By Sara Castellanos
Merck KGaA plans to use analytics and machine learning to
predict and prevent drug shortages, a move that could also save it
money.
Currently, the Germany-based pharmaceuticals company needs to
stockpile medications to make sure it has enough on hand, meaning
some of them expire before they can be used. Merck said its
supply-and-demand forecasts are about 85% accurate today.
To sharpen its predictions, the company's health-care division
plans to start testing a cloud-based software platform later this
year. The platform, made by North Reading, Mass.-based TraceLink
Inc., can analyze in real time data points from various
organizations within Merck's supply chain, including pharmacies,
hospitals and wholesale distributors.
TraceLink is now developing machine-learning algorithms that
will be used in the pilot, which will begin with immuno-oncology
drugs, designed to boost the body's immune system to fight cancer.
"We want to start it in an area where the product is a lifesaving
product," said Alessandro DeLuca, chief information officer for
Merck's health-care division.
"The value is going to be that every single patient will receive
the drug that he or she needs at the right moment," Mr. DeLuca
said, adding that the move could significantly cut drug
shortages.
The U.S. had roughly 150 to 300 drug shortages every quarter
between 2014 and 2019, according to the University of Utah.
Shortages can happen due to issues with manufacturing,
supply-and-demand forecasts and natural disasters, according to the
American Society of Health-System Pharmacists. Common classes of
drugs in short supply include antibiotics, chemotherapy and
cardiovascular treatments.
Analysts say more precise supply-and-demand forecasts mean
pharmaceutical companies could save hundreds of millions of dollars
annually, a benefit of not having excess drugs on hand and avoiding
costs related to expedited shipments.
On average, pharmaceutical companies carry 156 days of
inventory, according to research and advisory firm Gartner Inc. For
retailers selling consumer products, it is 78 days. For IT
equipment such as printers, servers and PC components, it is 57
days.
Pharmaceutical companies traditionally have predicted demand for
drugs based on historical data and input from sales teams. Over the
past few years, they have had access to more data about drugs in
their supply chain because of a 2013 U.S. regulation that forced
manufacturers to add serial numbers to medications, in part to
reduce counterfeit drugs.
Drugmakers can use TraceLink's software to generate such serial
numbers, but the platform also acts as a central hub for
information about the status of drugs at every phase in the supply
chain. As many as 10 entities handle a drug before it gets to a
patient, including manufacturers, pharmacies and wholesale
distributors, said Shabbir Dahod, TraceLink's chief executive.
"It's a highly complex supply chain," he said.
The TraceLink network includes data from more than 275,000
organizations world-wide, including hospitals, retail pharmacies,
wholesale distributors and drugmakers. Data about more than six
billion serial-numbered drugs runs through the system. Besides
Merck, TraceLink customers include Amerigen Pharmaceuticals Inc.,
Stirling Anglian Pharmaceuticals Ltd. and Morningside
Pharmaceuticals Ltd.
TraceLink, founded in 2009, has raised about $167 million in
venture-capital funding from investors such as Vulcan Capital,
FirstMark Capital, Goldman Sachs Group Inc. and Volition
Capital.
To give clients more accurate information about supply and
demand, TraceLink is developing machine-learning-based algorithms
to analyze the information in its network without violating
data-privacy laws.
For example, algorithms could give Merck signals about the days
of inventory for a specific drug and how long it will take for a
drug to get to a particular phase in the supply chain, Mr. Dahod
said. More of that data could also help predict the demand for a
particular drug.
Over the past decade, pharmaceutical companies have been facing
steep competition from rival brands, generics and biosimilars, said
Stephen Meyer, a senior director and supply-chain analyst at
Gartner specializing in the life-sciences industry. Investors are
pressuring them to become more profitable and free up cash flow to
fund product development and mergers and acquisitions, Mr. Meyer
said. To that end, many are exploring ways to cut costs in their
supply chains.
A better supply-and-demand forecast also makes it easier for
Merck to expand into locations without a reliable supply-chain
infrastructure, such as parts of Africa and Southeast Asia, said
Pepe Rodriguez, managing director and partner at Boston Consulting
Group who specializes in operations and supply chains in
pharmaceutical companies.
"A lot of growth from pharma companies is coming from emerging
markets...and some of the logistics there are challenging," Mr.
Rodriguez said.
Write to Sara Castellanos at sara.castellanos@wsj.com
(END) Dow Jones Newswires
October 14, 2019 15:18 ET (19:18 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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