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The practical considerations for your global supply chain when bringing an orphan drug to market?

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Bryan Edwards  distribution manager & responsible person at Almac Pharma Services details the financial and custom considerations for bringing an orphan drug to market.

Adequate preparation is vital in mitigating issues that may arise in a supply chain, particularly for a high value product. Proactively considering financial and customs considerations and your entire supply chain are crucial to your commercial distribution strategy in order to ensure the most efficient and cost effective process with minimum risk.

Financial & Customs Considerations

Are you managing your Importer of Record (IoR) process?

It is highly recommended that sponsors consider the IoR process as early as possible when planning a supply chain. Imports into another customs territory cannot take place without a nominated IoR, which is a legal entity that has responsibility for ensuring the imported goods comply with local laws, filing completed customs declarations and paying the associated duties and taxes

In some EU jurisdictions, including the UK, the IoR should be the entity which holds title to the goods. If the IoR does not hold title, they do not have the ability to recall any VAT payment they make at import. With Value Added Tax (VAT) at approximately 20% of the goods value, this could be a significant cost.

Breaking down Customs Duty

Customs duty is a tax which is charged on the importation of goods procured from outside of the customs territory. The rate, which typically can range from 0% to 85%, is pre-determined depending on the classification of the goods using commodity codes.

Reducing the VAT & Customs Burden

VAT and customs duty must be included within budget forecasting and has the potential to become a more prevalent cost to businesses post Brexit. However, there are a number of ways in which businesses can reduce this burden on their finances when importing goods into the EU. For example, first consider: 

If your goods are being imported for testing purposes, or being re-exported—if so, schemes exist to reduce or suspend duty payments.

In addition to the above considerations, there are a number of accreditations companies can consider to manage the duty and VAT liability when operating an international supply chain. These include:

Authorised Economic Operator (AEO)

AEO indicates that a company’s role in the international supply chain is secure and it has processes in place to manage customs compliance and security.  While not mandatory, this option provides quicker access to certain simplified customs procedures, and in some cases, the right to ‘fast-track’ shipments through some customs, safety and security procedures.

Customs Warehouse (CW)

A Customs Warehouse allows traders to store goods with duty or import VAT payments suspended. The benefit of using a customs warehouse is that there is no time restriction on how long goods can be stored. However, it’s important to stay mindful that once goods leave the customs warehouse, duty must be paid unless they are re-exported or moved into another customs regime.

Inward Processing Relief (IPR)

IPR is another method of suspending import duty and VAT payments on imported goods. An IPR strategy allows for the processing of input goods into different output goods. However, goods can also only remain in the regime for a period of up to six months.

In most cases, you will want to utilise CW and IPR in conjunction for more flexibility. In order to do this businesses need to have a system in place to manage their duty and VAT liability.

Considering your supply chain - what model is right for you?

Using wholesalers is a common supply chain model in the pharmaceutical industry. Drug manufacturers or packers are at the beginning of this supply model, who then distribute the product to a large wholesaler. From the wholesaler, the product will be distributed to a number of different in-country wholesalers. And finally, the product is then distributed to hospitals or clinics.

There are some disadvantages with this model, especially in terms of high value or orphan drug supply:

Case Study- Leveraging a 3PL

Today, a common alternative supply chain strategy being utilised is 3PL—third party logistics. The term 3PL indicates that an organisation outsources elements of its distribution and order fulfilment.

Consider a scenario where the manufacturing site is at the beginning of the chain, like in a wholesaler strategy. But, instead of involving multiple wholesalers, the product is transferred to one 3PL provider, who centrally manages the supply of product into hospitals and clinics.

Almac often serves as a 3PL provider in scenarios like these as well as being the manufacturer. In this case, hospitals typically place their orders directly with Almac, who then packs the product to order and aim for dispatch of the product within 48 hours of receipt.

The advantages of this model for high value or orphan drugs is that the full supply chain is managed by one central provider, so there is one storage facility for the stock. This not only helps with stock holding and cash flow, but also negates the need for complex planning and helps to minimise risk.

Good Distribution Practice (GDP)

In the EU, GDP guidelines do not just cover the physical distribution of product, but all activities related to the procurement, holding, supplying or exporting medicinal products.

The key GDP considerations that any participant in the supply chain should be mindful are:

These factors and their potential impact should not be overlooked.

In summary

In summary, the considerations businesses should keep in mind prior to launching their orphan, high value product launch are:

Understand the financial implications of your supply chain movements.

By taking these factors into serious account, you will be best positioned to avoid unnecessary risk as you move your product through your global supply chain.

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