Magazine Article | September 28, 2012

Are Big Pharma Companies Dangerously Limiting Their Supplier Options?

Source: Life Science Leader

By Wayne Koberstein, contributing editor, Life Science Leader

Missed opportunities for quality and value in supplier relationships are the price companies may pay when they use outsourcing only for efficiency and risk management.

Simple questions often have complicated answers. In this case, with no sarcasm intended, the simplest answer to “Are Big Pharma Companies Dangerously Limiting Their Supplier Options?” is “It depends…”

What is the first thing that comes to mind when someone asks the question? Doxil? Drug shortages? Plant closures? Warning Letters? 483s? But don’t allow transient events to cloud the picture; internally, the companies of Big Pharma have been cutting back big — not just in manufacturing, but in R&D and other areas. Externally, with suppliers, the situation is more nuanced. Companies may have boosted their outsourcing in quantity, though recent growth in the sector has flattened, but they have paid less attention to the quality of outsourcing relationships as a strategic asset. If anything, they have downgraded their priorities and purposes for outsourced goods and services of all kinds, relying on too few suppliers and largely failing to communicate and collaborate with the suppliers they do have to create a competitive edge. Dangerously so? It depends.

It depends on the product, the patient, the competitive position, and the many other alliterations that characterize what’s at stake when the limits companies impose on their supplier options produce insufficient or unsatisfactory results. Consequences can range from inconvenience to the worst of all corporate fears — lost revenue and profits.

By all accounts, Big Pharma companies have been transferring more of their production to CMOs for some time, supposedly to be more efficient. So how is it that a company can find itself blindsided by a catastrophic shortage of a widely used drug, due to a single CMO plant closure? Have they never heard of backups? Do they even care about the condition of the CMO facilities? Why do they seem so surprised and overwhelmed? Those are questions only a layperson would ask, of course; people like us, working in or close to the industry, are supposed to understand the realities of fiduciary responsibility and its attendant frugality. Does that mean professional industry knowledge trumps common sense? No, something is seriously, strategically wrong with companies’ thinking here, and we know it by their works.

Executives have a way of delegating doubt. If any area of the company represents risk without an obvious reward attached, as it is in sales, corporate management will typically departmentalize it or, if internal costs rise too high, outsource it. In large part, pharma companies unfortunately use outsourcing mainly as a risk-avoidance tool. They want the problem to go away, not to become another problem they have to manage. So if you tell them they need to have better oversight of their suppliers and put greater value into “collaborative” relationships, they’ll probably want you to go away, too.

Okay, as everyone says, it’s “harder” for pharma companies to widen their supplier options because their industry is so much more regulated than others. But when the regulators are out in front, pushing you toward new technologies, systems, and solutions, you can’t just go on hunkering down and clinging to your old Victorian ways — says that pesky but informed layperson. You keep talking about innovation, so why can’t you innovate your way out of nasty problems like sudden drug shortages or botched trials?

This is monumentally unfair, of course. I can already hear the corporate version of howling coming from the C-level offices of Big Pharma: “We do so care about our suppliers — and we have this and that program to prove it! We want our suppliers to be our partners!” All I can say in return is that I hear a different story coming from the “floor” and from manufacturing experts, who generally regard Big Pharma production as antiquated compared to the advanced technologies and systems used in other industries.

What Are You Overusing/Underusing Regarding Outsourcing?
But I won’t waste any more time talking about why the pharma industry isn’t doing more to avoid supplier-related problems. Let’s just look at some of the things companies could do if or when they have the will to go further than they’ve gone before. Although the examples I cite apply mainly to manufacturing, they have implications for R&D and other outsourced activities.

First, how are companies generally underusing outsourcing? Here is just a short list of widely ignored options:

  • innovation/access to new technologies and processes
  • capacity sharing
  • quality by design (QbD) and serialization
  • preparation for regulatory actions and changes
  • risk management and accountability
  • strategic compound management — from characterization to clinical development
  • backup supply.

Next, how are companies overusing outsourcing?

  • risk/responsibility avoidance
  • cost cutting/resource rationalization
  • “blind” buying of expertise and capacity
  • virtualization without participation.

Some of those points require more explanation. I’ve touched on technologies and processes. Capacity sharing opens up a new vista entirely. When MedImmune and Merck signed a deal to swap their excess but complementary production capacity, they made history in the world of CMOs. I hear from one wellplaced source that many CMOs also have excess capacity in production dedicated to Big Pharma products. At some point, someone will likely put 2 and 2 together to configure a capacity- sharing model involving CMOs and their pharma clients.

The Drivers Of QbD And Serialization
Similarly, a combination of external pressures and internal needs will continue to drive pharmaceutical manufacturing into QbD and serialization. Regulators want both, and the auditing/consulting side of QA/QC is also lining up to support their speedy adoption. In fact, QbD and serialization illustrate the next underused option for collaborating with suppliers — keeping up with regulatory actions and changes. Pharma companies bear primary responsibility for any regulatory problems with their products, outsourced or not. Both suppliers and their clients have a mutual interest in avoiding regulatory censure. Let’s suppose a pharma company could win a critical competitive advantage by being the best at collaborating with its suppliers for the cleanest possible regulatory record. Too “intangible?” Hire an accountant. Do the math. Show how much you can cut costs by lowering the rate of supply disruptions below historical levels.

The most common reasons for outsourcing — efficiency and risk management — may not be the best ones. What is so efficient about relying on a single supplier for a key product when you factor in the worst scenario — a total interruption of supply guaranteed to happen at some point by the great law of Murphy? And the risk actually “managed,” i.e. avoided, is about the same as walking blindfolded along a narrow plank, not knowing what lies at the end. If you want to make important parts of your company “virtual,” at least participate as one side of the virtual partnership. It’s about more than avoiding supply disruptions; it’s about strategically managing your product from characterization through development and, ultimately, as therapeutic agents inside the bodies of real human beings.