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2012

Among other core business challenges, biopharmaceutical companies strive to reduce bottlenecks in R&D and increase efficiency. With that in mind, it was interesting to see an announcement last week that 10 leading biopharmaceutical companies have formed a non-profit organization to collaborate and accelerate the development of new medicines.

Those 10 companies are: Abbott, AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb, Eli Lilly and Company, GlaxoSmithKline, Johnson & Johnson, Pfizer, Genentech (a member of the Roche Group), and Sanofi. Last week, at the BioPharm America™ conference in Boston, they announced they formed TransCelerate BioPharma, the largest initiative of its type.

The goal for the companies is to work together across the global research and development community and share research and solutions that will simplify and accelerate the delivery of new medicines, says newly appointed interim CEO of TransCelerate, Garry Neil, MD, partner at Apple Tree Partners and formerly Corporate VP, Science & Technology, Johnson & Johnson, in a Reuters story.

This is all about accelerating transformative innovation, Neil continued. “We’re really working collectively in a way we haven’t done before,” he says in the article.

A Canada Newswire story reports that through participation in TransCelerate, each of the founding companies will combine financial and other resources, including personnel, to solve industry-wide challenges collaboratively. Together, they agreed on specific outcome-oriented objectives and established guidelines for sharing meaningful information and expertise to advance collaboration. There is widespread alignment among the heads of R&D at major pharmaceutical companies that there is a critical need to substantially increase the number of innovative new medicines, while eliminating inefficiencies that drive up R&D costs, says Neil in the article.

Members of TransCelerate have identified clinical study execution as the initiative’s initial area of focus. Five projects have been selected by the group for funding and development, including: development of a shared user interface for investigator site portals, mutual recognition of study site qualification and training, development of risk-based site monitoring approach and standards, development of clinical data standards, and establishment of a comparator drug supply model.

The Canada Newswire story further explains that as shared solutions in clinical research and other areas are developed, TransCelerate will involve industry alliances including Clinical Data Interchange Standards Consortium (CDISC), Critical-Path Institute (C-Path), Clinical Trials Transformation Initiative (CTTI), Innovative Medicines Initiative (IMI), regulatory bodies including the U.S. Food and Drug Administration (FDA) and European Medicines Agency (EMA), and Contract Research Organizations (CROs).

Janet Woodcock, MD, director of FDA's Center for Drug Evaluation and Research, says in the Canada Newswire story that the Center applauds the companies in TransCelerate BioPharma for joining together to address a series of longstanding challenges in new drug development. The collaborative approach in the pre-competitive arena, using the collective experience and resources of 10 leading drug companies and others to follow, has the promise to lead to new paradigms and cost savings in drug development, all of which would strengthen the industry and its ability to develop innovative and much-needed therapies for patients, she says.

Considering that all these companies face the same pressure to accelerate the delivery of new drugs, as well as the same need to reduce costs and inefficiencies, it makes sense that they are willing to collaborate. By pooling their resources, one would think the companies would be able to achieve their objectives, consequently reducing costs while developing new drugs quicker.

What do you think? Will the companies’ collaborative efforts enable them to simplify yet also accelerate the delivery of new medicines?

The Chicago teachers strike and a strike by the NFL referees may receive the lion’s share of news coverage, but both labor disputes do have me thinking about other labor strikes and their potential impact on the supply chain.

The Washington Post, for example, recently reported—as did other sources—that electronics manufacturing services provider Flextronics International said it’s taking steps to resolve a strike by workers at a factory in Shanghai, China. Flextronics plans to start shifting operations at the Shanghai plant in November to the Wuzhong district in Suzhou due to a local government plan to redevelop the plot of land where the factory is currently located. Amid a dispute over compensation for the move, about 6,000 employees took part in the walkout, which began Sept. 17 and continues.

A strike with even more potential far-reaching impact for multiple supply chains is that of longshoremen here in the U.S. The Baltimore Sun explains that with time running out before its contract expires, the union representing 14,500 longshoremen on the East and Gulf coasts and the port employers’ organization had agreed earlier this week to meet with a federal mediator.

Talks on a master contract covering 14 ports, including Baltimore, broke off in late August with leaders of the International Longshoremen’s Association and the U.S. Maritime Alliance accusing each other of bargaining in bad faith. The contract, which expires Sept. 30, covers nearly 1,200 longshoremen who work at the port of Baltimore.

A strike there would have serious and far-ranging impact because Baltimore is ranked first among 360 U.S. ports for handling farm and construction machinery, autos, light trucks, imported forest products, imported sugar, imported iron ore and gypsum. It ranks second in the nation for exported coal, imported salt, and imported aluminum.

However, The Baltimore Sun reported yesterday that both sides met with the federal mediator, and they have averted a possible Oct. 1 strike by agreeing to extend the contract for 90 days. George H. Cohen, director of the Federal Mediation and Conciliation Service, said progress was made on several important subjects, prompting both sides to agree to extend the contract through Dec. 29 — after the holiday season and the elections. In taking this significant step, the parties emphasized that they are doing so for the good of the country to avoid any interruption in interstate commerce, Cohen said in a statement.

That’s good because as a PRWeb article earlier this week explained, a shutdown of many Eastern Seaboard and Gulf Coast ports would not only raise the costs of holiday merchandise but also gridlock imports of all goods regulated by the U.S. Food and Drug Administration. Benjamin England, founder and CEO of FDA consulting firm, FDAImports.com, said the effects of a shutdown would expand farther than a simple increase in holiday gift prices to a total lack of holiday items.

Importers trying to supply retail store shelves for the Christmas season would need to rapidly choose new partners, England said in the article. Furthermore, the ripple effects would multiply with each modification along the supply chain. The FDA would require new exporters to produce product and registration information they wouldn’t have. Ports that remain open would be backlogged with shipments diverted from the striking ports. Ports and FDA/Customs officials who are used to handling a few specific commodities would be overwhelmed with new commodities beyond their experience. Finally, FDA compliance officers would be flooded with shipments and products that they’re not familiar with, England says.

Consequently, there would be a supply chain catastrophe that could have extraordinary impact for importers, exporters, foreign suppliers, and consumers, says England.

What foreign suppliers and U.S. importers of FDA-regulated products should do is develop contingency plans now to mitigate the effect of a potential strike, says England. They can’t just switch ports and they can’t just jump to a new supply chain. Instead, these companies need to ensure their prospective partners are fully aligned with their compliance strategy before signing anything—especially when it comes to FDA documentation, he says.

In other words, a labor strike is just like any other supply chain disruption. The time to plan is well before the potential strike so appropriate action can be taken to mitigate the risk.

Now, if only the NFL could settle its dispute with the experienced referees.

 

It continues to be a challenge to stop counterfeit drugs and active ingredients from entering the U.S., so I was interested to read some news from a recent symposium. The Food and Drug Administration announced it has a hand-held device, the Counterfeit Detection Device #3 or CD3, which can be used in the field to detect counterfeit products and packaging.

The device was designed in-house by FDA scientists in response to the needs for field screening, says FDA Commissioner Dr. Margaret Hamburg, in an article that ran on CNN Health’s website. It’s low cost compared to other analytical devices, operates using batteries, and requires minimal training to use. The device enables real-time comparisons with authentic drugs—and has already proven useful for identifying counterfeit drugs at busy international mail facilities, Hamburg explains.

CD3 is currently being used in 50 FDA field laboratories, as well as border crossings and import centers. It’s also used in a number of international mail facilities including those in San Francisco, Los Angeles, and Chicago as well as other points of entry where inspectors screen drug ingredients, finished products, and dietary supplements to identify counterfeit, falsified, and unapproved drugs, cosmetics, foods, medical devices, and cigarettes.

What’s interesting is that the LED machine emits 10 different wavelengths of light such as ultraviolet and infrared imaging, and it can be used on tablets and capsules, powders, and packaging (inks, papers, and covert markings). It can also detect products that have been tampered with, re-labeled, or re-glued. What have the results been so far? The CD3 has been used to analyze nearly 100 counterfeit products including such well-known drugs as Crestor, Lipitor, Oxycontin, Viagra, Tamiflu, Singulair, Plavix, and Wellbutrin.

According to Hamburg, the amount of FDA regulated products imported into the U.S. has quadrupled from 6 million to 24 million in recent years. So today, 80 percent of the facilities manufacturing active ingredients for FDA-approved drugs are located outside the U.S. Indeed, some 300,000 foreign facilities spread across 150 countries now send FDA-regulated products to the U.S., Hamburg says. In fact, she says the FDA has ranked—in order of risk of adulteration—more than 1,000 active drug ingredients that need to be monitored.

In other counterfeit drug detection news, I was particularly interested to read on SecuringIndustry that a smartphone app has been designed to help consumers identify counterfeit medicines. Health in Your Pocket (HiYP), an app which makes use of quick response (QR) codes to identify counterfeit medicine, has been developed by some South Africa-based developers. What’s more, it has been named one of the 12 finalists shortlisted in this year’s International Telecommunication Union (ITU) Young Innovators Competition. The overall winner of the Young Innovators Competition will be announced at ITU Telecom World 2012, which will be held in Dubai next month.

The developers say that in contrast to text message-based systems for medicine verification which are already rolling out in many countries around the world, the app uses QR codes and “the supplier’s back-end systems” to help stop the circulation of counterfeit medicine. In a statement, they also said that after establishing the authenticity of the medicine, the app then helps the patient to monitor, manage, and track their medication in-take.

Given the proliferation of counterfeit drugs and active ingredients in the supply chain, and increasing sophistication of methods used to introduce the drugs into the supply chain, these innovations seem to be needed. But it also seems what’s really lacking is additional authority for the FDA so it can act promptly and accordingly after discovering counterfeit products and packaging.

What do you think? Does the FDA require more authority?

 

 

Reshoring continues to be a hot topic. However, one of the factors that I think is consistently overlooked, is total landed cost. That’s why I was interested to see a recent SupplyChainBrain video.

In the video, Mike Jones, president of St. Onge Co., explains the value of total landed cost modeling, and how it can drive decisions to offshore manufacturing activities. In coming to understand the true cost of offshoring one’s manufacturing activities in Asia, versus locating them closer to the U.S. in places such as Mexico, there are many “quantitative and qualitative” considerations to keep in mind, says Jones. The reason most companies don’t calculate total landed cost well, however, is that it’s so complex, he says.

Often manufacturing concerns take precedence, eclipsing logistics and distribution factors, which are minimized—if even considered at all, Jones says. As a result, many companies are unaware of the hidden costs involved in outsourcing manufacturing to a country in Asia with low labor costs.

While wages do drive much of the decision, other factors, such as local regulations, ease of doing business in distant countries, and the cost of moving finished goods to market must be considered as well, Jones says. For instance, many companies fail to include downstream transportation in their deliberations, and, consequently, they’re forced to resort to high-priced expedited options when product is delayed, he explains.

Interestingly, a recent PwC report notes that while discussions about a U.S. manufacturing resurgence largely center on rising labor costs in markets such as China, there are a number of other factors to consider. According to the report, A Homecoming for U.S. Manufacturing?, elevated transportation and energy costs, currency fluctuations, U.S. market demand, U.S. talent education and experience, availability of capital, and the tax and regulatory climate will all influence manufacturers’ decisions to establish production facilities domestically and produce products closer to their major customer bases.  PwC’s report also notes that localizing production can mitigate supply chain disruptions, which totaled $2.2 billion in financial impact for U.S. industrial products companies in 2011.

That’s not to say all industries could benefit equally. Indeed, relocating manufacturing production to the U.S. generally holds greater advantages for some industries over others.  When taking into account costs spanning labor, materials, transportation and energy, the PwC report shows that chemicals, primary metals, and heavy equipment manufacturing industries stand to benefit most from maintaining or expanding facilities in the U.S. given opportunities and cost incentives to re-shore domestically. Wood, plastic, and rubber products companies could also benefit from changes in domestic costs, but lower net imports in these industries may limit the full economic benefits of on-shoring in the U.S.

Industrial manufacturers may increasingly rethink their U.S. strategies, including the merits of continuing to separate production and R&D and producing abroad and importing back to U.S. buyers, says Bob McCutcheon, PwC’s U.S. Industrial Products leader. Depending on the industry, there may be considerable benefits to establishing regionalized supply chains and R&D facilities in the U.S., such as reducing costs, shortening lead times, protecting intellectual property, and mitigating many of the risk factors inherent in developing markets, he says.

The findings also don’t necessarily advocate shifting production at the expense of other markets. So, for example, the difference in the relative standard of living, as well as the size of the U.S. market, supports investment in new domestic production of goods targeted for U.S. consumption. On the other hand, global manufacturers with a multi-region strategy that source from Asia, for instance, are likely to keep production in that region to serve those local markets, consistent with the trend toward regionalization of manufacturing for the largest global manufacturers.

What is your company doing? Are there plans to reshore some manufacturing, expand internationally, or even both?

 

While it sounds good that General Motors Co. sold a record number of Chevrolet Volt sedans in August, in reality, the news might not really be that good for the company’s bottom line. According to a Reuters story I saw in the Chicago Tribune, nearly two years after the introduction of the plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, say industry analysts and manufacturing experts.

The sales of all plug-in electric vehicles have been slow, but it seems the Volt’s high $39,995 base price and its complex technology—expensive lithium-polymer batteries, sophisticated electronics, and an electric motor combined with a gasoline engine—have kept many prospective buyers out of Chevy showrooms.

Some likely are put off by the technical challenges of ownership, mainly related to charging the car’s battery. Plug-in hybrids such as the Volt still take hours to fully charge the batteries. The process can be speeded up a bit by purchasing and installing a $2,000 commercial-grade charger in the garage.

GM’s basic problem, however, is that the Volt is over-engineered and over-priced, says Dennis Virag, president of the Automotive Consulting Group, in the article.

For example, independent cost estimates obtained by Reuters factor in GM’s initial investment in development of the Volt and its key components, as well as new tooling for battery, stamping, assembly, and supplier plants. Those estimates put total cost at $1.2 billion, which does not include sales, marketing, and related corporate costs.

Spread out over the 21,500 Volts that GM has sold since the car’s introduction in December 2010, the development and tooling costs average just under $56,000 per car. That figure will, of course, come down as more Volts are sold. However, the Reuters story explains that current actual cost to build the Volt is estimated to be an additional $20,000 to $32,000 per vehicle, according to other industry consultants.

That means it costs GM “at least” $75,000 to build a Volt, including development costs, says Sandy Munro, president of Munro & Associates, which performs detailed tear-down analyses of vehicles and components for global manufacturers and the U.S. government. Other estimates from industry consultants contacted by Reuters put the tag between $76,000 and $88,000.

“It’s true, we’re not making money yet” on the Volt, says Doug Parks, GM’s vice president of global product programs and the former Volt development chief, in the article. The car “eventually will make money. As the volume comes up and we get into the Gen 2 car, we’re going to turn [the losses] around,” Parks says. “Virtually every component in the next-gen car is going to be cheaper.”

GM is not alone. The strategy of gambling on relatively untested technology also was behind massive investments by Toyota Motor Corp in the Prius hybrid and Nissan Motor Co in the Leaf electric car. Toyota said it now makes a profit on the Prius, which was introduced in the United States in 2000 and is now in its third generation.

Other vehicles haven’t done so well. The article notes that GM’s investment in the Volt has been a fraction of the $5 billion that Nissan said it is spending to develop and tool global production of the Leaf and its associated technologies. Nissan’s pure-electric Leaf, which debuted at the same time as the Volt and retails for $36,050, has sold just 4,228 this year. Honda and Mitsubishi’s sales are even worse.

One obvious way to reduce costs is to increase sales volume but that hasn’t gone so well for GM either. The automaker just ended a special Volt lease program that offered customers a low monthly payment of $279 a month for two years, with some high-volume dealers dropping the payment to $199 a month after receiving incentive money from GM, with down payments as low as $250. Obviously then, leasing is much more attractive—for now.

In the end though, I do believe the cars will eventually sell well. It just may take a while, as has been the case with Toyota. In the meantime, the high development costs are simply part of the business. A painful part of the business for now perhaps, but unfortunately, a necessary expense nonetheless.

 

The European Union has begun an investigation to determine if Chinese companies exported solar power equipment for less than the cost of making it—known as dumping. It is the largest anti-dumping investigation by value ever.

The investigation follows allegations from EU ProSun, a group that represents European solar power equipment producers including SolarWorld, that Chinese companies are dumping, and that they sell products in Europe for, as the group claims, “far below their cost of production, with a dumping margin of 60 percent to 80 percent.”

At the heart of the matter, the investigators seek to determine whether solar panels from China are “being dumped and whether the dumped imports have caused injury to the union industry,” the European Commission, the EU’s trade authority in Brussels, said in the Official Journal, which was reported in a Bloomberg article. The commission has nine months to decide whether to impose provisional anti-dumping duties for half a year, and EU governments have 15 months to decide whether to apply “definitive” levies for five years.

The result of the increased competition from China has been reduced profit margins for European companies driven by falling solar-panel prices in Europe. Germany’s Q-Cells SE, for example, had once been the biggest solar-cell maker but the company was forced to seek court protection from creditors in April. The situation also led to the bankruptcy of 20 European manufacturers this year, says Milan Nitzschke, president of EU ProSun and a vice president of SolarWorld, in the article.

As would be expected, a Chinese industry group has denied accusations solar manufacturers used state subsidies to sell products below cost in Europe. An IndustryWeek article notes that the group also urged officials in Brussels not to launch an investigation.

Sun Guangbin, secretary general of the CCCME’s solar branch, says—as noted in the IndustryWeek article—that Chinese manufacturers were more competitive due to falling costs, technology innovation, economies of scale, and better management. For instance, the price of polysilicon, a key panel ingredient, has now fallen to around $20 per kilogram. It had been priced as high as $400 per kilogram in 2008, he says.

Opponents of the trade action warned that it could also undermine European efforts to expand sources of clean, renewable energy to meet ambitious goals for reducing greenhouse gas emissions. There are other concerns as well. A New York Times article reports that European leaders including Chancellor Angela Merkel of Germany, wary of retaliation by China, had urged the commission to seek a negotiated solution. That’s because China could, in response, impose duties on products it imports from Europe.

Those concerns make sense. Last spring, following an investigation in the U.S., the Commerce Department placed stiff tariffs on imports of Chinese solar panels, imposing 31 percent charges on the products of big Chinese manufacturers like Suntech and Trina.

That action is the result of dumping allegations brought by a group led by SolarWorld, the U.S. subsidiary of the German company, explains an article in The Washington Post. The group said Chinese solar panel makers had violated World Trade Organization rules, using unfair cost advantages and selling panels in the U.S. at below-cost prices to drive U.S. manufacturers out of business. The duties will be reviewed again at the end of the year.

In a move some would call retaliatory, China started its own probe into alleged U.S. dumping of solar products in China and government subsidies for the sector last summer. As explained in IndustryWeek, China’s Ministry of Commerce will investigate whether U.S. companies sold polysilicon at artificially low prices in China. Additionally, China has begun to look into alleged U.S. state subsidies for the sector, including tax exemptions, supplying land free of charge, and granting public funds for job training, the ministry said.

The solar power industry is complicated enough, but all the dumping accusations show just how cutthroat business has become. The fact that companies have gone out of business will only serve to create further ripples across the supply chain.

What do you think will happen next?

 

In a joint statement addressing Internet sales of, and access to, safe medicines, pharmaceutical industry groups IFPMA, PhRMA, EFPIA, and JPMA note that they are united in efforts to protect patients’ safety. The groups are, they explain, committed to promoting access to safe and efficacious medicines, advocating for robust patient education and awareness, and combating unsafe medicines, including those sold by illegitimate online drug sellers that circumvent laws, regulations, and pharmacy standards put in place to protect patients and their health.

I was interested to see that the groups support and encourage voluntary and cooperative efforts by the private sector to reduce illegal sales of medicines by illegitimate online drug sellers. They note that it is essential for businesses—including Internet service providers, Internet domain registrars, advertising brokers, payment processors, and search engine operators—to work collaboratively to identify best practices and advocate policy solutions aimed at combating illegal online drug sellers that endanger public health. 

With that in mind, the groups welcome, in particular, the voluntary decision taken by Google, Go Daddy, and several other companies to form a U.S.-based nonprofit organization, the Center for Safe Internet Pharmacies (CSIP), to take voluntary steps to aid law enforcement, educate the public, and share information related to illegitimate online drug sellers that endanger the public health. The groups encourage CSIP to achieve proclaimed objectives, including creating codes of conduct and best practices that can serve as a model to others and help reduce the growing number of illegitimate online drug sellers.

Additionally, the groups call on governments to explore opportunities to strengthen laws and law enforcement tools to address the growing number of illegitimate online pharmacies. That’s where things get interesting. For example, SecuringPharma reports that a review by the Nigerian Agency for Food and Drug Administration and Control (NAFDAC) is considering pushing for life sentences for counterfeit drugs sellers as part of new anti-counterfeiting legislation. Other measures being considered include making convicts pay damages if their fake drugs caused death or severe injury, and confiscation of assets of those found guilty.

China has been cracking down as well. According to newly released figures from the Chinese Ministry of Public Security, police have shut down 147,000 sites that manufacture or sell counterfeit food or drugs since August 2011. Over the same period the police have reportedly resolved 185,000 criminal cases linked to counterfeiting.

Another story that ran last week on SecuringPharma reports that China’s State Food and Drug Administration (SFDA) has proposed a system whereby it would maintain a blacklist of companies and individuals involved in serious violations of drug and medical device laws, including the production or sale of counterfeit or substandard products. The proposed regulation could have significant consequences for those companies, with enforcement actions including revocation of permits to manufacture or carry out clinical trials, a block on new applications, and more frequent inspections and quality spot-checks.

But it’s the blacklist itself that caught my attention. In a new twist on The Scarlet Letter, the companies on the blacklist will be listed on a publicly-accessible website in a naming-and-shaming approach. Maybe it’s just me, but I think revoking permits would have more impact than being listed on a blacklisted companies website.

Finally, I’m also interested to see what comes of Partnership for Safe Medicine’s (PSM) upcoming annual Interchange conference, scheduled later this month in Washington, DC. The annual conference brings together policymakers, pharmaceutical manufacturers, patient advocates, law enforcement, healthcare professionals, and anti-counterfeiting companies to discuss and solve global pharmaceutical counterfeiting.