Baxter Healthcare, the US Food and Drug Administration, and the pharmaceutical industry in general got a big dose of bad news
in late February, when it was reported that several batches of heparin manufactured and marketed by Baxter (Deerfield, IL)
may have caused a large number of adverse events, including some deaths. Additional reports of adverse events associated with
heparin were also coming out of Germany, relating to product manufactured by Rotexmedica.
The heparin problem arose less than four months after the US Government Accountability Office (GAO) presented testimony highlighting
the deficiencies in FDA's oversight of foreign drug manufacturers. The active pharmaceutical ingredient in Baxter's heparin
was supplied by Changzhou SPL in Changzhou, China, which is partly owned by Scientific Protein Laboratories LLC (Waunakee,
WI). GAO noted that FDA "does not know how many foreign establishments are subject to inspection," and that its two principal
internal databases counted vastly different numbers of foreign establishments (3000 in one case, 6800 in another). The GAO
report estimated that FDA was inspecting only about 7% of foreign establishments deserving inspection each year, meaning it
would take more than 13 years to visit each site once. The report noted other problems, including the need to preannounce
FDA inspections of foreign facilities and the lack of translators on FDA inspection teams.
In fact, GAO noted, FDA does not have the authority to compel foreign establishments to allow it to inspect their facilities.
Further, foreign drug establishments making product for the US market do not have to be inspected every two years, as domestic
requirements must be. FDA's authority is currently limited to inspecting imported drugs and preventing their entry into the
US. There is now a movement in Congress, backed by the Bush administration, to give FDA more explicit responsibility for imported
On the supply-chain learning curve
Baxter and SPL's heparin problems, and the difficulties FDA has keeping up with foreign establishment inspections, represent
just some of the issues that pharmaceutical companies are likely to encounter as they source key ingredients and intermediates
from countries such as China and India. Pharmaceutical supply chains are getting longer and more complex; companies are not
only geographically farther from their suppliers, they are transactionally farther as well, because they increasingly depend
on their primary suppliers to source intermediates and other inputs used to manufacture the products they are ultimately purchasing.
This is a far cry from just a few years ago when vertically integrated pharmaceutical companies controlled much more of the
supply chain and manufactured most active ingredients and late-stage intermediates in-house.
The learning curve for complex sourcing relationships has been a long one in most industries, not just pharmaceuticals. Companies
that have sought to outsource more of the value chain almost invariably have found that their internal systems are not up
to the task and that they must have greater involvement with their suppliers to effectively integrate them into their supply
chain. For example, when Boeing developed its new 787 Dreamliner aircraft program, it decided to outsource the production
of many of its components to suppliers around the world. Now, it has had to delay delivery of the Dreamliner several times
because it failed to effectively integrate those suppliers into its scheduling and engineering systems. In addition, the suppliers
have not been able to deliver their components on time and in sufficient quantities. When the automobile companies began seriously
outsourcing more than 10 years ago, they found that they had to establish stringent quality standards and specifications and
invest in training their suppliers in continuous improvement and quality control practices before they could meet these standards.
Time to blog
The globalization of supply chains is creating new political, logistical, and scientific challenges for the pharmaceutical
industry. Establishing inspection programs of foreign establishments, for example, will require agreements with foreign governments
to allow FDA to exercise some oversight authority over manufacturers in their countries. That will be especially tricky with
countries such as China, where there is no history of mutual recognition and cooperation such as exists with European governments.