The emergence of covid-19 and resulting lockdowns sparked fears for the global supply of generics and biosimilars. With the industry being heavily reliant on China for APIs and India for the manufacture of generic drugs, the disruption caused by covid-19 had the potential to wreak havoc across the whole supply chain.
I spoke to senior leaders in supply chain, from smaller niche players to global leading companies across generics and biosimilars, to understand more about the challenges they faced, how they navigated through the crisis and the longer-term changes and effects they see persisting across the industry.
The main challenges posed by the Covid-19 pandemic
Historically, pharma companies in generics and biosimilars have largely based purchasing decisions on price, resulting in an industry that is heavily reliant on the Asian market for the manufacture and supply of generic medication. Whilst India is the leading generics drug supplier, it sources around 70% of its ingredients from China. The lockdowns and movement restrictions from Covid-19 have had a huge influence upon China’s ability to supply India with the APIs and raw materials it needs to supply generic medications, ultimately impacting the supply of products for patients across the world. This is something Arni Hrannar Haraldsson – Global Head of Supply Chain at MS Pharma – has been affected by: “We are very dependent on APIs coming from China and India and this has been one of the biggest challenges for us to date.”
For those medications that could be manufactured, restrictions on logistics further hindered the supply. Andreas Kopp – Global Head of Supply Chain and Distribution for Zentiva – told me: “There were definitely short-term issues with transport, air freight was restricted and everything coming out of China and India was delayed.” Mark Edwards – Supply Chain Director at Alvogen – added: “The cost of air freight rose 4-fold adding additional costs to our business.” I also spoke to a Head of Global Logistics Strategy for a multi-billion turnover generics organisation, who wished to remain anonymous. In their experience thankfully delays were temporary, and the business is seeing much of a return to normality on the road: “There were no sea containers available in China for a while, which meant we had to use air freight. In Europe, we collaborated with Medicines for Europe and our trucks used a sign with “Medicines Urgent Supplies” highly visible on the dashboard, which gave us priority at the borders. Long delays during the first days of border closure or control were significantly reduced with almost immediate effect and waiting times were a few hours afterward.”
Supply and demand have also differed by geographical location, but often the same products have different packaging, leaflets and API specifications meaning companies have been unable to move products from one location to another. Arni Hrannar Haraldsson said: “If API specifications and packaging were harmonised across the product lines, there is the possibility to move products between regions where they were struggling. Instead, there is always the possibility of products being overstocked in one area and under-stocked in another. We will be looking to harmonise our product portfolio going forwards, but it is all about measuring the cost of flexibility and finding the right balance.”
On top of this, patients and wholesalers began stockpiling medications creating a temporary increase in demand and further impacting supply issues. Larger companies have been able to weather the storm with their abundance of stock reserves, but smaller companies have struggled. Even those that have been able to maintain supply levels for their customers, have found it hard to anticipate the level of stock they should be keeping. Andreas Kopp said: “The pandemic initially caused a significant spike in demand but ultimately medicines and generics overall are prescribed by doctors or substituted of doctor’s prescription and thus, as an overall picture, rather stable. Due to this, a longer-term huge demand increase is not realistic.”
There are, however, plenty of signs that the market is bouncing back. The impact hasn’t been as bad as some will have anticipated but as an industry, the over reliance on importing from concentrated geographies has left the supply chain vulnerable, something companies will be looking to mitigate going forwards.
What does this mean for the future of the pharma supply chain for generics and biosimilars?
Covid-19 has been a wake up call as to the risks for any company relying heavily on exports from only a couple of markets, but realistically how likely is it that pharma companies will diversify into different geographies? Marcus Dohmann – Former Chief Supply Chain Officer at PharmaZell – said: “Companies have realised a dependency on the Asian market is not healthy. However, the qualification costs of new suppliers are so high and price pressure means that over time there is still likely to be a concentration in India.” Arni Hrannar Haralsson added: “There are lessons to be learned but I feel most people will go back to the way they were from a supply chain perspective. So many companies don’t have a plan B and hopefully, this is something they will now consider. The key issue with generics is they will never go for a premium price, so people are likely to go back to their original suppliers because of that cost element.” Andreas Kopp echoed this saying: “A change of supplier isn’t a simple and fast change, taking up to two years due to regulatory requirements. Changing to a European supplier also means it is hard to keep costs sustainable and competitive.”
Marcus Dohmann anticipates that smaller companies may find smaller local suppliers, but big pharma is likely to still go for the most competitive price. The other side of the argument is that whilst it may be more expensive to manufacturer generics and biosimilars in other geographies, without an additional source, companies are leaving themselves at risk of jeopardising their supply – something that has a massive financial impact. This is something Mark Edwards recognises: “The 80:20 rule applies to our portfolio like everyone else’s, so a large proportion of our profit comes from a smaller basket of products. Our longer-term strategy will be to ensure those products are backed up with secondary sourcing from different geographical locations.”
I also spoke to a VP Supply Chain for a multi-billion generics manufacturer, who wished to remain anonymous. He spoke of his company’s plans to change their existing strategy of two sources for each API by adding a third in a different geography. He also anticipates that Asia may cut their prices to incentivise companies to keep using them, but stresses companies need to think beyond cost and ensure they consistently have availability and access to the materials they need.
Summary
Whilst the restrictions from covid-19 and an increase in demand have impacted the supply chain for the global supply of generics and biosimilars, the outcome hasn’t been as bad as initially expected. The large global multinationals with an abundance of safety stock in reserves have largely kept up with demand, whilst smaller companies that did not have the capacity to keep up with demand have struggled for a couple of months. However, luckily the supply chain does seem to be stabilising. There is a consensus amongst senior leaders in the supply chain that there needs to be secondary sourcing and that a focus on plan B should become a fundamental part of all companies’ strategy. But with implications for their costs, it will be interesting to see how many companies implement this over the more traditional focus on basing decisions upon price. I would love to hear your thoughts on this topic, please let me know in the comments section below or email me at bwinward@inveniaresourcing.com.
