1. www.pwc.com/pharma2020
Pharma 2020:
Supplying the future
Which path will you take?
Pharmaceuticals and
Life Sciences

2. Previous publications
in this series include:
Pharmaceuticals
Published in June 2007, this Pharmaceuticals and Life Sciences
Fourth in the Pharma 2020
paper highlights a number of series and published in April
issues that will have a major 2009, this report highlights
bearing on the industry by how Pharma’s fully integrated
Pharma 2020: The vision Pharma 2020: Challenging business models
Which path will you take?* 2020. The publication outlines Which path will you take? business models may not be
the changes we believe will best the best option for the pharma
help pharmaceutical companies industry in 2020; more creative
realise the potential the future collaboration models may be
holds to enhance the value they more attractive. This paper also
provide to shareholders and evaluates the advantages and
society alike. disadvantages of the alternative
business models and how each
stands up against the challenges
facing the industry.
*connectedthinking 
Pharma 2020: The vision #
Pharmaceuticals and Life Sciences
This report, published in June Pharmaceuticals and Life Sciences
The fifth report in our series,
2008, explores opportunities published in December 2009,
to improve the R&D process. It focuses on the opportunities
proposes that new technologies Pharma 2020: Taxing times ahead
and challenges from a tax
Pharma 2020: Virtual R&D
Which path will you take? will enable the adoption of Which path will you take? perspective. It discusses how the
virtual R&D; and by operating political, economic, scientific and
in a more connected world social trends currently shaping
the industry, in collaboration the commercial environment,
with researchers, governments, together with the development of
healthcare payers and new, more collaborative business
providers, can address the models, will exert increasing
changing needs of society more pressure on effective tax rates
effectively. within the industry. It also
shows how companies can adapt
their tax strategies to support
the provision of outcomes-
Pharma 2020: Virtual R&D 1
based healthcare and remain
Pharmaceuticals and Life Sciences
Published in February 2009, this competitive.
paper discusses the key forces
reshaping the pharmaceutical
marketplace, including the
Pharma 2020: Marketing the future
Which path will you take? growing power of healthcare
payers, providers and patients,
and the changes required to
create a marketing and sales
model that is fit for the 21st
century. These changes will
enable the industry to market
and sell its products more
cost-effectively, to create new
opportunities and to generate
greater customer loyalty across
the healthcare spectrum.
All these publications are available to download at: www.pwc.com/pharma2020

3. Table of contents
Introduction 2
The times they are a-changin’ 3
• New product types
• Live licensing
• The increasing emphasis on outcomes
• New modes of healthcare delivery
• The growing importance of the emerging markets
• Greater public scrutiny
• Environmental pressures
• The collective impact of these trends
Removing the roadblocks 10
• New development technologies
• New manufacturing technologies
• New distribution technologies
• New patient interface technologies
• Greater collaboration
Choosing among the options 17
• The virtual manufacturer
• The service innovator
• The low-cost provider
• The profit centre
Managing the movement of information 24
Restructuring the asset base 25
Conclusion 26
References 28
Pharma 2020: Supplying the future 1

4. Introduction
The pharmaceutical industry is experiencing major upheavals, as
PwC* noted in earlier Pharma 2020 papers. Many companies have
responded by trying to discover, develop and market medicines more
efficiently, but they’ve invested relatively little effort in reconfiguring
their manufacturing and distribution operations to date. Yet the supply
chain is just as important; it’s the link between the laboratory and the
marketplace.
Unfortunately, it’s a link that frequently We’ve identified four potential supply-
doesn’t work very well. Most pharma chain options from which pharma
companies have complex supply chains companies can choose. Those that focus
that are under-utilised and inefficient. on specialist medicines can either delegate
Worse still, they are ill-equipped to cope all their manufacturing and distribution
with the sort of products that are coming to trusted contractors or build service-
down the pipeline. By 2020, many of the oriented supply chains to enhance their
medicines the industry makes will be brands. Those that focus on mass-market
specialist therapies that require totally medicines can either become low-cost
different manufacturing and distribution providers or build supply chains that
techniques from those used to produce generate a profit by servicing both internal
small molecules. and external customers.
In short, the pharmaceutical supply chain We’ll discuss the main trends dictating
needs a radical overhaul, and we predict the need for a new approach to the
that it will undergo three key changes over manufacturing and distribution of
the next decade: medicines, together with some of the
techniques and technologies that will help
• It will fragment, with different models
the industry make the necessary changes,
for different product types and patient
in more detail in the following pages. We’ll
segments
also look at the key characteristics of each
• It will become a means of market of the four routes we’ve identified, and the
differentiation and source of economic implications they carry.
value; and
• It will become a two-way street, with
information flowing upstream to drive
the downstream flow of products and
services.
* “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as
the context requires, individual member firms of the PwC network.
2 PwC

5. The times they are a-changin’
A supply chain is the means by which When the ‘blockbuster’ paradigm Asset utilisation rates have improved.
a company transfers its products from prevailed, this wasn’t a serious problem, Between 2004 and 2009, overall
development to the marketplace in order but the situation is now changing equipment effectiveness in packaging
to sell them and generate a profit. It dramatically. Generic competition has increased from 36% to 51%, for example.
includes all the organisational, operational already dented Big Pharma’s revenues – a Quality has also risen, with the percentage
and value-adding activities needed to trend that will continue, as the patents on of rejected batches falling from 1.00%
manufacture those products and get them products with sales of more than US$267 to 0.74% over the same period. But
to the customer. So, for a pharma company, billion expire over the next six years.3 So average set-up times have increased from
it covers everything from new product the economies of scale the industry leaders 79 minutes to 93 minutes, and the vast
development through to delivery to the have traditionally enjoyed are rapidly majority of pharma companies are still far
hospital, retail pharmacy or patient (see diminishing. from having any kind of ‘continuous flow’,
Figure 1). smooth production scheduling or make-to-
Many pharma companies have as a result
order manufacturing. Instead of producing
Some companies have superb supply started refining their supply chains. But
on demand, they must hold large quantities
chains. Fashion retailer Zara is renowned most of the changes they’ve introduced
of inventory, which drives up their working
for the speed and agility of its supply chain, have been short-term measures to
capital and overheads.4
for example.1 Apple, Procter & Gamble, address immediate challenges like the
Cisco Systems and Wal-Mart also rank rationalisation of larger manufacturing
among those regarded as leading examples.2 networks as a result of acquisitions. This is
However, most pharma companies have reflected in the progress – or, rather, lack of
supply chains that are neither flexible nor it – they’ve made in recent years.
cost-effective.
Figure 1: The supply chain is the backbone of a pharma company
Planning and Collaboration
New Product Active Secondary Wholesaler Pharmacy
Pharmaceutical
Development Ingredient Manufacturing Distribution Patient
& Innovation Manufacturing and Packaging
Direct-to-pharmacy
People and skills
Information systems
Source: PwC
Pharma 2020: Supplying the future 3

6. Figure 2: Numerous forces are dictating the need for a different sort of supply chain
• More complex manufacturing and distribution processes
1 New product types • Different supply chains for different product types
• Shorter product lifecycles
• Incremental launch of new medicines
2 Live licensing • Ability to scale up and down very rapidly
• Step changes in the revenue curve
Even more importantly, few, if any, pharma
companies have supply chains capable Increasing • Expansion into health management service
of meeting tomorrow’s needs. Numerous
forces – both internal and external – are 3 emphasis on
outcomes
• Leaner and more adaptable cost structure that preserves
gross margins at every stage of the product lifecycle
reshaping the environment in which
the industry operates, with profound
consequences for the way in which it
• Blurring of the boundaries between primary and acute
manufactures and distributes its products
care
New modes of
4
(see Figure 2).
• Much wider distribution network
healthcare delivery • Demand-driven manufacturing and distribution
processes
Growing
5
• Offerings designed for patients in emerging markets
importance of • More widely dispersed and more robust supply chain
emerging markets
• Heavier regulation
Greater public
6 scrutiny
• Robust risk assessment and risk-management
capabilities across the extended supply chain
Environmental
7
• Sustainable eco-friendly processes
pressures • Relocation of plant to less vulnerable regions
Source: PwC
4 PwC

7. New drugs and devices
Biologics are in general more susceptible
to impurities in the production
process and damage during shipping
1. New product types than chemical entities. Making gene-
and tissue-based therapies is even
Pharma’s portfolio is changing substantially. However, many of these new therapies more difficult. Each sample must be
Industry analysts predict that, by 2016, and the devices used to deliver them will individually extracted, propagated,
bioengineered vaccines and biologics require more complex manufacturing and prepared and tested before it can be
will account for 23% of the global market distribution processes than conventional administered, so it must be treated as a
(measured by value), up from 17% in 2009.5 chemical entities. Indeed, some separate manufacturing lot and finished
The product base will become even more personalised medicines and poly-pills will at a location near the patient.
diverse, as advances in nanotechnology, have to be ‘finished’ at the pharmacy or
tissue re-engineering, stem cell research point-of-care (see sidebar, New drugs Many of these specialist treatments will
and other such disciplines start to yield fruit and devices). Such challenges will not also need novel delivery devices, since it
(see Figure 3). be enough to prevent product lifecycles is difficult to produce oral formulations
getting shorter, though; greater competition of large molecules. Micro needles,
both from similar new products and from magnetically targeted carriers, nano-
totally different product types will reduce particles, polymer capsules and multi-
the period of exclusivity all but the most layered medicated patches are likely to
personalised therapies enjoy, as it has in the predominate, but such devices are much
case of conventional medicines. more complex than those that are used
today.
Figure 3: By 2020, Pharma will be making a much more diverse range of products
2010 2012 2015 2020
Fixed dose combinations
Pharmacogenomics
Recycling existing drugs
First fully integrated PGx
with greater expected
product propositions
health benefits
Imaging Therapeutic monoclonals
Biomarkers
Better real time imaging for New antibody treatments
First wave of clinically
diagnosis, monitoring and for cancer and
validated biomarkers
treatment of multiple diseases inflammatory disorders
Human cell therapies
Gene-based therapies First stem cell therapies for
Tissue engineering
First gene-based therapies diabetes, Alzheimer’s disease,
First tissue engineering or
for diseases such as Parkinson’s disease and
xenogenic therapies
oncology and cardiovascular vascular injuries
Nano-carriers
Nano-pills
Targeted drug delivery
Oral imaging diagnostics
systems for Alzheimer’s
‘pills’ for gastrointestinal and disease, Parkinson’s
general conditions disease, cancer and strokes
KEY
Mainstream technologies already happening Gene/Cell/Tissue technologies Nanotech-related technologies
Source: PwC
Pharma 2020: Supplying the future 5

8. 2. Live licensing
The launch process will also become Once this happens, the ‘big bang’ launch
much more incremental, as new methods will give way to a phased approach in
for assessing, approving and monitoring which demand for a new product rises
medicines emerge. At present, the as the licence is extended. The interval
marketing applications for most new between the initial launch and peak
medicines are either approved or rejected; sales point will thus be much longer; the
the supply chains for manufacturing and revenue curve will climb more slowly; and
distributing them are designed to support the payback period for capital expenditure
peak sales volumes; and the revenues they on plant and equipment will be more
generate climb in a relatively simple curve. protracted (see Figure 4). So, rather than
making a large upfront investment in a
But the binary system of authorising new
supply chain designed to cope with peak
medicines is becoming more graduated.
volumes, any company launching a new
The European Medicines Agency (EMA)
medicine will need to build a supply chain
and US Food and Drug Administration
that can be rapidly adjusted as the licence
(FDA) introduced conditional approvals
alters.
for certain products some years ago.6
Both agencies are also placing much more
emphasis on post-marketing surveillance,
and we believe that the current system
will eventually be replaced by a system
in which new therapies are granted ‘live
licences’ contingent on further testing
to confirm their safety and efficacy in
different patient populations.7
Figure 4: The revenue curve will climb more slowly, when ‘live licences’ replace
Option 1
the binary system of approving new products
Build one facility to accommodate peak sales
Advantages:
• Low scale-up risks.
Peak Sales
• Big site drives operational efficiencies.
Disadvantages:
• Large capital outlay for un-proven demand. Understanding the
40%
80%
Revenue
• Low utilisation during growth of the product. cost of capital and
impact on margins is
Option 2 critical to managing
product profitability
Adopt a modular manufacturing platform
scaling up to support each volume plateau
Advantages:
• Capex linked to known market demands. Time
• High site utilisation.
Disadvantages:
• Cost and risk of commissioning more sites.
• Many small sites increases cost base.
Source: PwC
6 PwC

9. 3. The increasing emphasis on outcomes
Financially stretched governments and The ability to provide demonstrable value
health insurers are simultaneously for money will thus become a critical
becoming much more demanding; differentiating factor, and the supply chain
they now want clear evidence that the will play a key part in providing that value
medicines they buy are really effective. by commissioning and supervising aspects
This has huge implications for Pharma. of the services patients need to manage
The industry will not only have to manage their health.
the manufacturing and distribution of
medicines and companion diagnostics, it
will also have to ensure that patients get
the most from the therapies they receive
by supplementing its products with a wide
range of supporting services.
4. New modes of healthcare delivery
The drive to cut costs and improve outcomes The digitalisation of healthcare delivery,
underlies several other changes taking with greater use of electronic health
place in healthcare delivery, with equally records, e-prescribing and remote
momentous consequences for the industry. monitoring, will reinforce the drive to
Most of the OECD countries have been push healthcare into the community.
trying to reduce reliance on hospitals However, it will also provide Pharma with
and specialists since the 1980s.8 Self- one of the key components needed to
administration of medicines is also on the make the transition. E-prescriptions are
rise, as patients are encouraged to take a effectively point-of-sale data. Access to
more active role in managing their own care. this data will enable pharma companies
Both these trends will continue as clinical to build demand-driven supply chains in
advances provide better medicines for which healthcare packages for different
acute conditions and patients become more patients are assembled at ‘super hubs’
empowered. Many diseases which must at before being delivered to their homes.
present be treated in hospital will then be By 2020, information about patients and
treated at home. the medicines they need will thus be as
important as the products themselves.
But migrating from a system in which care
is provided in a relatively small number of
hospitals, clinics and surgeries to one in
which care is provided through a diffuse
network of nurses and community carers
has enormous ramifications. Pharma will
need to distribute its products to many
more locations, including patients’ homes.
It will therefore have to harness the most
efficient ‘final mile’ distribution networks
in order to deliver medicines to the door as
economically as possible.
Pharma 2020: Supplying the future 7

10. Designs for the developing
economies
Several medical device companies are
already designing and manufacturing
5. The growing importance of the products specifically for people living
in the developing economies. Freeplay
emerging markets Energy has, for example, developed
foetal heart rate monitors and pulse
The growing importance of the emerging If Pharma is to market its products oximeters that are driven by human
markets will accentuate these challenges. effectively in the developing economies, power and designed to cope with
Although patients in the developing it will have to understand the needs of harsh conditions. Mindray Medical
economies are becoming more prosperous, patients living in these countries and International, one of China’s biggest
they typically pay more than half the cost tailor its offerings accordingly; and it can medical equipment manufacturers,
of their medicines themselves – and few learn from the medical device industry in also specialises in making inexpensive
can afford to pay as much as patients in the this regard (see sidebar, Designs for the patient monitoring and life support
mature economies.9 Moreover, the choices developing economies).10 It will also devices. And cardiologists at India’s
they make are often based on different have to build a supply chain that is both Care Hospitals have designed cheap
values from those that influence the more geographically dispersed and more heart valve replacements, minimising
design of products and services intended secure. The number of recorded cases of the number of disposable parts to keep
for consumption in the developed world. counterfeit, stolen or illegally diverted costs down. Pharma can learn from
Cost and the ability to buy on a daily or medicines has already soared nearly nine- such role models. It can, for instance,
weekly basis are more important than fold since 2002.11 develop economical formulations and
convenience, for example. stripped-down services for patients
who can’t afford its most expensive
offerings.
6. Greater public scrutiny
In fact, by 2020, the ability to manage risk Other administrations are also tightening
and compliance throughout the supply the rules. The Indian government
chain will be more crucial than ever before. recently passed a law mandating the use
While globalisation is increasing the of track-and-trace barcodes on all drugs
risks, greater public awareness and more meant for export, with effect from July
diligent enforcement are raising the bar. 2011, following reports that Chinese
In 2009, for example, the FDA recalled a counterfeiters were selling fake medicines
record 1,742 medicines. A single company labelled ‘Made in India’ in several African
accounted for more than 1,000 recalls but, countries.14
even when these are stripped out of the
picture, the number of recalls still rose by
50% year on year.12
8 PwC

11. Water is the new gold
About 20% of people live in countries
that don’t have enough fresh water, but
the situation will get much worse over
the next decade. The global population
is projected to rise from 6.8 billion
to 7.6 billion by 2020. The amount
7. Environmental pressures of food needed to sustain mankind is
thus increasing – and farming already
The Green agenda presents other Indeed, some companies may have to accounts for about 70% of the world’s
difficulties. All pharma companies already relocate some of their production facilities total fresh water consumption. Rapid
operate under strict environmental to completely different places. Global urbanisation is also driving up demand
controls, for obvious reasons. But these warming is changing the world’s weather for safe drinking water and sanitation
regulations are likely to become even patterns and many of the traditional facilities, and environmental changes
tougher, given the international drive to centres of pharmaceutical manufacturing, like deforestation and global warming
curb carbon emissions. Taxes on water such as Singapore, lie in regions that are exacerbating these pressures.
consumption are also likely to rise, as will become more vulnerable to extreme
Water shortages will have a serious
population growth, increased farming, weather events. Even if it proves possible to
impact everywhere. The United
rapid urbanisation and climate change engineer a better climate – e.g., by locking
Nations predicts that, by 2025, 1.8
exacerbate the shortage of fresh water (see up the ice caps or using plants to suck up
billion people will be living in regions
sidebar, Water is the new gold).15 excess carbon dioxide – geoengineering
where water is very scarce, while
experts widely agree that the effects
However, many of the assets pharma 5 billion could be living in ‘water
would be limited. Such measures would,
companies own are designed to support stress’ conditions. The problem will
at best, reduce peak temperatures during
specific manufacturing processes be particularly acute in China, India,
the transition to a low-carbon world.16
– processes that typically consume sub-Saharan Africa, South Asia and
But relocating a plant to a new country or
considerable amounts of energy and some parts of Latin America. But even
region is a complex business; numerous
water. If the industry is to reduce its countries in more temperate zones
political, financial and commercial factors
environmental footprint, it will have to will suffer. One recent study suggests,
must be looked at, as we indicated in
adopt new, more eco-friendly processes for example, that large swathes of the
“Pharma 2020: Taxing times ahead.”17
and that will require a substantial south-western US will be at risk of
investment in new equipment. water shortages by mid-century.
The collective impact of these trends
To sum up, the current model for The change in the industry’s remit has even
manufacturing and distributing medicines more fundamental implications. Pharma
isn’t fit for Pharma’s future needs, as many companies will have to manage a vast
industry executives recognise. The high network of service providers, as well as
margins that made it feasible to tie up manufacturing and distributing their own
capital in large stocks of raw materials and products. They will also have to acquire a
finished goods are ending. Most companies much deeper understanding of patients.
also have asset bases that are ill-suited In a world where outcomes count for
to produce the sort of therapies that are everything, it’s not molecules that create
now in the pipeline or to cope with new value but, rather, the ability to integrate
environmental regulations, so they’ll have data, products and services in a coherent
to sell or re-engineer much of their existing business offering. Understanding this
plant. shift of emphasis from products to patient
outcomes is critical; those firms that can
develop and supply integrated product-
service packages will be able to deliver
significant benefits to every stakeholder in
the healthcare value chain.
Pharma 2020: Supplying the future 9

12. Removing the roadblocks
Timely access to various emerging
technologies will help Pharma manufacture
and distribute its products more efficiently.
Some of these technologies will enable
it to build quality into its manufacturing
processes, while others will enhance its
throughput or facilitate collaboration to
realise economies of scale (see Figure 5).
Figure 5: Significant opportunities for improving the supply chain exist
‘Assembly line’ production Distribution E-prescribing (POS ‘Self service’ (the patient
Formulations that are (disposable components, Quality by structure and Flexible data for supply as an integral component
easier to manufacture Design & PAT) and continuous manufacturing technology production chain planning) of the supply chain)
Planning and Collaboration
Sales & Marketing
Patient
Patient
Raw Secondary/
R&D
Materials/ API Packaging Distribution Service
Intermediates
People and Skills
Information Systems
Computer modelling Flexible Dynamic sourcing, Aligned New ‘patient Internal and
(virtual process development, production micro-processing performance interface’ external
facility design and validation, technologies and management technologies collaboration
Quality by Design) numbering up
Source: PwC
10 PwC

13. Biologics in a bottle
One of the main obstacles in
developing oral biologics is the
fact that proteins break down in
the gastrointestinal tract and cease
to be active. Some proteins also
have a very narrow therapeutic
1. New development technologies index and must be delivered in
doses too precise to be orally
Formulations that are easier to manufacture administered. Nevertheless,
numerous companies are trying to
During the past 60 years, audio technology Researchers are also working on the ‘holy create pill-based proteins.
has evolved from the vinyl record to the grail’ of oral biologics, and industry experts
iPod, but the way in which medicines believe it will eventually be possible to Bangalore-based Biocon is testing
are delivered has stayed much the same. produce stable, pill-based versions of an insulin pill in the US and India,
Compressed tablets containing a mixture some proteins (see sidebar, Biologics in a for example, with promising
of active ingredients and excipients are still bottle).18 preliminary results. Meanwhile,
the most common dosage form. Novo Nordisk is conducting a
Using formulations that can be more Phase I study of an oral insulin
However, more sophisticated drug delivery easily manufactured will enable Pharma pill formulated using Merrion
techniques will provide the means with to minimise its investment in product and Pharmaceuticals’ gastrointestinal
which to create formulations that are easier process development until the later stages permeation enhancement
to manufacture – e.g., powder in vials and of the product development lifecycle, when technology. Several oral biologics
liquid droplets on blank tablets. it’s easier to estimate the potential value of for the treatment of autoimmune
new products. And the development of oral diseases are also in the pipeline,
biologics will eliminate the need for cold- including a new class of drugs
chain distribution of such therapies. called JAK inhibitors. One such
instance is tasocitinib, which was
developed by Pfizer and is now in
Phase III trials.
Virtual process design and validation
Meanwhile, computational modelling The conventional process of scaling up will
will enable Pharma to design and validate also be replaced by ‘numbering up’ – i.e.,
manufacturing processes virtually, using using microreactors in parallel arrays.
Quality by Design (QbD) principles. In-line Numbering up has several significant
process monitoring via process analytical advantages over traditional techniques.
technologies (PAT) will generate the data It dispenses with the need for costly and
needed to validate these models and secure time-consuming studies to devise a process
regulatory approval. for scaling up chemical reactions, since
the process that was used to produce a few
The FDA has already published a draft
grams of product in the laboratory is the
guidance in which it proposes replacing
same one that is used to synthesise larger
‘three-batch validation’ with a three-stage
quantities. In addition, using microreactors
methodology that involves designing a
makes it much easier to control key
suitable process, using the knowledge
parameters and thus improve yields.
gained in development and scale-up;
ensuring the process is capable of
reproducibly manufacturing commercial
batches; and validating it continuously
during routine production.19 By 2020, this
approach is likely to be the norm.
Pharma 2020: Supplying the future 11

14. 2. New manufacturing technologies
Flexible production
Virtual engineering will not only accelerate Collectively, these improvements will allow
the validation of new processes, it will pharma companies to create different
facilitate the rapid reconfiguration of supply chains for different product types
existing manufacturing lines for different and markets, manage sudden shifts
products. With flexible processes and in demand such as the step changes
miniaturised, modular components that associated with live licensing and reduce
can be quickly connected or disconnected their manufacturing costs. They should
like pieces of ‘Lego’, it will be relatively simultaneously help the industry fulfil
easy to alter the order in which specific its social responsibilities, including the
unit operations are performed. Widespread need both to pioneer more sustainable
use of disposable technologies will manufacturing processes and to produce
likewise reduce changeover times (and the medicines the entire world can afford.
consumption of clean water).
Continuous processing and automation
By 2020, most medicines will also be Micro-containers with embedded
manufactured continuously. Process superparamagnetic nano-particles can be
tomography and other such technologies treated with an alternating magnetic field
will enable companies to capture real-time to release materials encapsulated in bubbles
data on critical processes, develop complex within the material and thus converted into
multivariate models and automatically micro-reactors for the efficient production
compensate for unexpected process of thousands of individual doses of tailored
disturbances. Process data generated biological products.20
during the development phase will be
Micro-processing will even make it possible
used to ‘teach’ process control systems
to formulate some medicines and poly-pills
to respond to process disturbances even
at the point at which they are dispensed.
before commercial manufacturing begins.
Several companies have already started
Meanwhile, advances in colloidal and foam providing pharmaceutical compounding
systems will facilitate the micro-processing services, one such instance being Fagron, a
of active pharmaceutical ingredients subsidiary of the Belgian Arseus.21 But, by
(APIs). 2020, the pharmacist will be able to ‘mix’
medicines individually on the premises,
using validated formulation equipment –
much as DIY stores mix paints to produce
customised colours.
12 PwC

15. Transgenic production
Simulation and automation aren’t the only Other examples include the Netherlands-
tools to hand; transgenic engineering offers based Pharming, which uses transgenic
a fundamentally different way of producing rabbits to make the C1 inhibitor protein.23
many therapeutic proteins. The process
Transgenic production has several
involves inserting foreign genes into host
significant advantages over more
animals or plants so that they express
traditional methods for producing
proteins they wouldn’t otherwise express
therapeutic proteins, such as mammalian
and then using them to ‘manufacture’ large
cell culture and bacterial systems.
quantities of these proteins.
It requires substantially less capital
GTC Biotherapeutics has already expenditure, is easy to scale up or down
demonstrated the commercial viability in line with demand (by increasing or
of transgenic production techniques with decreasing the size of the herd) and can
its recombinant human antithrombin be undertaken in rural environments
ATryn, which is extracted from the milk of where the infrastructure for more high-
genetically modified goats.22 tech manufacturing techniques may not be
available.
3. New distribution Fingering the fakes
technologies Various new tracking technologies
are in the works. One such
Just as new technologies are emerging example is the ‘bokode’ – a
to help pharma companies manufacture kind of data tag that can hold
a wider and more complex range of far more information than a
medicines, so new technologies are conventional barcode and be read
emerging to help them distribute those from much further away. DNA
medicines. Cloud computing will provide labelling could also provide a way
the information platforms they need to of fingerprinting proteins and
share data securely and economically determining where they have been
with suppliers around the world, analyse manufactured, if the problems
the data very rapidly and respond to with selecting a DNA fraction
sudden changes in supply and demand, that doesn’t affect a protein’s
while advanced tracking technologies performance can be overcome.
will enable them to monitor products DNA fingerprinting has already
from the factory gate to the patient – an been used to identify ‘counterfeit’
increasingly important feature, as the foods; researchers in Spain
industry manufactures more biologics with recently used a technique called
high unit values and specialist delivery forensically informative nucleotide
requirements (see sidebar, Fingering the sequencing to test nine commercial
fakes).24 sea food samples containing shark
meat and isolate those that were
incorrectly labelled.
Pharma 2020: Supplying the future 13

16. Tablets go high-tech
Proteus Biomedical has developed
a miniature digestible chip which
can be attached to a conventional
medicine and used to monitor
patient compliance. The chip sends
a signal to a sensing device worn
4. New patient interface technologies on the skin, which records the time
and date at which the medicine has
New ‘patient interface’ technologies are By 2020, there will be many such patient been ingested as well as measuring
likewise being developed, some of which interface technologies on the market certain vital signs. The information
will bring pharma companies closer to and the information they generate will is then forwarded, via wireless
patients than ever before. One instance is help patients manage their health more technology, to the patient’s doctor.
the prototype chip and receiver devised by effectively, as well as allowing healthcare Novartis has previously tested
Proteus Biomedical, which records exactly providers to monitor their compliance the chip on 20 patients who are
when a tablet is metabolised (see sidebar, in real time. But they will also provide taking its blood pressure treatment
Tablets go high-tech).25 pharma companies with information Diovan, with impressive results; the
they can use both to design more robust company reported that compliance
products and services, and to develop more could be improved from 30% to
accurate production and distribution plans. 80% in six months.
5. Greater collaboration
Technology isn’t the only answer to At present, there are three distinct supply
Pharma’s problems, though; greater chains for designing, manufacturing and
collaboration with the other parties distributing pharmaceuticals; designing,
involved in healthcare provision will also manufacturing and distributing medical
help the industry become more efficient. devices; and providing healthcare
services (including laboratory work and
pathology). Integrating these supply chains
so that all the upstream and downstream
partners can see the full picture would
enable them to plan ahead more accurately
and manage demand more cost-effectively
(see Figure 6).
Figure 6: By 2020, the pharmaceuticals, medical devices and healthcare services supply chains will be fully integrated
Current Situation Situation in 2020
Pharmaceutical Supply Chain Integrated Supply Chain
Pharmaceuticals + Medical Devices + Healthcare Services
Pharma Intermediate Hospitals &
warehouse Pharmacies Patient
Intermediate Hospitals &
Pharma warehouse Pharmacies
Medical Devices Supply Chain Intermediate
Manufacturers warehouses/ Hospitals &
Intermediate Pharmacies
warehouse or Hospitals & Patient wholesalers
Manufacturers Pharmacies
wholesaler Patient
Primary care
(Doctor or
Healthcare Services Supply Chain Hospital)
Primary care (Doctor or hospital) Secondary care
Patient (Hospital or
Secondary care (Hospital or community care) community care)
Areas of full supply chain visibility
Source: PwC
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17. Creating an integrated healthcare products With access to each roadmap for each
and services supply chain would not be illness, and data on the incidence of
easy. But one of the main tools used to each illness in a given population,
manage healthcare quality could prove pharma companies and medical device
invaluable here. Healthcare providers in manufacturers will be able to predict
many parts of the world are developing demand for their products much more
defined care pathways to standardise accurately. They will also be able to
the treatment of patients with the same define a supply pathway for each product,
illnesses and thus improve outcomes. This depending on whether it’s a one-off
will ultimately result in the creation of treatment (such as a prophylactic vaccine,
defined healthcare packages for each care gene therapy or anti-infective) or a
pathway. recurring treatment for a chronic condition,
which must be supplied on an ongoing basis
(see Figure 7).
Figure 7: The development of care pathways will provide greater supply chain
predictability
Structured Interventions
Defined Care Pathway
Healthcare
Tests/ package
Doctor Diagnosis
Drug
Device
Outcome
Unwell Physician
Chronic Care
Labs/Assay
Healthy Prevention
Compliance/Outcome
Cure
Source: PwC
There is potential for collaboration in other Some companies may choose to establish
ways, too. Most pharma companies at joint ventures, while others turn to third
the moment manufacture and distribute parties. Abbott Laboratories and Boehringer
their own products, for example, but this Ingelheim already manufacture for other
reduces asset utilisation rates and drives organisations, for example.26 And the
up distribution costs, as well as causing contract manufacturing sector is expanding
unnecessary environmental damage. very rapidly. In fact, market research firm
Conversely, sharing manufacturing and BCC Research estimates that the bulk- and
distribution resources would be much more dosage-form drugs segment will be worth
economical. A few pharma companies about $73 billion by 2014, more than double
have started experimenting with ‘shared the $36 billion it was worth in 2007.27
services’, primarily to support joint product
development initiatives. However, the
vast majority of companies still build,
own and operate their own supply chain
infrastructure.
Pharma 2020: Supplying the future 15

18. Collaborating to cut the
kilometres
In September 2009, confectionery
giants Nestlé and Mars joined
forces with a leading British
supermarket chain to synchronise
deliveries of their products over
the busy Christmas period and
reduce their environmental
footprint. The two manufacturers
worked closely together to
coordinate their deliveries to
Experience in other industries has also Moreover, some of the most sophisticated three regional distribution centres
demonstrated the benefits of managing third-party logistics (3PL) providers so that any part load order that
distribution collectively (see sidebar, – i.e., companies that offer freight either company received could
Collaborating to cut the kilometres).28 management and warehousing – are be combined in one truck load.
And increasing demand for biologics has expanding into supply chain management By dint of collaborating, they
stimulated the development of specialist and coordination services. And it is eliminated over 12,000 kilometres
logistics providers capable of handling very arguably these fourth-party logistics of duplicate journeys.
sensitive pharmaceutical freight. Many (4PL) providers, as they are known, that
provide specialised service where each can deliver the greatest improvements.
shipment is transported in temperature When telecommunications equipment
– and humidity – controlled conditions, manufacturer Alcatel turned to a 4PL to
monitored from a dedicated call centre manage the supply chain for its e-business
using web-based tracking and reporting, networking division, for example, its
and delivered directly to the customer’s supply chain costs fell from 5.8% to 5.1%
door.29 of revenues within two years in that
division.30
In other words, the contract manufacturing
and logistics industries are both maturing
and, by 2020, some of the biggest providers
will offer integrated supply chain services.
This will enable pharma companies to share
resources and capitalise on economies of
scale throughout the value chain.
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19. Choosing among the options
There are two options for companies Companies that concentrate on mass-
We’ve discussed why the vast focusing on specialist therapies and market medicines, including generics and
majority of pharma companies treatments for orphan diseases, and two over-the-counter (OTC) products, can
options for companies focusing on mass- either become low-cost manufacturers
will have to build supply chains
market medicines. We believe that most or build supply chains that service other
with new manufacturing, companies will fall into one of these two organisations and create a profit in their
distribution and service- categories by 2020, although the very own right (see Figure 8).
management techniques, and largest companies may cover both ends
Companies with a broad range of products
some of the developments that of the spectrum. But they will still have
that present different characteristics and
can help them. But what route to develop different supply chains for
therefore supply chain needs, will in the
different product types.
should they take? future need to segment their supply chain
More specifically, companies that operation, aligning to the unique demands
concentrate on specialist therapies can of the product group. Pharma companies
either exit from manufacturing and that operate more than one supply chain
operate virtual supply chains or become option will increase with the breadth and
service innovators. demand of the portfolio.
Figure 8: Four options exist for restructuring the pharmaceutical supply chain
Operations Strategy
Specialist Therapies Mass-Market Medicines
Virtual Service Low-Cost Profit
Manufacturer Innovator Provider Centre
Create a virtual Build a service- Build a reliable, ‘no- Combine agile,
network of integrated oriented supply chain frills’ supply chain economic
supply partners to enhance brands to deliver products manufacturing and
and differentiate as economically as distribution with the
company from its possible provision of satellite
competitors services to generate
profits
Source: PwC
Pharma 2020: Supplying the future 17

20. Recommendations
for becoming
a virtual
manufacturer
Our experience suggests that there are
several key steps a would-be virtual
manufacturer should take. It should start
by defining what it is and does, including its
business strategy, aspirations and corporate 1. The virtual manufacturer
culture. Then it should identify the financial The first option for companies making However, despite these advantages, no
and technical demands its portfolio specialist therapies is to outsource the Big Pharma company has virtualised its
presents, and how those demands are likely entire supply chain from production whole network yet. Concerns about the
to change over time. Once it’s looked in the of the earliest clinical batches to calibre of the contract manufacturing
mirror and analysed its requirements, it can full-scale manufacturing, packaging sector, supply integrity, quality and
crunch the numbers, with a detailed study and distribution, and become virtual compliance persist. In one recent survey,
of its internal capabilities, product flows manufacturers. This is very different for example, 91% of the firms that relied
and costs, and compare its own capabilities from engaging in the sort of tactical on outsourcing reported experiencing a
and costs with those of potential suppliers. outsourcing most pharma companies ‘significant incident’ as a result of quality
Any company planning to become a virtual now employ currently. Becoming a problems or delays, compared with only
manufacturer should also hire good virtual manufacturer isn’t a short-term 59% of those that performed most of
negotiators, because it’s the deal – not the fix to address cash, capacity or capability their manufacturing in-house.32
science – that will ultimately determine constraints but, rather, a deliberate
The consolidation of the contract
whether it succeeds. So it needs people who strategy. And executing that strategy
manufacturing sector will alleviate some
can forge strong commercial contracts. And successfully involves building a network
of these difficulties. A small cadre of
it should make sure it retains enough know- of fully integrated supply partners.
global players will replace the multitude
how both to evaluate its suppliers properly A number of small firms have already of local providers that currently exist.
and to track their performance, including taken the virtual route, but several large The evolution of the logistics industry
any changes in the materials suppliers companies have recently announced will likewise result in the emergence
and processes they use and any problems plans to outsource a bigger share of their of strong 4PLs capable of distributing
maintaining quality control or yield rates. manufacturing. AstraZeneca intends healthcare packages directly to patients
After that, the company can concentrate on to outsource all its API production or their healthcare providers efficiently
choosing the contractors it wants to work over the next five to seven years, for and economically. But any company that
with, and here the secret is to be selective. example, while Bristol-Myers Squibb, decides to operate a virtual supply chain
Focusing on a small set of contractors and GlaxoSmithKline, Merck and Pfizer aim will still have to maintain sufficient
working closely with them during the to outsource as much as 40% of their in-house expertise to choose the right
tender process ensures they have a clear API needs.31 partners and monitor them constantly.
grasp of the company’s business, and the Baxter has first-hand experience of a
The business case for virtualisation is
complexities of the products or processes serious breach in the integrity of its
clear. It enables a company to shift to
that are being outsourced. But it’s also supply chain, for example. In February
a flexible cost base, reduce the risks
essential to maintain a close relationship 2008, two Chinese plants were found
associated with investing in new assets
with those suppliers after they’ve been responsible for producing contaminated
and access new technologies and skills.
appointed. Lifecycle management of supplies of chondroitin sulphate, the
It also helps it align its supply chain
contracts is crucial in realising value and raw material used to make its blood
network with its demand forecasts,
minimising contract ‘leakage’ through off- thinner Heparin, and Baxter is now
transfer the risk of primary and back-
contract buying or poorly aligned service facing a spate of law suits.33
up supply to a third party and drive
levels. costs down by switching products and
processes between competing suppliers
in its network.
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21. In order to manage the risks associated
Figure 9: Most pharma companies struggle to get supply chain data
with collaboration, virtual manufacturers
promptly from critical suppliers, distributors and other company sites
will need to ensure they have access to real-
time data from every stakeholder in their 19%
supply chains. At present, most pharma 49%
Critical
companies rely on periodic audits, but Suppliers 27%
these only produce snapshots in time. And 6%
most companies can’t get vital supply-chain
data very rapidly. In one recent study, only 11%
a small percentage of respondents said 40%
they could get information from critical Distributors
37%
suppliers and distributors within two 13%
hours. Indeed, a number struggled to get
the information within three days (see 28%
Figure 9).34 Other 43%
Company
Some of these difficulties can be resolved by Sites 18%
using interoperable systems and common 11%
practices, requiring suppliers to provide
a complete history for every batch of raw Within 2 hours Within 1 business day Within 3 business days After 3 business days
materials or components they produce and
replacing periodic audits with constant Source: Axendia
surveillance. But any company that takes the
virtual manufacturing route will also have
to encourage its suppliers to collaborate
in developing a better understanding of
key parameters and implementing process
controls to produce greater supply chain
visibility. In effect, it will need to treat its
suppliers as extensions of itself, rather than
as separate manufacturing and distribution
islands.
Pharma 2020: Supplying the future 19

22. Recommendations
for becoming a
service innovator
Becoming a service innovator entails
developing an intimate understanding
of patients, by linking up with patient
groups, participating in online patient
communities and social networks (e.g.,
PatientsLikeMe) and giving patients a
forum in which to provide feedback. Any 2. The service innovator
company that wants to take the service Alternatively, companies making It will also have to restructure its asset
innovation route should also analyse the specialist therapies can become service base and invest in new capabilities, both
care pathway for every disease for which innovators – i.e., build supply chains that internal and external. It will have to build
it has medicines, including the clinical are capable both of manufacturing and a supply chain that’s sufficiently mature
and economic implications of different distributing complex treatments, and of to manage a vast network of suppliers and
forms of intervention, since diet, exercise, commissioning and managing a multitude yet sufficiently nimble to respond rapidly
compliance support and counselling also of suppliers to provide supporting health to the demands of numerous different
play a role in managing many illnesses. management services. German healthcare customers. And it will have to develop
Thereafter, the company should aim to group Fresenius has already expanded a new financial structure. Much of the
get as close as possible to its customers. In into services very successfully; it’s now economic value it creates will depend
other words, it should invest as much and as the world’s leading provider of dialysis on the activities it performs in its local
passionately in understanding the current machines and dialysis care.35 Other markets, rather than the medicines that
and future needs of healthcare providers as companies, such as Baxter and Novo constitute its underlying intellectual
it’s traditionally invested in R&D. It should Nordisk, are adopting a similar approach.36 property – a change that carries huge tax
also look for partners – be they contract implications.37
However, becoming a service innovator
manufacturers, logistics companies, isn’t easy. Any company that chooses this That said, the provision of integrated
hospitals, clinics, data analysis firms, option will have to make major cultural product-service packages has many
technology suppliers or lifestyle service changes. It will, for example, have to advantages. It enables a company to
providers – with a similar corporate culture understand its role in every care pathway differentiate its offerings, reach new
and ethos. and concentrate on helping patients markets and create new sources of revenue.
The next step is to start building networks manage the disease lifecycle, as distinct It also creates opportunities to enhance
for patients with different diseases. from trying to stimulate demand for its the customer relationship and improve
That’s partly a process of negotiation; the products. And it will have to look at the customer loyalty, because services are
participants in each network will need to supply chain through the eyes of the more dependent on skill and more difficult
agree on their goals, as well as defining patient as the ultimate customer. to imitate than products.
what they’ll do to realise those goals
and how they’ll be rewarded for their
efforts. But it’s also essential to create a
common supporting infrastructure, robust
performance indicators, proper governance
structure and clear audit trail.
And it’s important not to underestimate the
cultural adjustment that’s needed. The task
of the service provider is to commission
and manage a huge network of contractors
around the globe, and ensure they
provide a truly integrated product-service
offering. That’s a very different job from
manufacturing and distributing its own
products.
20 PwC