Assessing and Mitigating Supply Chain Risks within Biopharmaceutical Companies

biopharmaceutical-risk-assessmentIn her first speech to the Food and Drug Law Institute (FDLI) as Commissioner of the U.S. Food and Drug Administration (FDA) in 2009 Margaret Hamburg, M.D., promised a vigilant and visible FDA. She has not disappointed. Commissioner Hamburg appears determined to prevent “public-health crises” that resulted from tainted products like the heparin disaster in 2008.

In February the House Energy and Commerce Committee began a formal investigation into the contaminated-heparin crisis of 2008, to determine responsibility for the contamination, which was linked to 81 deaths in the U.S. More than 80 percent of the heparin supply in the U.S. comes from China. The deaths in the U.S. in 2007 and 2008 were linked to contaminated heparin whose main ingredient had been imported from China.

In a January 31 speech Commissioner Hamburg reiterated, “Another public-health crisis like heparin or melamine seems inevitable unless we are able to truly forge changes in how we ensure the safety and quality of food and medical products for our citizens.”

This new reign of FDA enforcement has resulted in more biopharmaceutical and medical device companies receiving warning letters than ever before. It is evident that the biopharmaceutical landscape has changed, and the FDA is utilizing the all of the resources at its disposal to step up regulatory oversight and enforcement.

It is important to understand the factors that contributed to this business landscape and the lapse of oversight. Across the industry, cost pressures, consolidations, and/or mergers and acquisitions have contributed to creating the conditions for a “perfect storm.” In the biopharma industry, R&D productivity has declined, pipelines are depleted and development costs have gone up exponentially.

Biopharma companies are facing these issues and many others. The entire process has become more complex at a time when companies are trying to find greater efficiencies and accelerate products to market. The industry has responded to the cost pressures by outsourcing more clinical trials and manufacturing. Adding to that, there is greater complexity of supply chains and of product and manufacturing methods. Imports are coming from countries with less rigorous regulatory systems, and there are greater opportunities for economic fraud.

Specifically, outsourcing of the supply chain has been driven by a number of factors:

  • Competitive global marketplace
  • Search for greater productivity and flexibility
  • Need for a global manufacturing presence
  • Expanding capacity needs
  • Cost reduction
  • Reduction of capital assets
  • Improved asset utilization

Global outsourcing may address some business challenges, but with it comes increased risks; there is the potential for:

  • Inefficient management
  • Information gaps due to IT infrastructure asymmetry and disconnects
  • Hidden costs
  • Dependence on third party logistics (3PL) providers
  • Lack of control over 3PLs
  • Problems in evaluating and monitoring 3PL performance
  • Incompatibility of participating firms cultures
  • Lack of direct control over product
  • Possible loss of key intellectual property
  • Increased legal compliance and reputation costs

Biopharmaceutical companies operating in this new world order of increased scrutiny, more vigorous inspections and warnings, must step up their game and be more vigilant about managing supply chain and compliance.  This is not a simple task.

Again, in her speech to FDLI, Commission Hamburg added, “Every company with products or activities under FDA’s jurisdiction has a duty to comply with the law … to meet the standards that the FDA has set to protect the public.”

It is not just talk, the FDA has taken action:

  • Scores of new investigators were hired and trained in Q42008 and they are now hitting the ground – running.
  • Significant enforcement actions have been taken against several generic pharma companies over last several months
  • New field offices were established in China, Europe, India and Latin America.

Ultimately, quality and compliance is about safe products. In this new era of oversight, companies cannot afford to take a traditional approach to compliance. There are significant costs and consequences for non-compliance.  Assessing the level of risk is an essential step to preventing.

Taking Action – What You Can Do

  1. Quality and compliance is more than just auditing. It’s an integrated program, and usually requires fundamental culture and process change.
  2. Proactive vs. Reactive: Waiting for FDA to discover your flaws is very expensive and disrupts every aspect of your business. Minimize impact to the business by embracing that compliance is a value‐added activity.
  3. Change Management: We can create the best processes and supporting infrastructure in the world, but if people don’t change to improve, you will still have significant compliance gaps.
  4. Supply Chain: Take another look at how much you know about where your raw materials come from. Invest in a deeper dive on critical materials.
  5. Enhance compliance with technology. Apply Business Process Management (BPM) tools to streamline and automate processes

Companies are best served by putting in place a risk-based quality management system to ensure compliance and avoid costly recalls, regulatory and quality problems and liability. A well-managed supplier quality management system improves operational efficiency and can boost a product’s competitiveness in the global marketplace.

To assess the risk companies need to be in mode of deep introspection and ask the right questions:

  • Are systems aligned to new priorities?
  • Is the quality function strong enough to endure new force of inspectional rigor?
  • Is your Legal Department tuned in to FDA’s new leverage?
  • Integration of Compliance in all business processes is key – it is not a bolt-on solution
  • Is the Boardroom “on board” with compliance as a priority

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About the Author

Robert A. Rhoades

Robert-A-Rhoades About the Author
Robert A. Rhoades is the practice leader in Quality Systems Consulting at Quintiles. Within his 32-year career, Bob has been a preferred advisor to senior pharmaceutical executives in the U.S., Europe, China and India regarding compliance and its impact on corporate direction and strategy.He can be reached at