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Pharmaceutical Manufacturing and Packing Sourcer

New World Order


The growth of pharmaceutical logistics in emerging economies is ongoing, and several major logistics providers are staking a claim to the new market opportunities.

The changing pharmaceutical landscape – globalisation, government legislation and the rise of generic drugs – is causing serious upheaval within the supply chain. These changes have produced increasing financial pressures for manufacturers to manage their operations more effectively as they face patent expiration of major drugs, government spending cuts and other legislation and regulatory changes.

As financial pressures are on the increase, manufacturers are expanding into emerging markets due to the maturity of the European and US markets and the need for lower manufacturing costs as well as new markets in which to sell. The growth in emerging markets adds another level of complexity. Global pharmaceutical outsourcing has increased, but is creating a complex and risky supply chain environment. This global expansion is making it more difficult for pharmaceutical manufacturers to manage their supply chain. The need for a flexible supply chain is great as the industry undergoes changes in product mix, manufacturing routes and distribution channels for different kinds of products. As a result, the pharmaceutical manufacturing industry presents opportunities for logistics and transportation providers. Providers offer services such as warehousing and distribution, customs brokerage and transportation services. Many providers are also offering more specialised, targeted solutions to this industry.

However, because of the need for security and the numerous regulations that are a part of the industry, pharmaceutical manufacturers have been hesitant to outsource parts of their supply chain to third parties. Still, a growing number of logistics providers are demonstrating not only a knowledge and understanding of the industry, but also the ability to achieve positive results. In particular, as pharmaceutical manufacturers expand operations and sales into emerging markets, partnering with logistics and transportation providers will become necessary in order to maintain an effective supply chain.

How big is the logistics opportunity? According to Transport Intelligence, it is estimated that the global pharmaceutical logistics market is valued at $60 billion and is expected to grow almost eight per cent between 2011 and 2015. This growth is expected to be achieved primarily by emerging regions such as Asia Pacific (excluding China and Japan), which makes up the largest portion of the pharmaceutical logistics market – it is valued at almost $16 billion or 26.5 per cent of the total market. China and Japan pharmaceutical logistics markets are estimated at $7.6 billion and $8 billion respectively. South America (excluding Brazil) is estimated at $4 billion while Brazil – the largest country in South America, both geographically and economically – is estimated at almost $5 billion.

China

Asia, and China in particular, offers great opportunities for logistics providers. The region is heavily populated, and government legislation – such as the requirement of health insurance for all – is creating an increase in demand for pharmaceutical drugs. However, the domestic pharmaceutical manufacturer and distributor markets are highly fragmented. Consolidations of the markets are encouraged, especially by the Chinese government, in an effort to reach the rural areas of the country quicker. As such, the government has acknowledged the need to improve the efficiency of the pharmaceutical supply chain.

According to KPMG, China is e xpected to surpass Japan to become the world’s second largest prescription drug market by 2015. Strong growth in government funding of healthcare and an increase in spending by a growing middle class are expected to fuel China’s growth. The Chinese pharmaceutical and distributor markets are very fragmented; there are more than 5,000 pharmaceutical companies and over 7,000 distributors. The three largest distributors – Sinopharm, Shanghai Pharmaceutical and Jointown – account for only 21 per cent of the market.

In 2009, the Chinese government launched a reform plan with plans to invest $124 billion in the country’s healthcare, pharmaceutical industry and pharmaceutical distribution and logistics markets. These reforms include building a network of basic healthcare facilities, expanding the public medical insurance system to cover 90 per cent or more of the population, and reforming the drug supply system. Also, to correct the disparities between rural and urban healthcare systems, the government has encouraged consolidation in not only the pharmaceutical manufacturing industry but also in the distributor industry.

However, multinational companies are partnering with Chinese pharmaceutical companies in order to share risks and costs in research and development. For example, not only is Pfizer partnering with local companies, but Novartis recently opened a research centre in China, and plans to spend at least $1.25 billion on research and development centres in Shanghai. As multinational companies expand into the Chinese market, almost half of them are ranked in China’s top pharmaceutical companies. However, none of them control more than 2.5 per cent of the total market.

Not only is China’s domestic market growing, but outsourcing opportunities are increasing – especially for drug discovery. Therefore, drug companies are turning to contract research organisations (CROs). Currently, there are 400 CROs in China, with a major concentration in Shanghai and Beijing. Despite huge investments, China’s infrastructure remains weak, mainly due to the size of the country. The road and rail network still does not connect to all parts of the country, and the lack of proper warehousing and distribution service facilities remain a concern.

More logistics providers are establishing road network solutions to assist in intra-China as well as intra-Asia transport of goods such as pharmaceuticals. Logistics providers have also made specific investments within the country to aid the pharmaceutical industry. For example, Kerry Logistics’ pharmaceutical-specific offerings include climate controlled facilities located in the company’s dedicated logistics and distribution centres across China and throughout Asia. Kerry also provides reverse logistics services such as recall and distribution management. Finally, the company provides labelling and packaging services, including re-labelling for local language requirements.

DHL offers many services within this sector, but is perhaps one of the major logistics providers in clinical trials. The company has established global depots throughout the world including China. Another provider of clinical trials logistics is Marken. The company offers a pharmaceutical services depot in Hong Kong that provides secure temperature-controlled storage for pharmaceuticals, biological, medical devices and diagnostic equipment, in addition to a full range of other services: clinical re-labelling, pick-andpack, drug distribution, kit-assembly and inventory management.

India

Like China, India is undergoing strong growth within both its domestic pharmaceutical market as well as an outsourcing location for multinational drug companies. Main contributors for this growth include population expansion, rising spending power and increased healthcare expenditures.

Even though India’s pharmaceutical manufacturing industry has been open to multinationals for years, only a few pharmaceutical multinationals have achieved prominence in the Indian market. Instead, the market is dominated by local players such as Ranbaxy. Currently, multinationals combined only have a market share of 22 per cent. The low penetration of multinationals in the Indian domestic market is likely due to lack of effective patent protection prior to 2005. Because of this lack of protection, India’s pharmaceutical industry was based mostly on generic drugs. The law was amended in 2005 and resulted in an increase of interest and confidence in India.

India’s role in clinical trials is also on the increase. In 2005, only 2.1 per cent of all clinical trials on a global level were conducted in India, compared to 54 per cent in the US. By 2013, however, India is expected to host 15 per cent of all global clinical trials.

With more than 100 plants, India has the highest number of FDA-approved pharmaceutical manufacturing facilities outside the US. In 2005, Good Manufacturing Practice (GMP) became mandatory for all pharmaceutical manufacturing facilities in India. Area-wide enforcement, however, is limited because there are few resources available to monitor quality standards, leading to a number of non-compliant manufacturers remaining in the market.

India’s distribution market remains highly fragmented. As a result of the central and local sales tax system, the distribution chain in India is also complex. This complexity leads to high distribution costs, which today accounts for around 35 per cent of a given drug’s retail cost. Despite infrastructure concerns, fragmentation of the industry and government legislation, logistics providers have moved into the country to take advantage of this growth.

Industry-certified warehousing and distribution facilities remain scarce; however, DHL Supply Chain, for example, recently announced the opening of a new 56,000m2, multi-customer distribution centre for the life sciences and healthcare industry in Mumbai, India.

The centre will offer a complete portfolio of services to manufacturers of pharmaceutical products, from order management to warehousing and distribution. Solutions include postponement services, clinical trials logistics and order-to-cash.

Like other emerging markets, infrastructure is an issue that companies must address. Logistics and transportation providers can be a major plus for such concerns. In 2011, Lufthansa Cargo certified the GMR Hyderabad Airport International (GHIAL), to be one of its key cargo hubs in south Asia for the transport of temperature sensitive pharmaceuticals. As a result of this designation, GHIAL became India’s fist airport to enjoy this status. The Hyderabad area is emerging as an important pharmaceutical manufacturing centre with 70 per cent of total exports coming from this area alone.

Brazil

Brazil is the largest player in the Latin American healthcare market. Brazil’s growing middle class and the increasing number of pharmacies have resulted in the country becoming the eighth largest drug market by sales globally. Brazilian companies lead the domestic market in pharmaceutical sales. Currently, there are about 540 pharmaceutical companies operating in the country, with 90 companies responsible for manufacturing generic drugs. Manufacturers are attracted by the size of the market and increasing prosperity. Significant intellectual property reforms and incentives for research, development and production have further fuelled interest and participation in the market from international manufacturers, but brand manufacturers remain cautious because of the government’s apparent reluctance to ban copy drugs.

Approximately 20 per cent of the pharmaceutical market is accounted for by generics. Regulations and initiatives in Brazil tend to favour the local pharmaceutical industry. Although Brazil subscribes to the TRIPS agreement on Trade-Related Aspects of Intellectual Property Rights, the national legislation permits the cancellation of patents during emergencies. Such concerns over the intellectual property rights might discourage foreign pharmaceutical manufacturers from entering the market. However, Brazilian companies account for only 30 per cent of the local market.

Although many Brazilian regulations favour domestic players, multinational drug companies, particularly European ones, are investing in Brazil. Companies such as Sanofi-aventis are acquiring Brazilian companies, whereas Pfizer is choosing to partner with Brazilian companies.

Currently, pharma sales in Brazil are largely unfunded by state or private health insurance. That means pharmaceutical companies have to rebalance and widen their mix of prices, products and marketing approaches. For example, Novo Nordisk is selling innovative, higher-priced, peninjected insulin for diabetics, but also supplies cheaper, older generation insulin, which the Brazilian government does pay for. GlaxoSmithKline, meanwhile, is targeting more expensive, innovative products to Brazil’s middle class. Using discounts, it hopes to stimulate demand for off-patent branded generics and some over-the-counter products. It has also placed sales representatives in Brazil’s pharmacies to help sell products. For manufacturers and logistics providers alike, knowledge of national, state and local regulatory requirements is critical.

For example, in some Brazilian states, there is a licensing requirement to have a warehousing operation in the same state as the manufacturing facility. Another regulatory influence, which can vary by state, is the sales tax system. This is causing manufacturers in affected states to ship directly to retailers, bypassing wholesalers, and thereby avoiding one level of sales tax. Supply chain managers must also continue to be vigilant about theft, crime and driver safety in Brazil.

That said, more logistics providers have moved into Brazil – mainly to assist specific pharmaceutical manufacturer customers. For example, UPS recently announced the building of a warehouse facility for its largest healthcare customer – Merck. FedEx’s recent acquisition of Rapidao Cometa Logistica e Transportes SA will bode well for the integrator as its acquisition offers not only traditional logistics services but also specific pharmaceutical logistics services. Other logistics providers have opened facilities to support the growing clinical trials space such as World Courier in Săo Paulo, as well as Almac and Marken.

Transportation

Perhaps one of the greatest opportunities for logistics providers is that of transportation. As pharmaceutical manufacturers move into emerging markets, the supply chain is lengthened further and the need to safely and securely transport and monitor temperature-controlled drugs is great. Because of the extended supply chain and the need for specialised transport solutions, transportation represents a significant chunk of the total logistics bill. FedEx, UPS, DHL, Panalpina and a host of other providers have all introduced specialised containers and tracking solutions for the transport via air and road of pharmaceuticals.

In order to maintain temperature controls, particularly for biopharmaceuticals, visibility of shipments is important. Panalpina has invested in a temperaturemonitoring visibility solution for airfreight shipments. The solution provides visibility of temperature-sensitive pharmaceutical products during storage and distribution around the world and through transport. Ambient, Panalpina’s IT solution provider, installed wireless networks at Panalpina’s Luxemburg cargo centre and its Huntsville, Alabama facility. Upon arrival at a hub, the ‘SmartPoints’ battery-operated wireless tags with calibrated temperature sensors that act as RF data loggers or as sensors for monitoring in storage facilities, automatically download temperature logs to the Ambient network. The information is then available in a web-based system, SmartView, providing information when shipments are still in-transit.

Conclusion

Despite a slowing global economy, pharmaceutical logistics is a growth market for many logistics and transportation providers – particularly within emerging markets such as China, India and Brazil. These organisations provide traditional services such as customs, warehousing and transportation. They have also become knowledgeable partners to pharmaceutical manufacturers that provide specialised solutions to the pharmaceutical market as a whole, such as temperature-controlled warehousing and transportation, and act as advisors of global trade and regulations regarding entrance into new markets.

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Cathy Roberson is an experienced professional in knowledge management, combining an in-depth understanding of the supply chain industry with extensive market intelligence skills. Before being appointed Transport Intelligence’s Senior Analyst, she spent several years at UPS Supply Chain Solutions as a marketing analyst within the Freight Forwarding and Contract Logistics groups.
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Cathy Roberson
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