Managing  Supply Chain Risk in Biotech

Gregg Beloff: How should biotech companies approach supply chain risk management, and what are the concerns for companies of differing scales and sizes?

Ed Downey: When it comes to supply chain risk management, companies must tailor their approach based on their size and stage of development. For small early-stage or preclinical companies, one critical consideration is the scalability of their vendors. While opting for a cheap vendor initially might seem tempting, if they can’t scale with your growing needs, it can lead to significant costs and delays in recertification. Therefore, finding a Contract Manufacturing Organization (CMO) that can grow with your company’s evolving drug supply needs is vital.

Another aspect to consider for small companies is the inherent risk they face due to limited resources. Unlike larger companies, they can’t afford multiple CMOs or storage sites for their products. It’s crucial for the management team and board to recognize and manage these unique risks strategically. Decisions regarding the best location for product storage and the logistics of transporting products should be made with care. For example, if your drug components are being manufactured in different parts of the world, you need to plan for safe and efficient transportation methods, including monitoring temperature-sensitive shipments to detect deviations.

Gregg Beloff: Indeed, there are many factors to weigh when it comes to supply chain risk. Can you tell us more about what’s involved in a risk assessment, and when should a company conduct one?

Ed Downey: A risk assessment should be conducted early in the company’s development. There are different levels of risk assessments, but for early-stage companies, it often involves contract reviews and discussions with the supply chain team. The goal is to ensure they are using reputable carriers, focusing on quality over price, and setting up the logistics for future scalability. By identifying potential risks early, you can position the company to scale up smoothly when necessary.

Gregg Beloff: What are some key considerations and must-dos regarding insurance for the supply chain in biotech?

Ed Downey: Insurance plays a crucial role in mitigating supply chain risks, but it’s essential to ensure that your insurance covers exactly what you need. For instance, when storing goods at multiple locations, you can either determine the exact value of what you want to store at each site or establish an agreed-upon value across all locations. This prevents over or under-valuing your stored goods, which can impact your coverage.

Additionally, it’s vital to understand what’s covered under your supply chain transit and throughput policies. Many policies cover goods in transit or at rest but not while they are being processed. This is where risk management through contracts with CMOs comes into play. These contracts should specify who pays for damaged goods or what happens in the event of a production error, as biotech-related losses can be too costly for insurance carriers to cover.

Gregg Beloff: The importance of well-crafted contracts and understanding insurance coverage cannot be overstated. What other factors should companies consider to enhance supply chain resilience?

Ed Downey: Companies should maintain vigilance over their supply chain, as unforeseen events can have far-reaching consequences. One significant consideration is the cost of raw materials. Companies must weigh the feasibility of stockpiling critical components in a warehouse versus relying solely on just-in-time purchases. In situations where components are single-sourced or geopolitical factors can disrupt the supply chain, having stockpiles can be a strategic move to ensure uninterrupted manufacturing.

Recent events like UPS and airline strikes, along with international tensions, underscore the need for supply chain flexibility. Management teams should engage in continuous risk assessment and build a company-wide philosophy that values risk consideration in decision-making.

Gregg Beloff: Absolutely, staying adaptable and prepared is key in the ever-changing landscape of biotech supply chains.