Richa Mahindru, Domain Leader, Pharma and Life Sciences Practice, Praxis Global Alliance and Ishani Jain, Member, Pharma and Life Sciences Practice, Praxis Global Alliance elaborate on how pharma companies are dealing with these twin challenges and point out that while global drug supply chains are shifting to local supply chains, vaccinology is moving at breakneck speed with vaccine development compressed into 12 months from a usual 12 years or so
By late 2020, while the COVID-19 pandemic has already made inroads as the most wide-scale humanitarian crisis in modern history, the global pharma industry has been changed irreversibly. The industry is fighting two critical battles which are expected to markedly alter the pharma world we knew pre-COVID-19.
Disruption in the global supply chain processes due to COVID-19 has exposed the vulnerabilities inherent to relying on any specific region for a substantial supply of drugs and API (active pharma ingredients). Recognising the importance of self-sufficiency, a rapid worldwide response is being witnessed to safeguard the supply of life-saving drugs from further unexpected disruptions. This all, while ensuring that safe and effective vaccines against COVID-19 are available as early as possible to the widest audience.
Transforming supply chains
As COVID-19 began ravaging the world in early 2020, there was not much impact in the first quarter as manufacturers generally stockpile 60-90 days inventory of essential ingredients and hence, were not threatened by a slowdown in deliveries of raw materials. Since March, however, industry watchers have been continuously cautioning about the fragility and slowdown of current supply chains which could result in a possible shortage of essential API and shrinking inventories of backup supplies. Considering this potential threat of supply disruption of API and generic volumes coming from Asia, western world pharma markets have started to take strides to secure and strengthen their position in the industry. As it appears, a rapid shift from global supply chains to self-sufficient local supply chain models is well underway. Such shifts at the industry, company, and government level may pose major implications for Asian CRAMS as western pharma companies reevaluate their strategy, supply chain, and distribution networks.
‘Make versus buy’ decisions will be made by superimposing these new supply risks with the costs and benefits of Asian Contract Development and Manufacturing Organizations (CDMOs) and incentives offered by governments
Asian operations of western pharma cos: Many API producers worldwide rely on their own plants in pharma emerging countries like China and India. For instance, Switzerland based companies Lonza and Siegfried have built sizeable plants in China under a dual strategy of establishing low-cost production and serving the Chinese market. For instance, the cost of API production at Siegfried’s plant is lowest in its network of six API facilities located across China, Switzerland, Germany, France, and the US. These Chinese subsidiaries of Western companies also supply raw materials to Chinese biotech companies by leveraging their expertise and experience in taking drugs to market which many local CDMOs lack. Additionally, pharma emerging countries are the fastest-growing markets for clinical trials globally.
China-based CMO (Contract Manufacturing Organization) Porton Pharma Solutions recently shut down its R&D operations and faces threat to manufacturing operations because of reliance on Europe and India for catalysts, reagents, and raw materials.
Due to transport delays from overseas in maritime as well as air freight, the overall supply has decreased resulting in price increase by up to three times along with longer lead times. Interestingly, there were some instances of supply disruption even pre-COVID-19. Hikal, an API CDMO based in India had suffered due to Chinese plant closures failing to meet the strict environmental regulations.
Hence, many CDMOs like Jubilant and Piramal are establishing their base in Europe (by acquisitions as well as setting up their own sites) to mitigate their supply chain risks.
Localisation of supply chains: China’s association with COVID-19 has accelerated the repatriation of pharma chemical production from China back to home base manufacturing in the US, Europe, and India.
The US imported $132 billion of APIs in 2019. Due to COVID-19 resulting supply disruptions, the country faced a shortage of ~60 per cent of essential drugs which depended on Chinese API supply. Taking a lesson, the US government recently signed an executive order requiring the federal government to buy “essential” drugs from US companies. It also recently announced funding of $765M to Kodak Pharma and granted $812M to a relatively young company, Phlow Corp. for manufacturing generic medicines and API. This is a critical move to reduce dependence for KSM and API on overseas manufacturers for essential medicines and finished drug products and is a step towards creating a resilient and reliable supply chain for long-term domestic production of pharmaceutical products.
Similarly, the Indian government is also taking strides to reduce its heavy Chinese dependence – ~70 per cent (by value) of imported API come from China. Early in March, the government committed $1.3 billion to promote the manufacture of drug ingredients domestically The program calls for establishing three bulk drug parks, expedited approval for capacity expansions and new manufacturing sites, and investment incentives to boost output of APIs and key starting materials. While India is sufficiently self-reliant for 700+ API but there are 53 critical API whose supply is entirely (~90-99 per cent by volume) dependent on China.
COVID-19 vaccine development
While the global drug supply chains are shifting to local supply chains, vaccinology is moving at breakneck speed with vaccine development compressed into 12 months from a usual 12 years or so. To achieve these timelines, the US government has launched the ambitious Operation Warp Speed (OWS) with a record funding of $10 billion with a disbursal amount of over $1 billion to nearly eight companies. OWS is aimed to deliver 100 million to one billion doses of a COVID-19 vaccine by early 2021.
Johnson &Johnson (Janssen Pharmaceutical), AstraZeneca – University of Oxford, Pfizer – BioNTech, Moderna, Merck, Vaxart, Inovio, and Novavax have formed international alliances to fast track development, clinical trials and simultaneously set up vaccine manufacturing and distribution units worldwide. To ensure equitable access, WHO (World health organization) is calling nations to join its COVAX alliance. The global ambition is to be able to manufacture a minimum of two billion doses of approved COVID-19 vaccines by the end of 2021. To achieve this, biopharma players will look for novel ways to rapidly increase the production of vaccines while repurposing existing capacity to reduce import dependence. One way of doing this would be to dedicate existing capacity to products with higher landing costs while outsourcing others locally while in-house capacity is being built This, however, will only be done post careful analysis of heavy costs of building and benefits of reliable supply.
The traditional wait and watch strategy through a sequential series of clinical trials is giving way to a parallel plug and play manufacturing action. New technology platforms are also rapidly emerging in drug and vaccine development triggered by the COVID-19 outbreak. This has resulted in a significant increase in demand for lyophilization and mRNA technology. It is expected that companies will start to rely more on digital and analytical tools as transparency in stocks of vaccines and drugs as well demand-supply forecasting becomes absolutely critical.
In the aftermath of COVID-19, the focus on risk management across networks and supply chains will possibly continue to intensify, despite the inevitable increased costs. Emerging countries, notably China are losing their price advantage with rising labour costs and increasing environmental and pollution controls. As a result, there is a movement back to the western/home base manufacturing with a pronounced emphasis on localised supply chain models and nationalism in public health and safety. The industry is on the crossroads to adopt digitisation and automation of pharma processes to mitigate supply chain disruptions during future global emergencies.