Biogen Idec designs the innovation supply chain

Joydeep Ganguly from Biogen Idec spoke in my Supply Chain Relationships class last week, and shared his insights on how Biogen’s supply chain evolved.  Since graduating from the NC State Jenkins MBA program in 2006, Joydeep Ganguly has risen through the ranks at Biogen Idec – the world’s oldest independent biotechnology company and the largest biotech employer in North Carolina.  Today, Ganguly, vice president of manufacturing and general manager of the company’s Research Triangle Park operations, says the Jenkins MBA program prepared him for the challenges he faces from day to day.

Joydeep began by sharing his views on the importance of linkages between academia and industry, including the SCRC partnership model.  “Academia leads industry considerably in terms of thought leadership in areas like Supply Chain.  Supply chain has a big focus on the currency of today’s theories being implemented here.  The Supply Chain Resource Cooperative at NCSU played a big role in helping to inform strategies around our supply chain.

Joydeep’s primary discussion was around the topic of “How do we Design Our Supply Chains?”  He noted that “My passion is Process Analytics:  taking business datasets and using my technical background in engineering.  I love data and analytics that create insights into processes and approaches.”

“Supply chain design is grounded in supply chain principles, but the problem is that in biotech, standard forecasting techniques don’t allow you the luxury of time to build rapid supply chains without taking some risk.  It takes anywhere from 4-7 years to build a biotech production facility, and upto billion dollars, so increasing capacity in the face of uncertain demand is a huge dilemma for us in the industry.”

In 2009, I moved from a Manufacturing Sciences role to the supply chain area – it was then that I started collaborating with Rob in areas like applied analytics with a procurement focus.  I then moved over to work in Biogen’s first small molecule site at Eisai, and now am the General Manager of our largest manufacturing site in the network. As a company, we have approximately 7000 employees and are growing into a$10B company. The RTP site has approximately 1400 employees and over 96,000L in cell culture capacity.

In 2009 we were faced with the enviable situation of suddenly having the prospect of five new drugs on the brink of approval.  This was unheard of, and exceeded the typical hit rate on clinical trials that we are accustomed to seeing.  Our late phase pipeline had 6 promising candidates, and we ended up commercializing 5 of those assets – that is uncanny hit rate.  Our Management needed to create a deliberate way to construct a supply chain that would support not just these launches but the emerging pipeline that the Management team was carefully shaping.  The results were phenomenal, but now we had to commercialize these discoveries.”

Ganguly used this situation as a live case study for my class.  He posed the following scenario:

So pretend for a moment that you are the COO of a Biotech company, faced with imminent launches/complex processes/new modalities of Mfg – and are tasked with designing a supply chain that is nimble, flexible and can deliver consistently on a commercial scale… Where would you start?  The biologics process is complicated you have to procure raw materials and put in a cell culture and grow cells through a system which multiply, then have to purify, separate proteins, etc. which is a long process.  The supply chain is not easy, and quality needs to be front and center all the time.

As an industry, the prevailing model was to build it ourselves – internalize sites that provided you most flexibility. An outsourcing model, while providing good economics and low risk, traditionally is not the most flexible.  Mature companies tend to integrate a lot more elements of their supply chain and manufacture it all, as opposed to younger biotech companies that outsource everything.  So this becomes a classic buy vs. make, except that there are other options as well.   So our take was to create a supply chain that analytically met  four constraints:   Assured High quality, limited our number of CMO’s (Contract Manufacturing Organization), provided outstanding economics/tax benefits, and had upside capacity. Critical to note is that assurance of supply and quality were imperatives that had no margin for error; If we stock out , the damage to our reputation, the damage to the confidence the patient community has in us… all take a hit; As would the confidence the investment markets had in us.  You can’t mess with quality of a product, as it is the lifeblood of what we do do.  You want favorable economics, reduced risk, and reduced numbers suppliers.  So how do you build an efficient supply chain that will minimize risk, maintain quality optimize economics, and manage it with a smaller staff, using a balanced approach.

Our 2010 supply chain was stressed with the launches – capacity constraints were imminent.  Our new pipeline also included new areas of Manufacturing (e.g small molecule products (pills)) – this was a departure from our traditional manufacturing competency which was large molecule drugs that are injected or infused.  Not many companies do large molecule well – but we had perfected it.   Unfortunately we had no small molecule manufacturing facilities, and had adopted an outsourcing model for the most part, with a few managed CMO’s.  But when the five products were approved, we realized that we had to rethink our strategy –  none of our CMO facilities had the capacity to produce the quantity of drugs we needed, and our internal facilities needed to be more productive to meet the demand; Building a facility for launching these drugs was not an option, given the lead times and costs associated with doing so. We also had other considerations – ensuring we were entering into good, productive negotiations with our partners (very often when you go to external CMO’s with variable forecasts, you lose leverage, and you have limited purchasing power in pricing.  CMO’s will charge you a premium for handing complexity and volatility.  Internalizing without knowing the commercial trajectory has other implications – you could end up building a facility that does not have the demand curve to justify it, and ends up idle, with $1B of slow depreciation!

We had to do something quick.  So what options are available?  Ganguly engaged the class in a vigorous discussion in options. At the end of the discussion, he provided context ion the traditional options considered:

1.  Build facilities quickly

2.  Look at current operations and expand technologies to make the output from each facility higher

3. Outsource with more partners that had more available capacity

4. Vertically integrate existing manufacturers

We started off with option 2, which was to take what we have   in our current facilities and see what we can do to operate them more efficiently.  For the traditional large molecule Biologics facilities we internalized, we launched a series of yield improvement projects to exploit the bottleneck and the first step was to improve productivity.  We were able to become more productive, which allowed us to meet our demand needs for our Biologics launches. What about Drug Product (downstream of drug substance) for Biologics and Small Moilecule Manufacturing (both operations were 100% outsourced).

Building a new facility was considered, but wasn’t popular, because of the time it takes to do so.  So we looked to see if we could instead think about different types of supply chain relationships.    In the process, we had to RETHINK supplier management.  Our industry is very paranoid about IP, and the only business models considered in biotech are build or buy:  you either own it or you outsource it.  The relationship with CMO’s was largely transactional:  here is a check for $X build us Y grams of products. We tried to rethink this paradigm by creating mutually beneficial alliances with non-traditional Manufacturing partners. So what is an alliance?.  Alliances are different from classical CMO relationships, because it is based on the principles of a partnership.  So how does one select and setup an alliance. We thought about this creatively –  “What if we got a pharma company that was capable of manufacuturing small molecules AND had a network of Drug Product facilities that had capacity, but was in need of Biologics expertise” – could that trading of capabilities make for a good alliance construct. We knew there was a lot of extra capacity out there depreciating with nothing being produced in it… could we create value by trading these capacities..no one had thought of this before!”

So we formed a brain trust of experts, and asked them to look this unconventional model.  This was considered  heresy in the industry till date –  sharing capacity was unheard of at that time. You think about it – its like operationalizing the “Uber” model to Biotech.   This also made us rethink our way of managing partners. We were used to playing the role of the transactional  company that told CMO’s how to make stuff.  But working in a partnership is like a marriage!  You have to treat one another like equals, and listen and tap into each other’s expertise.  Alliance management is difficult – we do not have conventional balance in a typical transactional relationship. Outsourcing is a one way relationship – you pay and you get the product.  In an alliance, to gain purchasing power, you need to make sure the partner needs something from you that you can provide!  So we had to find a way to provide the a service, and they provided one to us.

So we went to companies with the same mission, that didn’t compete in our markets, but needed protein manufacturing expertise.  We used our existing facilities as currency and asked them if there was a need for you to make large molecule biologics?  So the deal was, we will make the large molecule stuff – and you make the molecule stuff for us.  We will provide each other a service! This allowed us instant access to capacity we needed to handle the launches, at economics that were compelling and also reduced the number of partners we dealt with – hitting all the 4 constraints that characterized our “desired supply chain construct”.

This also required a lot of work to manage these alliances.  We have  a Head of alliance management and Sourcing who keeps many people busy negotiating contracts and thinking strategically.  And we also had to make sure we were keeping our CMO’s happy to keep our network robust.  This involved thoughtful and tactful management of the entire supply chain with a “network” mindset.  In the end, we used all four strategies:  we have multiple partners/CMO’s and have now internalized a small molecule site as well.  The number of CMO’s has been reduced, but through our alliances we also managed to balance the workload in our network, which led to good economics and performance.  This in turn also created greater purchasing power!  We didn’t expect that , but it was a good bonus. This configuration allowed us to come out and modify our supply chains.  With multiple alliance partners, we have lower lead times and greater flexibility in building out inventory to meet demand.

The beauty of this strategy is that we now have scalable leverage.  We know which alliance partner to turn to for our next challenge. We have created a supply chain of CMO’s, internal sites, and alliance partners as a network  that allows us to be more robust.  Creating alternatives was the key to this strategy.   We learned that nothing encourages good behavior more than if you don’t have a monopoly.  Competition switches the balance of power significantly – Porters Five Forces comes into play.  We built our muscle on supplier management and business cooperation, contract negotiation and sourcing.  These terms are very real to us, and mean very specific things.