Climate Change, Supply Chains and Compliance

Regulatory requirements dictate that large companies carefully evaluate their supply chains’ exposure to risks from extreme weather. Done properly, however, the exercise can bring far wider benefits.

Climate continues to cost the earth – in all senses. According to insurance broker Aon, insured losses from natural catastrophes, like hurricanes and floods, reached $118 billion last year. The losses, across almost 400 events, were more than a fifth above the average for the century. There were also 37 events that saw losses of $1bn or more – a new, dismal record.

The costliest event of the year was still earthquakes, with those in Turkey and Syria seeing insurers pay out $5.7 billion. However, New Zealand, Italy, Greece, Slovenia and Croatia all saw the most expensive weather-related insurance events on record.

Closer to home there's the news that 2023's severe storms in the UK created a £575mn bill for home insurers.

And that’s just insured losses.

Most damage is not insured, and the actual losses to individuals and businesses are many times higher. The economic loss of the Turkey and Syria earthquakes alone is estimated at $92bn. The death toll was 95,000 – the highest in more than a decade.

Again, that is driven not just by 64,000 fatalities from earthquakes but 16,500 deaths from heatwaves around the globe.

Last year was the hottest on record.

Just the Start: Climate Losses will Mount, Fear Insurers

Such losses are changing the very way insurers think about risk.

Traditionally, the insurance industry has distinguished between the big-ticket primary perils, such as tropical cyclones, earthquakes, and European windstorms, which are relatively infrequent but cause massive losses and secondary perils.

More frequent but traditionally considered more manageable because of the smaller losses, are natural catastrophes like thunderstorms, floods and wildfires.

Climate change is altering insurers’ perspective.

Aon’s report showed that these “secondary” perils have caused significantly more losses to insurers than primary perils over the last decade due to their increased frequency and severity. In 2023, primary losses were a distant second, accounting for only 14 percent of global losses.

As the chief climate scientist of Munich Re (the biggest “reinsurer” that provides cover for insurers against really large losses) recently told the Financial Times: “We no longer can call such events secondary. They have reached in the aggregate the order of magnitude of a major hurricane, or tropical cyclone, or winter storm.”

As the FT article makes clear, this is not just a problem for insurers but for businesses and individuals, too, as underwriters decide there are risks they just do not want to take. We face the prospect of certain locations becoming uninsurable.

Moreover, it is a problem that may only get worse. Last year, Lloyd’s of London warned insurers that the full impact of climate change had yet to be fully felt when it comes to claims. According to the FT, again, it is urging insurers to be proactive in addressing the risk.

“By the time we can definitely see the impact in claims, it will be too late,” Lloyd’s director of portfolio risk management told a private meeting.

Pharma Supply Chains: TCFD and Beyond

Since the pharma sector is no stranger to the risks of weather impacting its supply chains, all this provides one good reason for it to take climate change seriously.

Another is that it increasingly does not have a choice.

It’s not just insurers who have become increasingly aware of the financial risks posed by more frequent extreme weather events.

Governments and regulators, too, have recognised the growing danger and the possibility that it could pose systemic risks to financial stability. States have, therefore, been putting ever greater pressure on businesses to identify, quantify and address those risks.

As we’ve discussed before, that was led by the Task Force on Climate-Related Financial Disclosures in the UK. It introduced the requirement for big businesses (to apply to all businesses by 2025) to report the impact of climate change on their supply chains. It was disbanded last Summer – but only to be replaced by the IFRS Foundation, which was tasked with taking forward its work by the Financial Stability Board.

The IFRS has already clarified that the International Sustainability Standards Board (ISSB) standards launched in June 2023, fully incorporate the TCFD requirements.

You can read our earlier blog for a fuller explanation of the requirements and why tools like our supply chain risk assessment SCAIR® are so valuable in helping businesses comply.

However, here, I’ll concentrate on just two aspects, which we have highlighted in our recent video on TCFD, climate change and quantifying risk.

Bringing Value at Risk into the Real World

The first is that SCAIR® doesn’t just provide a tool and framework to accelerate the process, enabling organisations to comply more efficiently. It also helps avoid common pitfalls and ensures the exercise has real organisational value.

For example, SCAIR® helps identify risks to products and focuses on those with the highest revenues. This can quickly help companies reach a robust figure for the value at risk at each location. Crucially, though, it doesn’t just estimate the potential losses in terms of pure gross profits.

In the event of a catastrophic climate-related event, no business will simply watch as their primary sources for profitable products vanish.

They will use their existing stocks, inventories and reserves and quickly seek to source other suppliers and additional production capacity.

SCAIR® accounts for that and seeks to provide a real-world value at risk – not simply a box-ticking exercise for regulators but a genuinely helpful and crucial piece of business intelligence.

Climate Change Supply Chain Location Mapping

That grounding in the real world needs to be replicated when evaluating the risks of climate change.

Existing risk assessment methods suffer significant faults. In many cases, they are not location-specific, substituting an evaluation of the specific risk of a site with broad, regional risk evaluations.

Even worse, existing solutions are usually backward-looking. They assess the risk to a location by reference to the past without accounting for the impact of climate change in worsening extreme weather.

In a sense, this ignores the entire purpose of the exercise.

SCAIR® addresses this drawback by interfacing with Location Risk Intelligence, reinsurer Munich Re’s solution for assessing physical risks from natural hazards (previously called NATHAN)  and climate change.

Munich Re’s Risk Management Partners division uses the world’s most comprehensive disaster database and sophisticated modelling to provide robust, location-specific climate change predictions.

Again, this ensures that it is not simply a compliance issue but an exercise with real value. The intelligence from SCAIR® and Location Risk Intelligence enables businesses to focus on locations at the highest risk from further natural catastrophes due to climate change.

A Boon for Business Continuity

Indeed, this is the real value of the exercise beyond compliance.

Identifying vulnerabilities in the supply chain and developing robust intelligence for both values at risk and the risk itself enables businesses to anticipate and address their business interruption exposure at critical nodes.

That might mean diversifying supplies to build increased resilience into the supply chain. It might mean putting in place extra measures, such as increased stocks or other ways to mitigate losses. Credible figures for the value that could be lost at a site can be used to justify investments to protect against them.

If interruptions to a site prove unavoidable, SCAIR® gives businesses the tools to lessen the impact.

It can enable businesses to assess the impact of catastrophic events more rapidly and respond more effectively than those without such planning, for example.

Read our case study on how it helped a large pharmaceutical manufacturer quickly implement continuity plans to lessen the impact of a Puerto Rican hurricane.

Finally, if all else fails, a better understanding of exposures and the value at risk in each location provides a basis for calculating the insurance required for the residual risks that cannot be addressed.

It provides businesses with the insights needed to purchase an appropriate level of business interruption cover and, perhaps, to make their case to secure affordable premiums in a tough market going forward.

Technology Will Transform US Pharma Supply Chains: and Data and Analytics are Central to a Government Drive for Resilience

There seems little doubt that regulation is coming for the pharma industry’s supply chain. As previously discussed, the Department of Health and Human Services (HHS) Essential Medicines Supply Chain and Manufacturing Resilience Assessment published on May 23 stems from one of the early acts of the Biden-Harris administration. Indeed, the writing has been on the wall from the moment Covid struck and limited supplies of essential drugs globally – even if that was sometimes more of a product of soaring demand than disrupted supply.

In fact, the seeds of a broader, more interventionalist approach to critical supply chains predate even that. In the early weeks of Trump’s presidency, the US was already looking at a more protectionist future, with the head of the President’s National Trade Council outlining its intention to repatriate international supply chains.

“It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” the Financial Times reported him as saying.

“We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”

Given the shock to supply chains from Covid, it would be surprising if moves towards reshoring were not seeing a renewed sense of urgency – particularly of what it has determined are “critical goods, products, and services”, as Biden’s Executive Order 14017 puts it. That’s all the more so when 87 per cent of API facilities for the generic drugs (which represent 90 per cent of US prescriptions) are overseas.

Supply Chain Challenges

But if the HHS report is part of a longer-term move toward a more prescriptive approach to supply chain resiliency, that doesn’t mean it’s nothing new. What it gives us is significant on what the US government sees as the key challenges and potential solutions to the resiliency of the pharma supply chains. It’s worth taking these in turn.

In terms of the challenges, it identifies at least six:

What’s noticeable about this list – and explicit elsewhere in the report – is that while some issues may be for the government, much is going to be down to the private sector. Most obviously, regulatory matters and perhaps STEM education might be primarily down to legislators (although even here, there will be a role for business). For much of the rest, businesses have a significant role to play – and, as we’ve said, are increasingly likely to have regulatory obligations.

Supply Chain Risk Assesment Tools Boost Visibilty

That’s perhaps particularly true of the first solution strategy the report puts forward: increased supply chain coordination, security and transparency. 

The benefits of this are apparent. As it states, “Improving supply chain visibility will offer a greater ability to anticipate, prioritize, and respond to critical issues, demands, and potential disruptions.”

It says this can be achieved in several ways. One is “Expanding [the] use of data, analytics, and predictive tools to mitigate and manage risk.”

It goes on to suggest several strategies to pursue, with, again, a mix of public and private sector efforts involved. These include improving data sharing and standardisation, strengthening public-private collaboration and coordination and establishing a more comprehensive “centralised control tower platform”, including developing a national critical drug tracking, monitoring and alert system. It also emphasises the importance of physical and cyber security throughout the supply chain.

Quite a number of these plans – particularly those involving the public sector will take time. Strikingly, though, some are readily achievable in the near term. It will probably take time to create the shared data infrastructure for government agencies and supply chain stakeholders that the report suggests.

However, the private sector can already start to gather that data and – at least for their own business, use data analytics to identify the key risks and vulnerabilities in their supply chains.

Solutions like SCAIR® already exist to map, monitor, and analyse critical supply points and relationships. This can help create more resilient supply chains and better business decisions around mitigation and contingency plans.

The HSS report makes it clear this is the direction of travel in efforts to boost pharma supply chain resilience. The winners, as the US and other countries reshape their critical supply chains, will be those that start on the journey now.

Sharing Insights on Supply Chain Risk: Intersys at BCI World 2021 Virtual Conference

What has the pandemic taught us about our supply chains? It's a question that was top of the agenda at the recently held BCI World 2021 Virtual Conference - one of the largest Business Continuity and Resilience events in the world. It was also the perfect platform for Intersys Risk Director Catherine Geyman to share her more than two decades' worth of expertise in supply chain risk management.

Catherine led a workshop on The Appetite for Risk in the Life Sciences Industry. The interactive session shed light on pressing issues such as the cause of recent drug shortages during the pandemic as well as generic trends to have influenced supply chain vulnerability over the last two decades. There were deeper insights (driven by SCAIR®) into what steps organisations can take to strengthen supply chains, and what lessons other industries can learn from the rather complex nature of life sciences supply chains. Catherine Geyman, Director Intersys Risk Ltd said:

The workshop provided an opportunity to share the impact of the pandemic on life sciences supply chains, and also to reflect on some of the pre-existing drug shortage issues such as the pricing pressures on generic drugs. It was also a chance to contemplate on the fact that the life sciences industry really is one of extremes. At one end of the spectrum there are the new biologics, treatments that target small patient groups with rare diseases and are unfortunately unaffordable to the individual. On the other side of the spectrum you have the older, generic (but none the less critical) drugs that are priced so low that not enough manufacturers are encouraged to make them, meaning that any problem in the supply chain only gets amplified and impacts the patient."

We hope that such discussions and debates will go some way towards shaping priorities for the future.

More than Covid: Lessons for Supply Chain Resilience from 2020

Hard Truths from a Pandemic

Pharma and others in the life sciences shouldn’t let the lessons learned from the crisis go to waste. As we emerge on the other side, now is the time for a strategic review of supply chain vulnerabilities. Intersys Risk Director Catherine Geyman, takes stock of the situation. 

 It’s been an unprecedented year for life sciences. The pressure on both supply and demand as a result of the pandemic was unparalleled in modern times.

As Peter Ballard, Chair of the British Generic Manufacturers Association (BGMA) put it in the organisation’s review: “At the peak of the first wave in the UK, the pandemic derailed all sense of normality. It thrust healthcare and its supply chains into the forefront of public consciousness as the NHS staff struggled to keep pace with patient demand with the resultant knock-on effect to the medical supply chain.”

It was the perfect storm: huge increases in demand which could not have been planned for by the pre-covid supply base; and massive disruption to supply chains as a result of staff absences and government constraints.

In the UK, generic medicines make up more than three-quarters of all prescribed drugs. According to the BGMA, which represents UK-based generics manufacturers and suppliers, demand for some drugs was five to ten times higher than usual. At the same time, an export ban on active pharmaceutical ingredients (APIs) from India – accounting for about half of APIs used by British generic medicines – came in, in March. BGMA members reported a 24% reduction in supply from the country. Companies also saw a decline of over a fifth in finished products from India.

And it wasn’t just the UK, of course. We’ve looked at shortages in the US earlier in the year. There, our analysis showed that, with a few exceptions, shortages were mainly demand-driven, as the virus saw a clamour to get hold of certain anti-virals, anaesthetics and sedatives. Companies reporting new drug shortages in the US rose from 19 in January to 71 by April. Nor was it just a life sciences issues, even if the industry was hard hit. As the Harvard Business Review recently noted, “The supply shock that started in China in February and the demand shock that followed as the global economy shut down exposed vulnerabilities in the production strategies and supply chains of firms just about everywhere.”

With vaccines developed, this might be the beginning of the end for Covid. For those in pharma and the broader life sciences, though, it should just be the beginning of a strategic review of  the impacts on their supply chains and what we can do differently in future to minimise disruption.

To quote the BGMA again: “COVID-19 has presented unprecedented challenges, but it would be unforgivable not to learn from those and apply that experience to the future.”

It’s in this spirit that I recently held a webinar on Understanding Risk in Pharmaceutical Supply Chains.


Learning the lessons?

Painkiller tablets and 'out of stock' message


As that webinar underlines, there are two reasons why we need to take this opportunity to look back before going forward. First, because it might be unwise even now to think the challenges the virus presents are at an end. The vaccine roll out will take time in the UK and elsewhere;  the Pfizer supply chains themselves are already facing disruptions due to out of specification raw materials. Many still fear a third wave of the virus after Christmas. In other words, there are still plenty of opportunities to surprise and disrupt supply chains.

Even if we have managed to put this crisis behind us, the pandemic has shown what is possible. It could happen again. Businesses must prepare for the next crisis, not the last one.

It doesn’t take a worldwide catastrophe to cause supply chain disruptions, however. Well before this spring, drug shortages were again making themselves felt.

Unsurprisingly, there are several reasons for shortages. In some cases, it is other significant events; it’s worth remembering that before Covid the critical concern for the UK was Brexit, something of which we may shortly be reminded (particularly since buffer stocks put in place for Brexit have been used during the pandemic). US supply lines, meanwhile, have been repeatedly hit in recent years by hurricane activity in the likes of Puerto Rico.

But in addition to these significant disruptions to supply, there are a whole host of other, lower-impact, higher frequency events and risks that, if not managed, can escalate over time and eventually cause supply interruptions. They include failures to meet on-time, in-full (OTIF) targets as a result of delivery delays or batches not released; process variability, quality deviations or unreliable manufacturing or API plants; lower profile supply chain disruptions – the result of critical material shortages, facility damage or transit failures; and, finally, product shortages as a result of recalls or other regulatory intervention.

The majority of these events normally do not reach public scrutiny as they are usually handled and mitigated by having safety stock in place. If problems persist, however, that reserve can be eroded and eventually exhausted, resulting in drug shortages.

The critical point is that Covid did not always cause the weaknesses we’ve seen in supply chains. It often just revealed them.


Long-term fragility

To understand why, and how drug shortages have re-emerged to challenge the industry, it’s necessary to recognise the long-term trends that have increased companies’ exposure to supply chain disruptions. Three related themes are essential.

The first is the accountant’s drive to make supply chains more efficient that has seen businesses cut back on stock and redeploy backup facilities to productive use. Mergers and acquisitions resulting from the same push for efficiency, meanwhile, have reduced the number of suppliers for crucial APIs, eliminating redundancy in the supply chain. This a relatively simple point: By reducing both the range of alternative providers and internal production capability and stock levels, we’ve inevitably reduced the resilience of supply.

The second is again the result of the determination to cut costs: Outsourcing to countries with lower labour costs, which has focussed industry dependencies on fewer API or contract manufacturers. As noted above, this has resulted in businesses heavily dependent on India, and to a lesser extent China for APIs. Disruption in the event of an export ban or similar block on supplies will almost inevitably be felt downstream. Indeed, this issue rapidly came to the fore right from the start of the pandemic.

The industry’s decision to shift API production to Asia has also increased drug supplies’ reliance on jurisdictions with less mature regulatory systems and, hence, potentially lower standards. There is no escaping that the regulatory track record of China and India is demonstrably inferior to that of the UK, Europe or the US.

In the image below, the colour coding shows the frequency of OAIs (Official Action Indicated notices) issued to facilities by the FDA as a percentage of the number of inspections conducted. In the US and Europe, the likelihood of an OAI was usually below five or six per cent (green and light green). In China and India, the rate was more than eight per cent (red).

Source: research by Intersys Ltd as part of the ReMediES project.

FDA inspection map

That’s a particular issue because while manufacturing of APIs has moved to jurisdictions with arguably lower standards, regulatory requirements have, if anything, moved the other way.

In practice, this can result in disruptions to the supply chain in one of two ways. First, where a compliance failure occurs, the OAI often results in prolonged plant shutdowns for remediation. Second, remediations that result in major changes or new suppliers will take time to be approved by the regulators.

It’s an irony that the regulatory measures in place to protect patients, can count against the patient if something goes wrong in the supply chain and extensive regulatory re-approval is required for the solution to put it right. This is far from being a theoretical risk. An FDA report in 2019 showed that of 163 drugs that went into shortage from 2013 – 2017, 62% followed supply disruption associated with manufacturing or product quality problems. Moreover, there is an interplay between regulatory risks and the other vulnerabilities from long-term trends touched on above. As a result, certain types of drugs are particularly vulnerable to supply chain interruptions.

This is confirmed by both the FDA report and  a study led by Intersys with the Institute for Manufacturing at the University of Cambridge, part of a cross-industry collaboration project called ReMediES, which revealed that 69% of product shortages in 2018 followed OAIs issued to the company reporting the shortage. Both studies showed that the drugs most likely to be in shortage were generic injectables, which require rigorous manufacturing processes but do not provide much profit margin as a result of competition. (A BMGA study of 40 originator products to come off patent since 2014, shows sale prices fell by an average of 89%.) Older drugs with a median time since first approval of almost 35 years are also more to be in shortage.

Price competition for older generics makes investment in robust quality management systems difficult. Moreover, in the event of an interruption that causes the drug to become scarce, low prices and regulatory hurdles discourage new market entrants from correcting the situation.


Seeing is believing

There’s one final factor that explains the rising disruption to supply chains, and it’s an important one: The increasingly global nature of life sciences businesses and the complexity of their supply chains has decreased visibility and oversight of them. The result is that both the underlying vulnerabilities and interruptions to supply chains are more difficult to detect and address.

As my presentation outlined, the life sciences supply chain takes in a broad range of other industries. These also vary considerably, depending on whether we consider biologics, traditional pharmaceuticals or medical devices. These bring a range of second-tier suppliers and contract manufacturers into consideration. As a result, life sciences businesses can find themselves exposed to a range of risks to livestock, chemicals or engineered components businesses.

Trying to predict the full range of possible events that could impact these suppliers is arguably impossible. What businesses can do, however, is to identify the most critical suppliers, and determine the value at risk for the critical dependencies of key products.

Understanding where these vulnerabilities lie enables the business to focus on these so that impacts on them are identified and responded to more quickly. Quantifying the value at risk, meanwhile, allows proper evaluation of risk mitigation options through a cost-benefit analysis.

Crucially, neither require you to anticipate what event might cause the disruption – only the vulnerabilities and value at risk. That’s important because it’s what the last year has really shown us: That we need to be ready for anything.

For more on these issues and particularly how SCAIR can help with identifying mapping, quantifying and addressing critical exposures, watch the webinar for free here.


Catherine Geyman, Director, Intersys Risk Ltd

Head shot of 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

medical warehouse worker man loading boxes with medcine drugs by hand forklift

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

Female pharmacist sat at desk writing notes with medicine boxes in background.

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

 pharmaceutical logistician using internet of things solution based on blockchain technology to secure data integrity of drug supply chain. Networking concept for distributed ledgers.

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.

Head shot of Catherine Geyman, Director, Intersys Risk Ltd

Catherine Geyman, Director, Intersys Risk Ltd

The blockchain supply chain in pharma

Man in chemicals warehouse with hard hat and clipboard checking stock

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

Close up of blue pills against white background

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 SCAIRTM 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.