Navigating Pharma Logistics
Temperature control, security, chain of custody, and regulatory compliance obstacles can stop pharmaceutical manufacturers at every turn. Strategic supply chain management helps provide a way out.
Pharmaceutical producers combine ingredients precisely, under specific conditions, while negotiating a maze of stringent regulations and quality controls.
Companies that move or store pharmaceutical products must meet similar demands. Many drugs are highly sensitive to temperature; some are extremely valuable; and all are subject to a complex array of government regulations. In the pharmaceutical supply chain, every detail counts.
Pharmaceutical logistics is such a specialized discipline that drug manufacturers have long been reluctant to outsource to third-party logistics (3PL) service providers, says Cathy Roberson, senior analyst at UK-based Transportation Intelligence Ltd., and author of Global Pharmaceutical Logistics Report 2012.
But some recent industry trends are making drug manufacturers rethink their strategies. One trend is that some popular drugs are coming off patent. Without blockbusters such as Lipitor and Plavix to bolster their bottom lines, manufacturers are trying to make up the difference by cutting costs. One way they do this is through outsourcing logistics operations.
A double dose of globalization also complicates matters. Today, drug makers in the United States and other industrialized nations are making more products in countries such as India, China, and Brazil. They’re also selling into more overseas markets. “These factors create longer supply chains,” Roberson says.
With these new challenges arising, drug makers are turning to 3PLs that understand international shipping, and operate divisions devoted to the pharmaceutical supply chain.
When Roberson conducted her research in late 2011, the market for pharmaceutical logistics services was valued at nearly $52.3 billion, and was expected to reach $57.1 billion by 2012.
Of course, many drug makers still manage some or all of their supply chains internally. Whichever strategy a company chooses, its supply chain team wrestles with some highly specific challenges. There’s no magic pill for dealing with those issues, but the industry has developed some effective solutions.
Here’s a look at the state of pharmaceutical logistics today.
Managing Global Headaches
In addition to requiring drug makers to ship their products across borders and over long distances, the pharmaceutical industry’s global nature stymies manufacturers with a complicated array of regulations governing transporting drugs in different countries.
“Pharmaceutical industry service providers need to be aware of about 70 different sets of regulations,” says Larry Sweeney, chief operating officer at DDN, a Menomonee Falls, Wis., firm that provides supply chain services to companies that make pharmaceuticals, biologicals, and medical devices.
As former director of logistics and distribution at Genzyme, Sweeney understands that challenge from the manufacturer’s side, as well. In recent years, members of the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) have been trying to bring some unity to the rules.
The industry is also seeking global standards for tracking drug pedigrees. Different countries and U.S. states have established their own requirements for serializing drugs. This typically involves attaching a two-dimensional bar code or other device that uniquely identifies a unit of the product so it can be tracked throughout the supply chain.
In some regions, serialization is designed mainly to monitor the chain of custody and keep counterfeit drugs off the market. Outside the United States, governments look to this technique largely to prevent reimbursement fraud.
Although the industry has experimented with radio frequency identification (RFID) tags for serialization, that technology has raised concerns, including fear that prolonged exposure to RF signals might harm certain biological products.
“Issues also have arisen with some products—such as liquids or packages with metal caps—reflecting energy and blocking the RF tag’s reading,” Sweeney says.
Taking Pains With Security
Keeping inauthentic product out of the supply chain is half the security challenge facing drug manufacturers. Shippers also deal with the opposite issue—keeping genuine product where it belongs.
Given the high value of many drugs, loss prevention is a vital concern. Tim Mitchell, president of Sentry BioPharma Services, cites the example of a large pharmaceutical company that lost $75 million worth of product when thieves arrived at a warehouse after business hours, cut a hole in the roof, and used a gantry to hoist out the product. “Those products immediately go offshore to other markets,” he says.
To stay one step ahead of the criminals, Sentry continuously adjusts its security strategies. “For example, people monitor sensors 24/7 throughout our facility,” Mitchell says. “If there’s any unusual sound—even if it doesn’t set off an alarm—management is called in.”
Exel, an Ohio-based 3PL, applies any level of security that an individual customer requests, says Jim Saponaro, vice president of operations with the company’s life sciences and healthcare sector. Among the tactics and technologies it uses are GPS tracking, biometric scanning, video analytics, motion detection, infrared detection, and roving security patrols.
“We also work with First Watch, a vendor that provides tracking devices, and screens drivers and equipment for outbound shipments,” he says.
Keeping pharmaceuticals safe means not only keeping them out of the hands of thieves, but also maintaining them at the proper temperature. “For many pharmaceuticals, a two-degree Celsius temperature variation is all that’s needed to spoil the entire lot,” says Scott Szwast, director of healthcare markets for Atlanta-based UPS.
By 2014, seven out of 10 of the leading pharmaceutical products will require temperature-controlled transportation, estimate some industry observers.
Maintaining just the right temperature is a challenge for anyone who ships or stores pharmaceuticals, but it’s an even larger obstacle for companies shipping from the warmer climates where many drugs are made today. “When you’re moving product out of locations such as Hyderabad and Bangalore, a long X-ray screening process at the airport can create complications,” says Richard Smith, managing director of FedEx life sciences, specialty services, global trade services in Memphis.
When temperatures slip, companies lose an average of $150,000 on a small package shipment. For large freight shipments, damages can run into the millions. To prevent these losses, shippers and their service providers have developed some sophisticated techniques for maintaining the cold chain.
They start with storage environments tailored to the needs of different products. Sentry, for example, recently added a room cooled to -45C to its Minneapolis facility. That building also offers rooms maintained at ambient (15C to 25C), refrigerated (2C to 8C), frozen (-15C to -25C), and ultra-low (-70C to -90C) temperatures.
To maintain consistent shipment temperature in transit, companies use equipment such as refrigerated trailers, insulated packaging, thermal blankets, and dry ice.
When a flight delay, Food and Drug Administration (FDA) inspection, or other contingency holds up a pharmaceutical shipment, FedEx Express might add more dry ice to a package, refreeze gel packs, or put items into temperature-controlled facilities. “We even have temperature-controlled trailers in our hub’s international area,” Smith says. “We place products facing clearance delays in the trailers to protect them.”
Some companies have introduced active packaging, which comes with a power source to maintain the temperature inside, says Mark Wiesman, president of DDN. Active packaging allows shippers to regulate different drugs at different temperatures inside the same trailer or container.
Many companies also use sensor-based systems to document a product’s temperature throughout its journey, and sometimes send an alert if the temperature veers too far. Exel, for example, uses a device called TempTale to monitor temperatures inside its customers’ packaging. “The device maintains a temperature history and validates that the shipment was in compliance from pickup to delivery,” says Saponaro.
Some sensor-based products monitor other environmental exposures as well. “Technologies now are able to determine whether a product was exposed to light—which would be bad news for a biologic product—or whether the product was subject to high vibration,” Wiesman says.
Five Days, 106 Pallets
Temperature control was a major focus when Cadence Pharmaceuticals Inc., San Diego, worked with FedEx to move an unusually large load of its product OFIRMEV from Italy to the United States early in 2012. The drug, an injectable form of acetaminophen, must be maintained at controlled room temperature, between 20C and 25C, plus or minus 10C, says Dave Dezan, Cadence’s director of supply chain operations.
Cadence usually transports OFIRMEV in temperature-controlled intermodal containers, which allow the product to stay in the same environment while moving from truck to ocean vessel and back to truck. But in this case, the company needed to move 106 pallets so quickly that marine transport was out of the question.
“We considered moving product via single pallets, using temperature-controlled containers on passenger airlines,” says Dezan. But in the end, Cadence decided to charter an entire Boeing 777 aircraft.
Cadence and FedEx developed processes to keep the shipment in the required temperature range while it was in motion and during mode-to-mode transfers. Two FedEx temperature specialists flew to Italy to oversee the load through the entire trip, from the factory to Cadence’s 3PL in Memphis.
The specialists arrived at the factory with the necessary number of trucks, plus one spare. At the airport, they supervised as pallets of product were prepared for air travel and wrapped in thermal blankets.
“They set temperature loggers inside the plane, and did spot checks on the loggers we had on our product,” Dezan says. “And they were on the flight while the product was being flown from Italy to Memphis.”
In Memphis, the specialists supervised as the shipment was unloaded, unwrapped, put onto trucks, and sent for security and Customs clearance. Cadence worked with FedEx to submit documents to the FDA in advance, to help speed the clearance process.
While waiting for the go-ahead to move the shipment to Cadence’s 3PL, FedEx kept the product on temperature-controlled trailers. “They monitored the temperatures, as well as the fuel levels for the diesel-powered generators, to make sure the shipment stayed within the right temperature range,” Dezan says.
The delivery went just as fast as Cadence had hoped. “Pickup started on Friday, and product arrived at our 3PL on Wednesday,” Dezan says. “For that type of shipment, and requiring FDA clearance, it doesn’t get better than that.”
In some sectors of the pharmaceutical industry, getting product to market as fast as possible is essential. This is especially true for generic drugs.
“Generics have a very short window of profitability,” explains Saponaro. “Once the drug goes off patent, the first one to market wins. Manufacturers have a 30- to 60-day window to make huge profits, and then it starts to level out.”
In some cases, the FDA gives one company the exclusive right to sell a generic for 180 days before other manufacturers can jump in. That makes it even more urgent to get the product to market.
“Every day a company loses sales is total lost value,” says Wiesman. “When the market is opened to other generic manufacturers, prices drop dramatically.” Competition will very quickly push the price down by as much as 80 percent.
While speed is of the essence, a manufacturer introducing a generic drug faces multiple hurdles that can slow the race to market. For one thing, the drug has to meet FDA requirements for release into the U.S. market.
The FDA might also require some changes to the labeling right before the launch. “Changing labeling rapidly would require great logistical efforts,” Wiesman says.
Trial, But No Error
One logistics function unique to the pharmaceutical industry is the work that supports clinical trials. Rather than distribute large quantities of a drug for use in the market at large, manufacturers conducting trials move product to labs and hospitals and, often, directly to patients’ homes.
The demand for shipments to clinical trial sites tends to ebb and flow, and each project is unique. “Various studies go on at the same time, and all have different requirements,” Saponaro says. “It’s a new learning process each time.”
Depot services for clinical trials make up one of the fastest-growing business areas for Sentry BioPharma. The company helps clients move product from manufacturing facilities around the world to locations in a variety of countries.
Some destinations are growing increasingly important. “Our U.S. and Canadian clients need to get product to test sites in Central Europe, where it seems to be easier to find test subjects for these programs,” says Mitchell.
To illustrate the complicated logistics of a clinical trial, Mitchell cites a London-based drug maker shipping product to trial sites in the United States and Canada. The manufacturer ships the pharmaceuticals and other materials to Sentry, then the 3PL prepares test kits for the trials.
“We label the nude vials,” Mitchell says. “Then we randomize the kits, serialize as necessary, and put them together.”
Sentry then stores the kits at the proper temperature until it receives instructions for sending them to trial sites. The shipments aren’t large, but they require extreme care. “If one shipment goes out of temperature, it could put a patient, or the trial, in jeopardy,” notes Mitchell.
Expired or Recalled
Reverse logistics represents an important aspect of supply chain management in many industries, but the pharmaceutical version features some special characteristics. A pharmacy can’t dispose of prescription drugs that are nearing their expiration date the way a shoe store might dispose of summer sandals in September.
“You can’t have a sidewalk sale for pharmaceutical products that are not selling,” notes Larry Hruska, president of the pharmaceutical services division at Pittsburgh-based GENCO ATC.
Most major drug store chains contract with GENCO ATC to manage pharmaceutical returns, as do more than 80 pharmaceutical manufacturers. “Any product that gets returned from any pharmacy in the country to one of those manufacturers has to be returned to us,” Hruska says.
When a pharmacy agrees to carry a particular drug, the manufacturer guarantees its sale by promising to credit the pharmacy for unsold product that reaches its expiration date, as long as the pharmacy meets certain guidelines. Those rules dictate how soon before the expiration date, or how long after, the pharmacy may return the product.
When GENCO ATC receives a shipment from a pharmacy, it first checks to ensure the customer has directed the product to the right manufacturer. It also determines that the product isn’t counterfeit, and has arrived within the correct time window.
“Then we transmit that information through electronic data interchange to the manufacturer, so it knows what to credit the pharmacies,” Hruska says. Once that process is complete, GENCO ATC incinerates the product.
A similar procedure applies when the FDA or a drug manufacturer must recall a product. GENCO ATC sends recall notices to all pharmacies, physicians, and hospitals that stock the drug. Those parties mail back cards indicating how much product they’re returning. They then ship the product back to GENCO ATC.
“When the product comes back, we match it against what they said they were returning, to ensure that all product has been taken out of the supply chain,” Hruska says. GENCO ATC holds the product until the FDA approves its release, then incinerates it.
Because GENCO ATC handles many high-value products that include controlled substances, security is a big concern during the reverse logistics process. “Our facility is locked down like Fort Knox,” Hruska says. “All employees go through pre-employment background checks and drug screenings, and are subject to unannounced drug screenings at any time.”
Because the lot number is usually the most precise identification attached to a pharmaceutical product, a recall may force a drug maker to destroy perfectly good product along with the bad. For example, DDN’s Sweeney cites a major manufacturer that had to recall thousands of packages of a drug because some containers held an incorrect number of pills.
The problem occurred on only one or two of the company’s 10 packaging lines. “But because the packages didn’t have serialization, the company wasn’t able to determine which packages came off the affected lines, and were the only ones that needed to be recalled,” he says.
In the future, when every package carries a unique serial number, recalls will be much more precise.
What else will the future hold for the pharmaceutical supply chain? New security systems? Even better methods for maintaining and documenting temperatures? Pedigree management systems in the cloud? As manufacturers develop more and better drugs, logistics professionals and their partners will be right behind them, filling prescriptions to ensure the health of those critical shipments.
Coordinating Two Inbound Supply Chains
When manufacturers receive the ingredients used to make pharmaceutical products, they’re actually dealing with two separate supply chains. One consists of active pharmaceutical ingredients (APIs), the substances that make a drug a drug. Like the finished products, these are generally perishable, temperature-sensitive, and expensive.
Some are also particularly attractive to thieves, as they may be key ingredients in street drugs as well as therapeutic drugs. “Criminals would like to get their hands on these items,” notes Scott Szwast, director of healthcare markets, UPS.
The market for APIs is changing dramatically. Two decades ago, most of the materials used to manufacture pharmaceuticals were chemical products. Today, many drugs are biopharmaceuticals, derived from living cells and tissues.
“Those APIs become increasingly more challenging to move, handle, or distribute, because they’re very sensitive,” Szwast says.
The second set of materials that flows into drug manufacturing plants consists of excipients—inert ingredients such as binders and coatings that are used to put the drug into a pill or other format for consumption.
“It’s a very different supply chain because, by definition, excipients tend to be more stable,” Szwast says. Excipients are also far less valuable, and they don’t involve controlled substances, making theft a less pressing concern.
Managing these streams of inbound ingredients requires careful coordination. “These two very different raw material supply chains have to come together precisely at a manufacturing facility to create a pharmaceutical,” Szwast says.