Lessons from a modern-day pandemic: redesigning the pharmaceutical supply chain

Published: 15-May-2020

The pharmaceutical industry has responded extremely well to the coronavirus pandemic. At the same time, the industry is changing before our eyes. To put it in simple terms, there will be no more “business-as-usual” in pharmaceutical manufacturing after COVID-19, explains Andrew Badrot, CEO, C2 PHARMA

Considering the unprecedented scope of the current pandemic, all aspects of pharmaceutical supply chain contingency planning have, so far, delivered as expected. To date, only a single drug shortage has been reported (except for COVID-19-driven demand for hydroxychloroquine, for example).

Safety stocks across the pharmaceutical manufacturing network and warehouses have kicked in and supply to pharmacies remains uninterrupted. This will not be indefinite and, should the lockdown extend further, one can expect a cascade of drug shortages. Nonetheless, to this date, the system has proven to be resilient and able to cope with a severe healthcare crisis.

The pandemic has, however, laid bare the limits of the current pharmaceutical manufacturing model and its heavy reliance on China for starting materials and, to a lesser extent, on active pharmaceutical ingredients (APIs) and finished drug products. This reliance has become both a strategic and an operational challenge for Western societies.

Strategically, the US, the European Union and Japan have changed their approach to China and now consider it to be a competitor. This new “cold war” will play out on the economic front and, most importantly, on the ideological front.

Whereas the one-time USSR was economically weak and ideologically corrupt, China has a humming economy. In addition, some fringe Western thinkers are now debating the value of authoritarianism as an efficient form of government, especially in moments of crisis.

Operationally, as collaboration between Western allied countries has broken down, exposing what limited solidarity states can expect from more affluent neighbours, questions about self-reliance have become ubiquitous.

In combination with pharmaceutical export restrictions from China and India — which the pharma industry viewed as inconceivable prior to this crisis — we have to face a new reality. We now know that countries will prioritise their own domestic demand and will not hesitate to restrict the export of essential drugs, medical devices and protective medical gear needed by healthcare professionals during a crisis.

How do we rebuild a reliable pharmaceutical supply chain that can cope with even more severe strains than the ones imposed by the current pandemic? What does a supply chain that can secure and support the needs of individual countries without the risk of nationalism taking over and causing unnecessarily loss of lives across the globe look like?

The current supply chain

Until now, the pharmaceutical supply chain was shaped to meet the requirements imposed by government policies around the world to aggressively seek savings on drug prices. Those policies were so successful that drug manufacturers were only able to maintain slim margins by pushing as much manufacturing as possible to China and India.

It is estimated that, today, 80% of all drugs sold in the West contain some form of precursor, whether basic or advanced, come from either country. In addition, tax considerations also led some innovative pharmaceutical companies to select exotic manufacturing locations such as Puerto Rico or Malta.

The concept of pharmaceutical manufacturing as a “strategic national asset” is the new reality. The US is leading the charge with White House trade adviser, Peter Navarro, advocating for an executive order requiring to “Buy American.” France’s President Macron, on the other side of the Atlantic, is pushing a narrative of “European Sovereignty” and the reshoring of strategic health industries.

The current model of pharmaceutical manufacturing certainly leads to cheaper drugs and creates short-term cost savings in national healthcare systems. Nonetheless, the current model becomes catastrophic in a severe pandemic situation and may lead to systemic societal breakdowns if large segments of the population were no longer able to access essential drugs.

Andrew Badrot

Andrew Badrot

Reshoring pharmaceutical manufacturing has been a recurring subject and is fiercely debated within the industry. Some have argued for a straightforward stockpiling strategy. Unfortunately, stockpiling cannot address extreme events and can only tackle short-term needs.

Others have advocated a reduction of environmental regulations to allow a more cost competitive manufacturing set-up in countries such as in the US or Japan or across Europe. This is another short-sighted solution that will cause more damage in the long-term. I do not believe that relaxing environmental regulations or quality standards is an ethical legislative pathway … nor a sustainable long-term solution.

Quite the contrary, manufacturing drugs in Western countries while retaining high environmental standards will drive innovation in green chemistry, which will benefit our societies in the future.

A new direction

First and foremost, I advocate focusing on creating government-funded financial incentives to manufacture essential drugs domestically and/or establish economical barriers to importing them. This could be in the form of preferred access regulations, mandates for domestic supply, financial grants or import duties.

Regulations could also be established such as those in effect for the military and mandate the use of locally made ingredients and domestic manufacturing for essential drugs. A combination of any of those approaches can be targeted and simple to implement. The difficult part is gathering the political will to drive the change.

One key aspect of any domestic manufacturing strategy is to establish a supply chain from cradle to grave. All starting materials, ingredients and excipients necessary for the production of an essential drug would need to be made locally, removing the need for any import.

This way, by creating a stable economic environment and a comprehensive policy to build innovative and flexible manufacturing assets, countries can quickly establish a sustainable and independent pipeline for essential APIs and drug products.

Additionally, I advocate strengthening the global quality standards for medicine by allowing the US FDA and its equivalent European, Japanese and other regulatory authorities to audit foreign manufacturing facilities without prior notice.

This will lead to better quality compliance across the globe and raise the stakes for companies who currently use their notification periods to put in place audit preparedness programmes that are nothing but “dressing the bride” prior to an audit.

Still, audits from regulatory authorities can become a double-edged sword. We see a disturbing trend emerging with some governments actively abusing such powers in order to provide preferential treatment to local production.

A recent example came when China’s National Medical Products Administration (NMPA) suspended the import of Bristol Myers Squibb’s blockbuster drug, Abraxane opened the door to two local Chinese manufacturers to fill the gap. Finally, we should create transparency on the label of the drug product by displaying the “country of origin” for both the pharmaceutical ingredients as well as the drug itself.

John Micklethwait and Adrian Wooldridge recently argued: “If Western governments respond creatively to the [COVID-19] crisis, they will have a chance of reversing decades of decline.”

It is a fact that, according to every available performance and governance metric for the past 30 years, our Western governments have been in decline to the point that countries such as the US and Italy are struggling to deliver the expected standard of care for their populations in the face of COVID-19.

Regardless of government inefficiencies and crippling ideological and political weakness in the Western world, the pharmaceutical industry needs to lead the way and react to the lessons learned from COVID-19.

With the help of our respective governments, we can establish a renewed sense of security in our societies by creating sustainable domestic pharmaceutical manufacturing capabilities that will meet the next healthcare crisis head on.

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