Did you just buy snake oil made by slaves?
End-to-end supply chain control, achieved through digitization, has benefits beyond compliance with regulators: increasing patient safety by making it harder for counterfeiters to operate, decreasing use of forced labor by verifying the origin story of raw materials, and 9 percent increase in profit margin
Serialization of medical products required by the U.S. Food and Drug Administration (FDA) sent the pharma industry in a scramble. The 2013 Title II of the Drug Quality and Security Act requires companies to trace products in their supply chain at an increasingly granular level leading to a full requirement to electronic, interoperable system to trace products at the package-level by 2023.[1] [2] Serialization and end-to-end supply chain control, achieved through digitization, has benefits beyond just complying with mandatory regulations: increasing patient safety by making it harder for counterfeiters to operate, decreasing use of forced labor by verifying the origin story of raw materials, and a 9 percent increase in profit margin, among other benefits.[3] This endeavor involves a community of cross-functional stakeholders with limited overlap: manufacturers, dispensers, vendors, technology firms, FDA, international regulatory counterparts, and others.1 Genentech, considered the founder of the biotechnology industry, is among the companies that was thrown into the scramble.[4]
Drug counterfeiting has become a growing concern for Genentech. In 2012, counterfeit Avastin, a drug with over $6B in annual revenue, was circulating in the U.S., posing danger to patients.[5] Enhancing enterprise visibility of inventory would allow Genentech to verify patients are receiving safe, efficacious, and genuine injectables. This is achieved using supply chain digitalization with two tools: unique 2-dimensional barcoding and an enterprise tracking system such as Elementum.[6] This allows Genentech control over inventory globally at singular product level and the ability for stakeholders to verify product authenticity.[7]
Genentech’s Human Rights Task Force is currently pursuing digital solutions to decrease risk of forced labor in the raw material supply chain.[8] About 80 percent of the active ingredients used in U.S. drugs are now manufactured overseas, making it difficult for firms to verify working conditions beyond tier two suppliers (the suppliers that sell raw materials to Genentech’s direct suppliers).5 Genentech is able to capture 95% of this risk leveraging digital solution databases from companies such as Verisk Maplecroft.8 Contrarians would say that this pursuit has no positive financial contribution to the firm and that it is highly unlikely that negative media coverage from uncovering forced labor would damage the firm’s reputation.
McKinsey estimates that digitization increases the average pharmaceutical firm’s profitability by 9 percent by reducing inventory days, stock obsolescence, and manufacturing lead time.3 Currently, Genentech exceeds the industry average on inventory held and manufacturing lead time.
Long-term solutions for end-to-end supply chain control that can increase efficiency, ensure product authenticity, and reduce the risk of forced labor is blockchain technologies. In September 2017, Genentech joined The MediLedger Project to explore and develop blockchain solutions for the pharmaceutical industry.[9] This technology may make it possible to close the loop on the supply chain by connecting raw materials all the way to patients. This is becoming increasing relevant as manufacturing and delivery of drugs becomes more complicated. Such is the case with Genentech’s personalized cancer vaccine, in which tumor tissue and blood samples are taken from patients and used to manufacture a patient-tumor-specific vaccine which is then returned to the original patient.[10] I would recommend that Genentech continue to partner with outside firms such as Elementum, The MediLedger Project, and Versik Maplecroft because digitization is not their core competency.
Open questions include: How do you get everyone in a supply chain to agree on the next digital solution? How is the data we are putting in our digital supply chain solutions verified? How else can this data be used to improve business operations, reduce waste and cost, and improve customer experience?
The process of robust supply chain digitization was sparked by the FDA. It may lead to increased product authenticity, decreased risk of forced labor, and increased profits.
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[1] “Drug Supply Chain Security Act (Title II of the Drug Quality and Security Act) Overview of Product Tracing Requirements.” U.S. Food and Drug Administration, Sept. 2015, www.fda.gov/downloads/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/UCM464907.pdf.
[2] Bikash Chatterjee, president and CTO, Pharmatech Associates. “Serialization and the Drug Quality & Security Act.” Pharma Manufacturing, 20 Jan. 2015, www.pharmamanufacturing.com/articles/2015/serialization-drug-quality-security-act/.
[3] Thomas Ebel, Erik Larsen, and Ketan Shah. “Strengthening health care’s supply chain: A five-Step plan.” McKinsey & Company, Sept. 2013, www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/strengthening-health-cares-supply-chain-a-five-step-plan.
[4] “About Us.” Genentech, www.gene.com/about-us.
[5] News, CBS. “Counterfeit Cancer Drug Avastin Circulating in U.S., Company Warns.” CBS News, CBS Interactive, 15 Feb. 2012, www.cbsnews.com/news/counterfeit-cancer-drug-avastin-circulating-in-us-company-warns/.
[6] Olson, Eric. “Re: Docket No. FDA-2013-D1543 from Vice President, U.S. Regulatory Affairs, Genentech.” Received by U.S. Food and Drug Administration, 26 Oct. 2015, www.pbwt.com/wp-content/uploads/2016/09/Comment_from_Genentech_a_Member_of_the_Roche_Group.pdf.
[7] Karhoff, Mark and Kay, Gard. “HDMA Barcode Webinar.” Genentech, 19 May 2016, www.healthcaredistribution.org/~/media/pdfs/publications/webinars/2016-05-19-hdma-bar-coding-quick-start-guide-updates.ashx.
[8] Varin, John P, and Claire D Stamborski. “Interview: Genentech’s Human Rights Task Force Lead on Forced Labor and Digitization of Supply Chain.” 14 Nov. 2017.
[9] Merkin, Sara. “Can Blockchain Technology Protect Us From Counterfeit Drugs?” Bloomberg BNA, 9 Nov. 2017, www.bna.com/blockchain-technology-protect-n73014471956/.
[10] Taylor, Nick Paul. “Genentech Lays $310M Wager on BioNTech’s MRNA Cancer Vaccine Platform.” FierceBiotech, 21 Sept. 2016, www.fiercebiotech.com/biotech/genentech-lays-310-million-wager-biontech-s-mrna-cancer-vaccine-platform.
Benefits from digitizing the pharma’s supply chain look pretty good for pharma companies. However, my question here is what proportion of this benefits will be transfered to the customers. Responsible and ethical companies, besides the pressure from their competitors, should be able to do this. Given the importance of this industry to the overall development of the communities, I really hope this will be the case.
As the article lays out, the digitization of the pharmaceutical supply chain is a seemingly rare increase in oncoming regulation that may in fact benefit corporation’s bottom lines. The process appears to be a pure good for consumer with respect to safety. The author poses the question on how pharma companies will be able to convince their entire supply chain to participate in this progression. Upstream suppliers should be inherently incentivized by the likelihood of a pickup in margin. If they cannot be convinced of this possibility, then pharma companies should be willing to pass on some their own margin improvement and pay slightly more for their supplier’s participation. Although consumers in this scenario do not realize lower drug prices, they are economically indifferent and should be pleased with the improved quality assurance in a particularly quality-sensitive category.
An exciting article in the news (URL pasted below): The article states that, “before a generic reaches the market, it must be shown to be equivalent to the brand-name drug. But proving this requires samples that pharmaceutical companies are often unwilling to provide.” This is a sincere risk of major biopharmaceutical companies having complete control of there end-to-end supply chain. With such a huge incentive to keep out generic competition, firms can withhold samples needed to conduct trials to show equivalence, essentially making their own eternal patent. How likely do you think this will be in the future?
https://www.wsj.com/articles/how-big-pharma-sandbags-generic-competition-1510701694