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On December 1, 2017, justinmidwest commented on Is Happy Hour Over? The Impact of Climate Change on E & J Gallo Winery :

This article presents a very interesting result of climate change. Mother Nature is changing the playing field, and time will tell if West Russian wines will eventually be competing head-to-head with fabled Bordeaux bottles. Ultimately, I think the first question which needs to be asked is how much customer appeal is tied to vine geography – consumers may feel dirt overwhelmingly trumps know-how. To the extent that brands are tied to their geography, an optimal strategy may be to adjust grape blends to suit new climate patterns. On the other hand, if brands are just tied to their name and perceived know-how, then a better approach may be to procure grapes from newly-attractive growing regions and simply apply the proven bottle label.

A key supply chain aspect which might merit further consideration is the ability of growers to decrease their sale of wine forward contracts (with upfront payment). By holding more wine internally, wine producers can benefit from higher prices in years when good wine is scarce due to “bad” climate dynamics. As we learned in marketing, some firms are already experimenting with holding additional stock and constraining supply.

Vijay, I found this article very informative. On your question regarding wearables, you astutely mention everything that CVS is already doing on adherence (such an important factor in a system where ~40% or so of chronic disease doses go un-taken). So maybe the answer there is more on incremental customer relevance, for example expanding adherence activities from beyond only automated telephone calls to also iWatch reminders & dosing information flows. Clearly, the landscape is evolving very quickly and I’m eager to see how this one would play out.

In assessing the true risk from Amazon, I would wonder whether the key success factors in pharma distribution match Amazon’s core competencies. From Katie G’s article, perhaps we could think of the cold-chain requirements, particularly as the proportion of drugs administered continues to shift more towards biologics (which usually require stringent temperature control). Amazon is a volume-focused, low-cost player with limited ownership of the final legs of delivery. With the purchase of Whole Foods, I feel more strongly about Amazon’s ability to think through refrigeration, etc, but I presume pharma’s requirements are more exacting and am unsure how well Amazon could influence logistics companies throughout a mass-rollout of the D2C model mentioned. Perhaps Amazon buying a specialty pharmacy is next?

On November 30, 2017, justinquall commented on Brexit – Serious Implications for the UK’s National Health Service :

Sud, very effective way of connecting Brexit / nationalistic actions to a major consideration which is not often done justice in the press. Surely there are a number of very important ramifications on the UK’s public health position. Regarding the public sector’s involvement, perhaps a solution would be to place the power to grant work authorization exceptions in the hands of private placement / staffing agencies. Such a move would help align critical tasks with the core capabilities of the public and private sectors. That is, the government could continue choosing the allocation of healthcare resources while outside organizations would qualify the resources. A public-only approach to this staffing challenge would likely require broad process flow changes in individual hospitals’ HR processes and forego the “buffer” that a centralized company’s staffing pool could provide.

A question I would love to explore further is… the NHS and N.I.C.E. have historically been some of the toughest payors in pharma – will Brexit make them even tougher as they struggle to offset rising costs elsewhere in the system, or will they become softer as dis-integration from the EU makes them a smaller agent / buyer? Also, how will the innovation ecosystem change given the barriers of transit for the PhDs and MDs? Hopefully everything is sorted out smoothly and the UK continues to enjoy an effective healthcare system.

Outstanding. Very solid use of many statistics and clear tie in to why this really matters (impact to the integrity of the medicines and ultimately people’s health). Regarding your question of how best to capitalize on cold-chain capabilities in the emerging markets, I would say that a supporting approach could be to include DHL’s capabilities in pharmaceutical health technology assessments (HTAs). These are often the processes by which centralized payors make decisions on pharmaceutical coverage in emerging markets, and including DHL’s capabilities in the assessment could go a long way in supporting customer trust of medicine quality, bolster the perception of the medicine’s underlying technology, and remove any doubt of supply chain capability.

Building on the broader topic a little bit, I would be interested to hear how DHL’s cutting-edge cold-chain capabilities stack up against their competitors, and to the extent they are stronger, if they have been able to capitalize on favorable pricing. Clearly, the RFID thermometers would go a long way in building (and proving) trust for the pharmaceutical companies and distributors which DHL connects. And with increasing FDA requirements surrounding serialization, the digitization of the supply chain would help the rubber meet the road, enabling stakeholders to track specific serial-coded batches all the way through the supply chain in real-time. All big value to the customer, yet given the environment, I don’t think there’s risk of “over-delivering”.

Gabby, very nice combination of solid content and excellent prose. I think your article is right to highlight that strong regulatory (maybe tax too) pressure would really be needed to incentivize the on-shoring of pharma manufacturing. From what we’ve learned so far, pills and vials are a very tradeable / transportable good; the labor rates are hugely different between say, India and the US; and big-picture “line changeover” costs are huge in terms of tech transfers etc.

One thing I would challenge though is whether we are fully considering how tax plays into all of this. It’s true that lower taxes are required on “the islands”, however I think that theme may fit more into affecting pharma companies’ geographic sourcing strategies from a enterprise tax planning perspective rather than from fundamental COGS differentials. US pharma companies generally see effective tax rates of 20-25%. They get there through transfer pricing, specifically allocating higher pre-tax profits to their subsidiaries operating in lower tax jurisdictions. Operationally, they would domicile IP in, say, Ireland and then claim that API produced in Ireland should see the value of the IP.

So if the API is produced in the US, and other steps (drug product, form/fill/finish, final packaging) are done in the US, I would ask whether the transfer pricing opportunity would fundamentally disappear. To support customer profitability, perhaps an alternative would be for the contract manufacturers to have a PR-heavy boost to post-API manufacturing coinciding with an expansion in international API capacity. Then the newly-increased API facilities could serve biotech customers who don’t engage in sophisticated cross-border tax planning.

On November 30, 2017, justinquall commented on The Climate Change Concern for PepsiCo :

Nick, very interesting read. And I was very encouraged by the measures which would be found in the center or the “save the world” / “increase profit” Venn Diagram. Surely those initiatives would both drive a positive externality (or less of a negative one) while positioning Pepsi for improved financial performance. Whenever we can reduce input use while keeping conversion costs steady, that sounds like a home run. Saving $80M on water costs? Sign me up!

That said, I would respectfully disagree that climate change is necessarily a bad thing for Pepsi, so I think maybe Pepsi should be judicious for measures that don’t have a bottom-line impact. Could longer growing seasons drive higher throughput for Frito Lay’s suppliers’ corn fields? Could hotter weather drive more demand for ice-cold cola (seriously)? If water costs are higher, wouldn’t the pricing of the whole range of substitute beverages move in chalk-step? If these sorts of things are true, then perhaps there should be more of a central regulatory role in deciding corresponding requirements (which would also cement competitor response, securing larger results and avoiding competitor outperformance through freeloading).

On November 29, 2017, justinquall commented on UnitedHealth: Losing Ground to New Entrants :

Really enjoyed this piece, Faraz. Thanks for tacking such a broad and complex topic. I think this touches on a lot of key issues in healthcare, and one of those is the opportunity for better connectivity between different parts of the healthcare system. To the extent the new entrants are able to get this done, it’s fantastic and can lead to more personal, holistic treatment paradigms and lower costs as well. That said, health systems are working with highly customized health electronic health records and interoperability is quite a big burden.

Getting to your questions, the above makes me think that UnitedHealth is indeed well positioned to respond to the entrepreneurial value propositions. By leveraging it’s massive set of covered lives, investments towards systems interoperability should be much lower on a per-unit basis. Also, in today’s class we learned about the “flywheel” and “chicken & egg” dynamic in creating a market between customers and suppliers. Surely UnitedHealth’s massive customer base would offer a higher incentive for suppliers to invest in standardization (and this would of course cycle back to more value for customers).