Boosting Logistics Dosage

Boosting Logistics Dosage

Copyright 2004, Traffic World, Inc.

Biotechnology companies are rolling out a "wave" of new drug products creating market opportunities for third-party logistics providers.

"I think we''re at the leading edge of the wave," said Todd Applebaum, managing partner, Boston-based Converge Consulting. "The time for providers to be positioning themselves is over the next two to three years."

That may seem like plenty of time but biotech is not any industry. Applebaum says 3PLs that want to compete for biotech business face a steep learning curve in specialized supply chains.

But he says the field already is attuned to outsourcing certain activities, including logistics. "Even when the smaller companies partner with a larger pharmaceutical or biotech (company) for marketing and distribution, the logistics will often be outsourced," Applebaum said.

That could mean some significant business for 3PLs. With annual global sales of $30 billion, the biotech industry is growing at nearly 10 percent a year.

Many outsourcing decisions that will determine how new products will be distributed will be taken soon. Applebaum said the products are in - or are just reaching - the phase two and phase three development stages. Drugs at those stages have about a 50/50 chance of gaining Food and Drug Administration approval, with those that make the grade getting the go-ahead within the next two to six years. Many biotech companies are planning product supply chains while the more mature enterprises "will tend to begin their supply- chain planning earlier."

Applebaum generally recommends "supply strategies, capacity decisions, and contract supply relationships be established in the phase two timeframe," leaving decisions on commercial distribution and logistics relationships until the phase three stage. "So those companies in phase two trials are already in the process of establishing their supply-chain relationships," he said.

Moreover, these relationships have become more important with the growing realization that better supply-chain planning helps to take some of the risk out of the biotech business.

Production starts at the so-called drug substance stage. That "is almost like beer production," Applebaum said, in that living organisms are grown in fermentation, or cell culture tanks.

Next the brew is purified "and you end up with a very concentrated amount of the proteins they are looking for." The concentrate then enters the stabilization stage. A common method is to use a freeze-dry process that turns it into a powder. "From there it goes into somewhat more traditional finishing and packaging," he said, and then into global distribution networks.

The nature of the products adds complexity to the way they are distributed. "Because these molecules are so big and complex they degrade very quickly," said Applebaum. That requires time-critical shipping and packaging for global distribution networks that are often fed from just a single manufacturing site.

There is plenty at stake in the supply chain, including the enormous investment it takes to bring drugs to market. On average it costs more than $800 million to develop a new biotech prescription drug, said Applebaum.

Long lead times and a shortage of plant capacity make it difficult to forecast commercial production volumes. Also, it is not easy to adjust a production process that is underway, making it tricky to alter output in line with market changes. And more scrutiny from regulatory authorities means less room to maneuver when planning the route to market for a new drug.

Said Applebaum, biotech companies are "looking for benefits in time-to-market" and they want more control over highly expensive, perishable inventory.

In product development and commercialization cycles, supply-chain management is a way to "pick and choose at a strategic level where they want to put their investment, what risk they want to take and whether to take it," he said.

That takes more coordination between product development and supply. The concept of "design for supply" is gaining traction in the industry, where biotech drug makers factor supply considerations into production plans as early as possible.

In the longer term, personalized medicine, which Applebaum considers "one of the most exciting developments in the field," will take the industry even further down the design-for-supply route. "The impact on distribution will be huge," he said. The arrival of tailor-made medicines for individuals means "every batch of medicine produced is produced to order."

Since the drugs are very expensive the cost of distribution will be a relatively small component of overall costs. There will be less focus on inventory management. The emphasis will be on "ensuring the accuracy of data, and to ensure the quality and purity of what is received," Applebaum said.

In other words, on-time logistics and precise tracking are intrinsic parts of the service package.

The market for these personalized medications is probably 10 years away, he said, so service providers should be building their capabilities and expertise over the next five years.

"This is pretty tight-knit community," Applebaum said. Biotech companies that have spent a decade and hundreds of millions of dollars during the development phase "will tend to stick with a partner who they''ve used before, or who has already proven their abilities for someone else."