drug manufacturing – The OM Blog by Heizer, Render, & Munson

OM in the News: Rival Drugmakers Form Alliances

Some of the world’s biggest drugmakers are joining forces with rivals to help produce Covid-19 vaccines, forging unusual alliances that promise to substantially increase supplies by this summer. As we write in Chapter 5, Design of Goods and Services, alliances are a good strategy “when substantial resources are required and sizable risk is present.”

Normally big pharm companies compete to sell cancer, arthritis and other drugs. The desperate need for Covid-19 vaccines, however, is turning fierce industry competitors into fast pandemic friends. Sanofi SA recently agreed to help make a vaccine from Pfizer after Sanofi’s experimental Covid-19 shot suffered a 5-month setback, freeing up a production line in Frankfurt. Novartis AG also agreed to hep Pfizer produce more doses.

Endo International has agreed to help Novavax produce its shot.

The collaborations, along with the authorization of newer vaccines and fine-tuning by the vaccine makers themselves, could help significantly boost global output, reports The Wall Street Journal (Feb. 24, 2021). Early supplies have been limited, as vaccine makers needed time to increase production and overcome early hiccups and problems getting raw materials.

The production alliances are the latest example of industry rivals coming together to fight the pandemic, starting with research tie-ups. They build upon a year-long effort by the drug industry and partners to crank up capabilities to make everything from the tiny vials that hold the shots to raw ingredients that make them. But production can’t start overnight. Vaccine manufacturing is a complex process that often requires training staff, upgrading facilities and buying new equipment.

Novavax, which has a vaccine in the late stages of development, doesn’t own a manufacturing plant and has to lean on other companies to produce the shot. Baxter said one of its plants in Germany will help fill and finish Novavax’s vaccine, as did Endo in Rochester, Michigan–under pressure from the U.S. government.

Classroom discussion questions:

What will happen to these alliances once the pandemic is under control?
Why is it challenging to produce the new vaccines for another company?

OM in the News: Vaccine Supplies Won’t Be Enough for Everyone at High Risk

Should doctors and nurses get vaccinated before the general public?

Initial supplies of any successful coronavirus vaccines are now expected to fall short of what is needed even for high-priority groups like health-care workers, forcing drugmakers and U.S. officials to grapple with the thorny question of who should be first in line. Public-health officials estimate more than 100 million Americans, including doctors and nurses, other essential workers and nursing-home residents, should get vaccinated before the general public.

Yet initial supplies now look like they will cover only a fraction of the high-priority groups, if a vaccine clears testing and is authorized in the fall, reports The Wall Street Journal (Aug. 7, 2020).

There may be 10 million to 20 million doses available at first. The limited initial reserve is forcing U.S. health officials and their advisers to make hard choices about who should get vaccinated first. It could mean prioritizing staff at hospital emergency departments and intensive-care units over health-care workers who have less interaction with the sickest patients. But if a vaccine is shown to be protective in the elderly, they may end up getting high priority because older people are at higher risk of severe disease. Officials are also weighing how high to prioritize people who work outside of health care but in important jobs like those in the food supply chain.

Companies working on vaccines say they are ramping up manufacturing to eventually produce hundreds of millions of doses, but that bigger supply is unlikely to kick in until next year. The most difficult allocation decisions will be in the first 6-9 months of vaccine availability, but then supplies should begin to catch up to the broader population.

Classroom discussion questions:

From a business perspective, who should receive early vaccinations?
From an ethical perspective, who should be vaccinated first?

OM in the News: The Race to Build Covid-19 Vaccine Supply Chains

Pharmaceutical companies that are racing to develop vaccines for the coronavirus are already working behind the scenes to build the supply chains needed to deliver their drugs to billions of people as rapidly as possible. To serve global demand once a vaccine is approved, a complicated and high-stakes supply chain would kick into gear on a scale that the drug industry has rarely seen, writes The Wall Street Journal (Aug. 1, 2020). The preparations involve lining up raw materials and factory capacity to manufacture a vaccine in large volumes, and the equipment needed to transport many millions of doses at once through distribution channels that will be subject to tight security and temperature controls.

“Once a vaccine has been successfully developed, how do you get all the production you need, and how do you get it out?” said Senator McConnell.

Some of the companies involved are building this supply chain for the first time. Moderna, which just started final-stage testing of a vaccine, had never sold a product on the market. Neither has Novavax, a drug developer that was awarded a massive federal grant for vaccine manufacturing.

Pharmaceutical companies at the start will need to produce enough of what is known as the drug substance, the primary vaccine ingredient. Once they have produced the final liquid vaccine, they will need to fill vials with it, adding another hurdle to distribution. (J&J alone has bought 250 million vials). Medical glass has been in short supply since before the pandemic, and that shortage has worsened.

Logistics operators could be another speed bump. They have struggled at times during the pandemic amid upheaval in demand—particularly for consumer products and medical gear—that has left companies scrambling to find warehousing and transportation space. Airfreight capacity, which will be crucial for moving a vaccine in the early days of distribution, has been hit particularly hard because thousands of flights have been grounded since the pandemic began.

Classroom discussion questions:

Why is this supply chain complex?
How will the Covid supply chain differ from the beer supply chain in Figure 11.1 of your Heizer/Render/Munson text?

OM in the News: China’s Chokehold on Medical Supplies

Alarmed at China’s stranglehold over supplies of masks, gowns, test kits and other front-line weapons for battling the coronavirus, countries around the world have started to set up their own factories to cope with this pandemic and outbreaks of the future, writes The New York Times (July 6, 2020). But when the outbreak subsides, those factories may struggle to survive. American companies have been reluctant to make big investments in fabric manufacturing because they worry that mask demand will be temporary.

China, however, has laid the groundwork to dominate the market for protective and medical supplies for years to come. Its market grip is a testament to its drive to dominate important cogs in the global industrial machine.

Before the pandemic, China already exported more respirators, surgical masks, medical goggles and protective garments than the rest of the world combined. Beijing’s coronavirus response has only added to that dominance. It increased mask production nearly 12-fold in February alone. That is 5 times what China could make before the outbreak, and 15 times the output of U.S. companies even after they ramped up production this spring. The Chinese government played a major role in this year’s medical-equipment build-out with cheap land, subsidies, and a demand that that its own hospitals buy locally.

The U.S. has begun a push for the federal government to buy American-made pharmaceuticals and medical supplies. Likewise, France pledged to produce homegrown masks and respirators by the end of this year. But Chinese pharm companies supply 40-45% of heparin (a blood clot medicine), 70% of acetaminophen, and over 90% of antibiotics, vitamin C, ibuprofen and hydrocortisone to the U.S. About 80% of the active ingredients used in U.S. drugs also come from other countries.

Thus, it begs asking: Is it time for America to take control of its pharmaceutical and medical production?

Classroom discussion questions:

This article suggests risks in outsourcing. Relate this to the pandemic.
How does the theory of comparative advantage stand up in this situation? (See Ch. 2 of your Heizer/Render/Munson text).

OM in the News: Merck’s Move to Prevent Drug Shortages

Merck, the Germany-based pharmaceutical, needs to stockpile medications to make sure it has enough on hand because some expire before they can be used. Its supply-and-demand forecasts are about 85% accurate. To sharpen its predictions, Merck plans to use analytics and machine learning to predict and prevent drug shortages, a move that could also save it money. Its new platform, from TraceLink Inc., can analyze data in real time from organizations within Merck’s supply chain, including pharmacies, hospitals and wholesalers.

The U.S. had 600-1,200 drug shortages every year from 2014 and 2019, reports The Wall Street Journal (Oct. 15, 2019). Shortages can happen due to issues with manufacturing, supply-and-demand forecasts, and natural disasters. Drugs in short supply have included antibiotics, chemotherapy and cardiovascular treatments. More precise supply-and-demand forecasts mean pharmaceuticals could save hundreds of millions of dollars annually, a benefit of not having excess drugs on hand and avoiding expedited shipment costs.

On average, pharmaceutical companies carry 156 days of inventory. For retailers selling consumer products, it is 78 days. For IT equipment, it is 57 days. Pharmaceuticals traditionally have predicted demand for drugs based on historical data and input from sales teams. But as many as 10 entities handle a drug before it gets to a patient, including manufacturers, pharmacies and wholesale distributors. “It’s a highly complex supply chain,” said TraceLink’s CEO. The TraceLink network includes data from more than 275,000 organizations world-wide, including hospitals, retail pharmacies, wholesale distributors and drugmakers.

TraceLink’s algorithms give Merck signals about the days of inventory for a specific drug and how long it will take for a drug to get to a particular phase in the supply chain. A better supply-and-demand forecast also makes it easier for Merck to expand into locations without a reliable supply-chain infrastructure, such as parts of Africa and Southeast Asia.

Classroom discussion questions:

Why do pharm firms carry such a large inventory?
How might data analytics improve forecasting at Merck?

OM in the News: Formula One Teams Up With Drug Makers

Motor sport data analytics and precision engineering may be the skills needed to boost productivity at GSK

For the past three years, the UK drugmaker GlaxoSmithKline has been working with the McLaren Formula One racing team to find ways of making its drug development and manufacturing processes more efficient, writes The Financial Times (Dec.10, 2014). It might not be immediately obvious what GSK has to learn from a company best known for its supercars and motor-racing team. The speed of F1 could hardly be more different from the 10-15-year development cycles typical of the pharmaceuticals industry. But McLaren says that its strengths in precision engineering and data analytics are just the kind of skills needed by GSK as it aims to become more productive.

Perhaps the clearest dividend of the partnership so far has come not in drug development but in GSK’s consumer healthcare business. McLaren was asked to scrutinize a toothpaste manufacturing facility and work out how to boost efficiency. “We noticed that they were making lots of small batches of different products with a lot of down time in between,” says a McLaren exec. “They said: ‘If you can change four tires on a racing car in 2 seconds why does it take us 2 hours to do a changeover?’” Within a year, lost time had been cut by 60%, using principles similar to those that govern the pit-stops for a racing car. “It’s about everyone knowing their job and doing it well. Afterwards, we analyze every detail — what went well, what didn’t and how we can improve.”

But the biggest ambitions for the partnership come in R&D. Much of the cost and time it takes to develop a drug is consumed in the clinical trial process needed to prove safety and efficacy. McLaren is working with GSK on technology to allow real-time monitoring of patients rather than the sporadic check-ups that can sometimes lead to unreliable trial results. Creating flexible, responsive strategies in this way is increasingly possible in business as flows of data improve.

Classroom discussion questions:

1. What do racing and drug manufacturing have in common?

2. Why is real-time monitoring of drug patients so valuable?