Taking the Medicine. What is transforming pharma air logistics? TheresePuetz June 8 th, Karavan Management Consulting

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1 Taking the Medicine What is transforming pharma air logistics? TheresePuetz June 8 th, 2016 Karavan Management Consulting

2 Karavan who are we? Providing specialist logistics and cold chain advisory services Focus on healthcare, food, hospitality and global Islamic economy sectors Working with airlines, forwarders, packaging companies, shippers and other supply chain stakeholders Based in Dubai, working internationally with a focus on Europe and Middle East Building on Therese Puetz s20+ years of international management experience in aviation and logistics -having been instrumental in delivering innovation in temperaturecontrolled airfreight

3 A need for cold chain care A trillion Dollar pharma market globally - continues to grow about 4-5% p.a. The value share of products with a need for cold chain handling continues to grow to about 25% in 2020 Global biopharma sales ($ Billions) trend

4 A patient behind every shipment Drug manufacturing has always been highly regulated Drug transportation has become increasingly regulated

compared to pharma sales + 4-5% p.a. 2015 vs.

5 More responsibility - cold chain logistics Pharma cold chain logistics market $12.6 billion in 2016 $16 billion forecast by 2020 Cold chain logistics spending + 8-9% compared to pharma sales + 4-5% p.a vs spending: +25% cold chain transport +11% cold chain packaging Source: Pharmaceutical Commerce Annual Cold Chain Sourcebook

6 Air freight or ocean freight? A combination of criteria are influencing the choice of transportation mode, such as: Product value clinical trial, patented biologics vs. off-patent, generics, biosimilars Product stability data, temperature & humidity requirements for transportation and storage Shipment volumes and shipping patterns Product margins and market share Transportation cost, time, product integrity and security Accessibility of destination via air or ocean Infrastructure at airports and ports Processes and supply chain interfaces incl. air/port handling, customs Logistics partners with reliable product specific handling solutions

7 Air trade of pharma lost market share over past decade Ocean trade of pharmaceuticals outgrew air trade over the past decade, causing overall air share to drop from 12% in 2009 to 10% in 2015 Global trade of pharmaceuticals, air & ocean Million tonnes 10-year CAGR (%) +5.4% +4.0% Increasing Ocean share suggests higher demand for lower-value goods worldwide Note: limited to containerized trade (excluding bulk and liquid) Source: Seabury Global Trade Database (May 2016) Confidential not for third party distribution Seabury Group 2016

8 High-value pharma has experienced a shift to ocean While the low-value pharma does not prevail for air trade (below $15/kg), the highervalue products have experienced a steady long-term decline of air share Trade weight 2015, by the value buckets Thousand tonnes Air share of the different value buckets, Air share of air + ocean (%) Although air is mostly retaining high-end pharma (>$150/kg) the mid-segments have experienced continuous air share drop since 2000 Note: limited to containerized trade (excluding bulk and liquid) Source: Seabury Global Trade Database (May 2016) Confidential not for third party distribution Seabury Group 2016

Cold chain shipping losses $ 35 bnestimated cold chain shipping loss represents about 15% of the temperature-sensitive pharmaceuticals sales value http://cargosense.

9 Cold chain shipping losses $ 35 bnestimated cold chain shipping loss represents about 15% of the temperature-sensitive pharmaceuticals sales value identifies about half of it as lost product cost, the other half being consequential man power and process cost

10 Appears to be high... it depends if you look at lost product cost only or consider all damage related cost

11 Air cargo diagnosis Irregularity analysis a few years ago identified Airport to Airport as critical segment:

Air cargo diseases Critical issues raised by pharmaceutical shippers: Meeting the growing number of international regulations Lack of standardization, compliance and transparencyacross the air

12 Air cargo diseases Critical issues raised by pharmaceutical shippers: Meeting the growing number of international regulations Lack of standardization, compliance and transparencyacross the air transport supply chain Mitigate the temperature excursions happening while in the hands of their supply chain partners Properly trained stakeholders on regulations and standards Adequately equipped facilitiesthroughout the supply chain Global certification for handling of pharmaceutical cargo ability to easily search and identify stakeholders that meet requirements Source: Material courtesy IATA

13 Sea freight diseases Much lower sea freight cost are THE driver to move even 2-8 C range products from air to ocean with approximately 20% of airfreight cost as a thumb rule From Europe more prevalent in the transatlantic trade rather than into the Middle East and Far East probably due to handling and port side storage being more efficient and reliable Risks are so much greater than in air freight it can be harder to get adequate insurance coverage for marine shipments Collaboration across the ocean freight chain can be much more cumbersome than in airfreight Much larger product volumes are transported in ocean freight containers - a temperature excursion does lead to a much higher impact both financially and commercially Large claims with sea freight shipments have occurred one of the issues being the incorrect setting of the thermostat by the carriers, either through ignorance or carelessness, and at times, the shipper failing to provide the proper carriage instructions With Ocean Freight, much more rigorous controls, SOPs and carrier instructions are required throughout the supply lanes if risks are to be reduced and mitigated. John Perera, Marine Risk Management Consultant Source: Selected industry experts in conversation with KaravanManagement Consulting

IATA therapy for airfreight As an industry body the International Air Transport Association has long standing experience in developing standards IATA has chosen a supply chain approach, inviting

14 IATA therapy for airfreight As an industry body the International Air Transport Association has long standing experience in developing standards IATA has chosen a supply chain approach, inviting shippers, freight forwarders, ground handlers, airlines, airports and temperature-controlled packaging companies to jointly work on standards for pharma transportation leading to creating the new Chapter 17 in 2010 In a gradual process over the years IATA has fine-tuned and now published Temperature Control Regulations (TCR) as a standalone healthcare regulation for air transport of pharmaceuticals Geared towards airlines, ground handlers, forwarders, pharma companies Source: IATA presentation and

15 2-8 C solutions & processes enhanced More airlines have implemented dedicated and branded Cold Chain services more customer choices Active technology has moved on from dry-ice based cooling to electrical heating/compressor cooling with Envirotainerin the lead. All key airlines are offering a Heating&Coolingcontainer type, many have added innovative passive technology moving away from dry-iced based solutions -reducing handling complexity All key airlines are working with Envirotainertechnology, about 2/3 of them as QEP Accredited Partners better operational performance Nearly all of the global key players analysed have also integrated CSafe Heating & Cooling containers in their portfolio, some DokaschH&C containers, many va-q-teccontainers with passive vacuum panel/phase change material based technology -higher flexibility and availability of shipping units Temperature monitoring options and online availability of information have improved higher cold chain visibility and process transparency Extensive staff training programs and dedicated Cold Chain experts in airline operations and/or product management have been established less irregularities, higher product integrity

16 Market situation in 2013 lskdfjsaldkfjaslkfjsdklf

active substances for medicinal products for human use In combination

17 EU GDP has had a significant impact Nov 2013: EU Guideline on GDP of medicinal products for human use Mar 2015: EU Guideline on GDP of active substances for medicinal products for human use In combination with other existing international and national regulations such as WHO, USP, MHRA

18 CRT Pharma as new focus Most pharmaceuticals used to be shipped as General Cargo, primarily in the degree C segment these cost savings bear quality risks as no Cold Chain or Controlled Room Temperature (CRT) specific handling procedures apply EU Guidelines on GDP of medicinal products for human use Nov 2013 & GDP of active substances for medicinal products for human use March 2015 have changed the situation also for shipping room-temperature goods Solutions for shipping 2-8 C have been well established, active Heating & Cooling containers can be used to ship CRT but usually too costly for a lower value CRT product All key airlines are offering dedicated services to ship CRT, with features offering different levels of protection: Handling process based, protecting shipper s packaging Storage in transit in dedicated room temperature-controlled warehouses and/or protected ramp transfers Offering passive cooling solutions such as passive containers, insulated packaging or blanket solutions

19 An airline process example Processes deviating from General Cargo when booking and shipping passive/crt pharma shipments: Comment Karavan: Plus faster and/or protected ramp transfer processes

Key airlines -passive shipping solutions Key Airlines with Passive Shipping Solutions for CRT Pharma Process

passive packaging carrier AF KL MP Cargo x va-q-tec, Blanket Solution IAG Cargo x Lufthansa Cargo x Swiss

va-q-tec United Cargo x va-q-tec Air Canada Cargo x Tyvek Cargo Cover Emirates SkyCargo x White Cover Advanced,

Container CC20, Blanket Solution Fedex x va-q-tec UPS x va-q-tec DHL x va-q-tec Sources: Carrier website, provider

com/media-centre/emirates-skycargo-launches-new-temperature-controlled-container-to-go-out-to-media-at-1200-pm;

20 Key airlines -passive shipping solutions Key Airlines with Passive Shipping Solutions for CRT Pharma Process based, Additional passive protection protecting shipper's origin-destination, offered by Airline / Integrator passive packaging carrier AF KL MP Cargo x va-q-tec, Blanket Solution IAG Cargo x Lufthansa Cargo x Swiss WorldCargo x va-q-tec Cargolux x Tyvek Cargo Cover CAL x Blanket Solution American Airlines Cargo x Delta Cargo x va-q-tec United Cargo x va-q-tec Air Canada Cargo x Tyvek Cargo Cover Emirates SkyCargo x White Cover Advanced, White Container Etihad Cargo x va-q-tec Qatar Airways Cargo x va-q-tec Cathay Pacific Cargo x JAL Cargo x Passive Container CC20, Blanket Solution Fedex x va-q-tec UPS x va-q-tec DHL x va-q-tec Sources: Carrier website, provider information Sources photos:

21 High investment in the pharma niche Approximate values published for selected infrastructure investment: Cool Dolly with active cooling Euro Opticooler Heating & Cooling Container Euro DUS Pharma Center at DuesseldorfAirport - 3 Mio Euro for 800 sqmfacility DHL Logistics Center for Life Science and Healthcare Products at ShipholAirport -1 Mio Euro for 1000 sqmfacility Source:

Protection during ramp transfers An increasing number and different types of

Temperature-controlled trucks on tarmac In addition, some carriers/airports

22 Protection during ramp transfers An increasing number and different types of vehicles protect pharma on airport tarmacs between cargo terminal and aircraft vv.: Cool Dollies with active cooling Insulated Cool Dollies Temperature-controlled trucks on tarmac In addition, some carriers/airports are working with blanket solutions Photos:

Pharma Zones on airport clockwise Lufthansa

Center, Dusseldorf IAG Cargo Constant Climate

Centre, Luxembourg Sources: LHR photo by IAG,

23 Pharma Zones on airport clockwise Lufthansa Cargo Cool Center, Frankfurt DUS Pharma Center, Dusseldorf IAG Cargo Constant Climate Centre, London LuxairPharma and Healthcare Centre, Luxembourg Sources: LHR photo by IAG,

Pharma Zones on airport (2) PACTL Cool Center Shanghai Pudong Intl Airport

American Airlines Cago Pharmaceutical Handling Facility Philadelphia clockwise

com/wp-content/uploads/2015/11/pactl-tests-new-eco-friendly-cool-centre.

com/latestnews/united-cargo-opens-a-tempcontrol-center-at-newark-nj-airport/;

24 Pharma Zones on airport (2) PACTL Cool Center Shanghai Pudong Intl Airport United Airlines Temp Control CenterNewark Airport Pharma Zone Hyderabad Airport American Airlines Cago Pharmaceutical Handling Facility Philadelphia clockwise Sources: ;

Complementing innovation Securing pharma product integrity in airfreight is further enhanced by innovative developments and new technologies in related fields,

5 C ambient temperature DuPont Tyvek Xtreme W50 Cargo Cover, reflective and breathable now fitted with a proprietary insulating layer extending both the hot and

Temperature tracking and evaluation, loggers and software Sources: http://skycell.ch/products-3/; http://www.dupont.

25 Complementing innovation Securing pharma product integrity in airfreight is further enhanced by innovative developments and new technologies in related fields, selected examples : Packaging SkyCell770C/1500C passive container with cold-energy battery phase change material with recharge capability below +2 C and above + 5 C ambient temperature DuPont Tyvek Xtreme W50 Cargo Cover, reflective and breathable now fitted with a proprietary insulating layer extending both the hot and cold temperature performance span CryoportExpress Dry Shipper, vaporised liquid nitrogen as refrigerant, enabling deep frozen/cryogenic shipments by air Temperature tracking and evaluation, loggers and software Sources: Cargo Cover photo courtesy DuPont;

NFC wireless temp & humidity tracking Near field

smartphones, new application example: BlulogNFC data logger

temperature & humidity sensor, easy to program and read out

respective app Very precise with large memory, high

26 NFC wireless temp & humidity tracking Near field communication(nfc) technology, now present in most recent smartphones, new application example: BlulogNFC data logger -credit-card size, 30g light, low-cost Equipped with temperature & humidity sensor, easy to program and read out data contactless using an Android smartphone with the respective app Very precise with large memory, high security Combined with a cloud based system Source: Information material courtesy Blulog

Real-time global tracking on the rise Real-time data collection with GPS based tracking and monitoring technology enable a new level of shipment visibility, supply chain efficiency, product integrity

by Federal Aviation Authority (FAA) as well as European Aviation Safety Agency (EASA) and allowed to carry by an impressive airline network already Flight mode: radio communication shuts down when on

27 Real-time global tracking on the rise Real-time data collection with GPS based tracking and monitoring technology enable a new level of shipment visibility, supply chain efficiency, product integrity Easy data access through cloud-based platforms with global communications capability Applicable across all transport modes air, ground, rail, ocean For airplane use the technology has been endorsed by Federal Aviation Authority (FAA) as well as European Aviation Safety Agency (EASA) and allowed to carry by an impressive airline network already Flight mode: radio communication shuts down when on board the aircraft to comply with aviation legislation, data continue to be recorded still allow a higher degree of pro-active measures when needed Photos:

Seamless visibility easy access United Airlines Cargo example, shipments with following GPS devices accepted on board: On Asset s SENTRY FlightSafe as a base for different applications such as: Built

device Track individual shipment Return Sources: http://www.unitedcargo.com/shipping/productsandshipping.jsp?name=tempcontrol&type=product#gps-tracking-devices-accepted; https://www.aacargo.com/index.

28 Seamless visibility easy access United Airlines Cargo example, shipments with following GPS devices accepted on board: On Asset s SENTRY FlightSafe as a base for different applications such as: Built into Envirotainer s integrated telemetry program, pilot-tests conducted with RAPe2 container & selected partners Built into an airline cold chain solution, AA Cargo Expedite TC: Rent FlightSafe device Track individual shipment Return Sources: Envirotainers-integrated-Telemetry-program-/;

29 Big Data & cold chain analytics Source: Material courtesy of LifeConEx, DHL Temperature Management Solutions

Accreditation & Certification programs Level 1: Quality enhancement programs such as Qualified

programs established by leading forwarders, LifeConEx Level 2: GDP certification of airline hubs LH Cargo,

Excellence for Independent Validators in Pharmaceutical Logistics CEIV Pharma Certification: CAL Cargo,

be/en/cargo/pharma/gateway/; http://www.envirotainer.

com/de_de/productsindustries/specials/cooltd; http://www.iata.org/whatwedo/cargo/pharma/pages/ceiv-pharma.

30 Accreditation & Certification programs Level 1: Quality enhancement programs such as Qualified EnvirotainerProvider Training & Quality Program (QEP), Standard Operating Procedures and Air Carrier Audit programs established by leading forwarders, LifeConEx Level 2: GDP certification of airline hubs LH Cargo, Swiss Cargo, IAG, Cargolux; GDP certification of freighter aircraft fleet Cargolux Level 3: IATA Centre of Excellence for Independent Validators in Pharmaceutical Logistics CEIV Pharma Certification: CAL Cargo, Finnair, Air France KLM Martinair Cargo Sources: Karavan industry knowledge;

31 IATA taking a supply chain approach Initiating the IATA CEIV Pharma program in 2013, targeting: Airlines Airports Ground Handlers Trucking Companies Freight Forwarders Distributors Source: IATA material

Improve global competency A concentrated effort to improve the level of competencyas well as operaoonal and technical prepared ness is urgently required to stop the

32 Improve global competency A concentrated effort to improve the level of competencyas well as operaoonal and technical prepared ness is urgently required to stop the alarming decline of air cargo s market share of global pharmaceutical product transport Source: IATA material

Global coverage & compliance The industry identified a need to build a network of certified pharmaceutical trade lanes that meet consistent standards and assure product integrity.

33 Global coverage & compliance The industry identified a need to build a network of certified pharmaceutical trade lanes that meet consistent standards and assure product integrity. As a result, IATA has taken a leading role in supporting the air transport indus tryto comply with pharmaceutical manufacturers' requirements. Source: IATA material

34 A young program in global demand 30 IataCEIV Pharma certifications completed high focus on Europe 81 certifications in progress extending across continents By end of 2016 IATA expects to have 101 entities assessed and at least 80 entities certified Source: IATA material

35 CEIV community approach A community approach: The majority of the entities certified are ground handlers and freight forwarders.

Next generation smart cold chain Convergence of new forces is significantly raising the stakes: A changing product portfolio stricter regulations extended geographic coverage increased risk and

36 Next generation smart cold chain Convergence of new forces is significantly raising the stakes: A changing product portfolio stricter regulations extended geographic coverage increased risk and intense cost pressure Trend: Healthcare providers/payers increasingly base purchasing and reimbursement decisions on a drug s therapeutic performance The traditional cold chain is outdated Time has come for a smarter life sciences supply chain: Specialized and compliant network Globally consistent processes Risk-appropriate packaging Total cost strategy Source: DHL Life Sciences & Healthcare Industry Brief 2015, The smarter Cold Chain

37 Thank you Disclaimer: This presentation is based on the presenter s analysis and views, on information available in public or supported by the concerned parties. All examples and companies mentioned are meant to illustrate industry developments, not to be understood as recommendations. Please note: This presentation material is not permitted for any 3 rd party distribution or commercial use

Francisco Rizzuto IATA Cargo Manager for Western Europe Specialized in Temperature Controlled Shipments for Pharmaceuticals

Francisco Rizzuto IATA Cargo Manager for Western Europe Specialized in Temperature Controlled Shipments for Pharmaceuticals Pharma Process Forum BCN, October 28 th 205 Q3 205 2 The International Air Cargo