Biopharmaceuticals are one of the world’s growth powerhouses. In 2020, the global biopharmaceuticals market was worth $325 billion, and it is expected to grow with a compound annual growth rate of between seven and eight percent to approximately $500 billion in 2026, according to Mordor Intelligence. This growth is being driven by the aging of populations in major markets, increases in chronic diseases and the development and acceptance of new innovative therapies in areas such as cell and gene therapy and precision medicine.
C-level executives of biopharmaceutical companies are tasking their manufacturing and supply chain leaders to prepare the companies’ sourcing, manufacturing and distribution operations for the future.
BCI Global has defined five strategic initiatives that biopharmaceutical companies should adopt and make an integral part of their manufacturing and supply chain strategies. These include:
• Optimizing the manufacturing footprint from a holistic perspective
• Balancing in-house and outsourced manufacturing
• Selecting the optimal location for new operations
• Effective supply chain ecosystem management
• Footprint risk management
Optimizing the Manufacturing Footprint from a Holistic Perspective
Historically, biopharmaceutical manufacturing footprints are not as fluid as the manufacturing footprints in other industries. Industries such as high-tech assembly or industrial equipment manufacturing have less complex, regulated and capital-intensive manufacturing operations.
Making significant changes in the manufacturing network of a biopharmaceutical company comes with long lead times for site engineering, regulatory and quality licensing and validation, testing and implementation.
Implementation lead times of four to seven years for new factories are not uncommon. Apart from the lead times, capital investments related to the actual building and manufacturing infrastructure as well as quality and regulatory processes have a very significant impact on the business case.
For a long time, biopharmaceutical companies were using a pragmatic and incremental optimization approach: if new capacity was required, the company would determine the optimal location for that specific new therapy area or production line and implement it there, which often meant adding capacity at an existing site in the footprint.
In the last few years, however, we have seen a change of perspective. Driven by geopolitical uncertainties, governments are focusing on the security of the supply of medicines as well as regulatory pressures and asking biopharmaceutical companies to take a more integrated, holistic approach when assessing their manufacturing footprints. COVID-19 has only accelerated this trend.
In practice, this means that companies are now taking a holistic scenario approach, including the company’s full product portfolio, global market projections, complete existing (“as-is”) network of facilities as well as potential new locations.
Based on this approach, companies can determine what the optimal footprint is for the whole company, rather than just for the new or growing product lines that are in need of additional capacity.
The scenarios considered also include the impact of new technologies. For example, more flexible manufacturing equipment that can more easily be relocated from one location to another or from one product type to another can drastically reduce the lead time for changes in the footprint as well as the related costs.
Balancing In-House and Outsourced Manufacturing
The biopharmaceutical industry has a long tradition of outsourcing manufacturing activities to specialized partners. Contract manufacturing organizations (CMOs) are an integrated part of most leading pharmaceutical companies’ business, and new start-ups in the industry are often 100 percent outsourced from a manufacturing perspective.
Many biopharmaceutical companies have a legacy mix of in-house and outsourced manufacturing that has been driven by (among other factors) the large number of mergers and acquisitions that has taken place during the last decades.
Driven by the challenges of today’s global context (trade barriers, pandemics, natural disasters, further sharpening of market expectations and quality control regulations), BCI acknowledges a trend of biopharmaceutical companies looking for the optimal balance between in-house and outsourced manufacturing. In other words, they’re seeking not an “either, or” approach but rather an “and, and” strategy for technologies and capabilities to keep full control of internal operations and also run more flexible outsourced structures with specialized, long-term partners.
Selecting the Optimal Location for New Operations
The more strategic approach towards footprint optimization – in addition to make-versus-buy decisions — drives the need for companies to do more detailed, fact-based location analyses before making decisions about where to locate the next manufacturing facility.
The fast growth of cell and gene therapies is a good example of this. As cell and gene therapies are growing rapidly from a market perspective and are expected to show a steep growth curve in the years to come, biopharmaceutical companies are investing heavily in new manufacturing capacity.
Established companies are, of course, considering locating this completely new activity with new technologies and new talent requirements at one of their existing sites. However, BCI observes that the majority of companies actively looking for an optimal location for developing their new cell and gene therapy facilities are considering new greenfield locations.
This search is driven by two factors: the fact that cell and gene therapy is regarded as so important for a company’s future success that the real optimal location or locations must be selected, and the importance of high-skilled labor that cannot be found at any regular pharmaceutical manufacturing hotspot around the globe.
For these new types of facilities, there is a strong focus on the availability and future potential of the talent pools in candidate locations. Additionally, regulatory and political factors play a more important role as these companies prefer to be located in environments that are highly supportive of companies developing in these new innovative areas (with, for example, easy licensing, a low regulatory burden, and political and societal acceptance of new technologies).
Lastly, specifically for the example of cell and gene therapy, BCI also sees that companies are planning for the longer-term by setting up a network of regional facilities rather than one global center of excellence. Again, this is driven by talent availability, but also by the need to be located close to the market, as cell and gene therapies require closed loop supply chains where human blood cells are collected, shipped to the manufacturing site, processed there and then shipped back to the market. Logistics and proximity to market therefore play a much more important role than in the past.
Effective Supply Chain Ecosystem Management
Whether manufacturing is primarily in-house, outsourced or a combination of both, the value chain of almost all biopharmaceutical manufacturing companies includes significant external suppliers, CMOs and service providers.
The last years have made clear to many biopharmaceutical companies that they do not have good visibility into what is happening in the external parts of their supply chains, both upstream and downstream. Besides that, companies have also learned even if they had the visibility, they still would not have had the systems and organization in place to act upon events happening in the supply base.
As a result, companies are now focusing on implementing a structure (organization, processes, systems) to create more visibility and act upon this visibility in practice. Actions that companies are taking include implementing extended control tower solutions and digital twins.
Finally, companies can differentiate more within their supply base: deciding which suppliers are really critical for the business and building strong partnership models together with them, leaving less critical suppliers to be managed more from a transactional perspective. The key is to manage the whole ecosystem of the company’s supply chain as one system and not as separate pieces. Each supply chain is as strong as its weakest link.
Footprint Risk Management
Like in all other industries, C-level management of biopharmaceutical companies is requiring their manufacturing and supply chain leaders to take risk into account in their optimization and strategy development initiatives — not as a sensitivity analysis after the analysis has been concluded — but as one of the key strategic drivers. In order to deploy effective risk management and take risk into account in an integral way when modelling manufacturing footprint scenarios, companies first must have a good view to which risks are relevant and how to balance those risks against typical drivers such as costs, lead times, etc.
Taking risks into account in a detailed way when deciding on where to expand capacity and where to locate potential new production facilities is key for biopharmaceutical companies because of the high investments and long lead times for these projects. Good decisions provide a competitive advantage for a long period, but a wrong location decision also means a long-term competitive disadvantage. T&ID