The Real Reasons for UK Drug Shortages

What is Causing the Current Drug Shortages in the UK?

A recent BBC Radio File on 4 programme highlighted the worsening drug shortage problem in the UK . In this blog post, Intersys Risk Director Catherine Geyman further analyses the various complex issues that are driving this healthcare crisis.

“Patients have died in hospitals because of these shortages.” That was the stark message from BBC Radio 4’s investigation of UK drug shortages for File on 4 on Tuesday.

The programme is well worth a listen. It powerfully gave us a human face to the problems these shortages cause in the form of Michelle, who has trouble getting epileptic drugs to control her seizures; or the mother relying on an out-of-date, and therefore unreliable, adrenaline injector for her son.

It also does a good job of exploring some of the reasons. These include the restrictions on pharmacists – unable on their own initiative to even prescribe two 250ml dose pills of the same medicine where 500ml pills are unavailable. One striking nugget: The Serious Shortage Protocols, which I examined on this blog in July and which empower pharmacists to make this kind of substitution, have so far been introduced for only one drug – antidepressant Fluoxetine.

As the programme made clear, though, the reasons for shortages are complex, and there’s no quick fix. The central issue was particularly well captured in one part of the report: “One issue that is mentioned by pretty much everyone you speak to in the industry is globalization; making drugs and distributing them is now a huge, worldwide business. The longer the supply chain is stretched, the more fragile it becomes.”

It is the many and varied problems with the supply chain that are usually behind these shortages. I’ve looked at this before in relation to HRT medicines and adrenaline injectors – both shortages that featured in the programme. It’s manufacturing problems that are often to blame here, and indeed, according to the European Healthcare Distribution Association are responsible for 60% of medicine shortages.

Current drug shortages, but long-term issues

There are, though, perhaps two issues that we would take with this analysis. The first is that none of this is really new. It’s been clear for a while that medicine shortages are back in a big way, and most of these causes have been well explored already.

That, though, is possibly unfair; it's always good to raise awareness of these issues – and not just with the general public. One of the new developments reported by the programme was that the UK’s Healthcare Distribution Association is sending a leaflet explaining the complexity of the supply chain to all 16,000 of the country’s pharmacists. That suggests a lack of awareness even among those directly involved.

A more fundamental problem is that globalisation and complex supply chains – which are both longstanding – don’t sufficiently explain the number and extent of shortages we’re seeing now. Sourcing active ingredients from China and India is nothing new, after all. We could blame Brexit, of course, but the evidence for that being a significant contributor to even current drug shortages is weak.

One possible cause that could be further explored is the current high levels of mergers and acquisitions in the industry. As we’ve seen before, poor due diligence when it comes to takeovers can result in years of problems. More simply, this consolidation inevitably reduces the supply base – indeed in some cases M&A is specifically designed to reduce competition, decreasing the number of drugs available for particular conditions and increasing dependency on those that remain. That inevitably reduces the resilience of the supply chain.

It’s not all about cost

Even here, though, the issue is more complex than it might seem. In some cases, it’s true that supply of drugs for some conditions is down to just one or two producers. Inline with the programme’s perspective, that consolidation is the result of drives to cut costs, but that is only half the story.

First, the manufacture of complex drugs can be difficult and expensive, and the low cost of generics fails to incentivise more players to enter these markets. But, more crucially, that cost never rises. The FDA’s recent paper on Drug shortages suggested evidence of a “broken marketplace” – where a shortage of supply does not result in the price increases predicted by basic economic principles.

And this may have something to do with another point: The extensive regulation of the industry. Regulators have strict codes of practice in place and these vary according to the market that businesses are selling to. That means manufacturing certain drugs requires significant expertise and knowledge of relevant local regulation. This in turn means a long lead time to set up and get approval for new manufacturing assets to alleviate the issue – with no guarantee for those doing so, that the shortages will persist long enough for them to profit.

There’s a myriad of other issues, too, of course, but these should amply illustrate two points. First, that there’s no easy solution and this problem will be with us for some time. And, second, that all manufacturers and others can really do for now is use the tools available to really interrogate their supply chains and achieve a clear view of their resilience and the likely areas of weakness.

Catherine Geyman, Director, Intersys Risk Ltd.

UK Medicines Shortages: Pharma Supply Chain Contagion More to Blame Than Brexit

UK Medicines Shortages: Brexit‘s Not Even Half the Issue, the Pharma Supply Chain Contagion is

Following the announcement of a UK drug export ban, recent cases and Intersys research show that we don’t need to wait for international events for medicines shortages to be a real issue. Intersys Risk Director Catherine Geyman takes a closer look at the crisis.

The drug export ban announced by the UK government last week [2 October] will be a wake-up call for the pharmaceuticals industry. But the question is, will the right lessons be learned?

The ban covers 24 drugs and is designed to protect against shortages of the medicines for NHS patients. The majority are HRT (hormone replacement therapy) drugs, used to treat symptoms associated with menopause, but the ban also cover some contraceptives, hepatitis B vaccines and adrenaline pens used in cases of severe allergies.

Although other European countries have introduced similar measures in the past, this move is unprecedented in the UK. Two things should probably be noted at the outset, though. The first is that, despite the timing – a month before the Prime Minister has committed to leave the EU – the government has explicitly stated that the move is unrelated to Brexit. Second, if anything, the ban fails to reflect how widespread shortages with medicines are.

A recent survey shows that, in the last six months, UK community pharmacy professionals have found shortages across every one of 36 categories of medicines. HRT drugs were the most likely to have proved difficult to source, with 84% of those pharmacists saying they’d had trouble, while more than two thirds said they’d seen a shortage of contraceptives, but more than half (58%) had problems getting hold of antiepileptic drugs; and 52% for Rubefacients, topical NSAIDS or capsaicin – drugs used as anti-inflammatories or pain relief.

“Our job role has changed into ‘medicines sourcing’, rather than advising,” as one pharmacist put it.

With friends like these…

Even if it’s not Brexit, it’s possible, of course, for the reasons for such shortages to be merely temporary, which would suggest they would sort themselves out. And, indeed, in some cases drug companies say the shortage is simply down to demand. In a statement put out at the start of October, for instance, Janssen, a major producer of HRT patches, blamed an “unprecedented increase in demand” for the problem.

That only gives limited comfort, though. For a start, this excuse is unlikely to apply to every category where pharmacists are seeing shortages. Second, it fails to even explain continual problems with HRT – which go back years.

Last year, as part of a research project, Intersys conducted an in-depth analysis of all FDA Enforcement Reports (in other words, product recalls in the US) from 2012 to Feb 2018. Of the 18,684 identified products, the most recalled product was Estradiol (9.6% of recalls) and the 10^th most recalled product was Progesterone (2.1% of recalls). Both are currently on the UK export ban list.

Indeed, as even Janssen’s statement recognised, the unprecedented demand for its product is partly the result of shortages of alternative products. So a peak in demand isn’t essentially the cause; it’s merely a symptom of an underlying, more fundamental problem.

In fact, take a look at an update of HRT supply shortages put out by the British Menopause Society a couple of months ago and a different and more worrying picture emerges. Of the products listed as short of supply, a majority are by Mylan – a name that will be familiar to regular readers.

Mylan has had significant trouble with some of its production plants – particularly that in its headquarters of Morgantown, West Virginia. This goes back to an FDA inspection last April that concluded with a Form 483 criticising poor quality control and equipment cleaning. In November, the FDA followed up with a warning letter, while the company continued with a “comprehensive restructuring and remediation plan”. This work has significantly affected supply of a number of drugs produced at the plant.

It’s not clear whether this includes Mylan’s HRT products, but similar issues are definitely behind problems with the supply of adrenaline (which is another drug on the export ban list), due to problems with the manufacturing of Mylan’s EpiPens.

Here the problem is not Mylan’s own plant, but rather those of Pfizer Meridian Medical Technologies who make the pens on Mylan’s behalf. Following product recalls in March and April 2017, its plant in Missouri received an FDA inspection that September and a warning letter highlighting significant manufacturing quality violations. It’s been struggling ever since, and by last April, thousands of British patients faced shortages of EpiPens.

As recently as February this year, the US Attorney for Southern District of New York announced it was investigating why Pfizer continued to produce the pens after receiving dozens of complaints.

The jury is in: Manufacturing is the key

The problems with Mylan’s production and the resulting medicine supply shortages are by no means unique. They powerfully illustrate a number of issues, though.

First, modern supply chains are invariably complex: As Mylan’s problems with Pfizer Meridian show, one of the reasons why production and regulatory risks are so difficult to manage is that pharma businesses have moved away from end-to-end operations encompassing R&D, manufacturing, distribution and sales. Today, they outsource many of these activities. Put simply, they’re often not doing the work themselves, which provides a challenge when it comes to oversight.

Second, it shows how international supply chains are. Problems in Missouri in the fullness of time mean difficulties for UK patients. (EpiPens have a 70% share of the UK market for those types of products.)

Finally, it illustrates that, while a sudden rush in demand can be behind medicines shortages, it’s not often the case. More usually, it’s some sort a production problem or regulatory issue.

Forewarned is forearmed

It is easier to identify the problem than suggest how to solve it, of course. A few things jump out, though. Perhaps the main one is that, while predicting demand is an extremely complex and inaccurate art that will always present a challenge for pharmaceutical companies; it is not at the root cause of all or probably even most shortages. Supply chain interruptions from manufacturing deficiencies play a significant role too.

Due diligence of suppliers is obviously crucial, then, as is risk management. Outsourcing is here to stay, but reliance on a single manufacturer – and often a single site – at any point in the supply chain is a big potential danger. It’s striking how long, once regulators raise an issue with a particular facility that, problems and remediation efforts persist and continue to have an impact on medicine supplies.

Not all these vulnerabilities can be avoided, but those across the supply chain should do their best to ensure they’re at least known and recognised. And they should make sure they have the systems and technology in place to give them early warning of problems as they arise.

Intersys’ own tool Regulatory Incident Monitor is specifically geared towards identifying and alerting businesses about pharmaceutical non-compliance trends in their supply chains.

If businesses want to be ready for the challenges Brexit or other exceptional events may bring, they first have to ensure they can deal with risks to supply chains that would seem to be frighteningly common.

Catherine Geyman, Director, Intersys Risk Ltd

Regulatory Due Diligence Remains Key in Pharma M&A

The Importance of Due Dilligence in Pharma M&A

Catherine Geyman offers a word of caution when it comes to the M&A spree in pharma this year.

It looks like a record year for mergers and acquisitions in pharmaceuticals. Time will tell if that’s a good thing.

Beginning, as it did, with Bristol-Myers Squibb’s $74 billion purchase of Celgene, 2019 has looked a promising year for pharma M&A from the off. With AbbVie’s $63 billion takeover of Allergan ending the first half as well, it’s unlikely to disappoint those looking for big numbers.

In fact, with transactions worth $172 billion, the pharma, medical and biotech (PMB) industry led the way for M&A in the months to July and put the last couple of years activity in the shade: the value of the top ten deals announced in 2019 is up by almost half (47%) on the same period last year.

Moreover, we can probably expect activity to continue in the remaining months. New leaders at giants such as Gilead Sciences and Pfizer show continued appetite for deals, and the list of candidates to drive activity remains strong.

Let’s hope, though, that Pfizer has learnt lessons from its takeover of Hospira back in 2015 with respect to the cost of underestimating the regulatory risks presented by a company with a poor compliance history.

Pharma M&A drivers

There are, in fact, a number of reasons to be a little cautious about the scale of activity we see.

First, some of the mega mergers mentioned do tend to skew the figures. The bulk of the value is found in just one or two of the biggest deals (of which the BMS merger was the largest), and overall activity is a little less impressive: by transaction volume, the PMB industry ranks only fourth in the M&A tables, and in the first quarter the number of pharma deals was actually 10% lower than in the same period in 2018.

There also remain significant barriers to deals in some cases, as illustrated by Roche’s continuing attempted takeover of US gene therapy specialist Spark Therapeutics – delayed again in June due to regulators’ competition concerns. Potential regulatory action in other areas, such as over pricing (already being seen in countries such as Canada), could also dampen activity in the future.

Third, it should be noted that the deals are as much of a sign of weakness as they are of strength. Some of the drivers for M&A are benign, including pent-up demand after lower activity in 2017 and 2018, as well as US tax reform in 2018 that left big pharma companies with more cash. Higher activity also reflects significant opportunities in oncology; with M&A being used as a way for big players in pharma to expand into new therapeutic areas – as was the case with the BMS deal and Eli Lilly’s $8bn purchase of Loxo Oncology, among others.

As ratings agency Standard and Poor’s makes clear however, the activity also points to pressures over pricing, continuing patent expiration and fewer alternative avenues for growth. While M&A may stave off some of these issues, it’s hardly a silver bullet. Furthermore, S&P warns that groups’ consequent willingness to “compromise financial policy strength” and buy rivals at higher values could put pressure on some of their credit ratings.

Regulatory due diligence

The most important reason we should not get too excited about the rash of deals we’ve seen, however, is that successful mergers and takeovers are notoriously difficult to pull off.

Completion of the purchase is a big milestone in any M&A, but it is really when the real work begins if the deal is to bring anything more than a short-term boost to the businesses involved. And if it’s not handled right, it can end up being a long-term burden.

The industry is awash with less than successful M&A that should force us to take a sober attitude to current activity. Pfizer’s $11bn aquisition of Array is among the headline deals that show M&A strength continuing in the second half of the year, for instance (as well as another example of the continuing attractions in oncology for the big players). But will it prove more successful long-term than the giant’s ill-fated takeover of Hospira?

In 2015 when that deal was announced, Hospira seemed to offer Pfizer an opportunity to dominate the generic sterile injectables drugs market, which was forecast to see rapid growth, as well as the biosimilar market – generic versions of expensive “biologics” medicines. It therefore promised to provide the business with avenues for rapid growth as well as mitigation for expiring patents.

Instead, the deal has helped drag down Pfizer’s sales figures and make a significant contribution to drug shortages affecting the US, with Hospira’s McPherson plant singled out by the American Society of Anesthesiologists in its contribution to the FDA’s public discussion on the root causes of shortages.

“[W]e observed the impact of how business decisions, such as mergers, impact drug shortages. The purchase of Hospira by Pfizer, for example, brings to light what can happen during manufacturer and production consolidation. The quality issues that are facing Pfizer in the McPherson plant have greatly impacted access to sterile injectables,” wrote the society’s President Linda Mason.

It certainly serves as a powerful lesson in the importance of due diligence when it comes to mergers and acquisitions for pharma companies.

A common problem

Hospira had a history of problems with Rocky Mount, the North Carolina plant when Pfizer bought the business. In the three years before the deal, there were 239 recalls relating to the plant, according to the FDA. Despite assurances the problems had been largely addressed by 2015, these persisted afterwards, with a further 45 or more in the three years following. It’s been a continuing headache for Pfizer.

As recently as March, the company announced a recall of three lots of 8.4% sodium bicarbonate injection due to contamination by glass particles in some vials. In January, it also announced the closure of two manufacturing facilities in India, which have long been troubled, too.

Such problems are hardly unique to Pfizer and there is a range of other examples we could examine:

Daiichi’s purchase of Ranbaxy in 2008, which eventually resulted in Daiichi selling its shares in 2015 when it concluded that Ranbaxy’s regulatory problems were insurmountable.
Mylan’s purchase in 2013 of Agila Specialties (part of Strides Arcolab) with three outstanding FDA Warning Letters. It later sought repayment of some of the $1.75b outlay to cover remediation costs.
In the Medical Device arena, Stryker purchased Sage Products in April 2016 only to find a pre-existing cloth skin products recall expanded in Aug 2016 and subject to further regulatory action in 2017, resulting in suspension of shipments that July (and impacting about 50% of its revenues).

In other cases, businesses have had lucky escapes– such as Fresenius in 2018, when it realised the scale of the data integrity non compliance issues just in time to back out of its acquisition of Akorn.

For all of the above examples, major non compliance notices had been published by regulators such as the FDA or EMA prior to these acquisitions, suggesting that regulatory due diligence was either lacking or the potential impacts of ongoing issues seriously underestimated.

Nevertheless, these cases don’t necessarily reflect badly on the businesses involved so much as reflect the scale of the challenge. There are of course, risks for any industry when it comes to M&A. Often in pharma, as elsewhere, it’s the “soft factors”, such as culture, brand and people – and whether those of the two businesses fit well together – that determine the success or otherwise of the venture. That’s a handy reminder to those of us too tempted to be impressed by the big values being bandied about: It’s not all about the numbers.

But pharma also faces some unique issues relating to the tight regulation of the industry. Indeed, as this piece by Jenny Yu at insurer Munich Re makes clear, the regulatory risk facing the industry has been exacerbated in recent years by two factors: first, the move to outsourcing much of the pharma supply chain and second, ever expanding regulatory requirements.

As Pfizer’s woes with Hospira (and Bayer’s issues with its Leverkuesen plant) illustrate, there is a significant challenge in addressing problems such as contamination and other regulatory issues when they do occur – not to mention potentially massive expense; major manufacturing issues have cost the biopharma industry over $12bn in lost revenues and remediation in the last two decades.

The key is to make sure you thoroughly do your due diligence on the business and its entire supply chain and then do it again. To do so, businesses should use all the tools at their disposal, including developments such as SCAIR’s Regulatory Incident Monitor tool. It collects a wide range of regulatory non compliance data from major North American and European regulators into a single historical report for each company – giving you an at-a-glance warning of any red flags.

It not only provides businesses with an early warning system for potential acquisition targets, but also a way to continually monitor and keep ahead of supplier issues. It can help businesses make sure they make the right decisions at the outset – so they don’t end up paying for others’ mistakes later.

Catherine Geyman, Director, Intersys Risk Ltd

Regulatory Risks for Pharma in Brexit Uncertainty

The Regulatory Impact of No-Deal Brexit on the Pharmaceutical Sector

In the first of a new series of industry insight articles, Intersys Risk Ltd Director Catherine Geyman, examines the various legal risks to the pharma sector posed by a no-deal Brexit.

Importers, distributors, pharmacists and others face a fast-changing legal environment in the event of no-deal

With Boris Johnson taking the keys to number 10, the prospect of a no-deal Brexit looms large. It is “do or die” when it comes to departing in October, he says, and the risk is probably at its highest since March, before Theresa May first confirmed she would ask for an extension to our departure date.

With that realisation, many of the now well-worn discussions about the risks of disruption to the pharma supply chain are resurfacing. But, as the chances of leaving the EU without a deal grow, new risks are also coming into focus – not least the legal framework in which drug companies operate.

Looming liability for pharma distribution

Of course, it’s long been recognised that the regulatory framework for the UK industry is heavily reliant on more than four decade’s worth of acquis communautaire. As we’ve looked at before, that change will manifest itself physically, with the European Medicines Agency in London relocating to Amsterdam, as the UK ceases to be a member.

More recently, however, we’ve also had some indications of what that may mean in practice – and the changes are far from being simply symbolic.

As this piece by a product liability expert makes clear, for example, it threatens serious consequences for those importing drugs. Distributors importing products (including pharmaceuticals) from the EU and selling them to retailers currently benefit from a level of protection against liability for personal injury due to a product defect: Provided they have conducted due diligence on the supplier and its product, they won’t be held at fault. Rather, it’s likely to be the manufacturer that bears the cost; and within the EU consumers can seek compensation from the manufacturer even where they’re in another country.

That changes if we leave the EU without a deal, however, as the expert explains: “As an importer into the UK, the distributor will be liable to the injured person as if he were the manufacturer.”

Moreover, for injured parties, making a claim against the EU-based manufacturer is likely to become much more complex, and much less likely to succeed after Brexit. This will make the UK importer the more viable and likely target for any consumer seeking compensation.

That’s a significant change, and one for which there’s been little discussion or debate, and for which there is likely to be widespread ignorance in the sector. The advice for importers is relatively simple: “[They] should review their product liability insurance,” writes the expert.

It is, though, just another overhead already hard-pressed businesses will not relish having to take on board.

Serious Shortage Protocols

It’s far from the only change the pharma supply chain faces, either.

This month, for instance, Amendments to the National Health Service (Pharmaceutical and Local Pharmaceutical Services) Regulations 2013 made in June came into effect. These introduce Serious Shortage Protocols (SSPs) into the terms of service for NHS community pharmacies. As the Pharmaceutical Services Negotiating Committee explains, if an SSP is put in place for a product, a retail pharmacy business or a dispensing appliance contractor must consider supplying in accordance with the SSP rather than fulfilling an NHS prescription for that product.

In practice, this means that, to protect supplies of a drug where shortages are an issue, the pharmacy can use the relevant SSP when fulfilling a prescription to dispense less of the drug, give a different strength, or provide an alternative product. Use or otherwise of SSPs could therefore have significant impacts for the supply chain of not only the product for which the SSP applies but also, depending on the terms of the protocol, likely alternatives that the pharmacists may choose.

On the one hand, this provides additional flexibility in the supply chain and should help minimise disruption. On the other, though, the impact is going to be difficult to predict – not least because pharmacists still have discretion as to whether to use the SSP. They only have an obligation to consider it, and if they consider supplying a different product or quantity is unreasonable or inappropriate, they can choose to fulfil the prescription as written.

Preparing for anything

In fact, every part of the supply chain is likely to be affected by the legal changes Brexit will bring. In June the government published guidance on the “written confirmation” that will be required for each shipment of Active Substances manufactured in the UK exported to the European Economic Area in the event of a no-deal exit; and that followed guidance on how to apply for a certificate of pharmaceutical product.

Regulatory resources

All this preparation is encouraging – even if it means there’s a lot to take in and there are resources that can help pharma businesses keep abreast. TOPRA’s site for professionals in healthcare is one useful site, while, in April, the House of Commons library published an overview of the current state of regulations relating to medicines, and how that might change. But one line from the introduction to the that briefing jumps out:

“It is still not known how medicines will be regulated when the UK leaves the EU.”

Unfortunately, three years on from the vote to leave the EU and – possibly just three months before we actually do – that remains true. All pharma businesses across the supply chain can do is, first, keep a watchful eye out for regulatory developments as they become clear; and, second, keep their supply chain risks under constant review as the legal landscape continues to change around them.

Catherine Geyman, Director, Intersys Risk Ltd

The blockchain supply chain in pharma

Is blockchain the new supply chain, as some are claiming?

Certainly, there’s a good deal of hype around the technology. Touted as everything from the future of banking to farming, it’s easy to be cynical, particularly since the rhetoric to date has far outrun the practical applications of the technology that we’ve actually seen, beyond bitcoin.

But blockchain does seem an extremely good fit for modern, complex, widely distributed supply chains. The technology provides a method for securely recording, storing, and verifying transactions. Crucially, though, it uses a distributed ledger (a database) – with the records of data and transactions stored across a network of computers rather than centralized, with the database accessible for users to review, without being able to alter or delete records.

It’s “a way for one internet user to transfer a unique piece of digital property to another internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer”, as American entrepreneur Marc Andreessen has put it.

Another way to look at it is that blockchain “democratises” access and therefore validation of records. In the supply chain for instance, it could bring transparency so consumers could see in one place a record of every time a product changed hands. As this article puts it: “Before blockchain, much of this vetting responsibility was delegated to the retailer. Now, the policing power has been placed into the hands of the person that matters most: the buyer.”

Blockchain in pharma

That’s perhaps not a concept that sounds like it might sit so safely in the pharmaceutical supply chain, but blockchain pharma, as well as blockchain healthcare more generally, could soon be a reality. The key characteristics of the blockchain – transparency, security and reliability – have obvious benefits. In fact, some argue that healthcare could be the biggest adopter of the technology after financial services.

In the pharma supply chain, the technology could be particularly powerful in tackling counterfeiting. The generally recognised protection method is serialisation, which is in the process of being mandated by regulators. In the US, for example, the Drug Supply Chain Security Act in 2013 gives the industry until 2023 to implement unit-level track-and-trace systems for products across the supply chain. That simplistically involves unique identification and tracking of product at an individual unit level, with electronic verification of that pack finally going into the hands of the patient at point of service.

In the UK, meanwhile, the challenge of tracking the journey of individual product packs through the end of the supply chain is being addressed by innovations in labelling technology. For instance, the ReMediES project - which we are proud partners in - is a collaboration between industry and funded research and one of its applications includes developing smart technology to track the quality of a pack throughout its lifetime.

Blockchain, though, could bring more granularity and transparency to the process, and help businesses meet increasing regulatory requirements.

Whether blockchain will prove the answer to counterfeiting in the supply chain remains to be seen, what is clear is the desire for transparency. And, with each technology development, expectations on the industry in that respect are only going to grow.

New Business Interruption Insurance for Pharma

image of red and white capsules arranged to make up a world map

Crucial cover for pharma with new business interruption insurance

We’ve seen all too often the disruption events such as extreme weather can bring to pharmaceutical production, but it doesn’t always require a natural catastrophe to shut things down. The end-point of regulatory risk is also often lost production while businesses are forced to remediate problems by regulatory sanction or the threat of it.

And, while the hurricane season is geographically confined, businesses operating in possibly the world’s most heavily regulated sectors can be hit wherever they are. Enforced and pre-emptive shutdowns due to manufacturing deficiencies are estimated to have cost pharma businesses about $10 billion since 2001.

For the most part, it’s a cost they have had to bear alone.

Uninsured losses

image of black downward arrow against a backdrop of money showing business losses

Unlike fires, floods and storms, regulatory risks are not covered by standard business interruption (BI) policies related to property damage. For cover, the interruption usually has to be the result of insured risk, and insurance don’t usually help with regulatory fines as a matter of public policy.

Nor will the losses necessarily be picked up by other policies. As this post explains, one recent case saw a producer with suspected contamination at its manufacturing site unable to claim even under its business interruption cover for extortion property damage: With no actual extortion demand materialising, the interruption was solely the result of a regulatory order to suspend production until the site could prove a quality control process preventing tampering with capsule batches.

Likewise, Contaminated Products policies often have restrictions that prevent a claim for regulatory interruptions.

Introducing non-damage business interruption (NDBI)

It’s these gaps that a new Non-Damage Interruption Policy for the pharmaceuticals sector from Munich Re, which we’ve working with, seeks to address.

It covers the complete or partial shutdowns of production on the orders of regulatory authorities, and even instances where companies suspend production to pre-empt a forced closure and protect brand and reputation.

It’s another valuable tool in mitigating the risks that pharma businesses face – and plugging a gap in coverage that’s existed for too long. As with any insurance, though, to see its value and apply it properly, businesses first have to identify and understand their risks. As one of the first businesses to take up the policy explains in the Munich Re post, that means starting by modelling exposures and quantifying supply chain risks. And that, of course, is what we’re all about.

Out and about at CPhI Worldwide

Greetings from Frankfurt where we've been at CPhI Worldwide.

We’re just returning from a successful week taking SCAIR to 36,000 pharmaceutical professionals.

You don’t have to be at the conference long to appreciate the importance of technology: The event brings in participants from every part of the pharmaceutical manufacturing and delivery, with over 20 dedicated zones covering ingredients, APIs, excipients, packaging, biopharma, machinery and so on. There are also participants from over 150 different countries.

Visiting this conference, it’s impossible not to get a sense of the both complexity of the modern pharma supply chain and its truly global nature. With new innovations announced every day at the conference, you also get a sense of how fast moving it is.

CMO uncertainty

And you get a sense of the risks: The annual report of the event’s organisers picks up on some of these, including including political uncertainty in the US, with a new administration that has shown a “keen political desire… to reduce drug prices, but with very little indication of policy”.

That’s left pharma companies and the contract manufacturing (CMO) “in the dark”, the report notes, and vulnerable to decisions that could disrupt their entire business model.

We’re at CPhI to show how technology such as SCAIR can address this type of risk, as well as more long-standing challenges that affect operators across continents and across the supply chain.

We don’t pretend to be able to control Trump, but SCAIR can enable businesses to quickly get to grips with the impact any changes may have. With the software they can visualise their end-to-end supply chains and quantifying accumulated exposures of the company’s product portfolio to each critical supply point.

Nat cat and compliance

This Supply Node Exposure module in the software is also used to identify locations critical to the company for natural catastrophe alerting. Warnings and reports of hurricanes, earthquakes and floods are overlaid on these locations to rapidly highlight potential losses.

Finally, SCAIR deals with another key concern across the industry and highlighted frequently at CPhI: Compliance. It collects and consolidates non-compliance and supply chain interruption information from leading regulators such as the FDA and EMA. Root cause analysis of data such as recalls, production shortages, enforcement actions helps avoid issues in future.

As fast as the industry changes, events like CPhI make it clear these traditional concerns, along with issues such as maintaining data integrity and good manufacturing practice, continue to be key. It also suggest, though, that those companies that tackle them successfully, can look forward to the future with considerable confidence.

Puerto Rico is hit again

The thing about the hurricane season is it’s always easy to speak too soo.

We noted a couple of weeks ago that Puerto Rico, a key production centre for pharma manufacturers, had escaped the worst of hurricane Irma.

Yet the clean up wasn’t even finished when the island was hit by the worst storm in 80 years, Maria, bringing “total devastation”. A number of factors have left the island particularly hard hit: Already fragile infrastructure leaving most without electricity – for weeks and many possibly for months; even cell phone coverage is limited; and widespread flooding has been exacerbated by the failure of the Guajataca Dam. The island also already filed for bankruptcy earlier this year, leaving it poorly prepared to tackle the costs of getting back on its feet.

Hurricane Maria might also have proved that it was a bit early to congratulate the industry and governments for avoiding drug shortages following Irma and Harvey. On Monday, the FDA warned that shortages could occur if the Puerto Rico pharma industry wasn't helped to get up and running quickly.

“The island is home to a substantial base of manufacturing for critical medical products that supply the entire world. This industrial base is an important source of jobs and economic vitality for the island. It is a key to Puerto Rico’s economic recovery. The manufacturing facilities are also a pivotal source of critical medical products for the entire United States,” its statement read.

The problem, as ever, is both the scale of the storm – a “catastrophic event unlike many the United States has faced”, as the FDA put it – but also the scale of pharma manufacturing in Puerto Rico. That’s shown in a map taken from the tool in our SCAIR^TM software of FDA Registered Drug Establishments affected:

With such a concentration in an area so prone to tragedy, the challenge for the industry to maintain supplies will alway be substantial.

When the storm comes

Hurricane Irma once again shows us the importance of mapping supply chain risks for the pharmaceuticals industry.

The storm has passed, but the effects will be felt for months to come. In the Florida Keys up to a quarter of homes in the low-lying islands are reported to have been destroyed. Many in the Caribbean have had it worse.

There will, as always, be lessons for industries, including pharma. Puerto Rico, for example, is a huge centre for pharma manufacturers – the fifth biggest in the world with more than 80 plants. It accounts for about a quarter of the country’s GDP.

The island was actually spared the worst of the hurricane, but still three died, 50,000 were left without water and 600,000 without power. The storm served once again to expose the fragility of the island’s infrastructure. Nor are hurricanes the only recent disruption to hit the island. Only at the start of the summer did it declare its outbreak of the Zika virus over, after it infected more than 40,000.

Weather risk: an unavoidable reality

It’s not just Puerto Rico, of course; Irma brought potential for disruption across the Caribbean, to Florida and on inland. And it’s not just Irma; it followed hard on the heels of hurricane Harvey.

The industry has got better in recent years at dealing with these events, not least because of government encouragement to avoid disruption to medical supplies that can exacerbate the tragedy. One of the untold stories of both hurricanes Harvey and Irma is the shortage of urgently needed medicines; untold, because the problem was largely avoided with some improved planning.

But we’ll be tested again. Yes, hurricane Irma was unusually strong, but we’ve seen storms this powerful – and perhaps more so – before. We’ll see them again. The role of climate change in developing such storms will continue to be debated. What’s unarguable is that pharma – and a wide range of other industries with global supply chains – will always be at risk of exposure.

Preparing in advance for real resilience

Modern technology is a big part of the answer to managing this risk. The information businesses and the public have on a hurricane’s trajectories and strength is unparalleled; they can now track it online in real-time. Combine that with modern software solutions and we can quickly map risks for at-a-glance understanding of exposures.

That’s always useful in directing emergency responses when the storm comes. It’s more useful, though, used to map exposures and build resilience through continuity plans before. The power of Irma may have been a surprise, but storms in the hurricane season are not. Fortunately, we have the tools to weather them well; we just need to make sure we use them.

Brexit and the pharmaceutical supply chain

There’s work to be done on all sides – not just by the negotiators – to prepare supply chains for a future outside the EU.

For anyone already sick of Brexit, Michael Barnier’s recent announcement won’t have been encouraging: “The hard work starts now,” the EU’s chief negotiator Michel Barnier told reporters – more than a year after the UK voted to leave.

It’s a big issue – and a particular challenges for some.

One is the pharmaceuticals industry, and a couple of days before Michel Barnier was urging the UK to knuckle down, leaders in the UK and EU pharmaceutical industry were issuing a warning to both Barnier and Britain’s Brexit Secretary David Davis of the risk to supplies of life-saving medicines.

“In the case of an unorderly withdrawal, there is a risk that all goods due to be moved between the UK and EU could be held either at border checks, in warehouses or manufacturing, and/or subject to extensive retesting requirements,” the letter warned.

And it’s not just the industry that’s worried. The week before, the UK’s health secretary and its business secretary called for continued co-operation with the European Medicines Agency after the UK left the EU – “in the interests of public health and safety”.

Preparing your supply chain

Hopefully, these warnings will have their desired effect, and arrangements – transitional or otherwise – will be in place when the negotiations finish. In that case, this will all be put down as a crisis averted or just another “scare story”, according to taste.

As we’ve noted before , though, whatever happens Brexit will be a game changer not just for pharma but for all businesses. The currency volatility we’ve already seen could well return as the deadline for negotiations gets nearer; the regulatory framework remains uncertain; and supply chains are going to have to get more complex – perhaps in the short-term, as contingencies are put in place, or in the long-term to deal with new realities.

Many companies have already made changes to their supply chains to make them more resilient to whatever results from the negotiations; many other are still looking but have at least gained an understanding of the risks they face and the vulnerabilities in their supplies. For any that haven’t made much progress, though, or those that haven’t even begun, the hard work truly does need to start now. Time is not on our side.