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Pharma 2020:Supplying the futureWhich path will you take?www.pwc.com/pharma2020Pharmaceuticals andLife SciencesPharma 2020: Supplying the future 1Table of contentsIntroduction 2The 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 trendsRemoving the roadblocks 10• New development technologies• New manufacturing technologies• New distribution technologies• New patient interface technologies• Greater collaborationChoosing among the options 17• The virtual manufacturer• The service innovator• The low-cost provider• The profit centreManaging the movement of information 24Restructuring the asset base 25Conclusion 26References 282 PwCUnfortunately, it’s a link that frequentlydoesn’t work very well. Most pharmacompanies have complex supply chainsthat are under-utilised and inefficient.Worse still, they are ill-equipped to copewith the sort of products that are comingdown the pipeline. By 2020, many of themedicines the industry makes will bespecialist therapies that require totallydifferent manufacturing and distributiontechniques from those used to producesmall molecules.In short, the pharmaceutical supply chainneeds a radical overhaul, and we predictthat it will undergo three key changes overthe next decade:• It will fragment, with different modelsfor different product types and patientsegments• It will become a means of marketdifferentiation and source of economicvalue; and• It will become a two-way street, withinformation flowing upstream to drivethe downstream flow of products andservices.We’ve identified four potential supplychain options from which pharmacompanies can choose. Those that focuson specialist medicines can either delegateall their manufacturing and distributionto trusted contractors or build serviceoriented supply chains to enhance theirbrands. Those that focus on mass-marketmedicines can either become low-costproviders or build supply chains thatgenerate a profit by servicing both internaland external customers.We’ll discuss the main trends dictatingthe need for a new approach to themanufacturing and distribution ofmedicines, together with some of thetechniques and technologies that will helpthe industry make the necessary changes,in more detail in the following pages. We’llalso look at the key characteristics of eachof the four routes we’ve identified, and theimplications they carry.IntroductionThe pharmaceutical industry is experiencing major upheavals, asPwC* noted in earlier Pharma 2020 papers. Many companies haveresponded by trying to discover, develop and market medicines moreefficiently, but they’ve invested relatively little effort in reconfiguringtheir manufacturing and distribution operations to date. Yet the supplychain is just as important; it’s the link between the laboratory and themarketplace.* “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, asthe context requires, individual member firms of the PwC network.Pharma 2020: Supplying the future 3Figure 1: The supply chain is the backbone of a pharma companyInformation SystemsPlanning and CollaborationNew ProductPeople and SkillsDevelopment& InnovationActivePharmaceuticalIngredientManufacturingSecondaryManufacturingand PackagingDistribution PatientWholesaler PharmacyDirect-to-pharmacySource: PwCA supply chain is the means by whicha company transfers its products fromdevelopment to the marketplace in orderto sell them and generate a profit. Itincludes all the organisational, operationaland value-adding activities needed tomanufacture those products and get themto the customer. So, for a pharma company,it covers everything from new productdevelopment through to delivery to thehospital, retail pharmacy or patient (seeFigure 1).Some companies have superb supplychains. Fashion retailer Zara is renownedfor the speed and agility of its supply chain,for example.1 Apple, Procter & Gamble,Cisco Systems and Wal-Mart also rankamong those regarded as leading examples.2However, most pharma companies havesupply chains that are neither flexible norcost-effective.When the ‘blockbuster’ paradigmprevailed, this wasn’t a serious problem,but the situation is now changingdramatically. Generic competition hasalready dented Big Pharma’s revenues – atrend that will continue, as the patents onproducts with sales of more than US$267billion expire over the next six years.3 Sothe economies of scale the industry leadershave traditionally enjoyed are rapidlydiminishing.Many pharma companies have as a resultstarted refining their supply chains. Butmost of the changes they’ve introducedhave been short-term measures toaddress immediate challenges like therationalisation of larger manufacturingnetworks as a result of acquisitions. This isreflected in the progress – or, rather, lack ofit – they’ve made in recent years.The times they are a-changin’Asset utilisation rates have improved.Between 2004 and 2009, overallequipment effectiveness in packagingincreased from 36% to 51%, for example.Quality has also risen, with the percentageof rejected batches falling from 1.00%to 0.74% over the same period. Butaverage set-up times have increased from79 minutes to 93 minutes, and the vastmajority of pharma companies are still farfrom having any kind of ‘continuous flow’,smooth production scheduling or make-toorder manufacturing. Instead of producingon demand, they must hold large quantitiesof inventory, which drives up their workingcapital and overheads.44 PwCEven more importantly, few, if any, pharmacompanies have supply chains capableof meeting tomorrow’s needs. Numerousforces – both internal and external – arereshaping the environment in whichthe industry operates, with profoundconsequences for the way in which itmanufactures and distributes its products(see Figure 2).Figure 2: Numerous forces are dictating the need for a different sort of supply chain1 New product types• More complex manufacturing and distribution processes• Different supply chains for different product types• Shorter product lifecycles2 Live licensing• Incremental launch of new medicines• Ability to scale up and down very rapidly• Step changes in the revenue curve3Increasingemphasis onoutcomes• Expansion into health management service• Leaner and more adaptable cost structure that preservesgross margins at every stage of the product lifecycle4 New modes of healthcare delivery• Blurring of the boundaries between primary and acutecare• Much wider distribution network• Demand-driven manufacturing and distributionprocesses5Growingimportance ofemerging markets• Offerings designed for patients in emerging markets• More widely dispersed and more robust supply chain6 Greater publicscrutiny• Heavier regulation• Robust risk assessment and risk-managementcapabilities across the extended supply chain7 Environmentalpressures• Sustainable eco-friendly processes• Relocation of plant to less vulnerable regionsSource: PwCPharma 2020: Supplying the future 51. New product typesPharma’s portfolio is changing substantially.Industry analysts predict that, by 2016,bioengineered vaccines and biologicswill account for 23% of the global market(measured by value), up from 17% in 2009.5The product base will become even morediverse, as advances in nanotechnology,tissue re-engineering, stem cell researchand other such disciplines start to yield fruit(see Figure 3).However, many of these new therapiesand the devices used to deliver them willrequire more complex manufacturing anddistribution processes than conventionalchemical entities. Indeed, somepersonalised medicines and poly-pills willhave to be ‘finished’ at the pharmacy orpoint-of-care (see sidebar, New drugsand devices). Such challenges will notbe enough to prevent product lifecyclesgetting shorter, though; greater competitionboth from similar new products and fromtotally different product types will reducethe period of exclusivity all but the mostpersonalised therapies enjoy, as it has in thecase of conventional medicines.Figure 3: By 2020, Pharma will be making a much more diverse range of productsMainstream technologies already happening Gene/Cell/Tissue technologies Nanotech-related technologiesKEY2010 2012 2015 2020Fixed dose combinationsRecycling existing drugswith greater expectedhealth benefitsTherapeutic monoclonalsNew antibody treatmentsfor cancer andinflammatory disordersBiomarkersFirst wave of clinicallyvalidated biomarkersNano-pillsOral imaging diagnostics‘pills’ for gastrointestinal andother conditionsGene-based therapiesFirst gene-based therapiesfor diseases such asoncology and cardiovascularHuman cell therapiesFirst stem cell therapies fordiabetes, Alzheimer’s disease,Parkinson’s disease andvascular injuriesTissue engineeringFirst tissue engineering orxenogenic therapiesPharmacogenomicsFirst fully integrated PGxproduct propositionsImagingBetter real time imaging fordiagnosis, monitoring andtreatment of multiple diseasesNano-carriersTargeted drug deliverysystems for Alzheimer’sdisease, Parkinson’sdisease, cancer and strokesSource: PwCNew drugs and devicesBiologics are in general more susceptibleto impurities in the productionprocess and damage during shippingthan chemical entities. Making geneand tissue-based therapies is evenmore difficult. Each sample must beindividually extracted, propagated,prepared and tested before it can beadministered, so it must be treated as aseparate manufacturing lot and finishedat a location near the patient.Many of these specialist treatments willalso need novel delivery devices, since itis difficult to produce oral formulationsof large molecules. Micro needles,magnetically targeted carriers, nanoparticles, polymer capsules and multilayered medicated patches are likely topredominate, but such devices are muchmore complex than those that are usedtoday.6 PwC2. Live licensingThe launch process will also becomemuch more incremental, as new methodsfor assessing, approving and monitoringmedicines emerge. At present, themarketing applications for most newmedicines are either approved or rejected;the supply chains for manufacturing anddistributing them are designed to supportpeak sales volumes; and the revenues theygenerate climb in a relatively simple curve.But the binary system of authorising newmedicines is becoming more graduated.The European Medicines Agency (EMA)and US Food and Drug Administration(FDA) introduced conditional approvalsfor certain products some years ago.6Both agencies are also placing much moreemphasis on post-marketing surveillance,and we believe that the current systemwill eventually be replaced by a systemin which new therapies are granted ‘livelicences’ contingent on further testingto confirm their safety and efficacy indifferent patient populations.7Once this happens, the ‘big bang’ launchwill give way to a phased approach inwhich demand for a new product risesas the licence is extended. The intervalbetween the initial launch and peaksales point will thus be much longer; therevenue curve will climb more slowly; andthe payback period for capital expenditureon plant and equipment will be moreprotracted (see Figure 4). So, rather thanmaking a large upfront investment in asupply chain designed to cope with peakvolumes, any company launching a newmedicine will need to build a supply chainthat can be rapidly adjusted as the licencealters.Figure 4: The revenue curve will climb more slowly, when ‘live licences’ replacethe binary system of approving new products Peak Sales80%40%Understandingthecost of capital andimpact on margins iscritical to managingproduct profitability RevenueTimeSource: PwCOption 1Build one facility to accommodate peak salesAdvantages:• Low scale-up risks.• Big site drives operational efficiencies.Disadvantages:• Large capital outlay for un-proven demand.• Low utilisation during growth of the product.Option 2Adopt a modular manufacturing platformscaling up to support each volume plateauAdvantages:• Capex linked to known market demands.• High site utilisation.Disadvantages:• Cost and risk of commissioning more sites.• Many small sites increases cost base.Pharma 2020: Supplying the future 7Financially stretched governments andhealth insurers are simultaneouslybecoming much more demanding;they now want clear evidence that themedicines they buy are really effective.This has huge implications for Pharma.The industry will not only have to managethe 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.The ability to provide demonstrable valuefor money will thus become a criticaldifferentiating factor, and the supply chainwill play a key part in providing that valueby commissioning and supervising aspectsof the services patients need to managetheir health.The drive to cut costs and improve outcomesunderlies several other changes takingplace in healthcare delivery, with equallymomentous consequences for the industry.Most of the OECD countries have beentrying to reduce reliance on hospitalsand specialists since the 1980s.8 Selfadministration of medicines is also on therise, as patients are encouraged to take amore active role in managing their own care.Both these trends will continue as clinicaladvances provide better medicines foracute conditions and patients become moreempowered. Many diseases which must atpresent be treated in hospital will then betreated at home.But migrating from a system in which careis provided in a relatively small number ofhospitals, clinics and surgeries to one inwhich care is provided through a diffusenetwork of nurses and community carershas enormous ramifications. Pharma willneed to distribute its products to manymore locations, including patients’ homes.It will therefore have to harness the mostefficient ‘final mile’ distribution networksin order to deliver medicines to the door aseconomically as possible.The digitalisation of healthcare delivery,with greater use of electronic healthrecords, e-prescribing and remotemonitoring, will reinforce the drive topush healthcare into the community.However, it will also provide Pharma withone of the key components needed tomake the transition. E-prescriptions areeffectively point-of-sale data. Access tothis data will enable pharma companiesto build demand-driven supply chains inwhich healthcare packages for differentpatients are assembled at ‘super hubs’before being delivered to their homes.By 2020, information about patients andthe medicines they need will thus be asimportant as the products themselves.3. The increasing emphasis on outcomes4. New modes of healthcare delivery8 PwCThe growing importance of the emergingmarkets will accentuate these challenges.Although patients in the developingeconomies are becoming more prosperous,they typically pay more than half the costof their medicines themselves – and fewcan afford to pay as much as patients in themature economies.9 Moreover, the choicesthey make are often based on differentvalues from those that influence thedesign of products and services intendedfor consumption in the developed world.Cost and the ability to buy on a daily orweekly basis are more important thanconvenience, for example.If Pharma is to market its productseffectively in the developing economies,it will have to understand the needs ofpatients living in these countries andtailor its offerings accordingly; and it canlearn from the medical device industry inthis regard (see sidebar, Designs for thedeveloping economies).10 It will alsohave to build a supply chain that is bothmore geographically dispersed and moresecure. The number of recorded cases ofcounterfeit, stolen or illegally divertedmedicines has already soared nearly ninefold since 2002.11Designs for the developingeconomiesSeveral medical device companies arealready designing and manufacturingproducts specifically for people livingin the developing economies. FreeplayEnergy has, for example, developedfoetal heart rate monitors and pulseoximeters that are driven by humanpower and designed to cope withharsh conditions. Mindray MedicalInternational, one of China’s biggestmedical equipment manufacturers,also specialises in making inexpensivepatient monitoring and life supportdevices. And cardiologists at India’sCare Hospitals have designed cheapheart valve replacements, minimisingthe number of disposable parts to keepcosts down. Pharma can learn fromsuch role models. It can, for instance,develop economical formulations andstripped-down services for patientswho can’t afford its most expensiveofferings.5. The growing importance of theemerging markets6. Greater public scrutinyIn fact, by 2020, the ability to manage riskand compliance throughout the supplychain will be more crucial than ever before.While globalisation is increasing therisks, greater public awareness and morediligent enforcement are raising the bar.In 2009, for example, the FDA recalled arecord 1,742 medicines. A single companyaccounted for more than 1,000 recalls but,even when these are stripped out of thepicture, the number of recalls still rose by50% year on year.12Other administrations are also tighteningthe rules. The Indian governmentrecently passed a law mandating the useof track-and-trace barcodes on all drugsmeant for export, with effect from July2011, following reports that Chinesecounterfeiters were selling fake medicineslabelled ‘Made in India’ in several Africancountries.14Pharma 2020: Supplying the future 9The Green agenda presents otherdifficulties. All pharma companies alreadyoperate under strict environmentalcontrols, for obvious reasons. But theseregulations are likely to become eventougher, given the international drive tocurb carbon emissions. Taxes on waterconsumption are also likely to rise, aspopulation growth, increased farming,rapid urbanisation and climate changeexacerbate the shortage of fresh water (seesidebar, Water is the new gold).15However, many of the assets pharmacompanies own are designed to supportspecific manufacturing processes– processes that typically consumeconsiderable amounts of energy andwater. If the industry is to reduce itsenvironmental footprint, it will have toadopt new, more eco-friendly processesand that will require a substantialinvestment in new equipment.Indeed, some companies may have torelocate some of their production facilitiesto completely different places. Globalwarming is changing the world’s weatherpatterns and many of the traditionalcentres of pharmaceutical manufacturing,such as Singapore, lie in regions thatwill become more vulnerable to extremeweather events. Even if it proves possible toengineer a better climate – e.g., by lockingup the ice caps or using plants to suck upexcess carbon dioxide – geoengineeringexperts widely agree that the effectswould be limited. Such measures would,at best, reduce peak temperatures duringthe transition to a low-carbon world.16But relocating a plant to a new country orregion is a complex business; numerouspolitical, financial and commercial factorsmust be looked at, as we indicated in“Pharma 2020: Taxing times ahead.”17Water is the new goldAbout 20% of people live in countriesthat don’t have enough fresh water, butthe situation will get much worse overthe next decade. The global populationis projected to rise from 6.8 billionto 7.6 billion by 2020. The amountof food needed to sustain mankind isthus increasing – and farming alreadyaccounts for about 70% of the world’stotal fresh water consumption. Rapidurbanisation is also driving up demandfor safe drinking water and sanitationfacilities, and environmental changeslike deforestation and global warmingare exacerbating these pressures.Water shortages will have a seriousimpact everywhere. The UnitedNations predicts that, by 2025, 1.8billion people will be living in regionswhere water is very scarce, while5 billion could be living in ‘waterstress’ conditions. The problem willbe particularly acute in China, India,sub-Saharan Africa, South Asia andsome parts of Latin America. But evencountries in more temperate zoneswill suffer. One recent study suggests,for example, that large swathes of thesouth-western US will be at risk ofwater shortages by mid-century.7. Environmental pressuresThe collective impact of these trendsTo sum up, the current model formanufacturing and distributing medicinesisn’t fit for Pharma’s future needs, as manyindustry executives recognise. The highmargins that made it feasible to tie upcapital in large stocks of raw materials andfinished goods are ending. Most companiesalso have asset bases that are ill-suitedto produce the sort of therapies that arenow in the pipeline or to cope with newenvironmental regulations, so they’ll haveto sell or re-engineer much of their existingplant.The change in the industry’s remit has evenmore fundamental implications. Pharmacompanies will have to manage a vastnetwork of service providers, as well asmanufacturing and distributing their ownproducts. They will also have to acquire amuch deeper understanding of patients.In a world where outcomes count foreverything, it’s not molecules that createvalue but, rather, the ability to integratedata, products and services in a coherentbusiness offering. Understanding thisshift of emphasis from products to patientoutcomes is critical; those firms that candevelop and supply integrated productservice packages will be able to deliversignificant benefits to every stakeholder inthe healthcare value chain.10 PwCFigure 5: Significant opportunities for improving the supply chain existInternal andexternalcollaboration‘Assembly line’ production(disposable components, Quality byDesign & PAT) and continuous manufacturingDistributionstructure andtechnology‘Self service’ (the patientas an integral componentof the supply chain)Dynamic sourcing,micro-processingtechnologies andnumbering upFlexibleproductionFlexibleproductionComputer modelling(virtual process development,facility design and validation,Quality by Design)Formulations that areeasier to manufactureNew ‘patientinterface’technologiesAlignedperformancemanagement Plan ning and CollaborationPeople and SkillsInformationSystemsRawMaterials/IntermediatesAPISecondary/Packaging Distribution ServiceE-prescribing (POSdata for supplychain planning)R&DSales & MarketingPatientPatientSource: PwCTimely access to various emergingtechnologies will help Pharma manufactureand distribute its products more efficiently.Some of these technologies will enableit to build quality into its manufacturingprocesses, while others will enhance itsthroughput or facilitate collaboration torealise economies of scale (see Figure 5).Removing the roadblocksPharma 2020: Supplying the future 11Virtual process design and validationMeanwhile, computational modellingwill enable Pharma to design and validatemanufacturing processes virtually, usingQuality by Design (QbD) principles. In-lineprocess monitoring via process analyticaltechnologies (PAT) will generate the dataneeded to validate these models and secureregulatory approval.The FDA has already published a draftguidance in which it proposes replacing‘three-batch validation’ with a three-stagemethodology that involves designing asuitable process, using the knowledgegained in development and scale-up;ensuring the process is capable ofreproducibly manufacturing commercialbatches; and validating it continuouslyduring routine production.19 By 2020, thisapproach is likely to be the norm.The conventional process of scaling up willalso be replaced by ‘numbering up’ – i.e.,using microreactors in parallel arrays.Numbering up has several significantadvantages over traditional techniques.It dispenses with the need for costly andtime-consuming studies to devise a processfor scaling up chemical reactions, sincethe process that was used to produce a fewgrams of product in the laboratory is thesame one that is used to synthesise largerquantities. In addition, using microreactorsmakes it much easier to control keyparameters and thus improve yields.During the past 60 years, audio technologyhas evolved from the vinyl record to theiPod, but the way in which medicinesare delivered has stayed much the same.Compressed tablets containing a mixtureof active ingredients and excipients are stillthe most common dosage form.However, more sophisticated drug deliverytechniques will provide the means withwhich to create formulations that are easierto manufacture – e.g., powder in vials andliquid droplets on blank tablets.Researchers are also working on the ‘holygrail’ of oral biologics, and industry expertsbelieve it will eventually be possible toproduce stable, pill-based versions ofsome proteins (see sidebar, Biologics in abottle).18Using formulations that can be moreeasily manufactured will enable Pharmato minimise its investment in product andprocess development until the later stagesof the product development lifecycle, whenit’s easier to estimate the potential value ofnew products. And the development of oralbiologics will eliminate the need for coldchain distribution of such therapies.1. New development technologiesFormulations that are easier to manufactureBiologics in a bottleOne of the main obstacles indeveloping oral biologics is thefact that proteins break down inthe gastrointestinal tract and ceaseto be active. Some proteins alsohave a very narrow therapeuticindex and must be delivered indoses too precise to be orallyadministered. Nevertheless,numerous companies are trying tocreate pill-based proteins.Bangalore-based Biocon is testingan insulin pill in the US and India,for example, with promisingpreliminary results. Meanwhile,Novo Nordisk is conducting aPhase I study of an oral insulinpill formulated using MerrionPharmaceuticals’ gastrointestinalpermeation enhancementtechnology. Several oral biologicsfor the treatment of autoimmunediseases are also in the pipeline,including a new class of drugscalled JAK inhibitors. One suchinstance is tasocitinib, which wasdeveloped by Pfizer and is now inPhase III trials.12 PwC2. New manufacturing technologiesFlexible productionContinuous processing and automationVirtual engineering will not only acceleratethe validation of new processes, it willfacilitate the rapid reconfiguration ofexisting manufacturing lines for differentproducts. With flexible processes andminiaturised, modular components thatcan be quickly connected or disconnectedlike pieces of ‘Lego’, it will be relativelyeasy to alter the order in which specificunit operations are performed. Widespreaduse of disposable technologies willlikewise reduce changeover times (and theconsumption of clean water).Collectively, these improvements will allowpharma companies to create differentsupply chains for different product typesand markets, manage sudden shiftsin demand such as the step changesassociated with live licensing and reducetheir manufacturing costs. They shouldsimultaneously help the industry fulfilits social responsibilities, including theneed both to pioneer more sustainablemanufacturing processes and to producemedicines the entire world can afford.By 2020, most medicines will also bemanufactured continuously. Processtomography and other such technologieswill enable companies to capture real-timedata on critical processes, develop complexmultivariate models and automaticallycompensate for unexpected processdisturbances. Process data generatedduring the development phase will beused to ‘teach’ process control systemsto respond to process disturbances evenbefore commercial manufacturing begins.Meanwhile, advances in colloidal and foamsystems will facilitate the micro-processingof active pharmaceutical ingredients(APIs).Micro-containers with embeddedsuperparamagnetic nano-particles can betreated with an alternating magnetic fieldto release materials encapsulated in bubbleswithin the material and thus converted intomicro-reactors for the efficient productionof thousands of individual doses of tailoredbiological products.20Micro-processing will even make it possibleto formulate some medicines and poly-pillsat the point at which they are dispensed.Several companies have already startedproviding pharmaceutical compoundingservices, one such instance being Fagron, asubsidiary of the Belgian Arseus.21 But, by2020, the pharmacist will be able to ‘mix’medicines individually on the premises,using validated formulation equipment –much as DIY stores mix paints to producecustomised colours.Pharma 2020: Supplying the future 13Transgenic productionSimulation and automation aren’t the onlytools to hand; transgenic engineering offersa fundamentally different way of producingmany therapeutic proteins. The processinvolves inserting foreign genes into hostanimals or plants so that they expressproteins they wouldn’t otherwise expressand then using them to ‘manufacture’ largequantities of these proteins.GTC Biotherapeutics has alreadydemonstrated the commercial viabilityof transgenic production techniques withits recombinant human antithrombinATryn, which is extracted from the milk ofgenetically modified goats.22Other examples include the Netherlandsbased Pharming, which uses transgenicrabbits to make the C1 inhibitor protein.23Transgenic production has severalsignificant advantages over moretraditional methods for producingtherapeutic proteins, such as mammaliancell culture and bacterial systems.It requires substantially less capitalexpenditure, is easy to scale up or downin line with demand (by increasing ordecreasing the size of the herd) and canbe undertaken in rural environmentswhere the infrastructure for more hightech manufacturing techniques may not beavailable.3. New distributiontechnologiesJust as new technologies are emergingto help pharma companies manufacturea wider and more complex range ofmedicines, so new technologies areemerging to help them distribute thosemedicines. Cloud computing will providethe information platforms they need toshare data securely and economicallywith suppliers around the world, analysethe data very rapidly and respond tosudden changes in supply and demand,while advanced tracking technologieswill enable them to monitor productsfrom the factory gate to the patient – anincreasingly important feature, as theindustry manufactures more biologics withhigh unit values and specialist deliveryrequirements (see sidebar, Fingering thefakes).24Fingering the fakesVarious new tracking technologiesare in the works. One suchexample is the ‘bokode’ – akind of data tag that can holdfar more information than aconventional barcode and be readfrom much further away. DNAlabelling could also provide a wayof fingerprinting proteins anddetermining where they have beenmanufactured, if the problemswith selecting a DNA fractionthat doesn’t affect a protein’sperformance can be overcome.DNA fingerprinting has alreadybeen used to identify ‘counterfeit’foods; researchers in Spainrecently used a technique calledforensically informative nucleotidesequencing to test nine commercialseafood samples containing sharkmeat and isolate those that wereincorrectly labelled.14 PwCFigure 6: By 2020, the pharmaceuticals, medical devices and healthcare services supply chains will be fully integratedIntegrated Supply ChainPharmaceuticals + Medical Devices + Healthcare Services Healthcare Services Supply ChainMedical Devices Supply ChainPatientPharmaceutical Supply ChainPharma PatientIntermediatewarehouseHospitals &PharmaciesPrimary care (Doctor or hospital)PatientSecondary care (Hospital or community care) ManufacturersPatientCurrent Situation Situation in 2020Areas of full supply chain visibilityPharmaManufacturersPrimary care(Doctor orHospital)Secondary care(Hospital orcommunity care)Intermediatewarehouse orwholesalerHospitals &PharmaciesIntermediatewarehouseIntermediatewarehouses orwholesalersHospitals &PharmaciesHospitals &PharmaciesSource: PwCNew ‘patient interface’ technologies arelikewise being developed, some of whichwill bring pharma companies closer topatients than ever before. One instance isthe prototype chip and receiver devised byProteus Biomedical, which records exactlywhen a tablet is metabolised (see sidebar,Tablets go high-tech).25By 2020, there will be many such patientinterface technologies on the marketand the information they generate willhelp patients manage their health moreeffectively, as well as allowing healthcareproviders to monitor their compliancein real time. But they will also providepharma companies with informationthey can use both to design more robustproducts and services, and to develop moreaccurate production and distribution plans.Tablets go high-techProteus Biomedical has developeda miniature digestible chip whichcan be attached to a conventionalmedicine and used to monitorpatient compliance. The chip sendsa signal to a sensing device wornon the skin, which records the timeand date at which the medicine hasbeen ingested as well as measuringcertain vital signs. The informationis then forwarded, via wirelesstechnology, to the patient’s doctor.Novartis has previously testedthe chip on 20 patients who aretaking its blood pressure treatmentDiovan, with impressive results; thecompany reported that compliancecould be improved from 30% to80% in six months.4. New patient interface technologies5. Greater collaborationTechnology isn’t the only answer toPharma’s problems, though; greatercollaboration with the other partiesinvolved in healthcare provision will alsohelp the industry become more efficient.At present, there are three distinct supplychains for designing, manufacturing anddistributing pharmaceuticals; designing,manufacturing and distributing medicaldevices; and providing healthcareservices (including laboratory work andpathology). Integrating these supply chainsso that all the upstream and downstreampartners can see the full picture wouldenable them to plan ahead more accuratelyand manage demand more cost-effectively(see Figure 6).Pharma 2020: Supplying the future 15Creating an integrated healthcare productsand services supply chain would not beeasy. But one of the main tools used tomanage healthcare quality could proveinvaluable here. Healthcare providers inmany parts of the world are developingdefined care pathways to standardisethe treatment of patients with the sameillnesses and thus improve outcomes. Thiswill ultimately result in the creation ofdefined healthcare packages for each carepathway.With access to each roadmap for eachillness, and data on the incidence ofeach illness in a given population,pharma companies and medical devicemanufacturers will be able to predictdemand for their products much moreaccurately. They will also be able todefine a supply pathway for each product,depending on whether it’s a one-offtreatment (such as a prophylactic vaccine,gene therapy or anti-infective) or arecurring 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 chainpredictabilityDoctorHealthyDefined Care PathwayDrugDevicePhysician Chronic CarePreventionCureOutcome Labs/AssayCompliance/OutcomeHealthcarepackage Structured InterventionsUnwellTests/DiagnosisSource: PwCThere is potential for collaboration in otherways, too. Most pharma companies atthe moment manufacture and distributetheir own products, for example, but thisreduces asset utilisation rates and drivesup distribution costs, as well as causingunnecessary environmental damage.Conversely, sharing manufacturing anddistribution resources would be much moreeconomical. A few pharma companieshave started experimenting with ‘sharedservices’, primarily to support joint productdevelopment initiatives. However, thevast majority of companies still build,own and operate their own supply chaininfrastructure.Some companies may choose to establishjoint ventures, while others turn to thirdparties. Abbott Laboratories and BoehringerIngelheim already manufacture for otherorganisations, for example.26 And thecontract manufacturing sector is expandingvery rapidly. In fact, market research firmBCC Research estimates that the bulk- anddosage-form drugs segment will be worthabout $73 billion by 2014, more than doublethe $36 billion it was worth in 2007.2716 PwCExperience in other industries has alsodemonstrated the benefits of managingdistribution collectively (see sidebar,Collaborating to cut the kilometres).28And increasing demand for biologics hasstimulated the development of specialistlogistics providers capable of handling verysensitive pharmaceutical freight. Manyprovide specialised service where eachshipment is transported in temperature– and humidity – controlled conditions,monitored from a dedicated call centreusing web-based tracking and reporting,and delivered directly to the customer’sdoor.29Moreover, some of the most sophisticatedthird-party logistics (3PL) providers– i.e., companies that offer freightmanagement and warehousing – areexpanding into supply chain managementand coordination services. And it isarguably these fourth-party logistics(4PL) providers, as they are known, thatcan deliver the greatest improvements.When telecommunications equipmentmanufacturer Alcatel turned to a 4PL tomanage the supply chain for its e-businessnetworking division, for example, itssupply chain costs fell from 5.8% to 5.1%of revenues within two years in thatdivision.30In other words, the contract manufacturingand logistics industries are both maturingand, by 2020, some of the biggest providerswill offer integrated supply chain services.This will enable pharma companies to shareresources and capitalise on economies ofscale throughout the value chain.Collaborating to cut thekilometresIn September 2009, confectionerygiants Nestlé and Mars joinedforces with a leading Britishsupermarket chain to synchronisedeliveries of their products overthe busy Christmas period andreduce their environmentalfootprint. The two manufacturersworked closely together tocoordinate their deliveries tothree regional distribution centresso that any part load order thateither company received couldbe combined in one truck load.By dint of collaborating, theyeliminated over 12,000 kilometresof duplicate journeys.Pharma 2020: Supplying the future 17There are two options for companiesfocusing on specialist therapies andtreatments for orphan diseases, and twooptions for companies focusing on massmarket medicines. We believe that mostcompanies will fall into one of these twocategories by 2020, although the verylargest companies may cover both endsof the spectrum. But they will still haveto develop different supply chains fordifferent product types.More specifically, companies thatconcentrate on specialist therapies caneither exit from manufacturing andoperate virtual supply chains or becomeservice innovators.Companies that concentrate on massmarket medicines, including generics andover-the-counter (OTC) products, caneither become low-cost manufacturersor build supply chains that service otherorganisations and create a profit in theirown right (see Figure 8).Companies with a broad range of productsthat present different characteristics andtherefore supply chain needs, will in thefuture need to segment their supply chainoperation, aligning to the unique demandsof the product group. Pharma companiesthat operate more than one supply chainoption will increase with the breadth anddemand of the portfolio.Figure 8: Four options exist for restructuring the pharmaceutical supply chainSource: PwCChoosing among the optionsOperations StrategySpecialist Therapies Mass-Market Medicines VirtualManufacturerServiceInnovatorLow-CostProviderProfitCentre Create a virtualnetwork of integratedsupply partnersBuild a serviceoriented supply chainto enhance brandsand differentiatecompany from itscompetitorsBuild a reliable, ‘nofrills’ supply chainto deliver productsas economically aspossibleCombine agile,economicmanufacturing anddistribution with theprovision of satelliteservices to generateprofitsWe’ve discussed why the vastmajority of pharma companieswill have to build supply chainswith new manufacturing,distribution and servicemanagement techniques, andsome of the developments thatcan help them. But what routeshould they take?18 PwCThe first option for companies makingspecialist therapies is to outsource theentire supply chain from productionof the earliest clinical batches tofull-scale manufacturing, packagingand distribution, and become virtualmanufacturers. This is very differentfrom engaging in the sort of tacticaloutsourcing most pharma companiesnow employ currently. Becoming avirtual manufacturer isn’t a short-termfix to address cash, capacity or capabilityconstraints but, rather, a deliberatestrategy. And executing that strategysuccessfully involves building a networkof fully integrated supply partners.A number of small firms have alreadytaken the virtual route, but several largecompanies have recently announcedplans to outsource a bigger share of theirmanufacturing. AstraZeneca intendsto outsource all its API productionover the next five to seven years, forexample, while Bristol-Myers Squibb,GlaxoSmithKline, Merck and Pfizer aimto outsource as much as 40% of theirAPI needs.31The business case for virtualisation isclear. It enables a company to shift toa flexible cost base, reduce the risksassociated with investing in new assetsand access new technologies and skills.It also helps it align its supply chainnetwork with its demand forecasts,transfer the risk of primary and backup supply to a third party and drivecosts down by switching products andprocesses between competing suppliersin its network.However, despite these advantages, noBig Pharma company has virtualised itswhole network yet. Concerns about thecalibre of the contract manufacturingsector, supply integrity, quality andcompliance persist. In one recent survey,for example, 91% of the firms that reliedon outsourcing reported experiencing a‘significant incident’ as a result of qualityproblems or delays, compared with only59% of those that performed most oftheir manufacturing in-house.32The consolidation of the contractmanufacturing sector will alleviate someof these difficulties. A small cadre ofglobal players will replace the multitudeof local providers that currently exist.The evolution of the logistics industrywill likewise result in the emergenceof strong 4PLs capable of distributinghealthcare packages directly to patientsor their healthcare providers efficientlyand economically. But any company thatdecides to operate a virtual supply chainwill still have to maintain sufficientin-house expertise to choose the rightpartners and monitor them constantly.Baxter has first-hand experience of aserious breach in the integrity of itssupply chain, for example. In February2008, two Chinese plants were foundresponsible for producing contaminatedsupplies of chondroitin sulphate, theraw material used to make its bloodthinner Heparin, and Baxter is nowfacing a spate of law suits.331. The virtual manufacturerRecommendationsfor becominga virtualmanufacturerOur experience suggests that there areseveral key steps a would-be virtualmanufacturer should take. It should startby defining what it is and does, including itsbusiness strategy, aspirations and corporateculture. Then it should identify the financialand technical demands its portfoliopresents, and how those demands are likelyto change over time. Once it’s looked in themirror and analysed its requirements, it cancrunch the numbers, with a detailed studyof its internal capabilities, product flowsand costs, and compare its own capabilitiesand costs with those of potential suppliers.Any company planning to become a virtualmanufacturer should also hire goodnegotiators, because it’s the deal – not thescience – that will ultimately determinewhether it succeeds. So it needs people whocan forge strong commercial contracts. Andit should make sure it retains enough knowhow both to evaluate its suppliers properlyand to track their performance, includingany changes in the materials suppliersand processes they use and any problemsmaintaining quality control or yield rates.After that, the company can concentrate onchoosing the contractors it wants to workwith, and here the secret is to be selective.Focusing on a small set of contractors andworking closely with them during thetender process ensures they have a cleargrasp of the company’s business, and thecomplexities of the products or processesthat are being outsourced. But it’s alsoessential to maintain a close relationshipwith those suppliers after they’ve beenappointed. Lifecycle management ofcontracts is crucial in realising value andminimising contract ‘leakage’ through offcontract buying or poorly aligned servicelevels.Pharma 2020: Supplying the future 19In order to manage the risks associatedwith collaboration, virtual manufacturerswill need to ensure they have access to realtime data from every stakeholder in theirsupply chains. At present, most pharmacompanies rely on periodic audits, butthese only produce snapshots in time. Andmost companies can’t get vital supply-chaindata very rapidly. In one recent study, onlya small percentage of respondents saidthey could get information from criticalsuppliers and distributors within twohours. Indeed, a number struggled to getthe information within three days (seeFigure 9).34Some of these difficulties can be resolved byusing interoperable systems and commonpractices, requiring suppliers to providea complete history for every batch of rawmaterials or components they produce andreplacing periodic audits with constantsurveillance. 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.Figure 9: Most pharma companies struggle to get supply chain datapromptly from critical suppliers, distributors and other company sitesCriticalSuppliersDistributorsWithin 2 hours Within 1 business day Within 3 business days After 3 business daysOtherCompanySites19%49%27%6%11%40%37%13%28%18%11%43%Source: Axendia20 PwC2. The service innovatorRecommendationsfor becoming aservice innovatorBecoming a service innovator entailsdeveloping an intimate understandingof patients, by linking up with patientgroups, participating in online patientcommunities and social networks (e.g.,PatientsLikeMe) and giving patients aforum in which to provide feedback. Anycompany that wants to take the serviceinnovation route should also analyse thecare pathway for every disease for whichit has medicines, including the clinicaland economic implications of differentforms of intervention, since diet, exercise,compliance support and counselling alsoplay a role in managing many illnesses.Thereafter, the company should aim toget as close as possible to its customers. Inother words, it should invest as much and aspassionately in understanding the currentand future needs of healthcare providers asit’s traditionally invested in R&D. It shouldalso look for partners – be they contractmanufacturers, logistics companies,hospitals, clinics, data analysis firms,technology suppliers or lifestyle serviceproviders – with a similar corporate cultureand ethos.The next step is to start building networksfor patients with different diseases.That’s partly a process of negotiation; theparticipants in each network will need toagree on their goals, as well as definingwhat they’ll do to realise those goalsand how they’ll be rewarded for theirefforts. But it’s also essential to create acommon supporting infrastructure, robustperformance indicators, proper governancestructure and clear audit trail.And it’s important not to underestimate thecultural adjustment that’s needed. The taskof the service provider is to commissionand manage a huge network of contractorsaround the globe, and ensure theyprovide a truly integrated product-serviceoffering. That’s a very different job frommanufacturing and distributing its ownproducts.Alternatively, companies makingspecialist therapies can become serviceinnovators – i.e., build supply chains thatare capable both of manufacturing anddistributing complex treatments, and ofcommissioning and managing a multitudeof suppliers to provide supporting healthmanagement services. German healthcaregroup Fresenius has already expandedinto services very successfully; it’s nowthe world’s leading provider of dialysismachines and dialysis care.35 Othercompanies, such as Baxter and NovoNordisk, are adopting a similar approach.36However, becoming a service innovatorisn’t easy. Any company that chooses thisoption will have to make major culturalchanges. It will, for example, have tounderstand its role in every care pathwayand concentrate on helping patientsmanage the disease lifecycle, as distinctfrom trying to stimulate demand for itsproducts. And it will have to look at thesupply chain through the eyes of thepatient as the ultimate customer.It will also have to restructure its assetbase and invest in new capabilities, bothinternal and external. It will have to builda supply chain that’s sufficiently matureto manage a vast network of suppliers andyet sufficiently nimble to respond rapidlyto the demands of numerous differentcustomers. And it will have to developa new financial structure. Much of theeconomic value it creates will dependon the activities it performs in its localmarkets, rather than the medicines thatconstitute its underlying intellectualproperty – a change that carries huge taximplications.37That said, the provision of integratedproduct-service packages has manyadvantages. It enables a company todifferentiate its offerings, reach newmarkets and create new sources of revenue.It also creates opportunities to enhancethe customer relationship and improvecustomer loyalty, because services aremore dependent on skill and more difficultto imitate than products.Pharma 2020: Supplying the future 213. The low-cost providerRecommendationsfor becoming alow-cost providerHow do you become a low-cost provider?The first thing to do is to turn on thespotlight. A company can only allocate a fairshare of its costs to each product or servicein its portfolio when it’s analysed its end-toend supply chain and compiled an accuratepicture of all its costs. And only then can itaccurately forecast the profit it expects eachproduct or service to create throughout itslifecycle.The next task is to integrate the productdevelopment and manufacturing functions,and start cutting the fat. The design of aproduct, the materials and componentsit uses and the technology platformsthat are used to produce it all have asignificant impact on its manufacturingcosts, so it’s vital to get early input fromplant management. It’s also important todesign operational procedures that complywith the regulatory requirements whilesupporting continuous improvement andto define work flows for each productor service in order to uncover anyopportunities for reducing cycle times andcosts, or improving compliance.Of course, the best way of sourcing thematerials and services that are needed maychange over time. The low-cost providerwill as a result need to review its sourcingdecisions on a regular basis. It will alsoneed to adopt a different managementand workforce philosophy, and allocatecost centres to the shop floor to facilitatepragmatic, cost-effective decision making.Mass-market manufacturers, includinggenerics producers, likewise have twooptions, the first being to borrow frombest practice in other sectors and becomea low-cost provider. The consumerproducts industry has, for example,developed various lean manufacturingtechniques from which Pharma can learn.Indeed, Johnson & Johnson has alreadydone so. It’s no accident that the firmis the only pharma company to featureroutinely on AMR Research’s annual listof the organisations with leading supplychains.38 Johnson & Johnson makes anddistributes a wide range of OTC medicinesand beauty and baby care products. Ithas drawn on this expertise in managingthe supply chain for its prescriptionpharmaceuticals business.One of the prerequisites for becoming alow-cost provider is a clear understandingof a company’s operating costs, so that itcan allocate those costs accurately amongthe different products and services inits portfolio. It’s also essential to ensurethat the cost of each product or servicecorresponds with the ‘value’ it provides.The days when a new medicine couldcommand a premium price merelybecause it was new are well and trulyover, as healthcare policy-makers andpayers compare the pharmacoeconomicperformance of different therapies.However, most pharma companies don’treally understand their product costs.There are many reasons for this, includingthe fact that they incur significanthidden R&D and manufacturing costs(e.g., depreciation associated withidle equipment and expenditure oninvestigations or re-work). The systemsthey use to allocate overhead andmanagement costs are also based onwhat’s easy to measure, which isn’t alwayswhat’s right. So they don’t fully accountfor such costs at product level – and that,in turn, results in invisible cross-subsidies.In addition to acquiring a detailed pictureof its operating costs, any company thatwants to be a low-cost provider will haveto adopt the principles of ‘design forsupply’ – i.e., optimising the fit betweena product’s design and the efficiencywith which it can be made. Again, this issomething many firms are likely to finddifficult.Most pharma companies at the momentdevelop new products and then scale upthe supply chains they’ve established formanufacturing and distributing clinicaltrial supplies. But this locks in expensesthat would otherwise be unnecessaryand creates problems further down theline. Conversely, if the development andmanufacturing functions work closelytogether, the manufacturing functioncan advise on any issues that haveimplications for production and develop asupply chain as early as possible.In fact, a lot of the basic data neededto industrialise a new medicine isascertained in discovery and early clinicalstudies. Information about how a drugcandidate behaves in the body is essentialin establishing its safety and efficacyin early human trials, for example, butit’s equally important in designing theroute of administration, dosage formand processes used to manufacture theproduct. Information about a product’slikely cost of goods sold (COGS) – andthus its commercial viability – should alsoplay a role in determining the businesscase for any development programme.22 PwCAlternatively, mass-market manufacturerscan combine agile, economicmanufacturing and distribution with theprovision of satellite services for patients– and do this as a service for both internaland external customers. Turning the supplychain from a cost centre into a profit centrehas several advantages, not least that itencourages greater commercial disciplineand makes additional cash to fund thedevelopment of new skills.A number of pharma companies arerestructuring their R&D functions topromote innovation and splitting theirdevelopment functions into separatetherapeutic franchises with the powerto make sourcing decisions themselves.So the viability of their supply chainsalready hinges on the ability to satisfyinternal customers by providing thetechnical capabilities, geographic reachand customer service they require atcompetitive prices.However, the journey from cost centre toprofit centre is a very difficult one indeed.It requires a flexible asset base to supportmultiple methods of manufacturing;substantial investment in infrastructureand management resources to build aglobal network of service providers; androbust demand and capacity forecasting.It also entails the development of clearlydefined service levels and rigorousgovernance to ensure that internal andexternal customers are treated fairly, sincethey must now compete for finite resources.Moreover, any supply chain managementteam that takes this route shouldn’tsimply assume it will retain its internalcustomers. On the contrary, it will have tocompete on an equal footing with externalmanufacturers – and the competition couldbe fierce. Several in-house manufacturingfunctions have ended up in head-to-headbattles with contract manufacturers formanufacturing volume.If an in-house provider loses much ofits internal custom to external contractmanufacturers, this could obviouslycreate a problem with stranded costs. Theparent organisation might then permitthe in-house provider to charge internalcustomers a small premium. But the boardof any company in which this was a cleartrend would soon be questioning whetherit should be in the manufacturing businessat all.4. The profit centreRecommendationsfor becoming aprofit-centredsupply chainThe first step in building a profitcentred supply chain is to check out thecompetition. A company that takes thispath should start by measuring itselfagainst its rivals, identifying its uniquecapabilities and focusing on the featuresthat set it apart from the crowd. It shouldalso analyse all its supply chain costs, sothat it knows how much to charge internaland external customers for every product itmanufactures.Once management has a clear sense of thestrengths and weaknesses of the supplychain, together with the cost base, it canbegin promoting the business – but sellinga service is very different from providingthat service for a ‘captive’ market. Themost successful contract manufacturersfamiliarise themselves with theexpectations, attitudes and terminology oftheir customers, and position their businessas an external extension of their customers’organisations. They also work hard to allayany fears that contract services are inferior,recognising that customers want a trustedpartner who’ll manage the manufacturingof their products as responsibly as theywould manage it themselves.Turning the supply chain from a costcentre into a profit centre entails adoptinga fundamentally different mindset then,but it requires financial investment,too. If it’s to attract new customers inan intensely competitive environment,the profit-centred supply chain needs toinvest in improving its manufacturingbase with better, more flexible facilities,higher levels of automation and Qualityby Design engineering. It also needs toestablish a robust knowledge managementsystem so that it can use the data itcollects – including insights gainedfrom manufacturing other products – tocontinuously improve its performance.And it needs to look for opportunities toadd value (e.g., by offering new services orusing data more effectively).Pharma 2020: Supplying the future 23The four models we’ve described all entail amuch more sophisticated approach to thedevelopment and introduction of newproducts or services, then, but thereafterthey raise different challenges and requiredifferent forms of expertise (see Table 2).The virtual manufacturer needs first-rateplanning and collaboration skills tocoordinate a huge array of suppliers. Theservice innovator also needs superborganisational skills, together with amassive distribution network, to orchestratethe delivery of complex product-serviceofferings directly to patients.The low-cost provider needs excellentmanufacturing skills to make its assetswork as efficiently as possible. And theprofit centre needs all-round proficiency tosurvive as a standalone business.But whichever route – or routes – anindividual company takes, it will requireconscious planning. In other words, theindustry can’t continue to rely on reactivesupply chain management.Different skills for different routesTable 2: Each option demands a different set of core skillsKey Skills Needed Virtual Manufacturer Service Innovator Low-Cost Provider Profit CentreCollaborative planning and coordination P P PNew product development and innovation P P P PActive pharmaceutical ingredient manufacturing P PSecondary manufacturing and packaging P PDistribution to hospitals and pharmacies P PDirect-to-patient delivery P PSource: PwC24 PwCThe options we’ve outlined have severaloverarching implications. One ofthem is the increasing importance ofinformation – and hence the need forrobust information management systems.If Pharma is to manufacture and distributepharmaceuticals on demand, and overseethe provision of health managementservices for patients with specific diseases,it will require accurate information aboutwhich products and services patients want,and when and where they want them.The more customised the offering, themore detailed the data the industrywill need. In order to make individuallyformulated therapies, for example, it willrequire information about the age, gender,weight and genetic profile of every patientfor whom these therapies are intended –information that’s very sensitive indeed.Widespread use of e-prescriptions willprovide the point-of-sale data Pharmaneeds to make and distribute medicines toorder. Outcomes data will likewise enableit to refine its offerings. It will be able todevelop different formulations, deliverymechanisms and product labels fordifferent patient cohorts. It will also be ableto take a more proactive role in helpingindividual patients manage their health,with follow-up tests, long-term monitoringand the like, where appropriate.But if the industry is to get access to thisdata, it will have to establish reliableinformation management systems withappropriate security and privacy measures.It will have to satisfy some formidableregulatory hurdles, too. Healthcareproviders in the US are required to followstringent rules for protecting informationthat can be used to identify a patienteither directly or indirectly, for example– and there’s no reason to supposepharma companies would be subjectto less rigorous terms.39 Managing andextracting meaning from the reverse flowof information will also present a majorchallenge, one that requires extensive useof sophisticated analytical tools.Moreover, Pharma will not only needaccess to much more – and moreconfidential – information, it will needto share more information with moreorganisations. It will, for instance, haveto share data on orders and product flowswith contract manufacturers, data onload planning with distributors and dataon patients’ health with service providers(see Figure 10). In short, it will have tocontrol the management and transfer ofinformation as carefully as it controls thephysical movement of its products.Managing the movement of informationFigure 10: By 2020, the management of information will be as important as themanagement of products Repeat product orders and medical data for manufacturingPatientpersonalised therapiesData to manageload planning anddistributionTracked delivery topatient and electronicrecord of receiptData to managePersonal medical data Pharma Data to makedrugs and devicesto orderwellness servicesfor patientsto refine productservice offeringsSource: PwCPharma 2020: Supplying the future 25A second key implication of the visionwe’ve articulated is that most pharmacompanies will have to restructure theirasset bases. The contract manufacturingindustry will probably pick up some of theplant and equipment they no longer want.Between 2007 and 2009, for example,contract manufacturers acquired 15factories originally owned by Big Pharmacompanies (see Table 3). But this is nota guaranteed exit route. Many contractmanufacturers are becoming more wary,after several spectacular failures. KeataPharma, which initially acquired Pfizer’sfactory in Amprior, Ontario, subsequentlywent bankrupt, for example.40 Those thatwant to produce specialist therapies willalso be more interested in building modernfacilities than in snapping up old plans.The nature and location of the redundantassets individual pharma companiesown, together with the level of demandfor specialist plant and equipment, willobviously have a bearing on how easily,and for how much, they can dispose ofthese assets. However, some companiescould incur considerable costs in theform of one-off charges or accelerateddepreciation. Any firm that decides torestructure its asset base will also need toevaluate the financial impact of changingits business model, including the taximplications.Restructuring the asset baseTable 3: Contract manufacturers have picked up Big Pharma’s old plantSeller Buyer Site Location2007Abbott Laboratories Aesica Pharmaceuticals Queenborough, EnglandAstraZeneca Corden Pharma Plankstadt, GermanyAbbott Laboratories Famar Healthcare Services Saint Rémy, FranceBoehringer Ingelheim Haupt Pharma Toride, Japan2008Pfizer Actavis Nerviano, ItalyWyeth Akrimax Pharmaceuticals Rouses Point, New YorkPfizer1 Pillar5 Pharma Arnprior, Ontario2009AstraZeneca Corden Pharma Caponago, ItalyEli Lilly Evonik Industries Tippecanoe, IndianaPfizer Haupt Pharma Latina, ItalyPfizer Hovione Cork, IrelandAstraZeneca Minakem Dunkirk, FranceGlaxoSmithKline2 Phoenix Chemicals Annan, ScotlandBristol-Myers Squibb Sigma Pharmaceuticals Noble Park, AustraliaNotes: 1 Original owner; acquired from Keata Pharma.2 Original owner; acquired from Shasun Pharma Solutions.Source: Chemical & Engineering News26 PwCSo, what’s the bottom line? The sort ofmedicines Pharma makes is changingand the financial pressures it faces areincreasing. Specialist therapies can’tgenerate the same economies of scaleas mass manufacturing. Cash-strappedhealthcare payers are also scrutinisingoutcomes much more rigorouslyand exploring new reimbursementmechanisms, while healthcare providersare developing care pathways tostandardise and improve the treatment ofdisease.The supply chain is simultaneouslybecoming more important, as themedicines the industry makes get morecomplex and the opportunities forgenerating value from pure productofferings diminish. Biologics andpersonalised treatments are more difficultto manufacture and distribute than smallmolecules, and services will comprise agreater share of the economic value manycompanies create.We believe that, by 2020, most pharmacompanies will therefore have differentsupply chains for different product types.The precise routes they pursue will vary,depending on their portfolios, pipelinesand expertise. But whichever road theytake, they will need to get closer topatients, since reliable demand data isa prerequisite for making to order andintimate personal details are a prerequisitefor making customised therapies.They will also have to provide a widerange of services to help patients complywith their medical regimens and monitorthe effectiveness of their interventions– activities that have traditionally beenthe province of healthcare providers andpayers. And they will have to ensure thehealthcare packages they develop are fullyintegrated with the care pathways forevery disease they address.The most successful pharma companieswill be those that seize the initiative andstart building agile, efficient supply chains– either virtual or physical – to support thisvision. They will be those that use theirsupply chains to differentiate their brandsand ‘go the final mile’, those that recogniseinformation is the currency of the future.ConclusionPharma 2020: Supplying the future 2728 PwC1. Kasra Ferdows, Michael A. Lewis & Jose A.D. Machuca, “Zara’s Secret for Fast Fashion”, Harvard Business Review (February 21, 2005), http://hbswk.hbs.edu/archive/4652.html2. AMR Research rated Apple, Procter & Gamble, Cisco Systems and Wal-Mart top of the class in its 2010 supply chain league tables. For furtherinformation, please see “The AMR Supply Chain Top 25 for 2010”, http://www.gartner.com/DisplayDocument?ref=clientFriendlyUrl&id=1379613#1_03. EvaluatePharma, “World Preview 2016” (May 2010).4. Agnes Shanley, “Toyota’s Meltdown: Lessons for Pharma on its Lean Journey”, PharmaManufacturing.com (2010), http://www.pharmamanufacturing.com/articles/2010/091.html?page=print5. EvaluatePharma, op. cit.6. The EMA and FDA introduced conditional approvals under Regulation EC 507/2006 and the Prescription Drug User Fee Act (PDUFA) III,respectively.7. The EMA published its “Guideline on Risk Management Systems for Medicinal Products for Human Use” in November 2005. The FDA adopted asimilar policy in 2007, when it secured permission to require Risk Evaluation and Mitigation Strategies that may include monitoring of all adverseevents, drug interactions and side effects.8. World Health Organisation, “Primary healthcare now more than ever” (2008).9. 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John Conroy, “Cold-Chain Challenges Heat Up”, Pharmaceutical & Medical Packaging News (July 13, 2009), http://www.pmpnews.com/article/cold-chain-challenges-heat; and UPS, “Temperature True”, http://healthcare.ups.com/resources/temperaturetrue.pdf30. UPS, “UPS Supply Chain Solutions Group Provides Fourth-Party Logistics Support for Alcatel eND’s Supply Chain” (2004), https://www.ups-scs.com/solutions/case_studies/cs_alcatel.pdf31. Ann M. Thayer, “Taking Over Big Pharma Plants”, Chemical & Engineering News (February 8, 2010), http://pubs.acs.org/cen/coverstory/88/8806cover2.html32. Marsh, “Building a Safe and Secure Pharmaceutical Supply Chain” (October 2008), http://global.marsh.com/risk/supply_chain/BuildingSafePharmaSupplyChainsOct2008-2.pdf33. Catharine Paddock, “FDA Says Heparin Contamination Is A Worldwide Problem”, Medical News Today (April 22, 2008), http://www.medicalnewstoday.com/articles/104874.php; and Charlie Mead, “Baxter lawsuits spike two years after heparin recall”, Medill Reports (January 13,2010), http://news.medill.northwestern.edu/chicago/news.aspx?id=15350334. Axendia, “Achieving Global Supply Chain Visibility, Control and Collaboration in Life Sciences: Regulatory Necessity, Business Imperative” (2010).35. Fresenius, “Seizing Opportunities: 2008 Annual Report”, p.27, http://www.fresenius.se/internet/fag/com/faginpub.nsf/AttachmentsByTitle/fag_qb2008+%28US+GAAP%29/$FILE/GB08_Engl_final.pdf36. For a more comprehensive discussion of how some pharma companies are branching into the provision of related services, please see “Pharma 2020:Marketing the future”.37. For further details, please see “Pharma 2020: Taxing times ahead” (2009).38. AMR Research rated Apple, Procter & Gamble, Cisco Systems and Wal-Mart top of the class in its 2010 supply chain league tables. For furtherinformation, please see “The AMR Supply Chain Top 25 for 2010”, http://www.gartner.com/DisplayDocument?ref=clientFriendlyUrl&id=1379613#1_039. The US Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule governs how US healthcare providers may use and disclosethe personally identifiable information they obtain from patients. It applies to all forms of data, and imposes strict penalties for non-compliance,including fines of up to $250,000 and prison sentences of as long as 10 years. For more information, please see the relevant section of the USDepartment of Health & Human Services website, http://www.hhs.gov/ocr/privacy/hipaa/administrative/privacyrule/index.html40. Ann M. Thayer, “Taking Over Big Pharma Plants”, op. cit.PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking,experience and solutions to develop fresh perspectives andpractical advice. See www.pwc.com for more information.This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication withoutobtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the informationcontained in this publication or for any decision based on it.© 2011 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as thecontext requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any servicesto clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way. hb 08054pwc.com/pharma2020

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