Supply chain innovator reduces risk and complexity for high-value pharmaceuticals

01 Jun Supply chain innovator reduces risk and complexity for high-value pharmaceuticals

Richard Ettl, CEO and Co-Founder, SkyCell, explains why the “Rolex of containers” has attracted $62 million in financing during the COVID-19 crisis

SkyCell is one the big four providers of temperature-controlled containers for the pharma industry, providing over 22,000 pallets annually and growing at a double-digit rate. This is a company that you co-founded with Nico Ros eight years ago. To start, can you give us a brief overview of SkyCell and how it has developed over those eight years?

SkyCell started out with technology innovation. We originally took ISOPET—polyethylene terephthalate that you get from your water bottle materials—and turned it into a high-performance insulation technology. We pitched this insulation to a pharmaceutical company here in Switzerland, which was very interested but asked if we could build a container out of it, because pharmaceutical products are very sensitive to temperature, shocks and humidity. Pharmaceutical companies usually transport their products by air around the world. The highly valuable products are always transported via airfreight, and so there is a lot of risk when you transport one to two million dollars on a single pallet.

SkyCell makes extremely innovative airfreight containers for the pharmaceutical industry. We innovate first with our hardware, as we make a very interesting container that is much lighter, and saves costs and CO₂. Second, we innovate also with our software, as we were the first to integrate Internet of Things sensors into our containers. In 2013, we decided this was the way forward. With this monitoring capability, we know where the containers are located and are able to identify risks. We can then intervene in the supply chain. Before it was “ship and hope”: you would ship and hope everything went well, and then afterwards, you would realize that the pallet with $1 million on it is wasted. With our technology, we can intervene in the supply chain and that is a very important capability.

If you have sensors on board you collect a lot of data. With data, you can learn. With these models we can actually make recommendations to our clients—the pharmaceutical companies, freight forwarders and airlines—on what is the best way to work, what are the risks and how you can mitigate those risks. SkyCell’s job today is to reduce risk and complexity in the supply chain by providing the hardware, software and the services that go with it.

During the coronavirus crisis, SkyCell has teamed up with KLM and UPS to ship 6.5 tons of critical vaccines from Japan to Germany in response to a shortage. Can you tell us more about this COVID-19 episode for your company? How has it strengthened your SkyCell’s skills and capacities? How has it accentuated your role as vital link in the healthcare industry?

The COVID-19 crisis shone a lot of light on what tends to stay in the background. Normally, the supply chain is not visible but COVID-19 revealed the importance of day-to-day shipping activities: shipping screws and cell phones around the world but, more importantly, life-saving products and sometimes even smaller things like masks. If planes don’t fly, it’s very tough to get things around the world. Today, pharmaceuticals make up a large part of why planes are still flying. Obviously, there are a lot more products that are still flying, but when things really came down at the beginning of the crisis, planes kept moving because of pharmaceutical products and the need for those products to move around the world.

We are specialized in what is called biologics. Biologics are semi-living organisms grown in a lab, they are not chemicals. It sleeps in a vial and it has to be stored at a cold temperature—in a cold room, like a refrigerator. When it enters your blood stream, it wakes up and does its job. If it is in an uncontrolled temperature in the logistics process, it wakes up in the vial and potentially doesn’t work on a patient or could even be poisonous. That is why temperature is such an important aspect. During the crisis, it became apparent that all of a sudden, the easy and normal way of shipping around the world was gone. Everything was different. Plane schedules were different, operations on the ground at the airport were totally different. Being able to rely on the fact that you can check on the container and intervene has been an important capability.

SkyCell is specialized in certain product categories. We ship a lot of vaccines, biologic products, cancer products, life-saving products so that they can move around. When the temperature is not maintained, the pharma company cannot immediately release the product to market, there could then be a shortage and patients will not get their products. That is a huge risk in the case of a pandemic and that is why pharma companies pay such close attention.

During the COVID-19 pandemic, we proved our capabilities well—for example, on the Japan move. The German government noticed they were missing a key vaccine for older people. If they go to the hospital and potentially have COVID-19, they would be pre-emptively vaccinated; but Germany was missing 300,000 doses. These 300,000 doses needed to be moved immediately from Japan. If there had been a temperature excursion— a technical term for when the temperature is not correct—they would have to test if the vaccine still worked. That process would take two to three weeks. In that time period, you can’t give the products to patients, so there was a very critical aspect to it. This showed SkyCell’s critical capabilities very well.

Your industry has seen a lot of changes even before the crisis with increased regulations around temperature controls, but also challenges such as the fight against counterfeits, CO₂ emissions and so on. What are some of the key trends taking shape currently, which you think will accelerate as a result of this crisis? What are the main challenges, threats and opportunities in the global pharma supply chains?

Let’s look at the kind of pharma products that are produced today as opposed to 20 or 30 years ago. We can see that there is a shift on the technology side. There are still a lot of chemical pharmaceutical products out there, but the vast majority of new, so-called “blockbusters” coming to market are all biologics. They are super temperature sensitive and very hard to make. We are not talking about making them in an afternoon, but over nine months. If you lose that one pallet, it takes another nine months to make another pallet. It is very important that we are able to deliver and keep the temperature, humidity, shock and vibration stable. These are very large molecules, although still very small relatively. If you shake them, they can break apart. If they break apart, they are not as functional or may not function at all. That is why shock and vibration have become important topics.

The largest driver per se is the product category—these temperature-sensitive new products. The second is the value. We are talking not about $100,000 for a pallet any more, but a multimillion-dollar value. We transport up to $12 million on a pallet, when we talk about the raw material. Usually when it is finished, it represents $1-2 million on a pallet. The third driver is regulation. Pharma companies were self-regulating before. They decided it was good enough for them under various requirements. Today, often it is also governments that require a minimum standard. Pharma companies have to prove that they have always stored at the right temperature, that they have transported at the right temperature and that what they are selling for $1- 2 a pallet actually works. This translates to a massive change in the burden of proof toward pharma companies. Last but not least, there is sustainability. At the last World Economic Forum, multiple CEOs of pharma companies pledged to make their firms CO₂ negative. Essentially, this would mean that when they sell a product, they are taking CO₂ out of the air. These are huge ambitions and I think we can contribute a lot to that.

SkyCell’s products offer a unique combination of hardware, software and services. What are some of the most innovative products or services developed by Skycell so far and what is in the pipeline going forward?

The biggest innovation we introduced when we came on the market was to change from “ship and hope.” Through our technologies, our clients are able monitor what happens with their shipments around the world, and this is a huge asset for our pharma companies. Secondly, we also reduce costs and CO₂ emissions, which is also very important today. Our healthcare systems are becoming more and more expensive—not increasing these costs or even bringing costs down is an important mission we have at SkyCell. We want to make things more sustainable. We only have one earth—if we screw this one up, there is not a second one to live on. I think this is an important responsibility. We have decided to change the slogan of the company to “safe, secure and sustainable,” to reflect what our company stands for. This was an important move for us. We are moving away from just one product that we have developed, to what the company stands for as well as the various services we have developed around this container.

At the end of April, SkyCell closed an oversubscribed financing round of $62 million to extend its fleet. That’s even more remarkable as it happened right in the middle of the crisis. What’s on your roadmap over the next few years to expand your company’s reach and presence?

We managed to close fundraising during the COVID-19 crisis because our products and services are needed now more than ever. Our business is accelerating now, as pharma companies are deciding to switch to our technology.

Today, we are serving global pharmaceutical companies—mostly based in Europe and the U.S.—and we continue to build out our footprint to serve them. Meanwhile, we also see a strong demand from Asia, specifically China which is gearing up to be a major pharmaceutical product manufacturer. We want to be there and serve them with our containers, and plan on using these funds to expand our container fleet. Obviously, there are many other markets: South Korea, Japan—where we are already present—and Australia, where we want to expand our presence.

How are you working to expand your global partnership network? Do you have any new collaborations with airlines or other pharma players in the pipeline?

On the airline side, we continue to focus on few but strong partnerships. We continuously build that out. Like Switzerland, we are neutral and quality is always a priority; therefore, we want to work with a few partners very closely so that we can offer something unique. If you work with everyone, then usually it is not the most unique service.

On the pharma side, we work with everyone. Our main client is the pharmaceutical industry.

Four of your clients are working on a COVID-19 vaccine—that means that SkyCell could potentially be transporting the vaccine if one is discovered. How does that make you feel?

Pharmaceutical companies plan well ahead and need to prepare the supply chains. Four of our clients are working full-speed on a COVID-19 vaccine, so if any of them succeeds by the end of the year, they will have to let us know as a supplier and check if we are able to serve them. That already means ramping up production in Q4 this year. They would need to do test runs. It rolls out in clinical phase tests. That means growing quantities that we will probably already see later in this year. Hopefully we have one, maybe multiple potential vaccines on the market. This could mean a fast rollout throughout the world. We could be a very big winner in this case.

As a serial entrepreneur in Switzerland, what is your opinion on the country’s innovativeness and responsiveness during the crisis? As the world’s most innovative economy, has Switzerland lived up to its reputation?

Our clients in the U.S. consider us to be the “Rolex of containers.” Swiss products are very well engineered and innovative. With Switzerland being a small local market, Swiss companies are always forced to go outside and need to be super competitive. As Switzerland has a very high labor costs, companies also need to create a lot of added value for their users and customers. Reliability is another core value of Swiss industry and Swiss culture.

During the COVID-19 crisis, we’ve seen a remarkable collaboration between the government and the private sector. The government was extremely pragmatic and fast-moving. SkyCell, for example, got listed as a critical supplier. One of the seven counselors of the Swiss government heard one day that we were having trouble operating and gave us a call. We were immediately attributed a special designation so that we could cross borders more easily. We got the same recognition with the EU. This shows how close the government is to the private sector and how it is trying to enable it to take charge during this crisis. I thought that this was a very positive example.

Looking toward the future, what is your vision and ambition for the company in the next five years? Where would you like to take SkyCell?

We started out on the container side and will continue delivering on that strategy. Our technology is very scalable. For example, we can put a single syringe into a new, specific type of packaging and could potentially ship this to patient homes. This could allow a completely new way for pharmaceuticals to be brought to patients. Going forward, modern pharmaceuticals will be very tailored, and made like a cocktail: mixed based on your needs and treatments. We can be a big enabler of that trend and we would like to work on that further. We want to continue delivering on the container strategy but also explore how we can contribute to changing the way pharmaceuticals are moved around the world to patients.

Do you have any plans for acquisitions to also grow your business?

So far, we have not identified a technology that we would need or that we could not develop ourselves. We have, though, acquired skills that we did not have before. We have started to develop our own IT hardware—I would never have thought ten years ago that I would have developed IT hardware in the company. Acquisitions are not on our radar today, but this could change over time.

What is your final message to our global audience?

Innovation and sustainability should go hand in hand—the next generation of companies understands that. If we want to preserve the way we are living as people on the planet with the resources that we consume, sustainability should be a huge aspect in the way new businesses operate and the way old businesses need to transform.

We need to look for innovations that also improve sustainability: not just a little bit, but significantly. As an example: one of our clients saved close to 52 million kilos of CO₂ with us last year, which is equivalent to the annual CO₂ emissions of a small city. That is the power of technology—technology can really leapfrog and make things massively more efficient. That is what investors are looking for. There is a new focus on environmental, social and governance ratings and sustainability investing. Investors have recognized that and I think that more money will flow into businesses that tick multiple boxes; it’s not just about financial returns or being in a certain sector but also about if your innovations will make a big difference in making the planet better.