Inflation Sticks, Supply Chains Stall, Outsourcing A Struggle
By Louis Garguilo, Chief Editor, Outsourced Pharma
Year two of COVID closes precariously as we face multiplying supply-chain challenges, and mounting inflation.
Seaport pileups in the U.S. are the most visual representation. The supply-chain struggle getting the most attention is in the semiconductors (and semiconductor components) industry, which has led, for one example, to immense hurdles for car manufacturers.
The face of inflation is the supermarket, but wages, the prices of industrial materials and services, and finished products across all industries are ascending.
What of drug development and manufacturing outsourcing specifically?
I asked members of the Outsourced Pharma Advisory Board, and other executives, these two questions:
- Have supply-chain challenges continued to affect your projects, particularly related to outsourcing and working with CDMOs?
- Is inflation affecting your organization?
I’ve selected a representative half-dozen of their replies. Then in separate editorials, we’ll take a deeper dive with two board members.
Six Impacts
Readers know we’ve been mostly concerned with small and mid-sized drug companies, where minor supply disruptions or price fluctuations can have exaggerated consequences. However, we start off with a reply indicating that nobody gets spared.
(1) Firelli Alonso, Ph.D., Senior Director, External Supply / Portfolio & Project Management, BioTherapeutics Pharmaceutical Science, Pfizer
“As for supply-chain struggle, we’re now increasing our lead times for certain manufacturing components from 6 to 12 months – double! This even includes a lot of negotiation, especially when most vendors ask, ‘Is this for COVID or not?’ This is the “code” for receiving prioritization – I wonder if this is true for other companies.
“As for inflation impacting our projects, from a contract management perspective, it mostly impacts our contracts with European CMOs. Every year, there’s an inflation-related increase of pricing, so that Billing Plans do get revised yearly, and I have to keep asking for more money for my contract budgets. I would like European CMOs to forecast the CPI [Consumer Price Index] for more than year-long contracts, and include the CPI-adjusted costs in their Billing Plans, particularly for their responses to our RFPs and newly initiated projects.”
(2) Brian James, Ph.D., MBA, COO and Managing Director, Rondaxe Pharma
“I would say the answer to both questions is “yes.” For one client project, we went from lead times of 3-4 months for key starting materials to most recently 9-12 months. These are MT [mega-ton] orders, so the shipping backlog is definitely an issue. Smaller orders where air transport is an option are less impacted.
“In the case of inflation, I can definitely state that the costs of these same raw materials are up about 15-20% over the same period last year. Some clients are struggling to adjust budgets, and ensure they have enough funding to proceed with the plans they drew up a year ago.”
(3) Doug Bakan, Executive Vice President, Technical Operations, Arena Pharmaceuticals
“Perhaps we’re just lucky, but supply-chain issues have not impacted our work with CMOs at all, and we don’t seem to be impacted appreciably by inflation within the organization. Keeping fingers crossed that this is the case 3 months from now as well.
“The thing that has impacted us is competition for hiring the best talent – it’s fierce!”
(4) Darren Dasburg, CBO, CRISPR Biotechnologies
“As a research-based service provider of CRISPR tools and techniques, we have seen delays in materials, now triple their normal time, but still measured in weeks. Prices for those same lab supplies have risen between 15% and 30%. Reagents and commodities needed for Covid tend to be the 30% end.
“Salary discussions reflect inflation as new employees are pushing for higher wages (10-15% above expectations), claiming that cost of living (especially gas, food and housing), and the uncertainties of what’s ahead require them to ask.”
(5) Emerging Biopharma Executive Who Prefers Anonymity
“YES! The port and driver issues are just adding to the already frustrating supply challenges due to COVID. Critical materials are prioritized to the COVID manufacturing process.
“We are buying some of these items for a 2+ years supply. Some of these items are single-use bags, filters, tubing assemblies, vials, syringes… We have seen a quote for material taking 200+ days until we receive the materials.
“The COVID issues caused a hold on manufacturing of goods due to lack of materials, operation staff … actually, there is so much to deal with it is hard to access inflation.
“Perhaps if you want to pay extra, you may get earlier deliveries, but that’s not a guarantee. Ultimately, inflation and all these challenges will continue to increase the COGs [cost of goods].
(6) Roger Graben, President, Vitruvias Therapeutics, Inc.
- Inbound-ocean-freight door-to-door shipping times from Asian CDMOs have increased from 35 days to a current time of 60 days for our organization.
- The cost of ocean freight has increased 3X to 4X. This is our biggest issue.
- Airfreight costs have increased 3X, but are showing some signs of improvement.
- We have encountered much longer lead times for vials, vial seals, tubes, filters used in sterile processing and other items. The ability of CDMOs to be agile in sourcing and qualifying secondary suppliers is paramount.
- We are seeing less dramatic price increases for APIs and packaging materials. API price increases are fueled by price increases for precursors and intermediates.
What We Learned
- When it comes to outsourcing drug development and manufacturing, inflation and supply chain snarls are intertwined, and severely felt.
- Both project/material timelines and prices are heading in the wrong direction – fast.
- Similar to the semiconductor shortages, it’s the components – filters and single-use bioreactor bags among the most sought-after commodities – delaying development and manufacturing plans.
- What was already a challenge, hiring skilled (and not-so-skilled) workers has entered the status of crisis.
- No executive I’ve corresponded with sees an early abatement of either inflation or supply-chain challenges.
Regarding that last bullet, Joanne Beck, Ph.D., Chief Operating Officer, Boston Pharmaceuticals, said her team is already being told by CDMOs that this situation could spill into 2023.
Vadim Klyushnichenko, Ph.D., VP Pharmaceutical Development & Quality, California Institute for Biomedical Research (Calbr) at Scripps Research, believes most people in the U.S. have no experience with persistent shortages or inflation, and thus have no “baseline” by which to judge what comes next.
We’ll follow up with Beck and Klyushnichenko in our next editorials on the twin tribulations of inflation and supply-chain complications.