Among the risks:
- APIs are compounds that are extracted from plants or minerals which are mined from the earth and may not be naturally available in the US. Even inactive ingredients may not be abundantly available
- Formulated products are typically manufactured in a geographic region near the end market, though it is not uncommon for bulk products and even some fully finished and packaged products to be manufactured in other countries and imported to the US
- Some packaging and labeling raw materials, such as rubber stoppers, plastic vials and paper labels are manufactured outside the US
- Shipping is usually done by truck and boat; companies experienced delivery risks due to local transportation shutdowns and when truck drivers contracted COVID-19
- Geopolitical risks, including trade disputes or a decision by a government to halt shipments to the US in order to preserve ingredients for their own countries
- A natural disaster, such as a hurricane, can also disrupt the supply chain
Costs may also be an issue. “You need to keep prices at pennies per pill or else it gets too expensive for customers,” Jung said.
Companies need to consider whether to build in redundancies or a second supply channel and plan scenario actions in the case of a disruption.
“The sizeable costs of re-shoring will likely require government financial assistance or some form of public-private partnerships in order to be economically sustainable in the long term. The global pandemic has highlighted national security and public safety concerns related to unanticipated supply shortages in essential medicines, equipment and personal protective equipment. As a result, the Coronavirus Aid, Relief, and Economic Security (CARES) Act and subsequent policy changes have refocused funding across several government sources to encourage re-shoring,” said Michael Botos, Principal, EY-Parthenon, Ernst & Young LLP.
The Biomedical Advanced Research and Development Authority (BARDA), a group within the U.S. Department of Health and Human Services (HHS), has become the coordinating force for allocating federal government funding during COVID-19. To date, BARDA has awarded US$14b of US$17.6b under its control from the CARES Act, Operation Warp Speed, Department of Defense (DOD) and other programs. While BARDA’s recent focus has been on COVID-19 vaccine development, future funding and incentives may seek to encourage expansion of US domestic manufacturing to ensure supply for the Strategic National Stockpile.
What life sciences companies should consider now
In terms of the long game for pharma and med device manufacturing, we expect the global supply chain is likely to face an overhaul over the next several years. EY professional advise the leaders of life sciences companies to prepare for potential scenarios in the near-term. The impact seems too big to ignore. To enhance future supply chains, pharma executives should consider asking these key questions:
- What is our US domestic manufacturing “revenue at risk” and competitive “exposure” across the product portfolio in the next 5–10 years?
- What new business model growth opportunities do we have to leverage our existing domestic manufacturing and distribution footprint?
- Have we mapped our global supply chain risk factors for products on the HHS-identified list of Essential Medicines and Medical Countermeasures (MCMs)?
- What new capabilities, processes, technologies or assets are required? Should we build, buy or partner and at what cost and timing?
- What is the downstream tax impact of any supply chain reconfiguration decision?
COVID-19 shined a light on the fragility of our global pharma and medical device supply chain. To mitigate these risks, leading organizations may need to rethink their global supply chain of the future. The potential impact is likely too big to ignore.