We Care. Trends and Challenges in the Life Sciences and HealTHCare SeCTor, Page 5. globalization and Emerging Markets, Page 7

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1 We Care Trends and Solutions for Life Sciences and Healthcare Editorial: WE Care, Page 2 Overview: Trends and Challenges in the Life Sciences and HealTHCare SeCTor, Page 5 IN Focus: globalization and Emerging Markets, Page 7 SeCTor Management: Tailor-Made approach: specialized Solutions, Competencies and Expertise, Page 10 strategic Advantage: Value Proposition, Page 12 Specialized solutions, Page 14 Expertise, Page 16 Outlook: meeting Tomorrow s HealTHCare Needs, Page 18

2 2 Editorial Editorial 3 Roger Crook Bill Meahl Angelos Orfanos WE CARE Faced with volatile economies, fluctuating market conditions, new products, and changing demographics, the life sciences and healthcare industry is in the midst of fast and far-reaching change. The combination of increasing regulatory demands, the focus on emerging markets, and new product requirements, notably around temperature management, and cost pressures, is creating both complex challenges and attractive opportunities. In response, the sector is accelerating its emphasis on driving supply chain transformation. It is looking for increased efficiency, trying to establish channels for growth in new and emerging markets, addressing global compliance requirements, and managing costs. As regulatory and trade compliance requirements for the transportation and storage of medicines become stricter, further increasing pressure on the industry, our customers continue to demand a high quality, regulatory responsive service. That s why we have been investing in sector-specific processes, people as well as GDP- and GMP-compliant 1 infrastructure. What it comes down to is, we care about life sciences and healthcare! We are focused on placing life sciences-graded infrastructure where our customers need it. Our customers are asking us to continue to expand our capabilities and provide services that go deeper into their supply chain and we are doing so, with a vast range of logistics developments and innovation. In addition to our state-of-the-art facilities, which offer a protective, standardized environment for our customers product, we have a global team of sector specialists who understand the life sciences and healthcare industry s needs and concerns and can offer smarter, simplified solutions. We work closely with customers to optimize their complex supply chains and manage logistics costs better, so life sciences companies can focus on their core activities. That opens up new and exciting conversations about future requirements and demands. As the need for collaboration becomes more acute, the value of discussing issues, needs and solutions together rises correspondingly. That s why we ve produced this brochure, to help stimulate the discussion with stakeholders and the wider community about the future direction of the industry and inspire new supply chain approaches for the sector. If there s one message we hope you take away from this, it s that we care about life sciences and healthcare. Roger Crook Member of the Board of Management, CEO DHL Global Forwarding, Freight Bill Meahl Chief Commercial Officer DHL Angelos Orfanos President Life Sciences & Healthcare DHL Customer Solutions & Innovation 1 Good Manufacturing Practices (GMP) and Good Distribution Practices (GDP) refer to quality assurance regulations for the industry. Wherever the art of medicine is loved, there is also a love of humanity. Hippocrates

3 4 Overview

4 5 Overview Trends and Challenges in the Life Sciences and Healthcare Sector In 2011, the pharmaceuticals industry was worth some 700 billion, of which biotechnology accounted for 100 billion, and the medical devices industry was worth another 200 billion. While the life sciences and healthcare industry grew by an average of 6.7% annually between 2007 and 2011, this rate is forecast to slow to 3.1% growth per year between 2012 and The life sciences sector is in the midst of profound change globally. Demand growth is shifting from the mature markets of Europe and North America to more dynamic emerging markets, while cost pressures are mounting and regulatory requirements are becoming more stringent around the world. At the same time, innovation is veering towards specialties and biotech products. Mounting cost pressures and tightening regulation The global economic downturn is leading to increasing cost pressures from governmental and private payers for healthcare services, with respective cost management implications for pharmaceutical and medical device manufacturers, notably in the mature markets of the U.S., Europe and Japan. At the same time, the cost of developing new and innovative products shows few signs of decreasing; regulatory control of pricing is tightening; and patent expiries and the respective rise of generic copies are further hitting operating profits. Added to this are increasing regulatory requirements, notably around temperature control and authentication, further driving up costs and forcing manufacturers to seek more effective and efficient supply chain set-ups. Keeping cool rising need for temperature control As innovation in the pharmaceutical industry shifts towards specialties and biotech products, so does the need for temperature controlled and cold chain transport and storage historically only required for shipments of vaccines and blood fractions. Similarly for medical devices, the share of diagnostic kits, along with drug coated implants that require temperature control, is on the rise. This trend for temperature control in finished products is driving respective trends in clinical trials, in addition to the classic demand for cold chain shipments of tissue and blood samples. What is more, the globalization of manufacturing is stretching supply chains and increasing the respective need to monitor conditions during transport.

5 6 In Focus

6 7 In Focus In Focus: Globalization and Emerging Markets Of all the trends impacting growth within the life sciences and healthcare sector, globalization and growth in emerging or pharmerging markets is the most far-reaching. These regions are experiencing rapid growth of the middle classes, rising living standards and life expectancy, and increasing prevalence of chronic illnesses due to unhealthy and sedentary lifestyles, along with the emergence of more sophisticated healthcare systems to treat these ailments. As a result, this is where the next billion patients are to be found, as a recent Gartner study put it. Healthcare spend, including for pharmaceuticals and medical devices, generally grows faster than GDP. In this regard, China is in a league of its own ; India, Brazil, and Russia are tier 2 ; while Mexico and Turkey, and a host of other emerging markets are considered tier 3 markets for the life sciences and healthcare industry. While growth in healthcare spend in emerging markets is mostly in consumption, it is also increasingly in manufacturing, research and development, as well as clinical trials. Healthcare spending in pharmerging markets already accounted for 143 billion in 2011 and is forecast to nearly double by The majority of that increase is expected to be in generics. Based on these growth expectations, pharmaceutical and medical device manufacturers are targeting emerging markets for new revenue growth and new investment in manufacturing, research and development, as well as clinical trials. Thus, international and global supply chain setups have become particularly important for pharmaceutical and medical device manufacturers, and are continuing to gain in significance.

7 8 In Focus China s great leap China is expected to jump from the world s fifth largest pharmaceutical market in 2008, to the world s second largest by This makes it an enticing market for global pharmaceutical manufacturers. Even though generic drugs will remain the backbone of China s pharmaceutical industry for years to come, the Chinese government is determined to transform the industry into an innovation-focused frontrunner. This will mean growing budgets for research, significantly raising quality standards and improving distribution infrastructure, among other enhancements. China will become a leading market for the pharmaceutical sector, going forward. With all the big global companies raising their stakes in the market, the country is poised to play an increasingly significant role in the future of the industry. Buoyant Brazil Brazil s 120 million-strong middle class makes up the second largest healthcare market in the emerging world, and the largest in Latin America, and is expected to keep growing. Brazil s pharmaceutical market is dominated by generics, a segment that is growing by 28% per year, but is largely controlled by local players. This leaves the global pharmaceutical companies to focus on branded drugs for the smaller slice of Brazil s wealthiest consumers. Inroads in India India has developed into a world leader in the pharmaceutical sector, with sales expected to multiply from $11 billion in 2010 to $74 billion per year by India tops the world in generics exports, and generics are expected to continue to dominate the domestic market for some time to come. Nevertheless, with domestic market growth at 15% in 2011, global pharmaceutical companies revenue grew at 18.7% that same year. The multinationals are making inroads in brand building, pursuing the markets for drugs for chronic illnesses, branded generics, and launching patented products. They are also expanding their field force and broadening their focus to include lower tier towns.

8 9 In Focus Supply chain implications not all bad news The pharmaceutical and medical device supply chain used to be rather unexciting: the key focus was on ensuring product availability at any cost. This is changing, however, as decision-makers ask their supply chain managers to help them identify the necessary compromises between cost and availability. Total cost to serve has become the new emphasis, and this includes such things as capital cost for inventories, stock-outs, transport, thermal packaging, and quality control. As a consequence, different supply chain set-ups will be required, reflecting the changed product needs, regulatory requirements and specific supply chain situation. New markets need to be accessed and integrated into the global supply chain, as well. As emerging markets become increasingly important to the business model of life sciences companies, the supply chain challenges become more relevant and pressing. More than just increased complexity, this implies a more strategic function for the supply chain. More and more companies in the sector are finding that a smart way to meet these divergent objectives is by leveraging the global footprint, compliant infrastructure, state-of-the-art solutions, people and expertise of a logistics service provider like DHL especially in emerging markets. DHL is responding to these shifting needs of the industry by increasing its footprint and capabilities in these areas, and sharing its experience and knowledge of these markets, to facilitate speed to market for its customers. What the customer wants According to DHL customer surveys, life sciences and healthcare companies are looking, above all, for cost efficiency, compliant solutions, emerging market access, temperature control/cold chain, and direct distribution capabilities. HOT TOPICS ACCORDING TO VOICE-OF-CUSTOMERS Collected at DHL Life Sciences and Healthcare Conference in Berlin in ) 2) Rank 2012 Rank 2011 & tendency Percentage of customers answering % Cost efficiency % Temperature control/cold chain % Regulation/compliance % Emerging markets 5 35% Shared logistics (MUWH, transp. consolidation) % Security/integrity % Ocean freight % 4PL/Control tower set-up Source: 2012 post conference survey June 2012, Sector Strategy Team 1) Ranking based on occurrences of customer answers only; 2) Question put to participants: Please select what you believe are the future hot topics in LSHC Supply Chain Management. You can choose up to 6 topics.

9 10 Sector Management Tailor-Made Approach: Specialized Solutions, Competencies and Expertise Sector strategy Life sciences and healthcare is one of five strategic sectors along with technology, energy, automotive, and engineering and manufacturing for which DHL has developed a tailored, cross-divisional sector management strategy in order to best meet customer needs. In this regard, and in order to provide superior service levels and quality, the company has developed a life sciences and healthcare sector strategy based on three main pillars: customer engagement, sector community building, and fact-based solution development. Its commitment to customer engagement is reflected in the way DHL listens to customers, through ongoing dialogue and close partnership built up over the years. Its dedication to community building involves strengthening the company s cross-divisional collaboration in order to develop and share global best practices and processes, harness best-in-class supply chain and logistics expertise throughout the company network, and build industry competencies. DHL s fact-based solutions development is based on day-to-day exchanges with customers, exploring their entire supply chain and identifying key pain points. Customer input is collected along the solution development process and during pilot and launch, and quality is assured through the group s active six sigma quality improvement process, called First Choice.

10 11 Sector Management Life sciences subsectors and their supply chain dynamics At the heart of DHL s sector strategy is the ability to develop and tailor its solutions to the specific needs of each of the life sciences and healthcare subsectors, the five main ones being: Pharmaceuticals The pharmaceutical subsector comprises companies that de velop and manufacture pharmaceuticals, including patented and generic drugs, prescription and over the counter medication, as well as small molecules and biologics. The supply chain is complex and characterized by increasing cost pressure, regulatory and temperature control requirements, and the rise of emerging markets. The channel to market, traditionally via wholesalers, is increasingly focused on moving closer to the patient. Direct-to-market initiatives are improving sales effectiveness and addressing counterfeiting. Medical devices The medical devices subsector includes companies focusing on the development and manufacture of a range of small to medium-sized medical devices, from consumables and disposables, to implantable devices and surgical equipment, to long-term treatment equipment, and diagnostic agents. Each segment of this subsector has particular supply chain requirements, adding to the complexity. There is cost sensitivity in the low margin consumables and disposables; implants and surgical equipment require complex return logistics; the direct-to-patient homecare market is growing; centralized stock is required for high-value devices; and the rise of emerging markets adds a further dimension to all this. Medical devices PhARMAceuticals Life sciences and Healthcare Industry Clinical trials Healthcare Services Healthcare services This subsector comprises institutions and companies that provide healthcare services, including public / governmental hospitals / hospital chains, private / non-governmental hospitals / hospital chains, as well as physicians and pharmacies. Differing healthcare legislation in every country requires specific supply chain approaches. Increasing cost pressure, inventory tracking, and the high cost of internal space add to the complexity. Healthcare Distribution Healthcare distribution This subsector consists of companies that provide direct-to-market services for pharmaceuticals and medical devices. The supply chain requirements include direct to pharmacy / hospital / specialist / patient, orderto-cash, and pre-wholesaling activ ities / value-added services. It must factor in differing healthcare legislation in every country, increasing regulatory pressure (GDP, GMP), integrated IT-systems, increasing globalization and diversification of pharmaceutical wholesalers, along with the growing market for homecare. Clinical trials/cros This subsector consists of the execution of required clinical trials for pharmaceuticals and medical de vices. It includes pharmaceutical and medical device manufacturers, clinical research organizations (CROs), and laboratories. The supply chain typically requires temperature control, high security and reliability through end-to-end visibility and documentation, globalization of trial execution, and tight timelines.

11 12 Strategic Advantage Value Proposition DHL strives to respond to customer needs and to be the logistics company for the life sciences and healthcare industry through its value proposition of global infrastructure, reliability and quality, innovation and simplicity of solutions, bolstered by its sector-specific life sciences and healthcare expertise.

12 13 Strategic Advantage Global Infrastructure A network strategically positioned and developed where our customers and their partners need us Over 150 life sciences and healthcare facilities worldwide 31 Competence Centers in 22 countries Multi-user life sciences-graded distribution hubs for emerging markets Commitment to invest in markets of growing importance China, India, Eastern Europe Reliability and Quality A wide range of services that consistently meet the highest quality standards in the industry seamless end-to-end transport of temperature sensitive products across countries and modes Up-to-date compliance with industry regulations Medical Express products suited for clinical trials shipments life sciences and healthcare customer service centers for simplified interactions Innovation and Simplicity of Solutions A collaborative approach of listening and learning to develop market leading solutions development of real-time temperature monitoring and exception management solutions investment in latest life sciences and healthcare-specific packaging solutions Modular and scalable multi-user solutions short lead times for the establishment of life sciences and healthcare quality infrastructure Life Sciences and Healthcare Expertise at Your Service A global expert community dedicated to serving our customers with industry competence Worldwide network of over 4500 dedicated and trained experts life sciences and healthcare packaging, regulatory, sustainability and quality specialists available for advice Competence in supply chain consulting In-depth knowledge in cold chain and clinical trials business

13 14 Strategic Advantage Specialized solutions Cold chain: DHL is the global leader in developing and providing innovative cold chain solutions. DHL Global Forwarding has just introduced a new service called THERMONET. With a global network of GDP-compliant stations supported by certified life sciences specialists and real-time visibility, THERMONET sets a new standard for cold chain air freight transport based on the company s leading cold chain process management expertise provided by its subsidiary LifeConEx. On the road freight side, DHL Freight s pan-european pharmadedicated road freight network for temperature-controlled FTL and LTL transportation is built around its central pharma hub in Grimbergen, Belgium. Medical Express: DHL Medical Express provides a high-priority, time-definite international express service for the specific needs of the life sciences industry, with a particular focus on clinical trials and high value product direct distribution. No matter where they are needed, DHL Medical Express will deliver time-sensitive samples, medicines and clinical supplies to key global markets, using dedicated transportation services and advanced tracking technologies. Depending on the sensitivity of the contents, DHL Medical Express offers ambient, chilled or frozen shipping methods, with 24/7/365 monitoring and visibility capabilities. A certified range of temperature-controlled packaging as well as dry ice replenishment capabilities ensure the high quality service customers expect.

14 15 Strategic Advantage Recalls: Recalling a product is a major undertaking, requiring complex logistics. DHL Recall Solution is a scalable, customizable, endto-end recall and fulfillment solution. With a specially tailored service catering to the medical devices industry, DHL Recall Solution can manage local, regional, and global recall scenarios. End-of-runway: For urgent shipments, DHL s end-of-runway Integrated Solutions Center, opened in June 2012 at Leipzig airport, allows for the latest possible cut-off times for next day delivery, by directly injecting shipments into the global DHL EXPRESS network at the European regional hub. Designed, in particular, with life sciences and technology customers in mind, the 15,000 sqm (161,459 square feet) facility also serves as a medical device warehouse, complying with the strictest requirements for pharmaceuticals, including processes, security and handling of temperaturesensitive medical products. Thus, customers have immediate access to express transportation services anywhere in Europe, directly from a life sciences-graded central storage point.

15 16 Strategic Advantage 60 over full-time pharmacists globally WORLDWIDE community includes some 4500 dedicated and trained people 15 LIFE SCIENCES-GRADED FACILITIES IN BRICMT COUNTRIES 35 CERTIFIED LIFE SCIENCES STATIONS PLANNED BY END-2013, BASED ON EXISTING COMPETENCE CENTER NETWORK Expertise DHL customers trust the company with their business, including delivering and storing their vital healthcare products, which require rigorous levels of quality and competence in product handling. Country to country regulatory and trade compliance for the transportation and storage of medicines is becoming more stringent, further increasing pressure on the industry. This is why the group is constantly extending its footprint of GMP- (Good Manufacturing Practices) and GDP- (Good Distribution Practices) compliant and certified facilities for warehousing and regional distribution of pharmaceutical products. Apart from its state-of-the-art facilities, which offer protective, standardized environments, the group is also investing in specialists such as pharmacists whose knowledge and experience in the life sciences sector is second-to-none. DHL employs over 60 pharmacists globally, and a significant portion of the sector s workforce is dedicated to quality assurance. These capabilities and expertise are developed through collaborative dialogue with customers and are in direct response to customer demands. One of the more visible ways in which DHL listens to customers is through the annual DHL Life Sciences & Healthcare Global Conference and Workshops, the 2013 edition of which takes place in Miami in June. This event is the opportunity for DHL to listen to customers and continue to shape its service offerings based on their input. With over 40 workshop sessions and customer case study presentations on the most relevant issues affecting the sector, this conference promises to be a unique learning experience for all attendees. Community The DHL life sciences and healthcare expert community includes some 4500 dedicated and trained people around the globe. DHL s expert community development includes holding regular internal community calls, to share information among the team, as well as leadership summits, bringing together key leaders from across all DHL divisions. There are also collaborative platforms, including an Innovation Room, along with sector-specific e-learning modules and training courses for employees.

16 17 Strategic Advantage Global footprint With over 150 dedicated life sciences and healthcare sites and 4500 dedicated healthcare staff worldwide, DHL has the scale and depth to implement healthcare logistics solutions across the globe. In 2012, the company continued to improve and expand its global life sciences footprint with a vast range of logistics developments and innovations. It opened two new life sciences competence centers in Miami and Atlanta, adding to the 30-strong competence center network worldwide. Both locations have dedicated, trained personnel, temperature-controlled rooms, and use cutting-edge technology, such as the SmartSensor for logging and tracking a shipment s temperature and integrity. Although temperature-controlled shipments are handled at all DHL locations, the facilities in the competence center network offer life sciences and healthcare customers enhanced capabilities, increased capacity and greater flexibility to control their freight. They also provide access to some key emerging markets. The global footprint of DHL Medical Express was further expanded in 2012, and now covers 70 countries. The end-of-runway Integrated Solutions Center at Leipzig airport, also opened in 2012, further optimizes access to the company s express network at the European regional hub. Other key developments include the opening of a new pharma-dedicated warehouse in Hungary to serve its Southeast European customers. In addition, DHL has opened two new dedicated life sciences multiuser warehouses in India in 2012/2013 and plans to open three more in 2014, to support the domestic growth of the life sciences and healthcare sector in this dynamic market. These include a 58,000 sqm (624,307 square feet) facility in Mumbai, as well as a warehouse in the Free Trade Zone in Chennai, acting as an air and ocean freight gateway. Plus, the group has invested in its domestic express network in India to equip it with temperature-controlled express capabilities. LARGE LIFE SCIENCES-DEDICATED MULTI-USER WAREHOUSES OPERATIONAL IN 2014 IN INDIA, consolidating INDIAN NETWORK OF 5>50 LIFE SCIENCES SITES 150 DEDICATED LIFE SCIENCES FACILITIES GLOBALLY serving 90% OF GLOBAL TOP-50 PHARMACEUTICAL AND MEDICAL DEVICE MANUFACTURERS

17 18 Outlook The life sciences and healthcare sector is entering a new era of innovation. Meeting Tomorrow s Healthcare Needs An era of innovation The life sciences and healthcare sector is entering a new era of innovation, including advances in biopharmaceuticals and related fields. Sequencing the human genome has become ever cheaper and faster, and, by 2020, genetic testing could become mainstream medical practice, opening the way for personalized medicine tailored to individual traits. Many new biomarkers have already been identified and many more are currently under development, enabled by decreasing cost of computing. Analyzing and understanding the human micro-biome will likely generate further new treatment options. In addition, more targeted and thus more effective vaccines for a much wider range of diseases are expected. And, new vaccination delivery technologies are expanding the possibilities for targeted treatments. Regenerative medicine, which includes the replacement or repair of human cells, tissues or organs, is also regarded as a future growth field, especially thanks to 3D printing capabilities. Progress in IT, robotics, mobile technology and nanotechnology will all have significant ramifications for the future of healthcare. New technologies will enable increased use of augmented reality applications in medicine, as well as remote medical diagnostics. Semi-autonomous care and cleaning robots will become commonplace in hospital environments, as will robot-assisted surgeries. Ever cheaper and more advanced sensors will lead to better datadriven diagnostics, while rapid advances in computational power will mean better visualization of medical imaging data sets from a variety of scanners. And, thanks to advances in nanotechnology, ever-more materials and coatings will be available that allow the construction of sensors that are fully biocompatible and can be implanted into the human body to track health conditions. Supply chain implications Future innovations in the life sciences and healthcare sector will lead to significant changes in manufacturing and distribution processes over time, requiring concomitant advances in life sciences logistics solutions. This is already the case with regard to specialty drugs and biological products with very specific temperature and supply chain integrity requirements during transportation and storage. The trend toward more biological products will mean increasing complexity of APIs, requiring new competences from manufacturers and logistics providers, such as cryogenic capabilities or specialized facilities.

18 19 Outlook IMPRINT Published by DP AG Charles-de-Gaulle-Str Bonn With the increasing prevalence of personalized medicine and stem cellbased pharmaceuticals, demands for differentiated supply chains will have to be balanced against cost-effective solutions for logistics, which are also completely transparent and visible in real-time. In this way, logistics will become the enabler for realizing the full potential of new markets and innovations. By developing and maintaining the ability to adapt their supply chains, companies in the life sciences sector, working with logistics partners like DHL, will be ideally placed to seize the opportunities ahead. For a more in-depth, thought-provoking look at the future of the life sciences and healthcare industry, please see the accompanying white paper, Key Logistics Trends in Life Sciences Committed partner for the future As a thought leader in the life sciences and healthcare logistics sphere, DHL continues to demonstrate its commitment to customers across the sector for today and looking ahead to tomorrow. Through its global network, years of experience, internal community of experts, continuous dialogue with customers, and its relentless efforts to come up with innovative solutions, it is the supply chain partner best suited for the life sciences and healthcare industry. Customers know that, with DHL, they are well-prepared to face the future with confidence. Represented by: Angelos Orfanos President Life Sciences & Healthcare DHL Customer Solutions & Innovation Silje Skogstad SVP Global Media Relations Responsible for content: Dr. Michael Terhoeven VP Strategy and Development Life Sciences & Healthcare Sector Dr. Philipp Warnebier Senior Manager Strategy and Development Life Sciences & Healthcare Sector Monika Nordmann Marketing Director Life Sciences & Healthcare DHL Customer Solutions & Innovation Editorial: Dr. Diane Rinas Corporate Communications Website: Images: Getty Images, Corbis GmbH, Media Database Deutsche Post DHL

19 How we provide value to life sciences and healthcare customers: As the global leader in life sciences and healthcare logistics, DHL employs its unrivaled expertise, supported by infrastructure providing a global network with high-quality and innovative solutions for your supply chain needs.