Post-COVID Supply-Chain Challenges Are Easing, Part 1: New Competition Is Changing Industry’s Buying Behavior

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The SARS-CoV-2 pandemic created unprecedented stresses on bioprocessing and healthcare supply chains as suppliers struggled to find materials to meet demand for COVID-19 vaccines and therapeutics. BioPlan Associates, with BioPhorum and its members, recently researched the biomanufacturing industry’s response to the pandemic and prepared a white paper, Impact of COVID-19 on the Bioprocessing Supply Chain (1). Before COVID-19, the bioprocess supply industry had been growing consistently at 12–14% (nearly doubling revenue every five years) since 1990. During COVID, growth in supplier revenue increased dramatically, averaging 27% year-on-year growth (2). However, post-COVID, the supplier landscape has changed, possibly permanently.

Supplier Crisis on the Horizon?
We initiated our research because some industry suppliers had expressed concerns about recent order reductions and cancellations for consumables as the COVID pandemic began to abate. Debates emerged about whether biologics manufacturers were reducing purchasing because of long-term constrictions in the biologics pipeline, greater manufacturing efficiencies implemented during the pandemic, or simply temporary drawdowns of warehouse stockpiles.

To address those issues, we researched current and future demand projections for bioprocessing consumables and the impact of COVID on supply chains. Our research involved in-depth discussions with 10 representative biologics end-users and 10 mid- and large-scale consumables suppliers. We found the following points:

• Demand for supplies has continued and will continue unabated for the foreseeable future.
• The number of mid-tier suppliers to the industry grew considerably during the pandemic because small-scale suppliers were given an unprecedented opportunity to accelerate their growth.
• Competition resulted as end users quickly validated new suppliers to reduce COVID-driven supply-chain risks.

Previously “second-tier” suppliers (competitors) benefited because they were able to expand their markets during COVID. That occurred because biopharmaceutical end users were splitting orders to prevent potential supply, availability, and lead-time problems. Today, end users continue to explore multisourcing vendor options and evaluate alternative materials. Those new competitors are now a part of the biopharmaceutical supply landscape.

From this research, we found that some established suppliers might not fully recognize the potential significance of those changes to the market, or they may be downplaying the potential competitive challenges of the future.

Background Analysis
Even before the pandemic started in early 2020, demand for bioprocess supplies and consumables had in some cases been outstripping supply. Lead times lengthened for critical raw materials such as cell-culture media and buffers and for consumables used to create the “containment” path (e.g., single-use systems components, bags, filters and assemblies, membranes, and chromatography resins).

During the pandemic, raw materials challenges were masked to a degree by concerns over developing a vaccine and making the volumes necessary to vaccinate the global population. Demand went through the roof, and we experienced “national” allocation schemes to support vaccine production efforts. As we emerge from the pandemic, this story is changing. For some suppliers, the demand signal has softened, and forward orders have declined. Some suppliers have reported order cancellations. Among key trends are the following points.

COVID Vaccine Projects Are Closing Down: ~184 projects were started, only ~15 made it to phase 3 clinical trials, and only five reached commercial significance.

Safety Stock Corrections: Long lead times drive larger volumes of safety stocks; as lead times drop, safety stocks recalculate, and forward orders are canceled.

Impacts of Second, Alternative, and Dual Sourcing: End users have sourced consumables differently as a result of the COVID-related supply-chain problems. Now, orders are being split across more suppliers. New suppliers are entering the market and offering alternative sources.

Biopharmaceutical Perspectives on Future Consumables Ordering
In our research, we found that the great majority (90%) of the representative biopharmaceutical manufacturers interviewed either had increased orders or had not changed ordering volumes over the past year (Figure 1). Orders probably are not being cancelled because of reduced demand, but instead are being split among suppliers that offer attractive lead times, availability, and/or prices. Although some facilities continued to draw down excess stocks, and some facilities reduced orders through improved efficiencies, such organizations were in the minority.

Figure 1: End-user (biomanufacturer) facility changes in ordering for bioprocess supplies and consumables (past 12 months) (1).

Demand for consumables continues to grow at a pace consistent with the prepandemic environment. Most biomanufacturers have not been canceling orders outright. In fact, because some suppliers continue to delay orders, some biomanufacturers continue to plan for up to 10 months of safety backup stocks.

What has changed, though, is the industry’s emerging expectation of a more competitive supplier environment. Although biomanufacturers have continued to work effectively with their existing major suppliers, in the face of supply shortages they often are left with no alternatives but to bring second sources on line and work with mid-size and smaller suppliers. Yet despite strong supplier relations, the result is likely to be that smaller suppliers will present price competition. One respondent noted, “It’s about stronger competition; competition allows [new suppliers] to take shares away from concentrated key players.”

A number of respondents noted that multisourcing and adding suppliers are the best ways to prevent raw materials bottlenecks. In fact, some people expressed little sympathy for current large suppliers, even blaming the supply chain problem on them: “Suppliers have massively delayed orders; we haven’t cancelled anything.”

Demand Remains Strong
Overall demand for bioprocess supplies remains strong. With new therapeutics on the horizon, growth is anticipated in both established and emerging segments. End users are increasing their orders significantly, but suppliers are experiencing an almost equivalent decrease in ordering. Said one supplier: “Over the last 12 months, demand intake (new orders) is down 50%.” As noted, this may be a transient downturn, and the strong underlying biopharmaceutical industry growth trends are most likely to normalize the market over time.

Prices generally increased during the pandemic because discounting disappeared due to supply-chain issues. Over the past six months, end users’ order volumes and values both increased: on average, up 18% by volume and 16% by value. That is consistent with BioPlan’s 19th Annual Report data, which has shown 12–14% growth for all consumables globally over the past 15+ years, with significantly higher growth during COVID (2). Perhaps more important, in the 12-month forecast from the 2022 annual report, suppliers reported an average 27% increase in consumables sales (up from 13.1% in 2020, prepandemic). We expect such growth to revert to a more normalized rate as the pandemic eases.

Problems with Lead Times and a More Competitive Environment
Over 71% of end-user respondents expect increased competition among suppliers to continue. Many expect that to result in reduced prices and increased competitive pressures for the short term.

A contributor to this competition is end-user demand for improved availability and supply channels. End users and suppliers, however, offer significantly different perspectives on average lead times for certain critical components and consumables. Pandemic-related problems have caused great frustration — and perception matters. We found that all devices and consumables were perceived by end users to require significantly longer lead times than what suppliers felt they were offering. For some products, the perception gap is quite large. For example, end users perceive that chromatography resins require a 55-week lead time, whereas suppliers believe they are offering resins at 19 weeks. End-users expect that complex single-use devices will require a 45-week lead time, whereas suppliers believe that lead time to be only 29 weeks.

Suppliers that recognize the perception gap may do better than others in preventing order shifts to alternative suppliers. End users have been working to reduce their lead times by qualifying more new suppliers. As a result, the loss of sales may be taking some established suppliers by surprise. Better communication about and coordination of lead times between suppliers and end users may help alleviate misperceptions and improve relationships.

As one end user respondent noted, “We qualify multiple suppliers . . . in case one supplier won’t negotiate on price, but they often do negotiate if we leverage second suppliers — bargaining power.”

Supplier Perspectives: Recent Sales in Decline
Responses from representative large- and mid-scale industry suppliers show a pessimistic situation. Those interviewed reported an average decrease of 17% in order volume over the past six months and 16% in revenue. In fact, seven of 10 suppliers had experienced at least moderate reductions in ordering for supplies and consumables over the prior two to six months (Figure 2). One supplier noted that “Over the last 12 months, demand intake (new orders) is down 50%.” We point out that the demand situation is fluid, but although these data points are now nine-months old (as of June 2023), anecdotally, the industry continues to experience changes in order volumes.

Figure 2: Changes in orders in past two–six months (supplier perceptions) (1).

On the other hand, those same suppliers are generally optimistic about the future, with 70% expecting increases in ordering over the next 12 months. And because of that, most suppliers are likely to continue investing in production to take advantage of the industry’s robust growth and outlook. As one noted, perhaps optimistically, “There will be no more cancellations.”

Secondary and even third- and fourth-tier suppliers that otherwise might have required years to move into a competitive position now are seeing successful market entry. And most suppliers (60%) are aware of emerging competition. However, the remaining 40% anticipate either no competitive changes or decreasing competition.

We believe that the disconnect between what some suppliers are experiencing (less competition), and what end-users are predicting (more competition) may lead to some competitive challenges for suppliers that are not listening closely to their customers.

Factors Affecting Future Orders
Factors affecting future ordering for bioprocess supplies and consumables are driven by

• new biologics launches/expansions that increase demand for therapeutic products
• increasing numbers of batches run
• launches of new product types (including advanced therapies)
• new facilities and expansions
• product approvals for biologics.

Those reasons may be slightly offset by factors such as improved efficiency (e.g., increased titer and fewer batches, less demand for disposables and consumables). Overall, the factors creating industry growth are predictable and consistent.

Building and Supporting a Dynamic Supply Chain
The biopharmaceutical industry is robust and growing. COVID-19 placed unprecedented pressures on suppliers to provide consumables and materials. Supply-chain challenges have created havoc in some cases, and because biopharmaceutical manufacturing can’t wait, huge demand has accumulated for sometimes limited supplies.

Despite the acute challenges, especially for supplies of single-use devices, the bioprocess industry has weathered the COVID-19 pandemic reasonably well. The bioprocessing segment will continue to deliver vaccines and biologics effectively well into 2023 and beyond, and the supply-chain lessons learned will result in a more dynamic supply segment, with more competitors, more innovation, more efficient supply chains, and probably, future price competition. End users will continue to seek secondary suppliers to diversify their sources and leverage bargaining power for lower prices. Having access to multiple suppliers is attractive for end users seeking to ensure availability, reduce lead times, increase channel options, and reduce prices.

Improved communication is needed if the gap is to be reduced between the forecasted demands of end users and suppliers. Resources to help address such gaps include BioPhorum’s “Forecast and Demand Planning Toolkit,” which addresses forecast and demand issues (3). Otherwise, supply problems might continue because suppliers won’t invest in production early enough to meet demand. That decision can have long-term impacts. Some suppliers have had to let people go or reduce shifts because of decreased demand forecasts — which can make it difficult to ramp back up when demand starts to normalize.

Looking Ahead
Part 2 of this report will address building capacity to meet demand, current industry capacity use, and industry pricing trends.

References
1 Impact of COVID-19 on Bioprocessing Supply Chain Hiring, and Inventory: A Collaborative Industry Analysis. BioPlan Associates, Inc., and BioPhorum, September 2022; https://www.biophorum.com/download/impact-of-covid-19-on-bioprocessing-supply-chain.

2 Langer ES, et al. 19th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production.BioPlan Associates: Rockville, MD, 2021, https://www.bioplanassociates.com/19th.

3 Forecast and Demand Planning Toolkit. BioPhorum: London, UK, May 2022; https://www.biophorum.com/download/forecast-and-demand-planning-toolkit.

Eric Langer is managing partner of BioPlan Associates, Inc. Eric has over 25 years of experience in biopharmaceutical and life-science market analysis and strategy. Robert (Bob) Brooks is a BioPhorum supply partner. Bob has over 25 years’ experience working in the pharmaceutical and healthcare industries in quality assurance, production, supply chain, logistics and procurement.

BioPlan Associates, Inc., and BioPhorum have worked together to prepare this analysis to support BioPhorum’s members’ and clients’ decision-making.