Pharma Supply Chains: Steady or Susceptible? BDO Life Sciences RiskFactor Report

The top risks cited by the largest 100 U.S. publicly traded life sciences companies have remained relatively consistent in our analysis during the past several years, with competitive pressures, intellectual property (IP) challenges and the ability to commercialize and market products all tying for first place this year.
 
But other revolutionary forces are brewing in life sciences—with the potential to change how drugs are made, sold and paid for.
 
Supply Chains: Only as Strong as the Weakest Link
 
Along with ongoing political and regulatory uncertainty, threats to the integrity of the pharma industry’s supply chains have been in the spotlight this year, particularly after Hurricanes Irma and Maria. The fallout and stark realizations that followed could significantly impact where drug makers choose to manufacture their products, how they govern and share data across their enterprise and to third-parties and more critical business operations.
 
For example, hospitals across the nation reported shortages of saline IV fluids used to inject drugs intravenously in hospital and outpatient settings. Some of the Food and Drug Administration’s methods of addressing the shortage include temporarily allowing the importation of IV saline fluids from facilities outside the U.S., encouraging the expansion of production at existing facilities and expediting FDA review of new product applications that could address the shortage.
 
For life sciences, natural disaster and supply chain risks are hardly new. According to the 2017 BDO Life Sciences RiskFactor Report, 81 percent of the top 100 companies on the NASDAQ Biotechnology Index cited natural disasters as a risk in their most recent shareholder filings. Almost all (97 percent) mentioned supply chain issues, including product availability and compliance with Good Manufacturing Practices.
 
Hurricanes Irma and Maria should serve as a reminder of the importance of disaster preparedness and supply chain balance. Many factories selected sites in Puerto Rico to take advantage of significant tax benefits, but those benefits of a reduced tax burden will no longer outweigh the supply chain risk associated with production that’s concentrated to a single area. Looking ahead, pharmaceutical and device manufacturers—even those that haven’t been directly impacted by the disruptions in Puerto Rico—would be wise to reevaluate how they structure and maintain their supply chains.
 
New Payment Models Force Reconsideration of Value
 
The industry continues to face difficult questions about how drugs are priced and paid for. Value-based reimbursement models will soon become the norm in healthcare; as they take hold, life sciences companies will need to better define, and constantly refine, what value their products provide to the marketplace. New healthcare reimbursement models, which tie payments to patient outcomes and incentivize cost efficiencies, are forcing new conversations inside pharmaceutical and healthcare board rooms alike.
 
A full 84 percent cite pricing and margin pressures as a risk this year, reflecting a steady increase from 2015 (79 percent), 2014 (68 percent) and 2013 (66 percent). And more than nine in 10 (93 percent) worry about their ability to properly execute corporate strategy and growth plans, up from 69 percent in 2013. Patent exclusivity concerns remain high, with more than half of companies (55 percent) worried about demand fading away.
 
But there are also bright spots: new leadership at the helm of the Food and Drug Administration (FDA) has already rolled out initiatives to streamline the approval of drugs and medical devices, like the Software Pre-Certification (PreCert) Pilot Program. And while these changes may force companies to re-evaluate their compliance frameworks, they present opportunities for growth and evolution in the midst of this fundamental re-evaluation of the meaning of “value” within the marketplace.
 
Read more analysis from BDO’s Patrick Pilch here, and view the full 2017 BDO Life Sciences RiskFactor Report here.