A Post-Pandemic World

Stronger supply chains and louder calls for reshoring

In addition to creating a host of new challenges, the pandemic revealed certain weaknesses within the industry that had been lying dormant for years. Challenges such as weak supply chains and the increased offshore production of essential pharmaceutical materials were brought to light as Covid-19 threatened the stability of the preexisting order.

“The concept of globalization as an unfettered path which everyone is going to pursue has certainly been challenged over the past two years, first with the pandemic and now with increasing geopolitical turmoil. This changes the way companies regard just-in-time production and the origin of raw materials,” acknowledged Will Lewis, chairman and CEO of Insmed. While there is consensus that the sector cannot return to its pre-pandemic model, questions remain over how, and how much, things can change.

Stronger supply chains

As part of a complex and global industry, pharmaceutical supply chains are a complicated dance in which one misstep – any delay or mistake – can mean patients do not receive potentially lifesaving therapeutics. The past two years have revealed just how vulnerable the ecosystem is to disruptions and how important it is for companies, service providers in particular, to strengthen their supply chains.

One obvious way to strengthen a supply chain is to shorten it. Companies like New Vision Pharmaceuticals did this to eliminate friction and deliver on requests faster than companies developing products overseas. “We had a client approach us to work on a rapid Covid-19 test, wanting to produce a single-use vial for at home testing. It was only six weeks between when we had our initial discussion to when we had produced the product for them. We quickly made many millions of vials to support the rapid ramp-up,” said the company’s CEO, Alan Petro. “If they had attempted to do this with an offshore supplier, it would have taken the same amount of time just to get the product across the ocean and through ports. This level of responsiveness has been our focus.”

“Understanding and keeping a pulse on the environment and what is happening is essential. One of the major benefits of CPC is that we have offices and boots on the ground in the US, China, and India which gives us the ability of real time information sharing of what is happening in the critical markets that service our business.”

Jeff Reingold, COO, Contract Pharmacal Corp.

Other companies focused on improving channels of communication with customers and vendors to be able to react faster to challenges and establish contingency plans. For Jeff Reingold, COO of Contract Pharmacal Corp, information is key. “Understanding and keeping a pulse on the environment and what is happening is essential. One of the major benefits of CPC is that we have offices and boots on the ground in the US, China and India, which gives us the ability of real time information sharing of what is happening in the critical markets that service our business,” he said.

In addition to being able to react more deftly to supply chain disruptions, getting ahead of challenges is a smart way to prevent problems down the line. For Ascendia Pharmaceuticals, asking for more up-front information from clients has enabled them to proactively source with greater accuracy. “Ascendia asked its clients for permission and openness to start getting ahead of the power curve specific to certain supplies that would be critical for their future needs,” explained Robert Bloder, the company’s chief business officer. “Our clients’ effective communication gave us a window to strategically procure the necessary materials and components to get product to the clinic on time and get patients dosed.”

Given the manner in which several service providers were able to restructure their supply chain organization in response to the pandemic, it appears that Covid-19 served as a catalyst for a shift that will remain long after the pandemic has subsided.

Make America pharma again

In addition to either shortening supply chains or creating strength through redundancy, some companies took the pandemic as an impetus to move operations altogether.

The desire to reshore manufacturing capacity has been a popular cry within the life sciences since before Covid-19 brought the theme to a boiling point. Over the past several years, increased outsourcing has gone to companies in countries like India and China that have strong manufacturing capacities and cheaper labor. While companies may enjoy the lower associated costs, the offshoring of pharmaceutical manufacturing has the potential to threaten the security of the nation’s drug supply.

In 2019, the FDA issued a testimony before the House Committee on Energy and Commerce highlighting the importance of safeguarding pharmaceutical supply chains in a global economy. According to the administration, “The security of the nation’s drug supply rests on three main factors: freedom from dependence on foreign sources of APIs, the resilience of our domestic manufacturing base, and the reliability of the facilities that make products for the US market.”

“The key stakeholders in each country we operate in are pushing for increased local production. The challenge now is how this will be funded. Every major government has put tremendous stimulus into their economies during the pandemic and now they must grapple between the desire to have domestic production and figuring out where to spend limited resources.”

Peter DeYoung, CEO, Piramal Pharma Solutions

Early in the pandemic, renewed concerns arose about the relative independence of the US’ pharmaceutical supply when overseas manufacturers halted their supply to the country in order to focus on their own domestic needs. India, historically a reliable partner, has raised eyebrows on a few occasions. In early 2020, the country temporarily placed an export ban on several critical medications, and in 2021, it redirected its Serum Institute of India to reprioritize the production of the AstraZeneca vaccine for its own domestic needs. More broadly, transportation-related problems such as limited capacity and congestion in US ports have had consequences for product timelines and financials.

While this tendency towards offshore manufacturing had been going on for several years, it reached some people’s attention for the first time as a result of Covid-related turmoil. “It is interesting to see governments and institutions realize the extent to which most basic raw materials, intermediates, and chemicals production is done in India and China,” commented Jeff Butler, president of AMPAC Fine Chemicals, an SK pharmteco Company. “This will not change overnight.”

As customers of service providers increasingly call for greater reshoring efforts to circumnavigate these challenges, some CDMOs have benefited. According to Tom Sellig, CEO of Adare Pharma Solutions, his company saw a spike in demand for its services. “This trend, which is largely triggered by the rising cost of transportation and inflation, has benefitted Adare. The company recently had six clients in one week alone reach out to move a large portion of their US production onshore,” said Sellig.

Of course, moving operations from a manufacturer in one country to another is easier said than done. “The key stakeholders in each country we operate in are pushing for increased local production,” said Peter DeYoung, CEO of globally operating Piramal Pharma Solutions. “The challenge now is how this will be funded. Every major government has put tremendous stimulus into their economies during the pandemic and now they must grapple between the desire to have domestic production and figuring out where to spend limited resources.”

DeYoung has witnessed this tension play out in different arenas. He noted that companies serving US patients are seeing strong demand for development and production for specific therapy areas, particularly those targeting smaller patient populations that often have higher price tags associated. On the other hand, drugs produced for larger patient populations are still being manufactured in Asia.

The issue of funding increased domestic production has led to complications for some companies. Nivagen Pharmaceuticals, Inc. is a generics company that shifted operations to confront supply chain issues resulting from Covid-19. “We started keeping at least four to six months of additional inventory in our warehouse. We are now also carrying more API inventory to generate the product, however many buyers in the US are still not willing to accept the resulting price increases. This has forced us to either work at lower margins or sometimes to even discontinue certain products,” explained president and CEO Jay Shukla.

One of the main challenges of reshoring manufacturing is the need for domestic facilities to support such a shift. Rather than moving everything onto US soil, it is often just the final stages that make a return. In an eight-step synthesis, perhaps only the final two steps are moving back to the US. The fact remains that most companies in the US and Europe do not have capacities to do the first six in-country. As we begin to enter a post-pandemic world, questions remain over the extent to which operations will return to US soil. As the FDA goes back to live inspections instead of virtual, new considerations will enter the fold; companies may increasingly contemplate why they should set up facilities in the US where the FDA will almost certainly spend weeks conducting inspections when they could instead operate out of China or India, where the FDA would likely provide advanced notice before inspection and remain onsite for no longer than a week.

Despite these complications, the root concern – the security of the nation’s drug supply – will not go away. With the rise of new considerations, such as geopolitical turmoil in Ukraine, safeguarding domestic supply of essential materials against foreign disturbances becomes all the more pressing.

“We started keeping at least four to six months of additional inventory in our warehouse. We are now also carrying more API inventory to generate the product, however many buyers in the US are still not willing to accept the resulting price increases. This has forced us to either work at lower margins or sometimes to even discontinue certain products.”

Jay Shukla, President and CEO, Nivagen Pharmaceuticals, Inc.

Image courtesy of Syngene