Addressing Global Supply Chain Disruptions in Biotech Manufacturing

The pharmaceutical landscape has changed drastically since COVID-19, affecting all aspects of the industry from research to the patient at the center of care. Now as researchers go back in the labs and patients return to their normal routines, the issues of supply chain and manufacturing are in the spotlight. Geopolitical factors, legal and regulatory changes, rapid adoption of AI technologies and evolving business challenges are all pointing in one direction — a determined focus on bringing biotech manufacturing back “onshore.”

Drug companies must be ready for the change ahead.

National Security Calls for ‘Made in the USA’

In the US, there is pressure to maintain the provenance of drug products with national security the primary concern. According to FDA testimony and the Congressional Budget Office, 72% of drug products are made in registered facilities outside of the US. The concern over national security, coupled with conflicts abroad, potentially limit or disrupt essential pieces of the supply chain and bench-to-bedside model. The prevailing sentiment in Washington is that our most important products should be made in the US to avoid significant disruptions. The industry should expect favorable conditions regarding domestic manufacturing now and in the near future.

For example, look for Puerto Rico to continue establishing itself as a hub for the pharmaceutical manufacturing industry. The US government introduced tax incentives in the 1960s and 70s for companies to set up operations on the island, which have since expired. More recently, the Trump administration announced additional funding as part of a $13 billion package that included both relief from Hurricane Maria and some manufacturing incentives. As of 2020, 12 of the 20 largest drug makers have operations on the island and five of the world’s top 10 selling drugs were manufactured in Puerto Rico.

The US Government Looks to Ensure Drug Availability

Geopolitical trends, combined with the pressure to maintain consistent supplies, have led to changes in laws and regulations in the US through two mechanisms:

1. Ensure essential medications are available
   We’ve seen a bipartisan effort to shore up production in response to shortages and potential problems in the supply chain. One example is the Prepare Act of 2021, which would create a national stockpile of active pharmaceutical ingredients and generics for essential medicines to mitigate the effects of any supply chain shortages. The bill also includes routine threat assessments that watch for lack of capacity in the current supply, potential increased demand and instances where there are two or fewer manufacturers of any essential generic medicine. These safeguards ensure that essential medicines are being monitored and produced in adequate supply.
   
2. Invest in the future of drug manufacturing
   A second law goes beyond current stockpiles and risk assessments and instead focuses on the future, specifically new biotechnology and manufacturing. By ensuring that there is sufficient supply domestically and a developed infrastructure for investment, domestic production will be empowered to remain robust. As part of a biomanufacturing executive order, the Department of Defense will invest $1 billion in bio industrial domestic manufacturing infrastructure over five years and will provide incentives for private sector partners to expand manufacturing capacity for products important to both commercial and defense supply chains.

What We Can Learn from Other Industries

The increasing threats of national security, global pandemics and trade disputes have all led us to the current environment. Now the ball is in the industry’s court. How will pharmaceutical companies respond? What are the business implications of more government involvement? The semiconductor industry provides a case study of how these dynamics have played out over the last year.

According to the Semiconductor Industry Association, “the share of modern semiconductor manufacturing capacity located in the US has eroded from 37% in 1990 to 12% today, mostly because other countries’ governments have invested ambitiously in chip manufacturing incentives and the US government has not. Meanwhile, federal investments in chip research have held flat as a share of GDP, while other countries have significantly ramped up research investments.” To combat this, the US government passed the CHIPS Act in August 2022, which aims to strengthen domestic semiconductor manufacturing and research and reinforce chip supply. As a result, Intel has already pledged to build a $20 billion plant in Ohio, and Micron has announced a multi-billion-dollar investment to construct the largest semiconductor manufacturing facility in the country.

The life sciences industry is not guaranteed to follow a similar path of quickly shifting manufacturing hubs. It is a more regulated industry with a different set of business challenges that are equally as complex and go beyond supply/demand dynamics. Medicines are evolving at a rapid pace, and they are very different than the medicines of old with lesser focus on high volume. However, this case study provides a good example of other industries’ solutions to similar challenges.

How Life Sciences Companies Should Respond

When life sciences companies consider these external factors, they need to minimize risk and simultaneously control costs. It falls on industry leaders to take a holistic approach to business strategy in light of these macro themes. Here are several things industry leaders should consider:

• Diversify Suppliers and Partnerships to Scale New Therapies. Current factories are designed to develop large quantities of lower complexity drugs. Today, the latest therapies, such as cell and gene therapeutics, are more specialized and require more complex materials like viral vectors, which are in low supply. To accommodate the higher complexity, there is a need for more niche talent to develop and manufacture newer drugs at scale. One example is the emergence of RNA printing. This process of manufactured, personalized and affordable point-of-care mRNA therapies allows for specific treatments rather than a broad spectrum of care. This highly automated, yet individualized approach results in market efficiencies by avoiding surplus production costs and reducing waste. By creating smaller, more efficient manufacturing facilities for these therapeutics, companies can reduce their overhead. Smaller facilities can be built in any city, rather than on the large plot of real estate that’s required for a massive warehouse.
• Increase Supply Chain Visibility to Address Volatility. According to a recent study where 100 industry executives were surveyed, 94% of respondents actively leverage supply chain visibility technology to track inbound raw materials and plan manufacturing schedules. However, nearly one third of them are not satisfied with their existing platform’s capabilities. Now is a critical time to invest in track and trace technology with AI capabilities as the threats of cybersecurity, supply limitations and further disruptions will only increase. Flexible inventory has been traditionally used to accommodate uncertain supply times but it only works in practice with the right data and systems in place. To truly be patient-centric, companies must start with excellent product visibility through the value chain. This means leveraging AI-powered tools and platforms that can not only trace products and predict inventory but also identify potential disruptions due to geopolitical or financial risk.
• Evaluate Onshore Production. Managing quality and risk is often more difficult from abroad. If an unforeseen interaction is present or if rapid changes are needed to a current formulation, telegraphing these changes within the same time zone ensures a quick response. In addition, facility check preparations and meeting FDA guidelines becomes a less complicated and less expensive process. As more regulation and focus is put on the industry to fight off counterfeit products, tampering of products or (worst case) “bad batch” scenarios, the physical visibility and proximity of product will play a vital role moving forward as investment in quality control increases. As mentioned above, we see supply chain visibility being a leading indicator for business success in this space, which will be required for the industry as part of the FDA’s Drug Supply Chain Security Act (DSCSA) by end of 2023.

In Conclusion

So where do we go from here? As the federal government looks to bring manufacturing and supply chain operations onshore, there’s a lot of work that needs to be done by pharmaceutical companies.

We’ve seen companies that have embraced supply chain as their competitive advantage (think Apple and Amazon), but just investing in individual siloed groups of the supply chain and manufacturing organizations will not unlock the broader value opportunity. Instead, life sciences companies should make strategic investments in the parts of the business traditionally seen as cost centers. Here are some ways to get started:

• Look for quick wins that focus on efficiency and productivity gains of existing applications in the short term. This could include command center analytics and digital twins.
• From a business process perspective, identify areas of enhanced communication and exchange of data both up and downstream in the value chain.
• Aim to be patient-centric by investing in visibility and agility through the entire supply chain by leveraging AI.
• Learn from the success of other industries like semiconductors and work with governments to invest in communities with talent and proximity to major markets.