As the COVID-19 pandemic continues to rattle economic markets it is becoming apparent that the pharmaceutical industry’s overreliance on APIs coming from China is turning into a major supply chain issue.
Can the industry turn to other suppliers for APIs? What effect will supply chain issues have on the cost of products?
Pharmaceutical Outsourcing spoke to three companies to get their views on this issue.
Tony O'Sullivan, Chief Commercial Officer, ChargePoint Technology Ltd.
The world is still learning to adjust to the global challenges faced during the ongoing COVID-19 pandemic. Pharmaceutical companies are continuing to work hard to develop new medicines, including a vaccine to fight COVID-19, and manufacturers are therefore facing an increased need for sterile manufacturing capabilities.
Since the start of the outbreak, there have been several reports about the closure of factories in China. These factories make the basic raw materials and APIs that are crucial to the continuous delivery of vital medicines to patients. During such uncertain and demanding times, the pharmaceutical industry has had to rethink its supply chains to reduce dependence on supplies of such raw materials and finished products from a single market. However, the industry is proving that it has solid business continuity plans in place and are working in favor of manufacturers that are geographically closer and can guarantee supply in critical situations.1
As a result, several countries are implementing new processes to onshore API production in an effort to secure their supply chains. Namely, there is talk of new legislation in the USA which would mandate the production of APIs on America’s shores – a costly move for the industry. The so-called “Buy American” order exempts the import of certain drugs if they are already in abundant supply or if procuring them in the U.S. would increase the cost by more than 25%, something that the pharma industry hasn’t exactly welcomed.2
On the opposite side of the world, India relied on China for around 70% of the APIs that it uses in pharmaceutical manufacturing. In response, the Indian government set aside $1.2 billion for the pharmaceutical industry and announced the creation of a production-linked incentive scheme for the manufacturing of critical drugs and APIs to shift the country’s reliance on the supply of APIs from China.3
As result of such an increase in the use of APIs on the horizon, we are already witnessing greater investment in local manufacturing sites for API production whereby manufacturers must achieve effective, validated containment and sterile transfer, a challenge in the modern pharmaceutical manufacturing environment. This results in a need for manufacturers to invest in the appropriate equipment, especially if containment and aseptic processing are required. During material transfer, effective engineering controls are crucial as employee safety is the primary focus, however companies also aim for minimal disruption to the manufacturing process.
Jean-François Hilaire, Executive Vice President – Strategy and Global Integration, Recipharm
Pharmaceutical supply chains need constant monitoring and improvement to ensure operations are optimized, globally. More than ever, with the COVID-19 pandemic, and the resulting pressure it has placed on certain parts of the pharmaceutical supply chain, Europe’s reliance on APIs and intermediates which are manufactured outside of Europe is under the spotlight. Several European governments are now trying to convince companies to consider the relocation of API and pharmaceutical production in Europe if not in their home country.
Although drug product manufacturing in Europe is still well established, the end of the 1990s and 2000s saw much of the industry’s API production relocated to India and China. Over last years, multiple shortages of key pharmaceuticals have already been recorded, but the current coronavirus pandemic has highlighted certain vulnerabilities in this model - fragmented supply chains with limited ability to react to changes.
Many existing manufacturing facilities across Europe require extensive modernization to comply with increasingly stringent safety and quality requirements. The temptation to move production - and invest outside of Europe - to low-cost countries where construction and equipment is cheaper, is understandable. However, there are benefits to retaining production in Europe.
One reason for localization is to create more skilled jobs within each country and reduce the trade balance deficit. This does, however, raise some questions, for example, which pharmaceutical companies are willing to give up low-cost supply? How will such a move affect the cost of the finished drug product? Will the industry be able to ensure that plant capacity is available for each new product in each of the countries where there is high demand to ensure a good, listed price? Ultimately, there is an argument that this model raises the complexity of supply chains.
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Although better quality control could also support the argument for relocating drug production to Europe, many Chinese and Indian suppliers now pass FDA inspections without observations. And what about reliability of supply? There’s nothing to suggest the industry would have been more reactive to the tensions on the supply of pharmaceuticals due to the COVID-19 pandemic, if production facilities were all based in Europe.
There are some clear reasons why Europe is an excellent choice for API and drug product development and manufacturing including access to highly skilled scientists, substantial funds, and tax break benefits granted by government or European institutions for research. It would, therefore, be sensible for products discovered and developed in Europe to remain in this market, particularly as the economic model of emerging countries is evolving, resulting in higher supply pricing.
But how can relocating to Europe become a reality? The massive investments in capital and skills required to modernize old facilities would need significant and long-term commitments – something akin to the US Biomedical Advanced Research and Development Authority (BARDA) - from authorities and institutions. It would also need to be backed by member states governments or even the European Commission to guarantee the return on investment. Furthermore, those relocation of API production to Europe will need a higher remuneration, streamlined regulatory and administrative duties, a review of tax rules, and further development of specialized clusters.
Contract development and manufacturing organizations (CDMOs) in Europe, such as Recipharm, have played an important role in retaining pharmaceutical production by maintaining and extending production capacity. And, as a result the impact on their operations has been limited. However, by establishing its own BARDA, Europe could readdress the balance to more of a public health agenda and less of a cost-focused approach. The result could revive the dynamic nature of the industry in Europe. Authorities should act now before it’s too late.
James Rogers, Head of Manufacturing and Supply, Sterling
COVID-19 has affected every business in some way or another; what we have successfully achieved is minimizing the impact to not just our business and our customers, but also to our employees.
A robust supply chain has always been a key business focus for us, and it has recently been tested in many ways. However, it has stood up well in these testing times and provided peace of mind for our customers. We have had to leverage alternatives sources, and employ our business continuity plans, but this is much easier when you have a solid foundation to work with. Our operations have been uninterrupted throughout the pandemic.
We are incredibly lucky to have a flexible and agile team, that has responded well to the changes we have made over the last few months in order to continue to manufacture in a safe and compliant manner. Throughout the pandemic our number one priority has been the safety and wellbeing of our staff. Aside from alternating shifts and changing office layouts, we have invested heavily in a variety of areas including increased personal protective equipment and laptops to support homeworking, where possible. As a result, our absence rate has been below 1% throughout the pandemic.
We are already seeing companies and governments looking more closely at critical medicine supply in terms of the number of regions they are reliant on, and the potential risk this could present. Continuity of supply will now sit alongside price, as a primary consideration when developing supply strategies going forward.
Technology has of course been thrown into the spotlight. For us it has accelerated a number of projects in terms of installing new technologies, but it has also led us to explore new technology to adapt and improve our ways of working. One example of this is virtual auditing, which is something that we can now offer customers, as well as virtual tours of our facilities.
References
- http://www.samedanltd.com/magazine/15/issue/325/article/5315 2.
- https://www.pharmamanufacturing.com/articles/2020/bring-it-home/?utm_campaign=PHMDD_2020_Enews_Campaign&utm_medium=email&_hsmi=95385714&_hsenc=p2ANqtz-_H01YMS3P5TZ05ktlKYk9MeTxua4XulipzNNQPvRP53ojS9daQO91ikrMgAU1e2Nd3Us4JJq-PXstKGk-EQSpkY_bw7A&utm_content=95385714&utm_source=hs_email
- https://www.thepharmaletter.com/article/indian-government-moves-on-apis-as-chinese-supplies-are-returning