A strategic approach to cost in biopharma

Question 1

Why are biopharma costs rising

Answer 1

It’s no secret that biopharma manufacturing costs are rising. Various factors—external events such as inflation, regulatory shifts, and the Inflation Reduction Act of 2022, as well as internal company decisions regarding technologies and supply chains—have been pushing up the cost of goods sold (COGS) considerably across various therapeutic modalities over the past few years.

Question 2

Smaller Addressable Patient Populations.

Answer 2

With the exception of the mRNA COVID-19 vaccines, most biopharma products that are based on new modalities are being developed to treat cancers and rare diseases when unmet medical needs are extremely high and the patient populations are low. In 2000, when the top ten biopharma products were based on conventional modalities, the median addressable population was 28 million. Currently, eight of the top ten biopharma products are based on new modalities, and the median addressable population is 2 million.

The smaller addressable populations and the resulting smaller product volumes have a major impact on manufacturing unit costs because scale is the primary driver of COGS. As our benchmarks have demonstrated, each time a biopharma product’s volume doubles, unit costs fall by approximately 30%. To put it another way, each time a product’s volume is cut in half, unit costs increase by 40%

Question 3

Personalized Supply Chains

Answer 3

Personalized Supply Chains. The personalization of medicines has created an unprecedented level of manufacturing and delivery complexity. Consider, for example, the autologous CAR T-cell treatment. After a patient undergoes apheresis at a designated clinical site, the patient’s cells are transported, using cold chain logistics, to a manufacturing facility, where the therapy is created in an individual batch. It is then shipped back to the clinical site, where it is administered to the patient.

Individual batches are costly because they have limited economies of scale—scaling out does not provide the same savings as scaling up. No less important, they require reliable, real-time, end-to-end data tracking to ensure that the right patient receives the right therapy. This can be achieved only through robust systems integration involving all the key interface points, such as patient services, manufacturing, quality control, distribution, and logistics

Question 4

Adoptive cell transfer (ACT) technology

Answer 4

Adoptive cell transfer (ACT) technology—which includes autologous chimeric antigen receptor (CAR) T-cell cancer therapy—is one of the highest-potential fields of biopharma. ACT uses patients’ own immune cells to treat their cancer. But removing those cells from the body, genetically altering them, and returning them to the patient—safely, reliably, affordably, and quickly—is a Herculean challenge. A big part of the solution may lie not in biology or medicine but in digital technology and analytics

Question 5

THE NEED FOR GREATER SUPPLY CHAIN RESILIENCE

Answer 5

For the past few decades, companies have prioritized supply chain efficiency over redundancy. They have often relied on global centers of excellence for drug substance production as well as primary and secondary packaging—centers that are at specialized manufacturing sites across different countries. This approach provided significant economies of scale because it allowed companies to transport drugs and their components relatively cost-efficiently and reliably across the world.

This strategy worked well until recently, when the pandemic, geopolitical events, and trade barriers exposed the fragility of global supply chains. Biopharma companies have been especially hard-hit: BCG’s analysis reveals that nearly all of the top biopharma companies have been significantly affected by disruptions over the past five years.

Regionalization. To improve supply chain resilience, some biopharma companies are regionalizing some of their production facilities. Selective use of redundancy and nearshoring allows companies to reduce their dependence on complex global logistics, while vertical integration makes it possible to bring manufacturing for critical components (including those that are related to IT) in-house.

While regionalizing production strengthens supply chain resilience, it also can reduce manufacturing scale and raise costs. Biopharma companies that decide to pursue regionalization need to be aware of the tradeoffs and formulate effective strategies to mitigate them. For example, if a company determines that meeting market demand is more important than the cost savings that come from scale, it needs to determine the best ways to make up for the higher costs.

Question 6

Make manufacturing capabilities flexible.

Answer 6

Building modular manufacturing plants (ones that have adjustable shop floor designs, for example, or that can produce on demand) provides valuable flexibility: companies can scale up production only for products that have received regulatory approval, instead of building capacity before it is warranted. Sanofi, for example, is building modular plants that are designed to produce multiple vaccines and biologics platforms.

According to our analysis, companies that invest in manufacturing flexibility can stagger their investment decisions and make site and equipment purchases as much as two to four years later than if they used a traditional manufacturing setup.

Question 7

How can bio pharma Promote operational excellence (LPS)

Answer 7

Biopharma companies can use lean production systems (LPS) to improve onsite productivity. LPS should eliminate key sources of waste and inefficiency across the manufacturing network, address bottlenecks, and foster a culture of continuous improvement and ownership.

Lean principles, originally derived from the Toyota Production System, focus on maximizing customer value while minimizing waste, thereby improving overall efficiency.

In the context of biopharma manufacturing, waste refers to any activity that consumes resources but does not add value to the end product as perceived by the customer. Lean identifies several types of waste, including overproduction, waiting times, unnecessary transport, overprocessing, excess inventory, unnecessary movement, defects, and underutilized employees. By systematically identifying and eliminating these wastes, biopharma companies can streamline their processes, reduce costs, and increase throughput.

In biopharma manufacturing, bottlenecks can occur due to equipment limitations, process inefficiencies, or quality control issues. LPS encourages companies to identify these bottlenecks through continuous monitoring and data analysis.

Question 8

What are some practical steps for biopharma companies in adopting LPS

Answer 8

1. Value Stream Mapping: Begin by mapping out the entire production process to identify value-adding and non-value-adding activities. This helps in visualizing waste and areas for improvement.
2. 5S Methodology: Implement the 5S methodology (Sort, Set in order, Shine, Standardize, Sustain) to organize the workplace efficiently, reducing waste and improving safety and productivity.
3. Kaizen Events: Organize Kaizen events, which are short-term improvement projects focused on specific areas of production. These events engage cross-functional teams to solve problems and implement solutions quickly.
4. Standard Work: Develop standard operating procedures for all tasks to ensure consistency and efficiency. Standard work helps in reducing variability, which is a key source of waste in production.
5. Visual Management: Use visual tools (e.g., dashboards, Kanban boards) to manage production flow and monitor key performance indicators in real-time. This enhances transparency and enables quick responses to issues.
6. Employee Training and Engagement: Invest in training programs to develop lean skills among employees and actively engage them in improvement initiatives. This builds a lean culture and ensures the sustainability of improvements.