2014 Trends Reshaping thePharmaceutical Supply Chain

A New Evolving Pharma Ecosystem

• Technology, demographics, regulations and shifts in wealth are creating transformative change in the pharmaceutical industry.

• As it is becoming a more patient centric world, patients use Smart devices and apps to monitor and search for pharma product info.

• Pharma is moving to more multi-channel and/or omni channel models.• Major forces shaping this: healthcare reform, patient empowerment,

devaluation of the current pharma model, need of pharma businesses to drive efficiency and product traceability.

• Patients are changing faster than reform: key driver is spread of data, emergence of personal health records and growth of value networks that allow more informed decisions and confidence in an outcome-based approach

• Patients and medical practitioners want a balanced and integrated approach from pharma partners to reflect their needs, causing greater emphasis on providing information digitally

• Digital provision of product information is an important component of the new pharma model

Transformative Change

Major Trends Reshaping the Pharma Ecosystem

1. Concerned about approving more innovative medicines, regulators have become

more cautious2. Medical advances have made dramatic advances: some formerly fatal

diseases are now classified as chronic; the self-medication sector has been expanded

3. Healthcare policy-makers and payers have become increasingly more involved in mandating what physicians are allowed to prescribe

4. The number of healthcare payers that are now measuring the pharmacoeconomic performance of various medications is expanding. Digital medical records acceptance will enable greater access to data to insist on outcomes-based pricing

5. Healthcare budgets are being continually stretched due to the increased instances of chronic disease

6. As governments have begun to focus more on prevention rather than treatment

7. Emerging economies demonstrate a faster growing demand for medicines than the industrialized economies

Outcome Based Approach Focus

Prescription Volume Increasing

• The volume of prescriptions has almost doubled in less than 15 years in the U.S.

• Globally, drug consumption has increased 32% from $735 billion in 2007 to $965 billion in 2012

• Globally drug consumption is forecast to reach $1.2 trillion in 2017• Over the counter medicine consumption has increased at a higher rate

2007 2012 20170

250500750

1,0001,250

$735.00

$965.00

$1,200.00

Consumption in Bil-lions $

Dramatic Increase in Prescription Volume

Pharma Product Globalization

• Because supply chains have gone from local to global, even one significant event can interrupt the global supply chain for certain products

• Customs, local regulations and other factors impact products and brands to adapt

• Product packaging requires adaptation to local language• Demand signals must be aggregated to plan the early steps in the

supply chain and local information details must be maintained for accurate supply chain planning close to the consumer

Global Pharma Production= Complex Supply Chains

The Rise of Generic Pharmaceuticals

• Generic pharmaceuticals are becoming the dominant category globally, particularly in developing countries

• Generic drugs now account for over 80% of filled prescriptions• Increase in generic drug products= large majority of products are

made by multiple companies• This results in new challenges: patients safely exchanging one

manufacturer’s product for another • Margins for generic products in many countries are razor thin

New Dominance of Generic Drugs

Pressure on Existing Pharma Supply Chains

• Need for tight cost controls since margins for generic products in many countries is very thin

• Pharma manufacturing is becoming increasingly more globalized• Explosive growth in developing regions of Asia

• Manufacturing sites in China & India now comprise 40% of all FDA registered foreign sites, increased from 30% in 2002

• In 2011 China became the 3rd largest pharma market in the world, approximately 50% larger than Germany in 4th place

• Brazil overtook UK, Italy, Spain & Canada to rank 6th

• Increasingly more clinical trials are occurring in countries where it is challenging to import products

2002 20140%

50%

100%Manufacturing

Sites

Explosive Growth of Pharma Manufacturing Globally

Move Towards Specialized Pharma Products

1990 20120

100200300400

Number of Specialty Drugs

Number of Specialty Drugs

• Increased focus on “orphan drugs”, those with patient populations of 200,000 or less

• The Orphan Drug Act: promotes funding & reimbursement of these drugs, resulting in very lucrative market for pharma companies

• Increasing R&D costs with lower success rates & decreasing margins

Specialized Drugs: Higher R&D Costs, Lower Success Rates, Less Profitability

Greater Number of Specialized Pharma Products

• Greater demand for specialized pharmaceuticals with more complex formulations

• Many products require specialized handling and storage

• Why is the demand for specialty drugs growing so fast?1. Researchers are increasingly more successful in creating

special agents or combinations of agents to address maladies more effectively and/or with fewer negative side effects2. Doctors want to more narrowly prescribe specific drugs for

smaller, more distinct groups of patients3. Legal changes have permitted many widely prescribed

medications to be produced generically

4. Investors have re-valued “Big Pharma” downward due to increasing

R&D costs, intense competition, greater liability and legal risks and reduced profit margins due to increasing popularity of generic drugs

More Specialized Pharma Products Needing Special Handling & Storage

Health Care Reform Magnifies Effect of Longer Supply Chains

• Health care reform has been increasing the intense cost pressure on drug manufacturers

• Drug purchasing control has been concentrated into fewer hands by the reduced number of insurance companies that now sell government-qualified plans

• Pharma companies need to find cheaper source of product supply. This leads to a longer more complex supply chain

• Adds more pressure on the supply chain participants and vendors to improve their efficiency and/or lower their own costs

• To reduce costs, more production, research and development will be offshored and outsourced

• Today’s pharma manufactures and supply chain participants need to use supply chain management tools to provide real time visibility and improved ways to control costs

Health Care Reform Stresses Supply Chains

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