One of the inevitable consequences of political change is disruption to the global economic engine. Disruption can result from political instability, regulation, or even innovation. Now, from the portent of the coming Brexit storm, to the enactment of major provisions of the Drug Quality Security Act (DSCA), to the promise of blockchain and artificial intelligence (AI), the requirements for modern supply chain management are in evolution, as are the efforts underway to safeguard supply chain integrity.
Regulations and Brexit
Brexit represents one of the most significant disruptions to the pharma supply chain in history.
The UK government issued a white paper1 detailing their proposed relationship with the European Union after the UK leaves. In a joint statement, Mike Thompson, chief executive of the Association of the British Pharmaceutical Industry (ABPI) and Steve Bates, chief executive of the BioIndustry Association (BIA), cited the tremendous amount of traffic, with 37 million packs of medicine arriving in the UK from the European Union - every month - and 45 million moving the other way. With so much at stake, the announcement of a Brexit transition deal at the March 2019 European summit appeared to be a positive step for business. But as the deadline draws near there has been little progress made to resolve the key questions on the withdrawal treaty, such as a plan for customs and governance arrangements during the transition, leaving the industry in uncertainty as to how supply chains will be managed. At the time of writing, politicians continue to debate between the customs partnership and the “maximum facilitation” model. Both options represent a significant change for businesses moving products across the UK/EU border and, in the event of a Hard Brexit, there would be a default to World Trade Organization (WTO) terms. Every WTO member has a list of tariffs (taxes on imports of goods) and quotas (limits on the number of goods) that they apply to other countries. For high margin goods WTO terms may have little impact but for lower margin products, such as generic drugs and some medical devices, the commercial viability of some device and drug therapies marketed within the UK may be affected.
The Puzzle of Marketing Authorizations
The most immediate impact for pharmaceutical companies is the validity of European Marketing Authorizations currently held by UK entities. Post-Brexit, companies based in the UK will no longer be able to be the Marketing Authorization Holder (MAH) for medicinal products marketed in the EU. A logical plan forward would be to transfer MAHs to non-UK based entities, but the lead-time to successfully make the transfer has effectively ended. An added complicating factor is the European Medicines Agency (EMA) decision to move their headquarters from London to Amsterdam. In addition to any transfers to non-UK based entities is the need to now secure additional Marketing Authorizations for the UK market. The impact of these activities on potentially millions of life-saving drug therapies is uncertain, at best.
Medical Devices are facing similar challenges, as the UK-based notified bodies (NB) that granted CE marks will no longer be authorized to do so. Companies are looking for alternative NBs on the continent to continue to legally provide CE marked products on the EU market. This uncertainty comes just as the European market is scrambling to adapt their new and approved products to the revised European regulations going into effect in 2020.
Larger still is the question of Mutual Recognition Agreements (MRA), a principle of European law under which member states must allow goods that are sold in another member state to be sold in their own territory. Currently, 20 countries have been granted Mutual Recognition status. These agreements contain a sectoral annex on the mutual recognition of good manufacturing practice (GMP) inspections and batch certification of human and veterinary medicines.
Simply put, MRAs rely on each other's GMP inspection systems; share information on inspections and quality defects; and waive batch testing of products on import into their territories. As with MRAs, the core foundation of ensuring GMP compliance by certified Quality Persons (QPs) will be invalidated since the EU will no longer recognize products released by UK QPs.
Across the Borderline
Regardless of the supply model, there will be a physical border in place between the UK and the European Union, which ends the four freedoms of movement: people, capital, goods, and services. Companies with Authorized Economic Operator (AEO) status will be able to minimize any impact but will need to establish arrangements with freight forwarders to ensure that shipments are not held up.
Lastly, systems may have to be duplicated within the UK to satisfy the requirements of EU Manufacturing Authorization holders. Reporting through the EU’s EudraVigilance system2 is a requirement for all Marketing Authorization holders, but it is not clear if the EU will allow access to this system for UK entities, after the separation.
In summary, Brexit has the potential to significantly complicate the supply chain across the UK and the EU likely resulting in higher costs and, in some cases, increasing the potential for drug shortages on either side of the border.
Drug Supply Chain Security Act (DSCSA)
The DSCSA was enacted by Congress in 2013 and prescribed an ambitious nationally unified program to ensure drug traceability. The DSCSA calls for implementing a new electronic, interoperable system for product tracking and tracing, over a 10-year period.
Under the law, the FDA is required to develop standards and guidance documents, and conduct pilot programs and public meetings to ensure that implementation of the law’s requirements occurs effectively and efficiently. Many in the industry, including manufacturers, distributors, and pharmacies, are working with the FDA to gather input and create the required standards and documentation. The DSCSA directs FDA to establish national licensure standards for wholesale distributors and third-party logistics providers, and requires these entities report licensure and other information to FDA annually.
The key provisions that will be implemented by 2023 are requirements that apply to manufacturers, repackagers, wholesaler drug distributors, and many dispensing organizations, such as pharmacies, as follows:
- Product identification: a unique product identifier such as a bar code or QR code to be placed on certain prescription drug packages;
- Product traceability: the drug supply chain must provide chain of custody and transaction information;
- Product verification: establish systems and processes to verify the product identifier on certain prescription drug packages;
- Detection and response: quarantine and promptly investigate a drug that has been identified as suspect;
- Notification: establish systems and processes to notify the FDA and other stakeholders if an illegitimate drug is found;
- Wholesaler licensing: Wholesale drug distributors to report their licensing status and contact information to the FDA;
- Third-party logistics provider licensing: organizations that provide storage and logistical operations related to drug distribution are to obtain a state or federal license.
In late 2018, the FDA released two draft3,4 and two final guidance documents5,6 regarding the implementation of the product identifier requirements under DSCSA. Specifically, the FDA finalized its guidance documents titled:
- "Grandfathering Policy for Packages and Homogenous Cases of Product Without a Product Identifier" (Grandfathering Policy)
- "Product Identifier Requirements Under the Drug Supply Chain Security Act—Compliance Policy Guidance for Industry" (Product Identifier Policy).
In addition, FDA published a draft guidance titled
- "Product Identifiers Under the Drug Supply Chain Security Act - Questions and Answers" (Product Identifier Q&A Guidance), which is intended to clarify FDA's interpretation of product identifier requirements, including as they relate to the linear barcode requirements under 21 CR 201.25.
This represents the last component of the FDA’s guidance of DSCSA and its application has begun as FDA has started enforcing these requirements, starting with distributors.
Blockchain and AI in the Supply Chain
Blockchain software provides a digital ledger system for records and log transactions by grouping them into chronologically ordered blocks that are linked and secured through cryptography technology. It allows information to be shared, but not copied, across a series of networks. The technology removes the need for a centralized owner, making it very difficult to adulterate data in the chain, and ensuring data integrity. If there is any information that does not match the previous block, the whole transaction is voided. Digital ledgers have been around for years, but the associated features built into blockchain make it an indispensible addition to any complex logistical operation. When blockchain is integrated into a supply chain network, users are able to see real-time transactions and revisions. Once the data is entered into the system, it requires retrograde action on all associated blocks to make any edits, preventing human error and other fraudulent activities.
Because blockchain’s genesis is cryptocurrency, security is paramount over efficiency. Anyone who has tried to buy or sell cryptocurrency knows it can take a week or two to complete the transaction. Artificial Intelligence (AI) may be able to accelerate blockchain’s adoption by addressing some of its limitations. Even if blockchain itself is very difficult to infiltrate, the layers around it are less secure. The advances being made in machine learning within AI could significantly shore up the security around the deployment of this application level. Similarly, scalability challenges escalate as transactions increase within the Blockchain. AI techniques such as data sharing and decentralized learning could be used to drive greater efficiency by removing unnecessary transactional data.
Smart Contracts and Blockchain
One area that is getting tremendous traction within blockchain is the adoption of smart contracts. As embedded legal frameworks, smart contracts have the potential to replace and automate many existing paper contracts. Simply put, smart contracts are programmable. If situation ‘A’ occurs, the contract is coded to have an automated response ‘B.’ By adding this simple concept to blockchains, contracts cannot be forged, changed, or destroyed without an audit trail. This is because the ledger distributes identical copies of that contract across a network of nodes, for verification by anyone at any time. When transparency can be guaranteed, these contracts now become possible in industries that would have previously deemed them too risky.
All blockchains are based upon a Distributed Authorization Organization (DAO) concept. Instead of a hierarchical structure managed by a set of humans interacting in person and controlling property via the legal system, a decentralized organization involves a set of people interacting with each other according to a protocol specified in code and enforced on the blockchain. This is the basis for its application within smart contracts. Given the distributed global nature and some of the high-profile supply chain problems in the emerging markets, the ability to enforce smart contracts can be a significant risk reduction tool.
In Summary
The challenges and innovations currently having repercussions on the modern pharma supply chain are exceptional. While artificial intelligence (AI) has a foothold in the development and clinical side of drug development, its potential impact on blockchain within the supply chain could be even more significant to the industry. AI has been around for decades and although AI and blockchain are the two extreme sides of the technology spectrum: one fostering centralized intelligence on close data platforms, the other promoting decentralized applications in an open-data environment, together the whole could easily be greater than the sum of the parts. In terms of Brexit, we can look forward to further uncertainty for global supply chains. Parliament officially rejected Prime Minister Theresa Mays’ Brexit proposal in March, just days before the UK is scheduled to leave the European Union, so the path forward remains murky at best.
References
- https://www.abpi.org.uk/media-centre/news/2018/july/pharmaceutical-industry-reactionto-brexit-white-paper/
- https://www.ema.europa.eu/en/human-regulatory/research-development/pharmacovigilance/eudravigilance
- https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM624205.pdf
- https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM621044.pdf
- https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM586509.pdf
- https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM565272.pdf