An Infantile Supply Chain

By Louis Garguilo, Chief Editor, Outsourced Pharma

Imagine a country with a $4 billion, government-regulated market for a life-vital product supplying a large and vulnerable part of its population.

• 80% of production of this product is occupied by 2 domestic suppliers; imported product (of which there is vast supply) is nominally banned
• 50% of the $4 billion life-vital product is purchased by the government via a “social program,” and provided free of charge to “selected citizens”
• Designated regional governments manage the social program by providing “sales exclusivity” to one selected producer, ensuring that producer’s control of the market, in return for “price discounts” provided to the government

Sound like the background to a novel on some warped form of socialism?

Actually, it is Orwellian in that ostensibly this system is said to reside within a “free-market economy.”

The Reality Is Worse

Astute readers recognize I’m talking about the recent U.S. infant-formula shortage.

Among so much to consider here, this is most fundamentally a supply-chain wreck. Perhaps this sad episode can also be instructive to individual drug (or food or supplement) suppliers regarding your own supply-chain risks and management.

Not to belabor the scenario, but to state the unmasked debacle:

• The ~$4 billion market is for U.S. infant formula
• ~80% of sales are occupied by just 2 companies: Abbott and Reckitt Benckiser Group
• ~50% of the $4 billion is purchased by the U.S. federal government via a social program called the Women, Infants and Children Supplemental Nutrition Program (WIC), which provides product at no cost to selected citizens
• By state/producer supply contract, each U.S. state ensures one of the major formula brands has the majority of market share; states award “sales exclusivity” to the selected  producer in exchange for “price discounts.”
• Through tariffs and regulatory measures, product from outside the country (of which there is ample supply) is effectively banned. (That is, until product started flowing into the country once the shortage reached critical mass.)

Today, whether a beneficiary of the WIC (of which the USDA say there are nearly 7 million people) or not, if anyone needs infant formula in the U.S., they have been severely impacted by social programming, unfree markets, and the worst of supply-chain strategy and management.

What happened specifically? A “whistleblower” had reported quality issues at an Abbott facility in Michigan; bacterial infection (cronobacter sakazakii) was detected in a number of infants after injesting formula not specifically traced to but also found in the plant; the FDA inspected the facility, and effectively shut it down, causing a national shortage.

Grown-Up Lessons

What is interesting here (for our narrow purposes) is we can consider the government as a  product “sponsor,” also responsible for the quality of such product, and Abbott as CMO/supplier. Thinking as such, what can we learn?

Lesson One

Frequently inspect your external partner/supplier’s development and production facilities.

Site visits, audits and tours of all kinds are the lifeblood of safety, quality, and reliability. Ultimately, sponsors do this for patients/consumers. So unfortunate in this case, those impacted were infants and their families.

The inability to conduct on-site visits was arguably the most troubling quality issue during COVID. And although we learned CDMOs and other suppliers did exceptionally well in maintaining quality and reliability during the COVID shutdowns, the wrong lesson should not be taken:

It is not OK to not inspect your CDMO’s facilities. No matter where they are.

Lesson Two

When you inspect your CDMO, and challenges are uncovered, do not let them linger.

As sponsor, you need to take whatever actions you can to push for remediation and corrections needed at your supplier. You are responsible.

In this particular case, it implies the U.S. government is directly responsible. My first question upon hearing of all this was: When had the FDA last inspect the Michigan plant?

The answer came when the FDA released 483 documents indicating a pattern of problems at the facility from its inspections in 2019, 2021 and 2022.

Was effective action taken to fix these “problems”? We can surmise perhaps not. Why?

Because we now know the FDA (drug sponsor) has been conducting what appears to be at least annual, on-site inspections, and uncovering challenges, yet here’s what FDA Commissioner Robert Califf said just days ago of the most recent inspection:

“Frankly, the inspection results were shocking,” he testified to the U.S. Congress. “We had no confidence in the integrity” of the quality program at the facility.

The results, then, are shocking on two fronts: The first is what was recently found, but the second is that previous inspections appear to have been for all intents and purposes, meaningless.

Lesson Three

Do not become beholden to single sourcing, and if you are, have concrete plans associated with that risk.

Do I even need to mention this to regular Outsourced Pharma readers? Still, it is worth re-interpreting such statements of well-recognized fact.

Dual-, triple-sourcing of the products supplying your development program, and more so your finished-product supplying the market, can be difficult to arrange, and require additional management and other resources. But this should be implemented even at those costs. Not securing these additional supply options, as we’ve seen, is so much more costly.

However, insert on-the-ground reality: This is not always possible.

And when it is not, specific, strategic and tactical plans must be in place to enact when a facility shutdown can prove so negatively impactful.

Risk-mitigation strategies include a reasonable amount of product stockpiled; having at least some internal production capacity; locating second facilities at your CDMO that could replace the current production facility; overcoming complacency (or ennui) and continuing to look for second sourcing opportunities that may arise.

A final word: In no way should the particular focus in this editorial be seen as “letting the supplier off the hook.” Abbott Laboratories has much to answer for.

Yet with all the circumstances involved here, we can boil this down to the viewpoint of a sponsor and the management of its supply chain and supplier, turning this into a familiar narrative from which we can once again draw familiar lessons.