Climate change for biopharmaceutical companies in general, and Baxter specifically, are of concern for 3 main reasons within supply chain management
- Damage to manufacturing plants: Baxter has manufacturing plants situated near coastal areas, which could be susceptible to severe weather shocks. For example, they have 3 manufacturing facilities in Puerto Rico, which has experienced a record number of hurricanes recently. For example, Hurricane Maria earlier this year disrupted the country’s power grids, disabling the plants and causing a severe shortage of saline solutions, for which Baxter is the market leader in. This has resulted in many hospitals scrambling to get enough saline, including having to choose alternative saline providers.
- Damage to inventory stockpiles of raw materials and/or finished goods: Similar to the comment above, severe weather can damage either sources of raw materials or finished goods, which will cause random hits to total supply of a product
- Sharp increase in demand of drugs due to natural disaster and/or long-term environmental changes: Lastly, natural disasters can lead to a spike in demand for various drugs, including drugs that dose through IV, all of which require saline for injection.
Baxter’s management team has a multi-pronged approach to addressing climate change and supply chain.
- Short term
- Rationing sales: Immediately after the supply shocks, they can ration the product based on historical demand from hospitals. However, while this leads to all hospitals getting some of the product (e.g., saline solution), it still isn’t enough to fully address the hospitals needs
- Regulatory support: The FDA temporarily granted a license for Baxter to supply US-based hospitals through their other manufacturing facilities located in Ireland and Australia.3
- Schedule emergency shipments of finished goods prior to predictable natural disasters: Baxter shipped out all of its finished goods before the hurricanes hit
- Medium term
- Broaden manufacturing: They have been somewhat hesitant to fully buy into actively managing supply chain risk due to severe weather, such as AHA’s push for the FDA to emphasize finding suppliers within the US that aren’t as susceptible to natural disasters
- Work more closely with newly created hurricane task force from FDA. The FDA also helps with logistics, including arranging for power generators to be moved to locations of interest. Baxter can more fully cooperate with the FDA and other players in the industry to develop these types of contingency plans
- Long term
- Sustainability: Baxter is working with all regulatory agencies to meet and exceed regulations on climate change for their business operations (green buildings, limiting emissions, etc.)
There are 3 other steps that they can take a look at in order to address these risks
- Get full FDA approval for their entire supply chain, or at least a portion of it. This would mean that the FDA would allow them to permanently import saline from manufacturing plants outside of Puerto Rico (e.g., Australia and Ireland). Currently, the vast majority (if not all) of their saline that is approved for sale in the US come from only Puerto Rico. They can further de-risk by spreading this to more than just the US. For example, getting EMA approval from multiple manufacturing facilities to ship saline solution into Europe.
- The same argument above also applies to their sources of raw materials, which is also fairly concentrated.
- They can also proactively reach out to legislators to work on getting incentives to minimize supply chain disruptions due to weather-related events, as healthcare counts as a public good. This would enable government (or other players such as insurers) to take on some of the costs involved in de-risking the supply chain and ensuring that patients have access to quality healthcare, since they also benefit from healthier patients
Some outstanding questions may include
- De-risking the supply chain may require significant upfront costs, as they increase inventory or seek additional regulatory approval and/or renovate manufacturing and storage facilities. If the costs outweigh the benefits to Baxter, to what extent should they go ahead and implement these solutions, and who else should bear the burden of some of these costs?
- Is there a way to engage other stakeholders (e.g., insurance companies, providers, and even other biopharma/med tech companies) to tackle the risks involved with climate change on healthcare supply chain?
1) Ventola, C. Lee. “The Drug Shortage Crisis in the United States: Causes, Impact, and Management Strategies.” Pharmacy and Therapeutics 36.11 (2011): 740–757. Print.
2) Loftus, Peter, and Jonathan D. Rockoff. “Baxter Says Saline Shipments Disrupted in Hurricane-Wracked Puerto Rico.” The Wall Street Journal, Dow Jones & Company, 27 Sept. 2017, www.wsj.com/articles/baxter-says-saline-shipments-disrupted-in-hurricane-wracked-puerto-rico-1506545326.
3) McGinley, Laurie. “Hospitals Scramble to Avert Saline Shortage in Wake of Puerto Rico Disaster.” The Washington Post, WP Company, 11 Oct. 2017, www.washingtonpost.com/news/to-your-health/wp/2017/10/09/hospitals-scramble-to-avert-saline-shortage-in-wake-of-puerto-rico-disaster/?utm_term=.a56608109c87.
4) Ramsey, Lydia. “We’re Running out of Commonly Used Drugs – and Hospitals Say It’s ‘Quickly Becoming a Crisis’.” Business Insider, Business Insider, 10 Nov. 2017, www.businessinsider.com/drug-shortages-are-getting-worse-american-hospital-association-2017-11.