Supply Chain – Yes it matters

As we continue to gauge the financial impact of the coronavirus, we found this statement from Lilly very interesting – per a press release issued yesterday;

“Among the concerns raised due to the impact of the novel coronavirus is whether patients can count on a reliable supply of medicine. Lilly does not anticipate shortages for any of our products, including all forms of insulin.

Since the initial outbreak, Lilly has been closely monitoring our supply chain for potential impact to the supply of our medicines around the world. Lilly does not source active pharmaceutical ingredients (API) for any of our approved medicines from China, and our insulin manufacturing sites in the United States and Europe have not been impacted by coronavirus. Lilly insulin and other medicines are available, as normal, in U.S. pharmacies. Pharmacies that don’t have certain medicines in stock can order them from wholesalers, with delivery in 1-2 days.

Globally, our manufacturing network is fully operational and taking steps to prevent impact. We’re also in close communication with key suppliers to ensure appropriate supplies of raw materials. As the global situation evolves, we will continue to take the steps necessary to safeguard the reliable supply of our medicines.”

Doing a quick check we did not find any such statements from either Novo Nordisk or Sanofi. Yet given what we know about both companies and the locations of their manufacturing facilities it would seem logical they could face an issue. This is no way means either company will have an issue, but we would suspect with Lilly making a public statement they just might follow.

The impact of the coronavirus and supply chain was also part of the recent Insulet earnings call when CEO Shacey Petrovic noted;

“Finally, turning to our manufacturing innovation and global operational excellence. First, I would like to acknowledge that as we all deal with the global challenges of the coronavirus and its impact on families, employees and the operations of many global organizations; it highlights the importance of our investment in manufacturing, and supply chain redundancy.

In May of last year, we began production on our first highly automated state of the art manufacturing line in the United States. In doing so, we not only developed valuable internal manufacturing expertise, we also added redundancy, expanded capacity, and strengthened our supply chain. Possessing the ability and internal expertise to manufacture our own products at scale and manage the complexity of our supply chain are critical to support our rapid growth and long-term capacity needs. We are in the middle of ramping up our first U.S. manufacturing line and starting line 2 with production of sellable product and the second line expected by mid-year. We also remain on track to install our third manufacturing line in the United States later this year with sellable product next year.”

While no one anticipated the coronavirus and the scale it is now reaching how companies deal with it and possible supply chain issues will be very telling. From day one we have noted the importance of having a strong management team. As Momma Kliff was fond of saying it doesn’t take a genius to deal with success when everything is going great. Real talent comes to the surface when things don’t go so well. This is one reason we have noted many times that Dexcom has one of the best, if not the best, management team in diabetes. Insulet and now Tandem is joining Dexcom as teams with talent.

This is in sharp contrast to how Medtronic has dealt with many of their issues. Rather than acknowledge the many problems they have gone out of their way to avoid the truth. They have known for some time their sensor was inferior to the competition yet rather than acknowledge this well-known issue they continued to say the sun was shining while thunderstorms roared outside.

As the coronavirus spreads, we are headed into uncharted choppy waters that require a steady hand at the helm. No one and we do mean no one really knows what will happen next. Nor does there appear to be a quick answer to many of the questions that are being raised. Yesterday the markets got spooked when the Federal Reserve cut rates while today, so far anyway, stocks are back up. This unfortunately is the reality we know live in and we suspect that the fallout from the coronavirus is just beginning.

Again we are not nor do we want to be market prognosticators; however today’s events prove once again something we say consistently talent matters. Unfortunately when it comes to our wacky world talent is in short supply. Hence when you find it excuse the expression stick with it. It’s not an accident that nine times out of ten the team with the best talent wins the game, yes there will be the occasional upset, but talent typically wins. Given how this is developing this is not a time to take too many chances.