of the logistics industry any changes in the materials suppliers companies have recently announced will likewise result in the emergence and processes they use and any problems plans to outsource a bigger share of their of strong 4PLs capable of distributing maintaining quality control or yield rates. manufacturing. AstraZeneca intends healthcare packages directly to patients After that, the company can concentrate on to outsource all its API production or their healthcare providers efficiently choosing the contractors it wants to work over the next five to seven years, for and economically. But any company that with, and here the secret is to be selective. example, while Bristol-Myers Squibb, decides to operate a virtual supply chain Focusing on a small set of contractors and GlaxoSmithKline, Merck and Pfizer aim will still have to maintain sufficient working closely with them during the to outsource as much as 40% of their in-house expertise to choose the right tender process ensures they have a clear API needs.31 partners and monitor them constantly. grasp of the company’s business, and the Baxter has first-hand experience of a The business case for virtualisation is complexities of the products or processes serious breach in the integrity of its clear. It enables a company to shift to that are being outsourced. But it’s also supply chain, for example. In February a flexible cost base, reduce the risks essential to maintain a close relationship 2008, two Chinese plants were found associated with investing in new assets with those suppliers after they’ve been responsible for producing contaminated and access new technologies and skills. appointed. Lifecycle management of supplies of chondroitin sulphate, the It also helps it align its supply chain contracts is crucial in realising value and raw material used to make its blood network with its demand forecasts, minimising contract ‘leakage’ through off- thinner Heparin, and Baxter is now transfer the risk of primary and back- contract buying or poorly aligned service facing a spate of law suits.33 up supply to a third party and drive levels. costs down by switching products and processes between competing suppliers in its network.18 PwC
  21. 21. In order to manage the risks associated Figure 9: Most pharma companies struggle to get supply chain datawith collaboration, virtual manufacturers promptly from critical suppliers, distributors and other company siteswill need to ensure they have access to real-time data from every stakeholder in their 19%supply chains. At present, most pharma 49% Criticalcompanies rely on periodic audits, but Suppliers 27%these only produce snapshots in time. And 6%most companies can’t get vital supply-chaindata very rapidly. In one recent study, only 11%a small percentage of respondents said 40%they could get information from critical Distributors 37%suppliers and distributors within two 13%hours. Indeed, a number struggled to getthe information within three days (see 28%Figure 9).34 Other 43% CompanySome of these difficulties can be resolved by Sites 18%using interoperable systems and common 11%practices, requiring suppliers to providea complete history for every batch of raw Within 2 hours Within 1 business day Within 3 business days After 3 business daysmaterials or components they produce andreplacing periodic audits with constant Source: Axendiasurveillance. But any company that takes thevirtual manufacturing route will also haveto encourage its suppliers to collaboratein developing a better understanding ofkey parameters and implementing processcontrols to produce greater supply chainvisibility. In effect, it will need to treat itssuppliers as extensions of itself, rather thanas separate manufacturing and distributionislands.Pharma 2020: Supplying the future 19

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