Life sciences balance regulations with supply chain disruptions

The highly regulated nature of the life sciences industry means companies in this space deal with wholly unique supply chain challenges. There are a limited number of FDA-approved suppliers for active pharmaceutical ingredients or medical devices, for instance, and U.S. regulators impose strict quality controls on such products and medicines. Companies experiencing delays or issues with one supplier can’t just pick up the phone and find a new source—not easily, anyway.

Larger life sciences companies are assessing how they might reshore or nearshore some aspects of their operations. Still, midsize and smaller companies likely can’t afford to do so, and they are the ones already seeing margin compression as supply chain whipsaws continue, says RSM US life sciences senior analyst Adam Lohr.

Of course, this size discrepancy isn’t unique to life sciences. Insights from the RSM US Middle Market Business Index survey supply chain special report show that while 81% of respondents across industries agreed or mostly agreed with the statement that their supply chain and associated capabilities were a source of strategic advantage for their organization, that figure was higher (90%) for companies with between $50 million and $1 billion in revenue than it was for companies with between $10 million and $50 million in revenue (68%).

Elements of the Coronavirus Aid, Relief and Economic Security Act and other legislation aim to ease the process of bringing operations back to the United States, but the amount of offshoring that has happened over the last few decades means any significant changes will take time.

“If you can’t manage quality and consistency, it is easy to run into regulatory issues, so operators really have to balance cost, timing and quality of supply chains,” says Lohr. “And it is tough in this environment.”

Even with the unique regulations placed on the sector and the fact that many companies in this space spend years on research and clinical trials before they have a product to sell, there are plenty of actions life sciences organizations can take to make sure they have good visibility and metrics into these very disaggregated supply chains. Those actions include:

• Investing in supply chain monitoring and reporting from the contract research organizations and contract monitoring organizations they work with
• Making infrastructure investments in enterprise resource planning systems and data analytics capabilities
• Assessing where it does and doesn’t make sense to team up with a third-party organization for faster production and to be aware of vendors’ weak spots
• Conducting a basic operational review of supply chains and identifying areas that could be redesigned for greater efficiency

But the crunch that some life sciences companies are seeing isn’t just in terms of product supply; startups and pre-commercial biopharma companies that don't yet have products in the market are navigating unique labor challenges as the skilled STEM employees they rely on are now in high demand in every other sector of the economy. And other fields that more easily offer work-from-home positions might attract some workers away from jobs that involve going into a lab or medical facility.

Even with all these labor and supply chain challenges, many life sciences organizations are positioned to weather the storm, says Lohr. That’s in part because of how much capital they’ve been able to raise in recent years and because most drugs and devices are developed under the expectation of five- to 10-year time horizons. Near-term disruption is not to be discounted, but life science leaders are skilled at taking the long view. Organizations still need to be good stewards of what they’re developing, heading off other issues that could crop up later in that timeline.

"It’s more a delay issue in hitting milestones than it is a cost issue,” says Lohr. Plus, life sciences companies are used to tackling difficult problems: “Figuring out a cure to cancer or modifying the human genome is a far bigger challenge than figuring out how to get an active pharmaceutical ingredient out of China.”