Macro Trends In Bio/Pharma Manufacturing We'll See More Of In 2024
A conversation with Laks Pernenkil, Deloitte Consulting LLP
As we get closer to the end of the calendar year, pharmaceutical/biotech manufacturers may be increasingly focused on wrapping up 2023 projects. At the same time, however, it is important to keep an eye on the trends that will impact the industry as we head into 2024. We caught up with Laks Pernenkil, principal and life sciences product, supply, and manufacturing operations practice leader at Deloitte Consulting LLP, to discuss the macro trends he’s seeing in the space.
We’re seeing a lot of life sciences breakthroughs, but they may be coming quicker than the supply chain can handle. What are some of the biggest breakthroughs and challenges facing the life sciences manufacturing industry?
- We’re seeing many more novel, personalized therapies coming to market at scale. Although they’re essential breakthroughs for patients, they’re also a logistical and supply chain challenge for manufacturers. These are one-patient, one-medicine therapies that require a complete rethinking of the supply chain because the patient is in the middle. Cell and gene therapies are difficult to navigate across supply chains because they’re not one-size-fits-all and must be manufactured in specific and diverse ways. Companies have begun to solve these value chain issues through transparent coordination leveraging new digital tools to accomplish patient registration, slot scheduling at both treatment centers and manufacturing sites, and end-to-end value chain control towers to manage the whole process.
- New biology and chemistry breakthroughs are also making waves in the industry, with gene editing and microbiome exploration creating new possibilities for therapies. Questions like “How can the bacteria in our guts be used to treat cancers?” are emerging, and with them, the potential for totally new ways of life sciences manufacturing.
- In the last five years, the industry also has gone from being challenged by the pandemic to being challenged by inflation. In decades past, pharma has been immune to inflation because we’d usually see an increase on the revenue side when we saw an increase on the cost side, but this is the first cycle in which that hasn’t panned out. Inflation has taken a toll on the market performance of some pharma manufacturers. In response, biopharma companies are now implementing core cost management principles, such as managing consumption; eliminating non-value-added use; consolidating purchases, suppliers, and partners; and tightening processes to drive costs down.
- Finally, localization is becoming more common as a response to resiliency challenges, especially for generic and established pharmaceutical products. Even if they’re not making the drug substance locally, many manufacturers are shifting to making the final product locally to protect against the supply chain challenges we saw a few years ago. Lots of countries have incentivized making products locally, leading to a less globalized life sciences supply chain.
What is your advice for companies as they manage increased global regulations in smart manufacturing technologies such as cloud, AI, and more?
PERNENKIL: Companies need to be able to sense and react more quickly and work with advisors who understand the most efficient types of technology investments to make. As the industry tries to solve for one type of constraint, another pops up in a different area.
At Deloitte, many of our clients work with industry associations, patient advocacy groups, and willing regulatory agencies to help think about how AI and IoT technologies can be managed for risk and assurance of supply. Being bold requires that some companies need to go down the path not taken, and in many cases, our clients have adopted these new technologies for management assistance prior to leveraging them for GMP control. For example, process engineers are using AI to determine factors that impact process yields; however, using an AI-driven closed-loop control on the floor requires meeting a higher regulatory and oversight bar, which is the next step in the evolution of AI in manufacturing.
For some companies, using technologies in all their verticals and building an entirely new greenfield facility makes the most sense; for others, it's going in the brownfield direction and making targeted investments in areas where tech will really make an impact. In all cases, we see that clients who are spending the energy to be diligent about data capture have the most accurate information to make those decisions and manage the regulatory expectations from these newer technologies.
What smart manufacturing technologies are truly critical for the life sciences industry?
PERNENKIL: There’s been a big focus on physical automation in the life sciences manufacturing space. Taking the tough manual labor out of production so humans are freed up to do higher-level tasks like analyzing data has been where a lot of companies are investing energy and resources. Learning how to fail in a low-stakes environment by using tools like digital twins also has been a big focus.
Generative AI tools are starting to emerge as well, and I think we’ll see important use cases for AI in manufacturing come into focus in the coming years.
Overall, we’re seeing that life sciences manufacturers who adopt smart technology are engineering an advantage in the market, and the ones that do it best are not implementing “random acts of digital,” they’re being strategic about which investments work best together and deliver the most value.
Are life sciences companies thinking about reshoring/nearshoring their manufacturing operations? If so, why is this happening? Do you think this is a positive strategy?
PERNENKIL: Yes, we’re seeing clients that have established pharmaceutical portfolios (products that have been on the market for a while and have a stable base of users) have especially begun to think about reshoring as a way to drive up assurance of supply — particularly for hospital injectables and other generics with strong competition that are popular but were in short supply during the pandemic. Driven by government incentives to bring supply closer to the market and retain control over supply chains, we see that much of this reshoring strategy is not only tied to safeguarding against supply disruptions but also to building additional capacity for established products that are experiencing surges in demand. This strategy is helping get needed therapies into the hands of patients faster.
Another reason reshoring is occurring is because of geopolitical shifts that are threatening political stability, particularly accentuated by wars and strife in certain theaters — e.g., Russia/Ukraine, China’s economic uncertainty — as well as localization incentives across various developed markets (e.g., the IRA, global corporate tax equalization pressures).
While the jury is still out on whether reshoring yields financial benefits for companies that adopt this strategy, we believe that some of this rebalancing of manufacturing in the Organisation for Economic Co-operation and Development (OECD) markets will create opportunities to relieve drug shortage pressures, creating economic advantages for companies that are ahead of the curve in reshoring.
Finally, we don’t see any indication of the reshoring pendulum swinging all the way to fully local/in-country manufacturing, like in the processed food industry, for legacy biopharma manufacturing. However, advanced therapies like CAR-T to a large degree require localized manufacturing to deliver products to treatment centers on time.
Companies may be deciding whether a greenfield or brownfield plant strategy is right for them. How can companies determine which direction is best in their specific situation?
PERNENKIL: Each manufacturer will have different needs based on their current operations and the various tax benefits, supply situations, current network picture, and future market supply scenarios that each option could provide advantages for. It usually comes down to demand and the supply that companies need to deliver.
For example, a manufacturer that is bringing a new, highly valued, and in-demand product to market may need to go with a greenfield build as they don’t have the time to consider modifying existing constructions. This is because the new products require different technologies than currently present in existing brownfield sites.
However, for a different manufacturer it might make sense to retrofit a brownfield site to meet supply expectations for established products while looking to gain a supply advantage over competitors.
Other common reasons for choosing a brownfield retrofit are capital constraints, similarity of manufacturing technologies and platforms, and establishing near-term capacity relief for a higher demand portfolio.
Ultimately, companies look at greenfield vs. brownfield as an economic investment choice and how the overarching economic returns from various financial levers — one-time investments, one-time benefits like taxes, local incentives, ongoing costs, and the benefits and risks of manufacturing in that location — play into the biopharma company’s operating strategy.
About The Expert:
Laks Pernenkil is a principal in Deloitte’s Life Sciences Product, Supply, Manufacturing and Quality Operations practice based in McLean, VA. He has more than 15 years of consulting and technical operations experience in the pharmaceutical, biologics, and medical device sectors. At Deloitte, his experience includes smart/digital manufacturing and plant floor operations, plant engineering, facilities management, material sourcing, distribution, performance improvement, and more. He is the US practice leader for the Life Sciences Product and Supply Operations practice, leading end-to-end supply chain, manufacturing quality, and technical operations consulting services. He has a Ph.D. in chemical engineering practice (pharmaceutical manufacturing) from MIT and an MBA from MIT Sloan School of Management. He has prior experience at Novartis, Alkermes, and Amgen.