In our earlier blog about the 2010 Heparin Incident, you saw evidence of how a tragic failure in the supply chain led to increased scrutiny in supplier controls. In this post I will outline a more recent tragedy – – this time with its roots in the distribution chain.

In 2012, fungal meningitis has killed 32 Americans in 19 states and caused sickness to over 450 patients. The meningitis has been traced to the Massachusetts-based New England Compounding Center (NECC) which compounded and distributed contaminated pain injections.

Compounding pharmacies like NECC fill special orders, placed by doctors, that are tailored to individual patient needs. Often small family-run businesses, these pharmacies typically fulfil a small number of customized formulas each week and have been policed by state pharmacy boards in the U.S. However, some of these companies have grown significantly and now ship thousands of formulations of finished drugs to multiple states. NECC is one such company. Its operations more closely resemble those of a large manufacturing business than the “Mom & Pop” image of a local pharmacy.

After investigations of the meningitis outbreak by laboratories at the U.S. Food and Drug Administration (FDA) and Center for Disease Control (CDC), the FDA has said: “The FDA and CDC laboratories have identified bacteria present in three separate lots (batches) of NECC-supplied preservative-free injectable betamethasone, with each lot producing different culture results, and in a single lot of NECC cardioplegia solution.“ U.S. state and federal officials, relatives of the deceased and other victims are in the process of giving testimony at a Congressional Hearing. This story is drawing widespread commentary in the media and appears to point to a blind spot in regulatory oversight of these specialist businesses, especially compounders who have grown to a significant scale.

The roots of the Heparin incident were found to be in China, an emerging region in terms of its activity on the newly globalized supply chain. However, what I find remarkable about the NECC incident is that it occurred in Massachusetts, a center of excellence in the global life science industry and one of the most robust and mature regulatory environments in the world. These incidents are at opposite reaches of the supply and distribution chains, yet the failures in Good Practice (GxP) that led to these deaths are very basic by the standards of modern day healthcare.

FDA Commissioner Margaret Hamburg has been grilled by the House Committee and much of the debate has centered on overlap (or lack thereof) of the agency’s federal reach relative to the role of individual states in policing pharmacies. In light of the NECC case, Hamburg’s important speech of January 2010 “Protecting Health: FDA’s Global Challenge” contained some prescient commentary.

In earlier blogs we compared the perspectives of purchaser and supplier in the reconfigured supply chainand then looked at the purchaser in a little detail. Let's now look at the journey being taken by the Contract Manufacturing Organization (CMO).

As noted in my last post, the widespread use of CMOs by branded pharmaceutical producers is relatively new. CMOs have been around for decades, but were often associated with relatively low volumes of specialist batches, for instance those required in the early stages of drug development for clinical trials. CMOs focused primarily on manufacturing and typically avoided product development or product marketing. This meant the focus of quality and compliance could apply to a relatively small footprint of activity. The CMO would submit product to meet the purchaser's stringent quality controls, while the branded pharmaceutical producer effectively tested and inspected the product for compliance. In this scenario the risk to patient safety was low and neither regulator nor purchaser had undue cause for concern.

However, the CMO industry is growing at rates projected at 12% per annum through 2016. The buyer wants more from the CMO than specialist batches. The buyer's objective now is to build significant capacity, flexibility and cost effectiveness into its manufacturing supply chain. In addition to ramping up manufacturing capacity to meet this demand, the CMO must build a new level of competence in quality and compliance as the buyer is pushing that responsibility onto the CMO.

The biggest challenge facing a CMO is to find a compliance model that fits its lean operating model. The compliance model that runs in big pharma is regarded by the CMO as heavy-handed, inflexible and expensive to run. in short, CMOs need to develop a model for compliance that's both lean and flexible, yet delivers the level of quality assurance required by their customer (the branded pharmaceutical company) and ultimately by the regulator.

In my next post I'll comment on the regulators perspective.

In our earlier blog about the different perspectives of purchaser and supplier in the reconfigured supply chain. you heard in brief how the challenge presented is different for both parties. Let’s look in a little more depth at the journey the tier 1 producer is travelling.

The use of Contract Manufacturing Organizations (CMO) is a relatively recent phenomenon, particularly in pharma, and somewhat less so in the medical devices industry. Prior to outsourcing, the typical pharmaceutical company is a self-contained unit with a well established set of Good Manufacturing Practices (GMPs) and a robust and well embedded set of controls for the procurement of materials, equipment and services.

New or replacement equipment is procured with the assistance of the engineering function, which typically has a robust and mature system of specification & design, validation & documentation, qualification, etc.- essentially all the necessary disciplines for good lifecycle management. Service providers fall in with the established GMP procedures for the site as directed by site management. In the case of substantial capital projects, the service provider (typically a project management and engineering services firm) is retained to oversee the design, installation and qualification of new facilities. While these firms bring their own well established quality practices, the project brief invariably demands adherence to the buyers established engineering practices.

Incoming materials are procured through a well established relationship with the vendor and almost certainly subject to a rigorous quality control check as they arrive at the warehouse. In this example, the outsourcing of any meaningful chunk of manufacturing has not yet happened. Supplier controls have been limited to raw materials, so the risk to patient safety from events outside of the facility have been pretty low, and regulators have not had reason for concern.

The scenario painted above is no longer the story of our industry. Outsourcing has become mainstream and is now of sufficient size as to represent significant risk. Tier 1 and regulators are on a fast trajectory in learning how to manage this risk.

n our earlier blog about the different perspectives of purchaser and supplier in the reconfigured supply chain. you heard in brief how the challenge presented is different for both parties. Let’s look in a little more depth at the journey the tier 1 producer is travelling.

The use of Contract Manufacturing Organizations (CMO) is a relatively recent phenomenon, particularly in pharma, and somewhat less so in the medical devices industry. Prior to outsourcing, the typical pharmaceutical company is a self-contained unit with a well established set of Good Manufacturing Practices (GMPs) and a robust and well embedded set of controls for the procurement of materials, equipment and services.

New or replacement equipment is procured with the assistance of the engineering function, which typically has a robust and mature system of specification & design, validation & documentation, qualification, etc.- essentially all the necessary disciplines for good lifecycle management. Service providers fall in with the established GMP procedures for the site as directed by site management. In the case of substantial capital projects, the service provider (typically a project management and engineering services firm) is retained to oversee the design, installation and qualification of new facilities. While these firms bring their own well established quality practices, the project brief invariably demands adherence to the buyers established engineering practices.

Incoming materials are procured through a well established relationship with the vendor and almost certainly subject to a rigorous quality control check as they arrive at the warehouse. In this example, the outsourcing of any meaningful chunk of manufacturing has not yet happened. Supplier controls have been limited to raw materials, so the risk to patient safety from events outside of the facility have been pretty low, and regulators have not had reason for concern.

The scenario painted above is no longer the story of our industry. Outsourcing has become mainstream and is now of sufficient size as to represent significant risk. Tier 1 and regulators are on a fast trajectory in learning how to manage this risk.

In my next post I’ll comment on the supplier perspective .

In our earlier blog about the Heparin incident, you saw evidence of a tragic failure of controls in the supply chain. In spite of this incident, the transition to an increasingly globalized and complex supply chaincontinues to gather pace as the industry looks for cost reduction and manufacturing flexibility. The regulator’s job is to demand that patient safety is uncompromised by the changing shape of the supply chain.

Let’s look at this from the differing perspectives of both purchaser and supplier. The purchaser (tier 1 pharma in this example) is essentially changing its role from audited manufacturer to auditor/receiver, often downsizing part of the company’s manufacturing capacity in the process. The first challenge the purchaser faces is to transfer manufacturing know-how to the Contract Manufacturing Organization (CMO), complete with requisite GMP controls. The second challenge is to oversee manufacturing performance and quality control as the CMO ramps up production, continuously monitoring until the CMO reaches steady state. Over time, the relationship changes from intense and “hands-on” to one of oversight and “hands-off.” It takes time, effort and commitment for the purchaser to develop the confidence to get to a “hands-off” relationship while having confidence in the CMO’s quality assurance system.

In contrast, the supplier (CMO in this example) is on a growth trajectory. Often, suppliers have a pared back approach to quality in contrast to the heavy-duty compliance model of big pharma. These companies may lack the sophistication in quality assurance of the tier 1 customers, but are a more agile and lean organization, capable of manufacturing at a much reduced cost. This, after all, is the basis of the supplier’s relationship with the purchaser. The supplier’s challenge is two-fold as the organization increases scale: meet the more exacting quality assurance demands of tier 1 customers while remaining cost competitive as business grows.

While the end game is the same in terms of patient safety, the quality and compliance needs of each party differs in emphasis. This has an impact on consultants and service providers to both parties. In subsequent blogs we’ll explore a little of the history of both categories.

In our earlier blog about the growth of Contract Manufacturing Organizations (CMOs),  you read about the challenges facing regulators due to a radically altered supply-chain, and particular challenges in the management of quality. One story highlights these challenges — the story of contaminated Heparin.

Heparin is one of the oldest drugs in widespread clinical use and is used principally in medicine for anticoagulation (blood thinning). In 2008, contaminated Heparin led to the deaths of over 80 patients and to hundreds of allergic reactions in the U.S. Contaminated batches were found in 10 other countries. The contamination was traced by the FDA to contract manufacturers and materials suppliers in China (over a dozen companies were identified).

As a result, the U.S. House of Representatives Government Accountability Office conducted a review and found that the FDA’s budget was less than one sixth of that required to inspect foreign drug ingredient makers every two years. In response, the FDA announced plans to hire 1,300 new staff that year and has since stepped up its pressure on quality assurance in the supply chain. In 2009, 12% of 483 observations and 16% of warning letters issued were related to inadequate supplier qualification.

Whether the motive is to help reduce costs or to add capacity, tier one producers are rapidly reconfiguring their supply chains and pushing more of their manufacturing production back up the supply chain. The Heparin incident proves that the industry needs to find an appropriate balance between outsourcing to reduce costs and improve flexibility, and maintaining product quality.