Logistics providers confront a complex, global healthcare market

February 2, 2016
Nicholas Basta

Pharmaceutical Commerce, Pharmaceutical Commerce - January/February 2016,

The rise in product volume is more than matched by the rise of regulatory constraints

Kuehne+Nagel’s distribution center in Memphis, TN opened last August. Credit: K+N

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From a general, global perspective, healthcare products will never be a large fraction of shipment tonnages; the healthcare sector will always pale in comparison to automotive, energy or consumer goods movement. But healthcare has two things going for it that draw more than its fair share of attention from logistics providers: growth is strong and steady, and the products tend to call for premium services from freight forwarders, ground, air and ocean carriers. A third factor, at least in the US, is the broadbased trend for more consumer-driven healthcare choices; the best example of this is direct-to-patient delivery, even of complex biologics.

“It’s amazing how much complexity exists in pharma and healthcare supply chains that wasn’t there a few years ago,” observes John Menna, VP of global strategy, healthcare logistics for UPS. “There’s volume growth, but there’s also the complexity of products being moved and what’s required to move them in a compliant manner. Emerging markets around the world, combined with more offshore manufacturing, are also factors. The record number of M&A undertakings by pharma companies make supply chain managers’ work very challenging. Finally, there’s the drive from insurers and hospital systems to handle more patient care in the home or in outpatient facilities; that adds to the cost pressures on healthcare generally, and to logistics providers specifically.”

The Big Three wholesalers, AmerisourceBergen, Cardinal Health and McKesson, have a profound influence on product movements within the US, of course, but increasingly now with international transportation. AmerisourceBergen has its pioneering, multiyear arrangement with Walgreens Alliance Boots (which is based in the UK), and acquired a Brazilian distributor; McKesson closed on its acquisition of Celesio, a major European distributor, last year, and Cardinal has a distribution business in China that tripled in size, to $3 billion, since Cardinal acquired it in 2010, according to George Barrett, CEO. In addition, AmerisourceBergen and McKesson have substantial operations in Canada.

The biggest, multinational logistics firms in healthcare—UPS, FedEx, DHL, with companies like Panalpina and Kuhne+Nagel also in the running, have set up networks of healthcare-specific distribution centers and ancillary facilities around the world, both to match the services called for by the Big Three, and to provide standardized services globally to multinational pharma companies. On national basis, a handful of US third-party logistics providers (3PLs) are storing and moving products for US pharma companies, and for non-US firms, especially generics manufacturers, who want to build their business activity in the US, the world’s largest pharma market. Finally, the carriers themselves—especially air freight that has time- and temperature-specific shipping conditions—are building out healthcare-specific resources to serve the pharma industry.

Here’s a rundown of recent activity:

  • At presstime, UPS’ 50th dedicated healthcare-distribution facility was scheduled to go online in Roermond, the Netherlands, which is also close to UPS’ European air hub at the Cologne/Bonn airport in Germany. Capacity is 300,000 sq. ft. It also opened a healthcare-dedicated air freight-forwarding facility at Amsterdam Airport Schiphol.
  • Life Science Logistics (Dallas, TX) is finishing out a tripling of its cold chain space at its Indianapolis facility, as well as adding new capacity for managing reverse logistics for medical devices and med-surg kits, where instruments need to be sterilized and then repacked. Richard Beeny, CEO, says the company has experienced a quintupling of its healthcare-products volume throughput in the past year.
  • MD Logistics, a Plainfield, IN 3PL, doubled the capacity of its Indianapolis facility with a $2.5-million, 173,000-sq.-ft. addition, as well as adding to its Reno, NV facility. Both have expanded cold-chain capacity.
  • BDI Pharma, which characterizes itself as a “niche distributor” of specialty blood products, chemotherapeutics and the like, opened a DC in Fort Worth, TX, and has doubled capacity at its Columbia, SC headquarters.
  • Also in Texas, Woodfield Distribution has opened a 48,600-sq.-ft. facility in Sugar Land, TX that is equipped to handle warehousing and distribution, cold-chain capability, reverse logistics and regulatory-compliant disposition. Capacity is also increasing at its Boca Raton, FL headquarters. The company has a particular focus on pharma products entering the US from Latin America.
  • Last August, Kuehne+Nagel added 125,000 sq. ft. for contract pharma logistics to its Memphis distribution center, which already has more than 200,000 sq. ft. of warehouse capacity, mostly dedicated to life sciences. A 10-year contract with an unspecified client has enabled the company to add additional capacity, for CRT, refrigerated and frozen warehousing. K+N brands its life sciences services as PharmaChain, with 49 healthcare-logistics facilities in 21 countries. “Kuehne+Nagel continues to invest in our KN PharmaChain solutions—our systems, facilities and employees—in order to guarantee our high service and quality standards for the inventory control and transport of pharmaceutical products,” said John Hextall, president of K+N North America, in a statement.

Among air carriers:

  • Last summer, American Air Cargo opened an ExpediteTC 25,000-sq.-ft. facility in Philadelphia for inbound and outbound shipments of pharma products; it includes refrigerated (2-8°C) and controlled room temperature (CRT, generally 15-25°C) space, and the ability to recharge the air-freight containers offered by CSafe, Envirotainer and others, which use batteries to run self-contained heating and cooling units.
  • United Cargo started the new year with the opening of a TempControl facility for healthcare products at Newark Liberty International Airport (Newark, NJ); the CRT space is used for inbound and outbound freight, and for transiting shipments within the United Air Cargo network. The company noted that it now has 56 TempControl facilities (where there are trained personnel in handling healthcare logistics) in its global network, including a just-opened one in Vienna, Austria. The type of dedicated CRT storage space built in Newark is the model for others, likely to be in Chicago and San Francisco, noted Jan Krems, United Cargo president.

And in the clinical logistics arena:

  • Catalent (Somerset, NJ), which has a substantial business in outsourced drug development, announced a quadrupling of its Shanghai, China facility, with an emphasis on temperature-controlled handling of biologics undergoing clinical trials. Expansion is also in the works for the company in Singapore.
  • Marken (Durham, NC), which has been building out its network of clinical trial depots around the world for several years, announced in 2015 that is has new facilities or capacity in Boston, at New York’s JFK Airport and in Russia.
  • World Courier, a subsidiary of AmerisourceBergen, opened a service facility, the Climate Optimisation Research & Engineering (CORE) Labs, a testing and development center based near Cologne, Germany. Its focus is providing design and validation services to pharma clients investigating climate-controlled packaging. In early 2015, World Courier added to its Australia depot to enable commercial distribution of specialty drugs, a distribution channel that parent AmerisourceBergen hopes to build on.
  • QuickSTAT, a unit of the global express-delivery firm Quick International, is partnered with Almac Group at the latter’s Ireland facility; QuickSTAT opened a dedicated, temperature-controlled packout facility for temperature-controlled shipments for Almac near Belfast International Airport.

UPS’ annual survey found substantial progress in life sciences supply chain development.

Pain in the supply chain

For the eighth consecutive year, UPS Healthcare Logistics commissioned a third-party survey of manufacturers, distributors and healthcare organizations around the world, published as its “(Pain) in the Supply Chain” survey. The 2015 report shows a healthcare industry having success in addressing product security and regulatory compliance, but low progress in planning for natural disasters and other business interruptions. Logistics cost control—a perennial concern for healthcare managers—has a mixed outlook, with success in controlling some costs but a desire for further economies.

That’s the quick summary of the survey, which is based on questionnaires and in-depth interviews of supply chain managers of pharma and medical device companies, and healthcare-product suppliers around the world. The survey was performed between April and June by TNS on behalf of Big Brown. Some 55% of respondents said they were successfully addressing product security issues in 2014’s survey; this year, that jumped to 75%. Likewise, 57% were meeting regulatory compliance challenges last year; this year, the figure is 70%. There is some improvement in preventing product damage and spoilage (particularly for temperature-controlled products), with 63% having success now versus 57% in 2014. And while there is a 12-percentage-point rise in respondents’ success in managing logistics, warehousing and transportation costs, the 2015 figure is 50%: half of the industry is where it wants to be, and half is not.

For those companies that have staked out strong positions in healthcare logistics, the sector’s growth is “a good problem to have:” Respondents noted that “rapid industry growth” is their No. 1 problem, according to 56% of respondents, with the growth causing complexity and cost pressures. In the US, that figure was 59%; in Asia (which, strangely, is the fastest-growing region of the world for healthcare) it was only 35%; and in Latin America, it was the highest of all regions, at 67%, followed closely by Europe at 63%.

The dominant compliance issue is the EU’s Good Distribution Practices (GDP) guidelines, which went into effect in the overall EU in 2013, but which are implemented in each member country. Two troubling aspects of GDPs are how documentation is to be collected and maintained, and to what extent CRT products (which traditionally, in many cases, have shipped as general freight) are to be regulated. “At the moment, GDP concerns are more prominent in Europe than the US,” says UPS’ Menna. “But it’s still extremely unclear to many customers there, and to us, how those regulations will be interpreted and enforced, on a country-by-country basis. There are lots of gray areas.”

At last year’s IQPC Cold Chain Forum (Boston, Oct. 5—9), Mary Foster, a member of the executive committee of US Pharmacopeia, announced that that group’s efforts to establish a USP version of GDP standards (as USP <1083>) was essentially being sent back to the drawing board; instead, USP would concentrate on providing guidance on packaging and testing for cold chain shipments. “In our experience, US manufacturers and FDA pay more attention to Good Manufacturing Practices (GMPs) than to GDPs,” notes Life Science Logistics’ Beeny. “FDA audits, which we’ve had numerous times, focus on the documentation and practices of our warehouses; less so on actual transportation practices.” In the final analysis, though, product quality remains the manufacturer’s responsibility, and leading biopharma firms look closely at each step in the distribution process.

The CRT requirements under GDPs essentially mandate that a product is kept within the temperature range on its label while being transported. One complication, notes Thomas Grubb, who is both manager of cold chain strategy at American Air Cargo, and a member of the Time and Temperature Committee of the International Air Transport Assn., is that some drug labels are “15-25°C,” while others are “5-30°C.” Most carriers have standardized around 15-25°C, but if there were storage or shipping situations using 5-30°C, some 15-25°C products would be out of their label range. “We’re not sure what 5-30°C means, beyond ‘do not freeze, and do not bake,’” he quips.

To the extent that some manufacturers are enforcing GDP standards, a readymade alternative to insulated packaging is the use of thermal blankets that dramatically slow down the heating or cooling of products they are covering. Some manufacturers are now deploying these blankets as a standard part of packaging; meanwhile, FedEx offers a thermal blanketing service as an adjunct to its temperature-controlled services.

Meeting import/export requirements are a responsibility for any international shipper, but for overseas companies seeking entrée to the US market, US-based 3PLs offer substantial support services. “Our additional expertise includes the importation and processing of prescription drug products that arrive in bulk form that are packaged within the WDSrx facility according to FDA guidelines,” says Adam Runsdorf, CEO of Woodfield Distribution. “Our reputation for providing 3PL managed services and value-added solutions to the healthcare industry is an important consideration that Latin American-based companies find desirable.”

Customers visit at the opening of the United Cargo TempControl center at Newark Airport.

Bulk vs direct-to-patient

Most air carriers, as well as the 3PLs, have two distinct systems for handling shipments: bulk and parcel. “Bulk” usually means a pallet-size load of product (or multiple pallets); parcel often shows up with shipments directly to clinics or physicians’ offices—or to patients in their homes—as well as much of what goes on in clinical trials logistics. With a small but distinct trend toward direct-to-patient, at least in the US, logistics providers foresee a changing environment.

“While we’ve done some work with healthcare systems that are trying to manage their supply chains better, the stronger trend that I see is smaller shipments going directly to a doctor’s office or the patient’s home,” says UPS’ Menna. Such shipments often have a time element to them, where doctors want to be able to dispense a drug tomorrow that was ordered today. For UPS, Menna says, “The interest is in having an end-to-end supply chain, where products go from the manufacturer to the patient.”

This, of course, would mean more business for UPS, but an equally important consideration is the ability to maintain a standardized monitoring and reporting system across the supply chain, which could be a valuable benefit to manufacturers.

This direct-to-patient arena, is a traditional capability of the companies that have been handling clinical trial logistics, accustomed to deliveries to and from investigator sites. AmerisourceBergen’s World Courier is partnering with Medical Health Network, a UK-based international network of trained nurses and other healthcare providers, to assist in synchronizing the delivery of a trial product with the arrival of the nurse who would assist in administering the drug or collecting samples and data.

Archrival Marken, which styles itself as “the only patient-centric supply chain organization in the life sciences industry,” was able to validate its level of performance during the recent outbreak of Middle East Respiratory Syndrome (MERS) in South Korea; as many medical centers (which double as investigator sites) had restricted access, ongoing clinical trial managers needed a way to get drugs to trial patients. The crisis was successfully averted. “Marken will continue to grow, adapt, and evolve our Direct to Patient services for the industry,” commented Leslie Chaney, Marken global director, in a statement. “Our client feedback indicates that the patient-centric focus is on a fast pace of growth.”

A company to watch in this arena is TruBluLogistics, a partnership with Fesenius Medical Care North America (Waltham, MA), which handles distribution of renal care (e.g., dialysis) products to nearly 200,000 patients nationally who are served either in their homes or at one of more than 2,000 local dialysis centers. The company’s national network could become a platform for direct-to-patient deliveries of other drugs or healthcare supplies.

The air carrier perspective is somewhat different in this area. Air cargo companies typically handle only freight, while parcel services essentially are handled in a manner comparable to passenger luggage in the bellies of passenger aircraft. American Air Cargo’s Thomas Grubb touts the fact that his service was the first in the US to handle the Envirotainer e2 active container, which is sized to handle multiple product pallets.

“There’s a lot that happens to shipments coming to us, and then once they are delivered and distributed,” he says, “and we’re focused on what happens while the product is being loaded and unloaded.” One of the advantages of the new Newark TempControl center, he notes, is the fast turnaround from when a shipment leaves the warehouse and is loaded onto a plane.