June 24, 2022 PAO-06-022--NI-09
While the susceptibility to disruption of the pharmaceutical supply chain, inclusive of small molecule drugs, protein-based biologics, and cell and gene therapies, has been discussed for decades, little meaningful progress has been made. Problems have only worsened as the therapeutics market continues to evolve from technology and economic standpoints.
However, the industry, regulators, lawmakers, and patients are at a crossroads — either we will do the hard work of strengthening the system, or we will allow an increasing number of patients to face escalating levels of therapeutic instability.
When faced with a challenge of the magnitude of the broken pharmaceutical supply chain, there is a tendency to work to repair the problem. However, repairing suggests that we had a functional system that must merely be reinforced or restored.
Market changes over the last 20 years2 created the challenges that we are facing today. Patent expiries, reduction in R&D productivity, and changing payer reimbursement practices have pressured industry profitability. As a result, the industry implemented supply change efficiency initiatives inspired by non-pharma sectors, most notably automotive.
The pharmaceutical industry adopted supply chain efficiency and cost-reduction practices from these markets, sectors for which manufacturing costs more drastically impact profitability. Compared with many other markets, pharmaceutical manufacturing costs make a considerably lower contribution to overall costs of goods; therefore, pharma manufacturing cost-cutting measures arguably were disproportionate to the value delivered while contributing to complexity, uncertainty, and destabilization.
Given the size and complexity of the therapeutics industry, there is not a single set of solutions that will work for every industry segment. Instead, each market segment must be reviewed, critical weaknesses identified, and appropriate solutions developed.
While the discussion of pharmaceutical supply chain challenges is a voluminous conversation, the remainder of this article will focus on the two largest sectors, each with distinctly different problems to solve.
While numerous studies and efforts have reached similar conclusions, the first U.S. Essential Medicines Supply Chain and Manufacturing Resilience Assessment clearly articulated many problems.
Problems within the generic drug sector are pressing. The industry faced significant challenges before the pandemic, and these challenges have only worsened under the strain of materials shortages, lockdowns, and logistical interruptions.
Nine out of ten prescriptions (90%)3 written in the United States are for a generic drug. Many factors contributing to overall drug supply challenges coalesce and are amplified in the generic sphere — a sector essential to the treatment and care of American patients.
Drug shortages within the generic space have often been attributed to insufficient quality systems. While quality systems need improvement, the root issues are more complex.
Market structure — In the United States, there are no mechanisms to support the pricing floor of the generics market, and prices are continually pressured downward, impacting profitability. The solution has primarily been outsourcing to international manufacturing partners with more lenient environmental standards and lower labor costs.4
Lack of supply chain visibility — Outsourcing to far-away manufacturing partners severely reduces visibility into all facets of the supply chain.
Unknown lack of redundancy — Most pharmaceutical manufacturers have become increasingly committed to redundant supply. However, the lack of supply chain visibility often reveals an effective single-source supply chain. For example, a key API starting material manufactured in China might be supplied by only one source. Despite employing two or more API manufacturers striving for supply stability, a single-source for a critical starting material inveterately creates a single-source supply chain. The common lack of visibility into offshore manufacturers' supply chains makes this problem difficult to solve.
Quality shortfalls — Outdated systems and equipment cause many quality issues within the generics sector. Given the thin margins and the constant threat of price decreases, investing in current equipment, tools, and technologies is difficult.
Geographic concentration — Products like injectable saline, while critical to hospital operations, have exceptionally thin margins. As a result, manufacturing sources can become concentrated and very vulnerable. The industry painfully learned this lesson in 2017 when Hurricane Maria hit Puerto Rico, significantly disrupting just-in-time manufacturing sources for much of the injectable saline used in the United States.1
Manufacturing capacity–induced rigidity — In most cases, large product volumes and manufacturing efficiency are needed for generic drug profitability. Manufacturers, therefore, must run their plants to capacity as closely as possible to remain profitable. However, by running plants to capability, there is an inherent lack of flexibility to respond to market changes or emergencies.
Not a supply chain problem, after all — Many generic drug shortages are not supply chain problems, at least not issues typically characteristic of supply chain issues. Rather, drug supply is limited by manufacturers discontinuing the manufacture of a drug. In essence, the product has experienced so much downward pricing pressure that the manufacturer can no longer afford to profitably manufacture the product, so they simply stopped making it.4
The generic sector is far from the only source of supply chain difficulty within the pharmaceutical industry — the biologics sector has its own challenges.
Some of the issues plaguing the generic drug supply chain also challenge the biologics industry. However, many of the challenges are quite different. As biopharmaceutical patents continue to expire and the biosimilars sector grows, a portion of the biologics sector might experience challenges similar to those faced by small molecule generics. However, for the time being, the challenges in the two sectors are quite different.
Fully single-use systems (SUS) or hybrid biopharmaceutical facilities have become commonplace. Rather than capital equipment, equipment in an entirely disposable or hybrid facility are consumables for which supply must be managed.
Many SUS are custom designed, and consolidation among SUS suppliers has, in some cases, placed the supply of low-volume components for these custom systems in jeopardy.
However, the most significant industry problem is that SUS suppliers manufacture and market proprietary systems. Like razor manufacturers that require customers to buy their razor blades exclusively, SUS suppliers often design their systems in manners that make them the single source of supply for their customers.
SUS manufacturers’ impulse to lock in their customer base is quite understandable. Still, the lack of standardization across the SUS market makes supply shortfalls of a leading supplier difficult and risky to manage.
While the supply of SUS was already strained well before than pandemic, the SUS supply needed for COVID-19 vaccine manufacturing greatly exacerbated the problem and put the manufacture of other lifesaving biologics at risk.5
Biopharmaceutical manufacturers validate the production of their processes on a specific SUS configuration. The dire shortage among leading SUS suppliers and the inability to secure products from other sources greatly jeopardizes the manufacture of critically important therapeutics.
The Essential Medicines Supply Chain and Manufacturing Resilience Assessment provides a comprehensive roadmap for addressing many supply chain challenges within the industry. Some of the assessment’s key recommendations include:
Generic Drug Market Stabilization
Regulatory and Infrastructure Adjustments
Investments in Domestic Manufacturing and Distributed Manufacturing Networks
While not explicitly detailed in the Essential Medicines Supply Chain and Manufacturing Resilience Assessment, incentivizing standardization and harmonization of key systems, components, and materials like SUS, reagents, and buffers would also contribute to more effective supply chain management.
As previously discussed, various SUS bags and components designed for the same purpose often cannot be used interchangeably due to slight differences in port configurations and other characteristics.
Sometimes, differences within systems contribute to improved performance; however, differences for the sake of differences increase the vulnerability of the biopharmaceutical supply chain without gains in performance.
While the devil is nearly always in the details, the Essential Medicines Supply Chain and Manufacturing Resilience Assessment offers a productive vision for strengthening the U.S. pharmaceutical supply chain.
However, the assessment calls for fundamental changes within the economics of the pharmaceutical market, particularly within the generic drugs segment. These transformations are particularly daunting given today’s climate of division and often stalemate.
While change will not happen overnight, the comprehensive look at the market and articulation of root challenges within this report and others offers a framework for the discussion.
The old saying goes, "We shouldn't let a good tragedy go to waste." The COVID-19 pandemic has been undoubtedly tragic, but the industry, lawmakers, regulators, and the public have a much better view behind the curtain of the industry's problems. The question remains, what will we do with these understandings?
Tonia has nearly 30 years of expertise in content creation, strategic branding, marketing communications, and audience development. She has worked with market leaders in various industries but has been deeply entrenched in the pharmaceutical and healthcare industries for the last 15 years. She spent much of her career in B2B publishing and particularly enjoyed leading Pharmaceutical Manufacturing website and magazine as its publisher for over seven years. Tonia has a B.S. in Journalism from Ohio University's E.W. Scripps School of Journalism.