You were able to discover a promising molecule, get it manufactured, and obtain approval for clinical trials. You were even able to secure VC funding to get you through to commercialization. But it all may be for naught if you don’t properly manage your supply chain.
How do you ensure you have selected the right partners and are doing what is necessary to minimize your supply chain risk? Having a good match between sponsor and vendor is critical to this relationship, so finding partners who are a cultural fit is important. Do the two companies manage communications in a similar way? Does your supplier have the same thoughts on managing risk? Do the two companies share similar views on quality and regulatory issues? These are topics that can make or break a relationship from the outset.
Once you get beyond the selection process, supplier management is critical. Proper supply chain management will minimize quality issues, avoid shortages and regulatory problems, and allow you to sleep at night. A panel at the inaugural Outsourced Pharma West Conference and Exhibition addressed this topic and produced several recommendations to make the process as riskfree as possible.
BOXCARS ARE NOT A STRATEGY
Several speakers noted that the approach many companies take to avoid shortages is what is called “project boxcar.” They take a boxcar, fill it with API, and hope that will mitigate their risk of a supply disruption. This does not adequately replace a good second supplier. Unfortunately, with the high cost involved with finding, vetting, and establishing a secondary supplier, the boxcar method seems more cost-effective for many small bio firms. Even when a sponsor claims two sources for a product, it might be a situation where 90 percent of the product is coming from one facility and 10 percent from another. If the former were to go down, it would be almost impossible for the latter to make up the shortfall.
The situation also varies greatly depending on whether you are dealing with a new or existing product. With an existing product that has been around for maybe 15 years, a sponsor might have six months of inventory on hand. A hiccup with one supplier will not matter. With a product just being launched, that inventory doesn’t exist, and there has to be zero risk with your suppliers. In these different situations, a one-size-fits-all model is not going to prevail.
EVALUATE EACH FACILITY INDIVIDUALLY
If a supplier has five plants in five different locations, there is no guarantee all five will produce product at the same quality level. A quality mindset, established by management, can go across an entire organization and affect multiple sites. So, if you have three plants, and two of them look to be in poor condition and one looks perfect, don’t assume the culture of quality won’t be the same at all three. Unless the plants are operating almost as independent operations, a quality issue at one location should make you skeptical of all of the locations.
When visiting the different locations, ask questions about issues you perceive to determine what is being done. Then give them time to resolve them. If the issues are at a newly acquired site and the CMO plans to pump $50 million into the facility, that would be an acceptable answer. But if a plant has been in the network for 20 years, is falling apart, and the CMO is moving product out of it, it may be time to keep looking. An FDA warning letter or a bad inspection could easily sink your product.
As one presenter put it, “If you know that plant A and plant B were both shut down in the past, don’t be surprised if plant C is soon shut down as well. You would have to be deaf, dumb, and blind to look at that picture and not see that there was a network issue involved and not simply a plant issue.”
TRUST YOUR EXPERIENCE
If you have spent enough time evaluating CMOs, at some point you will start to trust your experience and gut instinct when vetting them. There are certain things you will hear or not hear that will give you the confidence to trust or reject a CMO. The level of investment is one metric that seems to give most sponsors a certain level of confidence. If you believe the amount of investment over a number of years has not been sufficient and you are considering moving an important product line there, that should send up a red flag.
While many quality issues might be obvious from touring the plant, our panel recommends digging in and asking a lot of hard questions to find out what is the true culture of the organization. Have a good understanding of what you hope to accomplish and what the keys to success for the project will be. Every plant and inspection will be different. Therefore, don’t reuse a checklist that was written for another CMO; always start fresh with a new checklist specifically tailored to the plant you are visiting. As one panelist noted, you will often look back and wish you had done a better job on an assessment, but no one has ever said they regret putting too much effort into one.
One metric that should always strike fear into someone performing an assessment is turnover, especially in the areas of quality and analytical. “If a CMO is turning over its quality group every two or three years, there is no consistency that can exist there, and that scares me,” said one speaker. This also illustrates the importance of having a relationship with individuals at several levels. If the person you like and work with suddenly leaves the company, it’s possible you will be stuck with someone you don’t like or who doesn’t understand your business. Having other key relationships in the company can help alleviate that problem.
INVESTIGATE YOUR SUPPLIER’S SUPPLIER
It’s one thing to manage the risks that you know exist. You determine the risk level, identify possible solutions, evaluate them, and then select the best option. But what about the risks that you don’t know exist? Those are the ones that can sneak up on you and sink your project before you even know they exist.
One of the biggest mistakes you can make in auditing a CMO — which can lead to unknown risks — is not digging deep enough into the companies they do business with. One speaker told the story of a project where a sponsor was sourcing a product from three different suppliers. Everything was going great, and the redundancy gave the company peace of mind. Unfortunately, all three suppliers were obtaining product from the same source. Therefore, the company was sole-sourcing the product and did not even know it, nor did they know exactly who was producing it. Eventually they did find out. A fertilizer factory next to the supplier exploded and created a shortage of the product overnight.
It did not occur to anyone at the sponsor company to do a little more digging into the company’s suppliers to determine the ultimate source of the product, much less check to see where that supplier was located and who its neighbors were. Many pharma execs have been burned by hidden risks, and only by digging deeper into your suppliers will you be able to locate them and take appropriate action.
Some panelists and audience members also questioned the level to which risk could be reduced by improving the overall audit function. Asking more in-depth questions would certainly enable auditors to better uncover hidden risks. “I have seen auditors come in and simply go through a checklist,” noted one panelist. “But if they had more skills and experience, they would know to ask certain questions that didn’t just come off a standard audit checklist. People will ask questions, but they are not the right questions, and they do not get to the right issues that are creating the risk.”
Of course, acting on audit results is also important. If audits cite the same issues year after year, but nothing is done about them, an opportunity to reduce or eliminate certain risks is being missed.
FORGET ABOUT THE ONE-STOP-SHOP
No discussion of supply chain issues would be complete without mentioning risk reduction via one-stop-shops. It was on that topic that the panel concluded its discussion. Bringing together an API manufacturer with a drug product manufacturer might be a way to shorten and better secure the supply chain, but the consensus seems to be that the model rarely works as planned.
“I don’t think that model is ever going to work,” noted one panelist. “My experience is that if you bring together an API and a drug product manufacturer, you will end up with a company that is not as good at either one. In 10 years, I have still not seen it succeed.”
The thinking is that by bringing together the two manufacturers, there are more resources, there are synergies that can be derived, and the new company will be bigger and more efficient than the two pieces. But the panelist makes a good point: Will you really end up with a company that is an expert on both sides of the business?
It will be interesting to see, in the next few years, if a lot of the consolidation going on in the industry will result in successful integrations and how valuable they will be to sponsor companies. One factor that may come into question is the scope of these mergers. API and drug manufacturing may work well together. API, drug product, packaging, clinical trials, and toxicology may be a bit much.
“I may be a bit of an optimist,” noted another panelist. “I love the idea of a one-stop-shop. It’s possible that these companies getting bigger and better resourced will make them more valuable suppliers to the industry. It could be a real win for the industry, and I am encouraged by it.”