The Evolving Pharmaceutical Supply Chain
The Outsourcing Issue Feature: Part 1
There is only one thing certain about the impact of the COVID-19 pandemic on the pharmaceutical supply chain: uncertainty abounds. The heavy reliance on China for raw materials, intermediates, and APIs, as well as India for generic drug products, remains a significant concern. Distribution is also affected by disruptions to the global supply chain, as are clinical trials. A high level of ambiguity is expected to remain until the spread of the SARS-CoV-2 virus is halted.
Uncertainty Within the Pharma Industry
The COVID-19 pandemic is quite obviously both a health crisis and an economic disaster across the world. Since the shutdown of manufacturing activities in China and India — even before the World Health Organization (WHO) classified the spread of the SARS-CoV-2 virus as a pandemic — there have been questions regarding the pharmaceutical supply chain.
While some manufacturing was restarted in April in China, the virus continued to spread in many parts of the world. A survey conducted in mid-April 2020 by industry publication Pharmaceutical Technology found that 24% of 3,617 respondents were extremely confident that medicines wouldn’t be disrupted, while a similar portion (22%) were extremely doubtful.1 Another 23% were somewhat confident, and 20% were somewhat doubtful. Clearly, there was no united view as to what long-term impact the pandemic would have.
Several months later, the doubt still lingers. Many parts of the United States suffered tremendous spikes in cases after reopening their economies, with several reinstating modified stay-at-home and business closure/reduced operation orders. Other countries had success controlling pockets of case spikes through effective track-and-trace systems and mandated mask-wearing. It is apparent that the virus will continue to wreak havoc until a vaccine is developed, widely distributed, and administered to the bulk of the global population.
Reliance on China and India
One of the greatest causes of concern, which was already on the radar before the pandemic but has since been brought more to the forefront, is the dependence of the global pharmaceutical supply chain on China and India. Much of the key starting materials, intermediates, and APIs used to produce generic drugs and many branded products are produced in Asia, and overwhelmingly so in China and India.
According to recent testimony by the U.S. FDA’s Center for Drug Evaluation and Research director Janet Woodcock, the number of Chinese facilities supplying APIs doubled from 2010 to 2019.2 Her testimony stressed the risks created by such heavy reliance on just one region of the world to supply raw materials and APIs needed for drug manufacturing globally, a point emphasized by representatives of the European Fine Chemicals Group (EFCG) when speaking to the European Commission.3
The United States and the European Union each account for one-quarter of FDA-registered facilities around the globe, while China and India combined account for 31%. Woodcock noted that it is impossible to determine precisely the volume of APIs or raw materials originating in China. The EFCG believes that more than 80% of chemicals used to make drugs sold in Europe come from China and India.3 The United States, meanwhile, reportedly accounts for nearly 50% of the worldwide pharma market and imports more than 50% of APIs and finished products,4 with some pegging the level at over 70%.5
India alone provides approximately 40% of the generic drugs sold on the world market — and it purchases much of its raw materials, including 70% of the APIs it uses, from China.6 China, meanwhile, is estimated by the WHO to account for 20% of global API output, although other organizations believe that figure should be doubled. In March, China restricted the export of 26 products, or approximately 10% of its total pharma exports, but these restrictions were lifted after the Trump administration threatened retaliatory actions.6
Most pharma production plants in China are located in the eastern region, where small molecules are largely produced, and the south, which focuses on biologics. This includes the Hubei province (which includes 44 FDA- and/or EMA-approved sites), which was the epicenter of the COVID-19 outbreak.6 Facilities owned by both major international and smaller domestic pharma companies are also located in many nearby provinces. All production in China was halted for the Chinese New Year, but that annual holiday was extended due to the spread of SARS-CoV-2. By early April, most were operating at 50–80% of capacity, with shortages of workers and raw materials preventing full operation.
Production has also been reduced at facilities located in many countries around the world, and more than 50 countries embargoed or restricted exports of personal protective equipment (PPE), ventilators, and other medical equipment, in addition to various medicines.7 China is also a major producer of PPE and medical devices, accounting for over 40% of global PPE and nearly 40% of all medical devices consumed in the United States.
Drug, Device, and Essential Supply Shortages
One of the consequences of the reliance on raw materials and APIs from China and India is the potential for drug shortages elsewhere in the world. Before the emergence of COVID-19, drug shortages were already on the rise. The FDA reported an increase in the number of drug shortages from 2017 to 2018, a contrast to the declines observed since 2011. The shortages are lasting longer, too, and can be even more than eight years in some cases. Over 60% of shortages in 2019 were attributed to supply disruptions due to manufacturing and/or quality issues.8
The situation has been exacerbated by the COVID-19 pandemic. Research firm GlobalData found that production of as many as 57 drugs (ranging from calcium supplements to cancer drugs, HIV treatments, and antibiotics) made by both large and small pharma companies could be at risk due to “general manufacturing and export restrictions across China.”1 In late February, the FDA identified approximately 20 drugs that “might be vulnerable.”9
While the agency did not identify the specific products, raw materials, and APIs from China are relied on heavily in generic manufacturing. Drugs that have been touted — even incorrectly or without substantiation — as potential COVID-19 therapies have experienced significant shortages, most notably chloroquine and hydroxychloroquine, which are used for the treatment of malaria, rheumatoid arthritis, and lupus.10 The threat of a drug shortage also prompted patients to stockpile prescription drugs not related to coronavirus.11 Likewise, a shortage of PPE and hand sanitizer initially occurred after individuals and governments stockpiled these items. China has since increased production, and many local companies have retooled their manufacturing processes to enable the production of these basic yet crucial supplies.
Even large manufacturers that do not depend on outsourced production in China and India, such as AstraZeneca, Merck, and Pfizer, believe that interruptions caused by the pandemic, travel limitations, and export restrictions will likely affect supply, with the impact leading to further reductions in production capacity and distribution issues.7
While shortages will likely be felt most for generic drugs, branded products could see decreases in demand as people put off seeking treatment to avoid potential exposure to SARS-CoV-2.
Shifts in Demand
Another factor contributing to uncertainty in the pharmaceutical supply chain is the expectation that changes in demand will occur. While shortages will likely be felt most for generic drugs, branded products could see decreases in demand as people put off seeking treatment to avoid potential exposure to SARS-CoV-2.12 On the other hand, rising interest in antivirals — as governments look to build stockpiles — is also expected. Longer-term growth in China, which has been one of the fastest-growing pharma markets, could decline.
In addition to the reduction in manufacturing activity, the pharma supply chain is being impacted by distribution challenges created by reduced transportation capacity. Disruptions at ports, quarantined crews, and labor shortages due to lockdowns are all contributing factors.13 Restrictions of people’s movement have also made distribution and shipping difficult, which can impact drug production if an API is made in one country and must be shipped to another for final formulation.4
Reduced air cargo capacity on passenger air flights, on which a large portion of drug products are transported, is another concern.6 Drug manufactures must scramble to find alternative options, which generally come at a much higher cost. A survey of generic drug manufacturers conducted in April by the Association for Accessible Medicines (AAM), which represents generic drug makers, found that travel and transport costs sharply increased by nearly 225% on average.14 The long-term implications of the financial impacts of the pandemic on airlines could also be signficant.6
Uptick in Fraudulent Medicines and Medical Devices
Counterfeit medicines have been a significant problem for the pharmaceutical industry — and the global population — for decades. Treatment with fake (falsified to deliberately misrepresent), substandard (failing to meet quality requirements), and unlicensed (not approved) drugs cause more than 250,000 deaths annually, according to the WHO.15 The WHO has reported that one in 10 medical products in developing countries was falsified or substandard.
A joint report issued by the Organization for Economic Cooperation and Development (OECD) and the European Union’s Intellectual Property Office (EUIPO) in April 2020 identified antibiotics, male impotence pills, painkillers, and medication for malaria, diabetes, epilepsy, heart disease, HIV/AIDS, cancers, high blood pressure, and allergies as the most frequently counterfeited drug products from 2014 to 2016.16 Most did not contain the active ingredients in the correct proportions, and many contained undeclared substances that are potentially harmful. Indeed, the study noted that forensic tests of samples suggest that 90% of counterfeit medicines can cause harm to patients. The report also found that 96% of websites offering pharmaceuticals are operating illegally, and that more than 50% and 33% of fake medicines seized in recent years have come from India and China, respectively.
Beyond the impact on personal welfare, healthcare fraud (which includes counterfeit medicines, fraudulent insurance claims, etc.) costs the U.S. healthcare system nearly $300 billion annually, with the Department of Justice recovering only a mere fraction ($2.6 billion in 2019).17 The incentives for pursuing counterfeit medicines are particularly significant. Criminals can convert $1,000 invested into falsified drug production into $500,000 worth of profits — approximately 25 times what they can bring in via heroin trafficking.18
The COVID-19 pandemic is exacerbating this bleak situation. The U.S. FDA issued a warning about fraudulent coronavirus tests, vaccines, and treatments.19 Interpol, during its annual Operation Pangea in March (the same week that the WHO declared the novel coronavirus outbreak a pandemic) seized over $14 million worth of dangerous pharmaceuticals and made 121 arrests across 90 countries in just seven days, This included drugs claimed to cure COVID-19, as well as thousands of counterfeit masks.20 The percentage of fake antivirals seized in the raid in 2020 increased by nearly 20% from two years previously.21
Similar, U.S. Customs and Border Protection (CBP) has confiscated large quantities of counterfeit, unapproved, or otherwise substandard COVID-19 products. As of June 1, the numbers totaled 107,300 FDA-prohibited COVID-19 test kits, 750,000 counterfeit face masks, 2,500 EPA-prohibited anti-virus lanyards, and 11,000 FDA-prohibited chloroquine tablets. The items were seized during raids in Baltimore, MD; Chicago, IL; El Paso, TX; Los Angeles, CA; Rochester, NY; Seattle, WA; and Vicksburg, MS, among other locations.22
Clinical Trial Disruptions
With approximately 20% of clinical trials conducted in China,5 it is not surprising that clinical studies have been affected by the COVID-19 pandemic. Trials all over the world are also being impacted due to work stoppages, reduced patient enrollment, participants leaving trials, and the inability to follow study protocols due to social distancing and other requirements. The initiation of large numbers of trials for COVID-19 treatments and vaccines is also drawing resources away from other trials.23 By mid-May, nearly 100 companies had reported some level of disruption to their clinical trials due to the coronavirus pandemic.24
Many trials are proceeding, though, as sponsors adapt to the circumstances and move to remote/decentralized trial approaches that include the use of telemedicine, video/online meetings, telephone monitoring, direct-to-patient delivery and sample pickup, and local laboratory facilities.25 One survey of more than 360 clinical trials sites found that over 90% were trying to maintain trial schedules, with one-third switching to virtual visits.23
Trials all over the world are also being impacted due to work stoppages, reduced patient enrollment, participants leaving trials, and the inability to follow study protocols due to social distancing and other requirements.
Prepare for More Unknowns
Interruptions to the pharmaceutical supply chain, while limited during the initial months of the pandemic, have an increased likelihood of occurring the longer that the SARS-CoV-2 virus continues to spread. Unfortunately, without widespread mandates for mask-wearing and sufficient social distancing as economies around the world reopen, minimization of transmission of COVID-19 cannot be achieved, and the number of cases will trend upward, in some cases steeply.
It is likely, therefore, that manufacturing capacity utilization will remain much lower than usual, and logistics/distribution challenges will further impact the availability of important pharmaceutical raw materials, intermediates, and active ingredients, as well as manufacturing equipment and other essential materials required for the production and packaging of drug substances and drug products.
All members of the pharmaceutical supply chain should consider the actions necessary to address risks to business continuity, including materials procurement, people management (employees and contractors and their workers), labor shortages, security risks associated with remote work, research and development, auditing/inspections, ongoing performance of contract service providers, quality, and compliance across all activities, logistics/transportation, and imports/exports.26
Nawrat, Allie. “Covid-19 pandemic: knock-on effects for pharma supply chains.” Pharmaceutical Technology. Apr. 2020. Web.
Woodcock, Janet. “Safeguarding Pharmaceutical Supply Chains in a Global Economy.” Congressional Testimony. 30 Oct. 2019. Web.
Mullin, Rick. “COVID-19 is reshaping the pharmaceutical supply chain.” Chemical & Engineering News. 27 Apr. 2020. Web.
Balfour, Hannah. “COVID-19 update: coronavirus and the pharmaceutical supply chain.” European Pharmaceutical Review. 1 Apr. 2020. Web.
“COVID-19: Impact on Global Pharmaceutical and Medical Product Supply Chain Constrains U.S. Production.” FTI Consulting. Mar. 2020. Web.
“COVID-19: Impact on API production and global pharmaceutical supply chains.” Resilience 360. 31 Mar. 2020. Web.
Evans, John and James Meisenheimer. “COVID-19 - Suffocating the global medical supply chain… while breathing life into its future.” Site Selection. Apr. 2020. Web.
Loiacono, Anthony. “COVID-19 Has Revealed Fatal Flaws in the U.S. Drug Supply Chain.” Supply Chain Brain. 12 Jun. 2020. Web.
Hahn, Stephen M. “Coronavirus (COVID-19) Supply Chain Update.“ U.S. Food and Drug Administration. 27 Feb. 2020. Web.
McBirney, Samantha Sangita M. Baxi, Krishna B. Kumar, and Todd A. Richmond. “The Unintended Consequences of a Proposed Cure for COVID-19.” The RAND Blog. 29 Apr. 2020. Web.
Gustafsson, Lovisa. “COVID-19 Highlights Problems with Our Generic Supply Chain.” Commonwealth Fund. 7 May 2020. Web.
Biocair. “COVID-19 and the pharma supply chain – How to manage your pharmaceutical logistics in difficult times.” World Pharma Today. Apr. 2020. Web.
Durbha, Madhav. “Commentary: Coronavirus exposes the weak links in the pharmaceutical supply chain.” Supply Chain Quarterly. 5 May 2020. Web.
Pharmaceutical Shipping Costs Spike in Response to Global COVID-19 Pandemic. Association for Accessible Medicines. 30 Apr. 2020. Web.
Breman, Joel G. “It’s time to stop murder by counterfeit medicine.” STAT. 7 May 2019. Web.
Adelberg, Michael and Melissa Garrido. “The COVID-19 Epidemic As A Catalyst For Health Care Fraud.” Health Affairs. 7 May 2020. Web.
“Falsified Medicines: a Criminal Activity that Endangers the Life of Patients.” Sanofi. 2018. Web.
“Beware of Fraudulent Coronavirus Tests, Vaccines and Treatments.” U.S. Food and Drug Administration. 29 Apr. 2020. Web.
Piranty, Sam. “Coronavirus fuels a surge in fake medicines.” BBC World Service. 9 Apr. 2020. Web.
Sutton, Stephanie. “The Counterfeit COVID-19 Crisis: How fakers are taking advantage of the pandemic.” The Medicine Maker. 25 May 2020. Web.
CBP Continues to Seize Large Number of Counterfeit and Unapproved COVID-19 Products. U.S. Customs and Border Protection. 5 Jun. 2020. Web.
Covid-19 crisis underscores need to address trade in fake pharmaceuticals, say OECD & EUIPO. Organization for Economic Cooperation and Development. 21 Apr. 2020. Web.
Kaplan, Gary A. , Ross Weaver, and Blaine Cloud. “Supporting Clinical Trial Sites During the COVID-19 Pandemic.” Applied Clinical Trials. 21 Apr. 2020. Web.
Fidler, Ben. “A guide to clinical trials disrupted by the coronavirus pandemic.” Biopharma Dive. 15 May 2020. Web.
Slater, Hannah. “Complications to Continuing Clinical Trials During the COVID-19 Pandemic.” Cancer Network News. 27 Apr. 2020. Web.
“COVID-19 response for Pharma companies: Respond. Recover. Thrive.” Deloitte. 2020. Web.