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Pharmaceutical Commerce - February 2022 Issue (PDF)

 focused on the world of third-party logistics (3PL) providers. You know, those companies or business units who handle the often unheralded but critical tasks of product storage, fulfillment, transport, inventory management, and more along the pharmaceutical supply chain. And as we explore in our 

, and reference on the cover, a new dawning of sorts in the highly competitive field of healthcare/pharma logistics support is emerging (see more coverage 

Change hasn’t happened overnight, of course, but you get the feeling when absorbing fresh insights from 3PL executives and supply-chain experts—and factoring in a playing field fundamentally altered by a global pandemic—that real strides are afoot. The “rise of specialized” has continued, with companies expanding 3PL services and new-tech offerings in temperature-controlled storage, sample collection and drug serialization, just to name a few; all designed to meet the evolving demands of specialty pharmaceuticals—whether vaccines, biologics, cancer-fighting immunotherapies, or cell and gene-based drugs. 

This has necessitated the movement of products through alternative distribution channels, requiring specialized monitoring, handling, storage and transportation. Thus, the mission of today’s 3PL provider is clear: “Work in lockstep with their pharma clients, to be a necessary part of the business,” as ICS’s Albert Cooksey tells contributing editor Suzanne Shelley (ICS is a division of AmerisourceBergen). 

Reportedly, the pharma logistics market is expected to more than double in size from $71.9 billion in 2020 to $159 billion by 2030. So there appears to be plenty of room and opportunity for companies to make their mark, if they can differentiate what they bring to the table. That includes 3PLs. Indeed, a new dawn.

 on our website, but I would be remiss not to mention a leadership change at 

. I’ve been promoted to group managing editor, and taking the helm as 

 editorial director is Julian Upton, a longtime editor at sister publication 

. I’m very proud of what we’ve accomplished at 

 since our parent company, MJH Life Sciences, acquired the brand in July 2020 (many thanks to my 

 colleagues in editorial, sales and production).

 remains in capable hands, and I look forward to its continued growth under Julian’s stewardship. Look for his formal introduction on these pages in the next issue.

Michael Christel is Pharmaceutical Commerce's former Editorial Director, and is currently Group Managing Editor at MJH Life Sciences. He can be reached at

 Introducing our first deep dive into pharma's indispensable partner—the 3PL

A Lowdown on Logistics

In the context of the biopharma/life sciences/healthcare sectors, the concept of third-party logistics (3PL) conjures images of vast warehouses with forklifts, acres of pallets and shelving and specialized personnel providing pick-and-pack services to help coordinate the delivery of medications and medical devices to pharmacies and retail stores, clinics and hospitals, interim warehouses and patients at home. However, today’s buffet of 3PL offerings is so much richer than that, and the specialized companies that offer 3PL services have continued to expand their offerings, to both keep up with and stay ahead of their pharma partners’ needs.

“Logistics operations in the life sciences and healthcare sectors are complex—with no margin for error—given the life-sustaining and lifesaving nature of pharmaceuticals, biologics, vaccines and the essential equipment and supplies moving through our supply chains,” says Jim Saponaro, president, life sciences and Healthcare, DHL Supply Chain. The confluence of pandemic response and the need for enhanced temperature control against the backdrop of seasonal supply fluctuations and a strict regulatory environment have created considerable upheaval and strain in the global supply chain.

“Limited physical space, technology advances and talent are all highly valued within the pharma/life sciences industry, and as a result, drug manufacturers want to focus those resources on the activities that create the greatest value to the bottom line, and outsource those activities that do not,” says Phil Wilson, chief operating officer, Cryoport, Inc. This creates opportunity for specialized companies that have expertise in handling various 3PL activities, and can maintain the dedicated, temperature-controlled warehouse space and personnel, along with other packaging, transportation and monitoring assets. “Our pharma clients are able to focus their time and effort on creating life-changing innovations that help people live healthier lives; we help to get their critical therapies to providers and patients quickly and reliably,” says Hany Salama, VP and general manager, third-party logistics, RxCrossroads by McKesson.

“The ideal 3PL partner provides end-to-end service capabilities that address unique product requirements,” adds Scott Fata, associate director, supply chain and operations for Accenture. “Such companies must provide data visibility and integration into clients’ legacy systems and be able to quickly detect and react to any excursions that may happen during shipping (such as delays or temperature changes), to safeguard product integrity and security.”

Given the sensitive nature of so many of the pharma products that are transported all over the world today, maintaining package visibility is Job 1. The Covid-19 pandemic, of course, has spotlighted this mission. For example, through its UPS Premier technology, UPS Healthcare focuses on providing real-time visibility into the precise location of each single vaccine package—“down to within three meters of its location anywhere in the UPS global network,” says Dan Gagnon, VP of global marketing and Strategy for UPS Healthcare.

Today, the ability to outsource key activities to 3PL partners is equally important to drug manufacturers at both ends of the spectrum—larger established pharma organizations with a broad portfolio of products that must move through different distribution channels, and smaller companies and startups that typically cannot justify or maintain the overhead or expertise, physical infrastructure or staffing needed to manage the full suite of business-continuity capabilities, notes Albert Cooksey, SVP, general manager, 3PL Services for ICS, a division of AmerisourceBergen.

“The large, established pharma companies don’t typically need a full outsourced 3PL solution, as they have much of the infrastructure and capabilities already in place,” adds John Blackington, VP, business development, Life Science Logistics (LSL). “But large players still tend to seek 3PL support for specialized therapies and products that don’t fit neatly into their existing portfolio or warehousing and distribution infrastructure.”

The types of support services any pharma company needs to enable speed to market and ensure patient access to medications will, by necessity, change over time. “What may be working today may not be a best practice a year from now, so staying on top of the trends and ongoing forecasting is essential,” says Blackington.

“The goal of any 3PL company is to work in lockstep with their pharma clients, to be a necessary part of the business,” notes Cooksey. “Close collaboration with 3PL partners is often the best way to launch a new product, to help take advantage of existing scale and expertise that does not exist within their own companies.”

Robert Coyle, SVP, healthcare for Switzerland-based Kuehne+Nagel, adds: “This era of Covid-19 has changed the way in which people look at the supply chain—creating what might be called ‘business as unusual’—and this has created many new challenges.” Hence, the ability to leverage the expertise, physical infrastructure and economies of scale of today’s 3PL experts offers a stabilizing force, helping pharma manufacturers to pivot and operate reliably in the face of 

unforeseen problems—related to, for instance, the pandemic, weather, political unrest, volume volatility, transportation issues, supply chain pinch points and shortages of everything from labor to transportation assets, to raw materials and packaging materials.

“The ability to balance visibility with supply chain standardization as much as possible can help all stakeholders to face today’s challenges with the right level of agility,” adds DHL’s Saponaro.

Essentially, clients are expecting their 3PL partners to function like seamless extensions of their own internal operations, notes Wilson of Cryoport, adding: “The winners in the space will be those companies that can demonstrate their competence and value, and offer ancillary, value-added functions.”

Many current 3PL providers use a control tower or command center approach to help strengthen critical supply chain visibility and resiliency, notes Accenture’s Fata. Such a technology platform helps 3PL providers to uncover and mitigate risk by synchronizing transport, providing enhanced visibility on shipments in transit and minimizing daily operational risks. “The enhanced real-time visibility that is possible using a control tower approach helps 3PL providers to quickly identify rising risk and to pivot as needed to optimize deliveries,” adds Saponaro.

One particular area of growth for 3PL providers is the need to support pharma manufacturers’ complex title and non-title licensing needs. “Our 3PL title model provides missing capabilities for manufacturers who have not yet completed the acquisition of state licenses before their product launch,” explains Salama of RxCrossroads. “We are able to leverage our own distribution licenses and purchase product from the manufacturer to sell to customers based on contractual requirements.” This offering allows companies—especially emerging biopharma who may not have the resources to gain all the state licenses —to go to market much sooner.

Salama continues: “In our non-title model, we are able to act as the manufacturer’s agent to ship and sell product on their behalf. This provides a flexible model to fit the manufacturer needs, from full order to cash, fulfillment only, or storage of product.”

Another trend that is helping to shape the 3PL landscape is the acceleration of in-home healthcare and telehealth—“partially a result of the pandemic but a trend that will continue to be an important factor in the industry moving forward,” says Gagnon of UPS Healthcare. “Patients now expect greater flexibility and customization if their care can be offered from the comfort of their homes, so it will be important for 3PL providers to work with their pharma customers to provide seamless communication and transparency with patients, and to manage the data being collected.”

Similarly, serialization requirements that mandate unique numerical identifiers for pharma products that can be tracked through every handoff in the supply chain are designed to help combat counterfeit medications and safeguard both patient lives and drug company earnings. Such efforts will continue to add challenges for 3PL providers, creating massive data-gathering and handling requirements.

“We have the ability to support serialization and are trying to stay at least a year ahead of the curve,” says ICS’s Cooksey. “We’re working on both the inbound and outbound processes now, even though the outbound process won’t be required for a few more years.”

Pending new requirements under the Drug Supply Chain Security Act (DSCSA) set to go into effect in November 2023, including a fully DSCSA-compliant track-and-trace system, are also keeping many 3PL players up at night. “DSCSA will require increased scrutiny in terms of knowing what item is in which case on what pallet,” says John Wirthlin, industry principal, manufacturing, transportation and logistics for Zebra Technologies. This must be done, he stresses, with high accuracy without slowing down shipments in the supply chain, and it will be critical as well for companies to have the ability to capture serialization data and events in real-time. “The 3PL organizations that stand out today are those that are investing in advanced data-capture technology to set themselves apart from the competition,” says Wirthlin.

LSL’s Blackington agrees, noting: “It’s important for all 3PL providers to understand what’s coming down the road, and to build capacity and capabilities to stay ahead of clients’ space requirements and needs.” He says LSL periodically conducts market surveys to identify key geographies where added investment makes long-term strategic sense.

Accenture’s Fata, citing a shifting product portfolio mix into “newer science,” such as cell and gene therapy, points out that 3PL labor issues and shortages can make it difficult to keep lead times and fulfillment commitments.

Several 3PLs recently announced capacity expansions and other strategic investments to strengthen their regional capabilities. They include:

J. Knipper and Company, Inc. completed the expansion of its distribution center in Charlestown, IN. The growth includes an additional 150,000 sq. ft. of space, which offers refrigeration capacity of 1,500 pallets and a drive-in freezer.

LSL added a new 132,000 sq. ft., mixed-use, controlled-temperatures (20–25°C) and cold-chain (2–8°C) storage and distribution facility in Research Triangle Park, NC, and a 440,000-sq.-ft., multi-client facility near Indianapolis, bringing the company’s US footprint of FDA-regulated storage and distribution space to more than 4 million sq. ft.

DHL Life Sciences, which operates more than 35 dedicated life sciences facilities in the US, has a planned investment to expand its pharmaceutical and medical device distribution network footprint by 60% by the end of 2023 (adding more than 5 million sq. ft.), with nine new US sites and two building upgrades.

UPS Healthcare announced construction of two new good distribution practice (GDP)-compliant, healthcare-licensed distribution facilities in Italy and Australia, as well as expansions and cold-chain retrofit projects in The Netherlands, Czechia, Poland, Hungary and the US. UPS is also adding eight new locations (New York, Miami, Amsterdam, Paris, Melbourne, Sidney, Tokyo and Seoul) to support subsidiary Marken’s global network of cell and gene therapy centers of excellence, bringing the total to 14 certified sites. These will augment existing sites in Los Angeles, San Francisco, Philadelphia, London, Frankfurt and Singapore.

Cryoport has opened a new global logistics center in Singapore, following the opening of one in Osaka, Japan, in late 2020, to strengthen its footprint in the Asia-Pacific region. The company also acquired F-Airgate, a provider of temperature-controlled supply chain solutions, headquartered in Brussels, and Critical Transport Solutions Australia Pty Ltd., and entered a strategic partnership with Cell Matters, S.A., to deliver cryopreservation services to support autologous and allogeneic cell and gene therapies.

Cardinal Health has partnered with Ember Technologies to offer the Ember Cube, which is said to be “the world’s first self-refrigerated, cloud-based shipping box” to ensure cold-chain product integrity and security with reduced shipping waste.

RxCrossroads 3PL services recently opened a new, 1-million sq. ft. pharmaceutical distribution center in Shepherdsville, KY, dedicated to large- and small- molecule drugs and ambient, refrigerated and frozen therapies, including one of the Covid vaccines.

K+N is launching the Seaexplorer disruption indicator to measure the efficiency of the global container shipping network. The indicator shows the cumulative waiting time in days at several key ports around the world, along with advanced analytics and trends on the current situation impacting the globe. K+N is also expanding capacity in Belgium, the US, Singapore and Korea to support multiple temperature requirements.

ICS has expanded its distribution center in Ohio and opened a second facility in Kentucky. The AmerisourceBergen unit plans to add another 115,000 sq. ft. to its footprint in Kentucky later this year. These efforts will raise ICS’s managed warehouse space to more than 1 million sq. ft. over three strategic locations. The company is also adding 2,500 pallet positions of cold-chain storage, and recently added additional cryogenic storage capacity, along with the ability to commission and apply unique serialized labels on cryogenic products, in its Brooks, KY, location.

In addition to footprint and capacity expansions, many 3PL providers today are investing in automation and artificial intelligence (AI) to support a number of operations. “Warehouse and carrier labor shortages are accelerating the need for AI and robotics in order to meet client needs, and AI is also growing in use to help 3PL providers to better understand exactly where the product is in the supply chain at any time,” says Joel Wayment, VP of operations, Cardinal Health Third Party Logistics Services.

“We are also making continued investments in our online ordering platform to support drug manufacturers’ customers,” adds Wayment. “To drive ongoing improvement, we recently released an advanced self-service solution to minimize the time it takes to get things done and the number of ‘touches’ a transaction takes to complete.”

Of course, the human touch never falls out of favor in these pursuits. “A high customer experience, in terms of responsiveness and communication, and strong order-to-cash management are also highly valued differentiators for 3PL providers,” says Wayment. “Not getting the order-to-cash management piece right can not only have an impact on a manufacturer’s reputation in the market but can negatively impact its financial stability as a company.”

During the many ups and downs of the coronavirus pandemic, efforts to create business continuity have left drug manufacturers and their 3PL partners feeling like they have been hanging onto the reins of a bucking bronco. “From the onset of the pandemic, we knew the crisis would shift and reshape the way in which the healthcare industry operates,” says Gagnon of UPS Healthcare.

“Covid-19 quickly showed the vulnerabilities in many companies’ supply chains,” adds Cryoport’s Wilson. “Even robust and well-designed supply chains got caught up in the world’s collective pause.”

According to Gagnon, 3PLs, much like drug manufacturers, ministries of health, foreign governments and humanitarian organizations, immediately coordinated on getting personal protective equipment (PPE) and Covid tests, vaccines and therapies to those in need. “To support our proprietary cold-chain technologies and logistics services, we expanded coolers and new freezer farms, invested in dry ice manufacturing equipment and in thermal packaging solutions, and with these new developments and technologies, we’ve accomplished more within the last year than we thought possible,” adds Gagnon on UPS’s efforts.

“The goal is always to ensure that our transport and supply-chain processes flow as efficiently as possible, based on experience and innovative analysis tools,” says DHL’s Saponaro. “Those 3PL providers that already operate large, diversified networks of physical assets on the ground, have been able to leverage alternative facilities and transportation routes to keep products moving in the face of sudden interruptions, such as Covid outbreaks at a facility, catastrophic weather situations, geopolitical instability and other travel or supply chain disruptions.

For instance, DHL’s e-commerce business grew at a record rate during the pandemic, says Saponaro, adding: “We were able to seamlessly move personnel from other temporarily interrupted businesses to help support those growing e-commerce requirements.”

ICS routinely has alternative distribution options available within its network, and “playbooks and protocols in place, so we could pivot quickly, as needed,” says Cooksey. “People often think of business-continuity planning as a large-scale process, but in the era of Covid, we all saw that it also has to be done on a more micro scale—for instance, with improved planning and investments made by manufacturers of critical components, such as freezer units, gel packs and insulation,” he adds.

Meanwhile, the accelerated timelines of vaccine development and rollout in response to the Covid paradigm helped to create other best practices. “Our ability to get involved with the vaccine developers very early on—before the Covid vaccines were even approved—to help develop and coordinate the most efficient supply chain proved itself to be a winning strategy, and is certainly applicable in other therapeutic spaces that require specialized, cold-chain distribution going forward,” says K+N’s Coyle. “It’s important for 3PL companies to get involved in the process as early as possible to work through the details—not waiting for the RFQ to be published—because having early-stage conversations and iterating through the evolving data and regulatory requirements can help to build in the needed flexibility and agility.”

For smaller 3PL providers, nurturing strategic partnerships to enable greater reach on short notice has also proven to be a valuable business practice. “We don’t own the planes, trains and automobiles, so to speak—that’s not our core competency—but we continue to develop and maintain strong relationships with all of our partners, so we are able to provide our customers with the best options to optimize the route and provide reliable delivery every time,” says Blackington of LSL. Such partners include packaging companies, engineering design experts, transportation partners and specialists in packaging design, facility design and transportation-lane access.

Shaking hands across the aisle with competitors is another best practice that has emerged. “While it’s always been a part of our strategy to make significant investments in our global infrastructure, there will always be situations in which it makes good strategic sense for us to partner with other 3PL companies, so we can remain nimble yet still get the job done,” says Coyle.

“All of my competitors are also my partners in different regions when we need to work with others to further strengthen our own capabilities in certain geographic regions,” he continues. “We’re acting on behalf of our clients, so in some situations or some geographies, working closely with other 3PL companies and logistics providers helps us to react quickly and create the most efficient and least disruptive supply-chain solution.”

In recent years, K+N has also advanced a concept the company refers to as fourth-party logistics (4PL). “The 4PL concept is used to provide more integrated logistics by strategically enlisting other global 3PL providers that can bring their own specialized capabilities—not necessarily by adding physical assets—to enable full planning around transportation, booking of orders, last-mile delivery issues and more,” says Coyle.

He adds that the control tower the used to support the 4PL concept uses a single platform to collate data, and uses AI-supported applications to turn that data into actionable information, so that complex logistics processes can be orchestrated dynamically. “The control tower is not just a data or software service, but rather a collaboration involving people, processes and systems that adds sustainable value,” Coyle contends.

Another key to minimizing supply-chain disruptions also lies in planning and adopting the latest technology. DHL, for instance, says Saponaro, is constantly searching out for innovations such as driverless forklifts and picking-assisted robots.

In a 2021 survey carried out by Zebra Technologies, the company found that more than 40% of surveyed patients and pharma industry decision-makers say regulators and pharma manufacturers are the ones most responsible for combating stolen, counterfeit and contaminated medicines. “In order to alleviate patients’ fears and improve the traceability and safety of medications, 3PLs need to be able to meet regulatory compliance with a high degree of accuracy and speed, says Wirthlin.

“These evolving patient demands will certainly be a wakeup call for pharmaceutical industry leaders who, for years, have been primarily focused on meeting regulatory standards,” he adds. “Manufacturers, government agencies, pharmacies and healthcare providers must work together to win consumers’ trust in the supply chain.”

“We hang our hat on the customization and flexibility aspect of our offerings, because every pharma/biotech/life sciences customer has a very specific set of needs,” reminds Blackington. “So, in a sense, we’re creating a new business model for each and every one of them. The goal is to keep a finger on the pulse of industry-wide challenges and to help plan for the next hurdle that may be coming down the pike.”

Today’s ideal pharma third-party logistics (3PL) provider brings the right mix of physical assets, internal expertise, data analytics and strategic partnerships to function as a seamless extension of a manufacturer’s internal operations—no matter what disruptions arise

The Shifting Course in Logistics Support

Third-party logistics providers (3PLs) that specialize in transporting goods for the pharmaceutical industry—whether that be bulk chemicals, raw materials or finished products—are seeing a greater demand for their services than ever before. With that demand come requests for stronger guarantees, tighter service level agreements (SLAs) and more stringent operating requirements.

What does all of this mean for those at the forefront of distributing Covid-19 vaccines and other critical medical supplies? More than ever before, pharmaceutical manufacturers and their partners require consistency and protection from market volatility. As shippers increasingly seek greater guarantees of safety, stability and security for their precious cargo, they will increasingly turn to the distribution and transportation partners who can deliver.

This presents an opportunity for those logistics service providers (LSPs) savvy enough to take advantage of it. With the growing capabilities of hardware and software tools, including real-time visibility, internet of things (IoT) and advanced telematics, 3PLs and other LSPs increasingly possess the means to not only meet, but exceed these heightened expectations. In essence, the stakes may be higher than ever before, but the tools at our disposal are growing more powerful by the day.

With drug manufacturers stretched thin, 3PLs are being asked to step in and pick up the slack with increased services and tighter SLAs. Their customers are reaching for any port in a storm, and though high barriers to entry provide some measure of security for established LSPs, the risk of losing long-time customers to competitors who can provide a greater degree of consistency and security continues to grow.

At the same time, demand for global operations that are integrated across modes is on the rise. In the past, pharma companies have been forced to work with a mix of asset-based transportation companies, ocean carriers and more, with 3PLs themselves being simply one part of the mix. As supply chain and distribution networks become increasingly globalized and risk-averse, companies want a more consistent global experience—and the best way of achieving that is to partner with a global 3PL.

In turn, 3PLs are investing more in technology that allows them to deliver on increasingly higher demands. Hence, platform companies are seeing an increased focus on real-time transportation visibility on the road, in the yard and at facilities, as end customers push for digital unification of their supply chains. This has been facilitated by the rapid evolution of IoT-based solutions powered by next-generation hardware and software. Among them, the rise in real-time tracking for both locations and environmentals like temperature has begun to displace legacy technologies and techniques quickly.

Nowhere are the requirements stricter than in the pharmaceutical and life sciences industry. According to the Healthcare Distribution Management Association, about 10% of all medications are temperature sensitive, and that number may only increase in the coming years. Drug development is becoming more complex, increasingly relying on large-molecule biologics that require precise temperature standardization to ensure efficacy. As a result, there is a growing need for specialized packaging, tighter delivery windows and stricter requirements in transporting temperature-sensitive goods.

Not only are modern pharmaceutical products often more sensitive to temperature changes than the typical cold chain shipment—they’re also much more valuable. Lives depend on their ability to reliably monitor the real-time environmentals of their products in transit and to react instantly and effectively when a tolerance is breached. Depending on the product, factors such as light exposure, altitude, humidity, shock and many others can physically impact the quality of the product, and must be monitored as closely as temperature.

Simply monitoring the temperature itself is not enough. To be effective, today’s visibility technology must allow stakeholders to specify ranges that may vary by shipment, pallet or SKU; as well as specify the immediacy with which stakeholders are notified of a shipment falling out of temperature compliance.

It’s also critical to monitor the underlying performance of individual carriers, lanes and facilities. Not only does this allow pharma shippers to be instantly notified if there’s ever a breakdown, theft or major delay, but it also reveals a wealth of underlying data that can be used to further optimize their distribution and ensure that shipments arrive on time. Having holistic data into the many moving parts of the modern supply chain paints a picture of all of the areas of the business that are performing well and those that stand to be improved. It also helps to establish a baseline when evaluating new carriers, optimizing existing lanes or targeting improved efficiency at facilities.

Moreover, this kind of broad-based data can be combined with network performance over time to create a complete, historical picture of individual loads, lanes and carriers. A holistic picture makes it possible to derive predictive insights into future performance, garner recommendations on how to improve individual load performance and enact strategies for boosting overall customer service and satisfaction.

Achieving this level of connectivity often requires an IoT-agnostic approach to gathering information. Because the data typically must be pulled together from many disparate sources (ranging from onboard telematics to pallet-level RFIDs to facility-level status updates), it’s helpful to have a system capable of collecting and processing vast quantities of data, then presenting them in a unified interface.

Building an infrastructure of collaboration

The growing emphasis on cold-chain shipping presents different challenges for a 3PL than for the shipper itself, who must concern themselves primarily with the proper handling and manufacture of temperature-sensitive goods. For 3PLs, the key concerns at play involve the initial investment in cold-chain infrastructure, the costs of maintaining that infrastructure once it’s been built, and the challenge of collecting and interpreting temperature-tracking data.

Furthermore, as the challenges of sourcing and transporting temperature-sensitive goods continue to rise, many shippers are reevaluating their distribution networks in favor of those more localized to their respective target region. This is true not only in the US, but also in Europe, where shortages for medical products had already increased 20-fold between 2000 and 2018—well before the effects of the current pandemic had set in.

According to Pipelinepharma, the number of RFPs from Europe-based drug manufacturers specifically seeking to partner with distributors that were also based in Europe increased by 69% in 2021. Though this may seem counterintuitive to the increasingly globalized approach discussed, it is simply a reflection of the growing desire among pharma shippers to ensure the safety, stability and security of their in-transit products.

For 3PLs in that equation, a proactive approach to collaboration and data sharing upstream could be the key to differentiating from competitors, especially as companies increasingly implement real-time supply-chain visibility solutions.

Brad Klaus, Group Vice President, International Solutions, at FourKites

The growing complexity and demand in distribution amid the pandemic present unique technology opportunities for third-party logistics providers

How 3PLs Can Up Their Pharma Game

Prospects of an M&A resurgence—or indeed a rebound to more “normal” dealmaking levels pre-Covid—has been a hot topic entering the new year when forecasting biopharma business fortunes. In fact, EY finds in its new M&A Firepower report that only 9% of biopharma firepower—defined as a company’s capacity to do M&A based on the strength of its balance sheet—was deployed on M&A in 2021. Hence, substantial capital is at the ready to allocate to M&A and strategic partnership-type pursuits this year. The goal is twofold: access new products, innovation and talent, while offsetting risks from patent expirations, pricing pressures and other headwinds; ultimately, of course, to secure future, value-driven revenue channels. Other advisors in healthcare and the life sciences, such as the global consultancy Numerof & Associates, agree that an expected surge in dealmaking is in the offing, citing contributing factors such as the impending federal legislation on drug pricing in the US.

“We describe the healthcare environment as an industry in transition on steroids, if you will,” says Michael Abrams, co-founder and managing partner of Numerof. “The pace of technology, the changes in regulation, the changes in the customer base—patients are becoming consumers. All of that is huge.” Then, throw in the pandemic for good measure, and “we’re not going to go back to where we were,” Abrams adds.

The ability, therefore, for drugmakers, and their supply-chain partners­, to adapt to the demands of the changing climate and implement a clear commercial strategy accordingly, is critical. 

caught up with Abrams to discuss that and more—and dig deeper into the broader M&A scene.

1. What drivers are you seeing now in the biopharma/healthcare space that make you believe there will be an uptick in larger M&A dealmaking this year?

I think there is more going on than some people in the media have really pointed to. Broadly speaking, the risks in the business environment are increasing for the sector, and I see that as the underlying driver for M&A activity in ’22; because it’s shaping up to be a risky year for pharmaceutical manufacturers in particular. One of the factors is that the healthcare sector is under increased financial pressure due to the pandemic. They’ve been impacted heavily from things like staffing problems and higher patient counts than they’re really geared for. Many of them have had to curtail the high-margin activities that usually shore up their financial health.

The other issue with healthcare delivery is that consolidated organizations are beginning to use their increased size to obtain more power in the market, which means every supplier, not least of which is pharmaceuticals, is going to feel the pain.

Then the other factor, I think, is a political one—the [US midterm] elections coming up are going to spotlight the issue 

of drug pricing with a level of intensity that will probably be exceptional. There are other things that are also on the radar that are policy threats—corporate and global tax reforms, the FTC’s new focus on regulating M&A; we’ll see what those turn out to look like, but they’re out there.

All of these threats raise the risk for the industry and increase the attraction of M&A to enhance market clout and to provide deeper pockets to weather competitive and policy shocks.

2. At the same time, small and mid-sized biopharma in the last couple years, amid the pandemic, have seemed to be at an advantage in initiating a lot of deals in more of a seller’s market (Evaluate Vantage reports that volume of takeovers and spend by these companies hit at least a five-year high in 2021). Do you think that will continue?

I don’t necessarily see a massive bias toward larger deals. Larger deals come with larger risk and smaller deals, generally speaking, come with smaller risk because you know more precisely what you’re buying. With larger deals, it’s really about the strategic fit at the portfolio level, or even at the business level, and that can’t be detailed and nailed down nearly as precisely as you can when you’re buying a single or a couple of assets.

I don’t see that really changing the nature of what will happen going forward. When the pandemic was in full force, that did tend to make [larger] companies a little more conservative. And that perhaps trended to smaller deals for that reason. But it’s really more about individual companies and what comes their way in terms of opportunities. Because, at the end of the day, it’s about products. It’s about being out there early with the best technology in order to really deliver the value that nets the margins.

3. According to CB Insights, funding for digital health startups grew 79% last year and M&A activity jumped 44% from 2020 levels. Do you see more pharma deals picking up around digital health types of applications?

There is tremendous interest in that space and I do see more deals around digital health; I see more deals around healthcare services. That’s been exploding. Big pharma has a lot of capital that they can use to further their acquisition activities in areas like these. Some of them have also freed up cash because they narrowed their portfolio and spun off parts of it, deciding that they want to be more focused on a particular area. It’s time to put the cash that they realized to work and hopefully make themselves a more innovative operation as consequence.

4. More specifically exploring the implications from federal legislation on drug pricing, including provisions in Biden’s Build Back Better (BBB) plan to lower Rx prices, have those developments already started prompting a spending spree among large pharmas?

I don’t know that it’s prompting a spending spree, but it’s not as though the big pharmas have ignored the popular sentiment. There are very few issues that have such strong support from a population point of view, from a bipartisan point of view. Whether this is right or wrong, everybody agrees that drugs cost too much. There is tremendous support to do something, we just haven’t been able to agree on what exactly to do.

The proposed legislation in BBB may not survive in its initial form, but given the level of support for recognition of the problem, it wouldn’t be a shock if some sort of price controls came out the other end of this process.

If we do wind up seeing additional controls that resemble what’s been proposed, it would certainly increase the importance of those first few critical years in the market when a new product is exempted from price controls. That would incentivize companies to increase their go-to-market entry pricing in order to compensate for the price concessions they might be forced to make later in the product lifecycle. It’s a bit of a balloon problem—squeeze it here, it expands over there.

5. Would those controls compel some companies to look for quick acquisitions?

I think it would put that much more pressure on companies to be early in the market with the latest technology, because that’s where they can collect a premium for being there and offering the value, assuming the value is really there.

6. Do you see these developments—as you alluded to, under the proposal, starting in 2023, Medicaid price negotiations could begin on expensive drugs: treatments for cancer, rheumatoid arthritis and others—giving companies the impetus to protect cash reserves by targeting the smaller deals that have been more prevalent during the pandemic, over larger ones?

I don’t see that as being a big factor in building cash reserves. There is enough free cash flow out there that it probably would not put a dent in efforts to acquire new technology, if that technology appeals to a potential buyer to have important implications for their future commercial success. That’s always been the go-to route, and I don’t see that model changing.

Cash reserves right now are so large that I just don’t see it making a meaningful difference in what they have to spend on acquisitions. I think there’s a bit of pent-up demand even now—even though M&A last year was not nearly as depressed as the prior year.

7. What about factors that emerged in recent months around the Covid Omicron variant? Did that impact board M&A decision-making in pharma, with the thought being that before Omicron, it was starting to look like large pharma players who spent the better part of the last two years working on pandemic relief could start to shift focus back to dealmaking?

Covid made boards certainly more conservative in ’20, and even though ’21 was a bigger M&A year than ’20, they were still being careful and keeping their acquisitions a little on the smaller side—not really making the big bets. I think that was a function of uncertainty. It’s hard to commit a big chunk of capital to an acquisition when you’re not sure that the sky won’t fall next week.

I think with Omicron I do feel like we have more predictability into the future, and that makes it more feasible, I believe, to commit capital to growth at this point than it has historically [during the pandemic]. I think we’ll see more attention to that, and that’s at least partly behind the M&A surge that is generally expected in ’22.

8. Does Numerof & Associates examine M&A and other business trends in pharma subsegments such as those in logistics/supply chain? What related trends are you seeing in those areas?

We do—we support clients, for example, in the distribution space. They’re all about small margins, big volume—and they’re feeling squeezed. Like most pharma players, when they’re feeling the pressure, they look for ways to either increase their margins by providing additional value, or they look to see what adjacent spaces they can enter where they can utilize the capabilities they’ve already developed—but in an area that isn’t quite subject to the same level of pressure.

The pandemic has upended so many assumptions. One of them in particular being relevant to distribution is the whole “just-in-time” idea. The assumptions guiding that idea, historically, suddenly no longer hold; so you can’t count on that going forward. That means going back to the strategic drawing board, if you will.

9. As a result, is it tougher now for your clients in pharma distribution to differentiate their services, such as “just-in-time” delivery, for example, from their competitors?

I think it means going back and examining the assumptions that you’ve always made and never looked at before, and asking yourself, do you feel comfortable continuing to work under those old assumptions? Or has the pandemic proven that they’re not as certain as you thought? And if that’s the case, then you need a strategic alternative. So, yes, it has changed a lot of things, and those players have to rethink the assumptions that they’re operating under, and, in many cases, come up with alternative approaches.

10. You hear the word a lot these days, particularly amid the pandemic, about the need for supply-chain “resiliency.” How do you advise your distributor clients—many dealing with current supply-chain challenges and frustrations —on being resilient in managing and moving products along?

It depends very much on the products, the portfolio, the customer base, and so on—and any resiliency approach needs to be customized to the circumstances. But just the very fact that executives are asking the question, “what can we do so that we don’t get caught in this bind again?” is important, and it wasn’t being asked before. A lot of the underlying assumptions used to be taken as axiomatic, and you didn’t need to think too hard about them. That’s all changed.

It now requires a customized response based on factors such as what part of the business environment does a company sell into—is it to hospitals, to the consumer, how does it work? All of that goes into the question of how do we make ourselves more resilient to shocks like this.

Some companies, when things feel like they’ve gotten back to normal, they may or may not continue to pursue this whole strategic idea of having alternatives. But some of them will because they really felt the pain.

11. Your bio states you’re an advocate for data-based business decision-making. How would you define that approach in practical terms—and how do you support pharma clients on decision-making strategies based on those kinds of analytics?

It goes really beyond analytics. You’re right, we, as a firm, advocate for the importance of value—this ability of value and the importance of the market in evaluating and pricing products that is in line with the value that they provide. This is not really far at all, generally speaking, from the way certainly the pharmaceutical and the biopharma sectors operate.

Our focus on data means that claims of value need to be backed up with data that demonstrates those benefits. Our business is about strategy at the enterprise level, the commercial-operations level and the product level.

We help clients frame and communicate their value proposition, whether it’s for the enterprise as a whole or is for a single product. Oddly enough, the ability to do that is not really as common as you would expect, because for many years in the pharmaceutical arena, a new product was embraced because it was new. The claims of benefits didn’t really need to be backed up with data. But that’s changed because the healthcare delivery sector is under such pressure, with every new purchase scrutinized. And in many cases, the margin that a company pays on a new product comes right out of its bottom line; and, at the same time, others might say, “Well, I was fine with the current standard of care, why do I need this?”

So a value story not only needs to be data-based, but it has to be customized to fit the concerns of the intended audience, and there are many different audiences—clinicians, payers, administrators, and more; each one has their own perspective on what’s important to them. So we help clients develop and communicate that value narrative, whether, again, it’s just for one product or whether it’s for the entire enterprise. And when we’re talking about an M&A kind of situation, it’s more than an elevator speech—every organization needs to have a way to explain what they’re about and why they’re valuable—whether you’re selling a product or you’re selling the whole firm.

12. It’s safe to say, then, it’s even more important for drug manufacturers these days to share that value story with all those different healthcare entities, correct?

Absolutely. I think what’s going on can only put more emphasis on that. And it’s not just at product launch, but it’s all through the lifecycle of the product. As far as selling it to the people they need to write the check, they need to see the value. Whereas before, they didn’t scrutinize the purchase as heavily. Maybe that was a time when their margins were fatter and they didn’t think that hard about every dollar that went out the door. But that’s all changed.

A conversation with Michael Abrams, co-founder and managing partner,  Numerof & Associates

For Industry in Flux, is M&A Jolt in Store?

Since the first chimeric antigen receptor T-cell (CAR-T) therapy was approved by the FDA in 2017, scientists and providers have begun looking at the future of medicine differently. As a cell-based treatment, the process of CAR-T therapy involves genetically engineering T-cells to help them attack cancer. And while the innovation behind this massive development continues to see great success in patients, the advent of an entirely new approach to healthcare has already resulted in the need for an innovative approach to the administrative and logistical nature of these promising—yet, highly expensive—therapies.

Given that these products utilize patients’ own cells to treat and cure diseases, the collection, manufacturing and return of the cells is a complex process that carries unprecedented implications for the already-strained pharmaceutical supply chain. As new CAR-T therapies continue through the drug development pipeline, pharmaceutical manufacturers must now ensure standardization in the supply chain for scale, connecting the many stakeholders and reinventing new workflows for these innovative products.

Based on our experience, here are three major supply chain considerations in the launch strategy to evaluate.

Understanding the end-to-end logistics management

Unlike more traditional therapies, using a patient’s own cells to create a therapy requires the need for a concerted logistical effort that leaves no room for error. This process must not only ensure the chain of identity remains intact, but that the timing for collection, manufacturing and infusion is on the patient’s timeline (e.g., they are not too sick to receive the treatment).

While these products rarely use a typical warehouse storage with third-party logistics (3PL), it does not mean the logistics from ordering, delivery and everywhere in between should be taken lightly.

In order to respond to the real-time nature of these therapies, the ordering platform for CAR-Ts implemented by pharma manufacturers may need to be as personalized as the therapy it is supporting. For healthcare providers (HCPs) and hospitals, cumbersome logistics remains the top concern for ordering these therapies for patients. This means it is vital for pharma manufacturers to look for ways to incorporate their unique requirements into a HCP’s standard order processes, rather than adding further administrative burden onto an already taxed healthcare system.

Focusing on making the ordering process as seamless (and in some cases, self-service) as possible ensures a quicker turnaround time that is vital for these therapies, given that these patients often have very small windows where they may be healthy enough to sustain treatment.

The ordering process must do more than just ordering, however. The circular logistics of getting cells from the patient, genetically engineering them in a different location, and then returning the therapy to the site of care at the same time a patient is able to receive treatment necessitates that the platform has the capabilities to also schedule delivery of initial collection, pickup for altering and delivery of the final product for patient infusion.

Unlike more traditional cold chain pharmaceutical products, CAR-Ts and other cell and gene therapies (CGTs) often are cryo-frozen (-150°C, -238°F) and need to be delivered within a very narrow specific time period, which usually requires specialized transportation– mainly, a dedicated cold chain courier service. While the pharmaceutical market for cold chain products grows, there are many companies offering dedicated cold chain courier services that can ensure both product quality and safety of these products. However, it’s important to ask the right questions to ensure these organizations have the right experience to handle these high-value products. Manufacturers should request previous case studies showing how the couriers have transported similar products and should ask how they handle unforeseen circumstances (e.g., natural disasters), delivery times to approved collection and infusion facilities and consistent management of product temperature from end-to-end.

. As the world continues to ramp up the technological approach to supply chain logistics, understanding where your product is in the supply chain is becoming more important; however, for CAR-T therapies, this capability is vital.

Between the cost of these products, the necessity for temperature-control and the time-based nature, the cold chain monitoring market it expected to grow more to more than $10 billion by 2026 (<100% increase) to keep up with the overall need of supply chain visibility.

Many times, logistic services and courier services offer monitoring capabilities like radio frequency identification (RFID), GPS tracking and Wi-Fi or Bluetooth-enabled thermometers. Needs for CAR-T products should be determined by considering both chain of identity and chain of custody monitoring by asking questions like:

How trained are the carriers handling the product/what training do they receive?

Does the courier have a wise range of cold chain supply avenues with vast networks across the US and internationally?

Does the courier have various different packaging solutions to offer CGT manufacturers? In addition to transportation and courier services, more companies are developing specialized shipping containers that can uniquely handle these types of therapies, providing the capability to monitor multiple points of data in real-time that is critical to ensuring the safety and security of these shipments while in the supply chain.

Establishing relationships with sites of care

The complexity of the supply chain and time-sensitive nature of the therapy means that CAR-T manufacturers and sites of care need to work hand-in-hand to ensure that the drug is delivered to the facility at exactly the right time. Without this coordination, there is a significant risk—both in terms of the patient outcome and the financial burden for the manufacturer and the site of care.

While only a few cancer centers around the country have been certified to administer these types of therapies, the logistical nature of these highly expensive products necessitates the need for specific relationship-building with the sites of care.

Setting up standard operating procedures.

 Commercially available CAR-T and other CGT products are some of the most expensive products on the market right now, costing anywhere between $300,000 to $1 million per patient.

 Now, with the expectation that more CAR-T therapies will soon be approved, pharma manufacturers must work with sites of care to confirm standard operating procedures (SOPs) are in place to ensure therapies are carefully managed throughout the collection, delivery and infusion process. Without proper training or SOPs, these products that are delivered could be mishandled and inadvertently destroyed.

When setting up these SOPs, consider the following: who are the main points of contact? Does the site of care have the proper credentials and qualifications? What training materials are necessary for the site of care team?

 Due to the nature of these treatments, there are times when the product just cannot be administered after ordering. Whether due to patient disease state, improper product handling or timing considerations, pharmaceutical manufacturers should work with sites of care beforehand to understand and mitigate any financial risks.

Manufacturers and sites of care should understand the process for chargebacks, reimbursements and current terms. As value-based contracts becomes more common, especially in oncology where CAR-T therapies have had great success, manufacturers should consider how hospitals are paying for products, and terms for non-responsive patients. Medicare and non-insured patient policies may also vary state-by-state.

Understanding the patient access logistical challenge (and what to do about it)

New research shows that almost 40% of oncologists who have referred patients for CAR-T therapy have experienced an incident where their patient was not able to complete a treatment due to a health deterioration. This can often occur when additional time is needed by payers and other stakeholders to get these therapies approved.

Despite the advances in medicine, and similar to supply chain logistics, patient access logistics remains a massive barrier that must be addressed by pharmaceutical manufacturers in the launch process.

Priced up to $1 million, the novel therapies are some of the most expensive treatments on the market, usually requiring help through insurance and payers. Yet, this often creates a new barrier for patients as access to these therapies may be delayed by days, weeks or even months due to payer approvals, something that more than 30% of providers have identified as a reason for treatment delay.

Two of the most time-consuming areas in the limbo between doctors prescribing and infusion can happen through benefits investigations and prior authorizations (which are required for most specialty medications). Pharma manufacturers should plan on supporting patients by looking for opportunities to automate and partner with payers to avoid delays in things like prior authorizations and benefits investigations, thereby reducing the patient deterioration roadblock so many patients and their providers are dealing with.

 With just more than 150 hospitals currently administering these novel treatments in the country, patients referred for these therapies often need multi-day trips to get to the closest certified site of care. This can provide both a logistical and financial burden for patients and their families, who may already be struggling with the state of the disease. Pharmaceutical manufacturers should consider programs or hub services to cover travel and lodging costs for these patients, which may enable faster access to therapy.

It’s important to think through travel for both collection and infusion, along with any follow-up requirements and the health of the patient with travel concerns; not to mention weather or pandemic-related delays that may delay treatment.

The medical world is on the brink of a new way to approach healthcare, and it is not without its growing pains. By examining what works and what doesn’t with the first CAR-Ts already on the market, pharma manufacturers will be able to stand up better processes moving forward.

Joel Wayment, VP of Operations at Cardinal Health Third Party Logistics Services

https://www.prnewswire.com/news-releases/cold-chain-monitoring-market-worth-10-2-billion-by-2026--exclusive-report-by-marketsandmarkets-301436015.html

https://blood-cancer.com/living/car-t-cost

https://www.healio.com/news/hematology-oncology/20211213/cart-provides-value-despite-high-price-tag-oncologists-say

As more of these novel—and costly—cell therapies gain approval, revamped strategies around scaling, coordination and workflow are critical to their launch

CAR-T Therapies: Three Supply Chain Considerations

The decisions of big pharma companies GlaxoSmithKline and Johnson & Johnson to spin off their respective consumer health businesses reflect concerted efforts to double down on brand-name prescription drugs. The two drugmakers are not alone when it comes to narrowing their focus, since Pfizer, Abbott Laboratories and other organizations have embraced the risk of developing pharmaceuticals while divesting themselves of over-the-counter (OTC), generics and other businesses with lower profit margins but more predictable cash flows.

Spinoffs are an attempt to maximize value for investors by separating businesses that have divergent priorities.

J&J and GSK’s planned spinoffs of their consumer health businesses reflect a reality that OTC medicines and hygiene products have more in common with Procter & Gamble, Unilever, Colgate-Palmolive and other brands in the front of the pharmacy and at mass merchants rather than making complex proteins, detailing their clinical benefit to doctors and negotiating reimbursement with payers.

Adam Koppel, MD, PhD, managing director at Bain Capital Life Sciences, says the market dynamics of these businesses also demand different management skills and lead to varied investor preferences.

Some investors have appetite for 10%-to-20% annual returns by investing in pharmaceutical manufacturers, knowing that a safety issue or setback during clinical trials could hurt the value of the business. An investor in a consumer product company is likely to seek 5%-to-6% annual returns and a predictable dividend with far less risk. Also, some pure-play drugmakers may opt to reinvest in product development with expectations of larger returns in the future rather than rewarding shareholders with dividends at the present.

“Investors are getting greater value from pure-play pharmaceutical companies rather than diversified businesses,” says Jeffrey Stoll, US life sciences strategy leader, KPMG.

Many of the largest drug companies originated in the chemicals business but then focused on medicines as that segment became more profitable. Some pharma organizations have amalgamated diverse businesses over the decades to grow and manage risk. Much like the industrial conglomerates that started breaking themselves up to maximize shareholder value, many drugmakers are following suit by focusing on new, brand-name products, mostly biologics.

The approach runs counter to the idea of creating synergies by having a portfolio of businesses under one umbrella to mitigate risk and share certain functions to create efficiencies. The mindset is hoping that “one + one equals three” to building value from acquisitions. In the case of divestitures, executives are hoping that investors will see greater returns from the market assessing the value of these businesses separately or that a business that is valued at $3 per share can be worth $2 + $2 if the business is split into two companies.

According to Koppel, the notion of doubling down on newer brand name drugs is that investors capture significantly more upside with successes. However, share prices also take a bigger hit when something goes wrong, he notes. Diversification can offer some safety for investors, but it also dampens the upside for the biggest successes.

The risk-return profile for a drug business is much different than more predictable consumer health, generics or animal care businesses. Developing new brand-name pharmaceuticals takes time and is costly, and they have a limited amount of exclusivity in the market before patent expirations. In a market that increasingly rewards innovation, drugmakers are also looking to gain additional indications for products once they reach the market. The Pharmaceutical Research and Manufacturers of America (PhRMA), the industry trade group, says more than 500 medicines have been approved since 2000. In the oncology category alone, 1,300 medications and vaccines are under development, according to PhRMA, including more than 500 different compounds targeting solid tumors and 141 different prospective lung cancer treatments.

With this deep pipeline, competition could be the biggest risk from this effort to double down on brand-name drugs, Stoll believes, noting there may be opportunities for two or three treatments that could satisfy each indication. Assumptions that might have been made about an individual drug’s prospects could change rapidly, given the emergence of new therapies. A drug might have had expectations to generate $2 billion a year in sales, but new entrants with greater efficacy or more benign side-effect profiles could dampen those expectations, Stoll says. The need for pharma companies is to “have enough shots on goal” to ensure that one miss in the pipeline doesn’t set back the company if a compound fails or if a medicine’s sales fail to meet expectations, he adds.

“Over the last eight to 10 years, biopharma has largely recognized that the payer environment won’t reimburse ‘me-too’ drugs or drugs that have marginal impact on clinical outcomes over and above the standard of care,” Stoll says.

Legislation or regulatory risk can also change the investment thesis for the pharma sector. Focusing specifically on pharmaceuticals does have some exposure to regulatory and policy risk if there are attempts to regulate drug prices in the US. Despite the predictability of the non-pharma businesses, Koppel sees a weakness among consumer health businesses versus brand-name pharma: “You never had the pricing power,” he says. “For example, consumer businesses selling toothpaste and mouthwash don’t have the pricing power of an effective cancer drug.”

If price controls are set on new drugs, Stoll says attempts to cap prices for drugs could be harmful to development of treatments for rare and ultra-rare conditions. These treatments can run into the hundreds of thousands of dollars annually, largely because the development cost is spread across a limited number of patients.

In the past 10 to 15 years, drug development has shifted to more exotic proteins, antibodies, nucleic acids and cell and gene therapies. Drugmakers have shifted away from broad treatment categories to specific targeted diseases, where you can show a benefit to a much smaller population with more serious diseases. While drug development costs are extremely high, there is a higher probability of successfully bringing the drug to market from this narrow focus.

Meanwhile, data and analytics are accelerating clinical trial site selection, structure and data collection to help increase the odds of success, industry executives believe. Economics may have had as much of a bearing on the need to double down on newer drugs.


J&J and GSK’s spinoff plans are the latest and among the most significant efforts to separate businesses that are behind the pharmacy counter and those that fill the aisles of drugstores, supermarkets and mass merchandisers.

J&J announced plans in November to spin off its consumer health business,

 an enterprise expected to generate $15 billion in revenue from Neutrogena, Aveeno, Tylenol, Listerine, J&J’s Band-Aid bandages and a variety of products in the personal care aisles of retailers and pharmacies around the world. The spinoff is anticipated to occur 18-to-24 months after the announcement, or approximately the latter half of 2023.

“Our goal is to accelerate the growth, enhance innovation and improve execution across all of our businesses following this separation,” J&J Executive Chairman Alex Gorsky said in November’s investor call announcing the spinoff. “We believe that this move will allow us to even accelerate further the progress that you’ve seen in our pharmaceutical and medical device space.”

Complexity of healthcare and consumer markets has required innovation and agility, making the timing appropriate for a spinoff, and both businesses will be “well capitalized with significant cash flow,” according to Gorsky.

J&J’s spinoff decision comes after GSK had announced its own divestment of its consumer health business,

 which features Advil and Excedrin pain relievers, Nexium and Tums heartburn drugs, Centrum vitamins, Aquafresh toothpaste and other products. The move is expected to occur in the middle of this year.

GSK said it anticipates to receive an 8-billion-pound dividend—approximately $10.8 billion based on early January’s exchange rate GBP1=US$1.35—from the consumer health business. As far as J&J’s dividend, the company, citing the still-early stages of the spinoff plan, said: “there are many details to be worked out and decisions still to be made. We are committed to communicating with all our valued stakeholders and keeping them informed as we move through this process.”

“J&J’s consumer healthcare divestment follows a path similar to GlaxoSmithKline’s divestment of its consumer group,” Damien Conover, Morningstar analyst, wrote in a research note.

 “However, with J&J trading at a higher valuation multiple versus Glaxo, we see less potential for it to create value with its consumer healthcare divestment, even with the strong comparable valuations of stand-alone consumer health companies.” Conover added that he saw little synergy between J&J’s consumer health and the pharma division and he “wouldn’t be surprised” if the medical devices business was eventually separated from the company.

Examining the divestment risks, as more large companies look to spin off consumer health and other business units to focus on branded pharmaceuticals

Pharmaceutical Commerce - February 2022

Pharmaceutical Commerce - February 2022 Issue (PDF)

A Lowdown on Logistics

The Shifting Course in Logistics Support

How 3PLs Can Up Their Pharma Game

For Industry in Flux, is M&A Jolt in Store?

CAR-T Therapies: Three Supply Chain Considerations

The Risk of Doubling Down on Pharma

Striving for Authentic, Transparent Track and Trace

2022 Pharma 3PL Service Provider Directory

Booster Rollout Lessons for Pharma

Assessing Adoption of Hybrid DtP Models