Is it Time to Onshore Your API Supply?
COVID-19 has thrown the spotlight on the weaknesses of today’s highly dispersed, globalized pharma industry, prompting many companies to consider onshoring their API supply.
Ben Wylie |
Given what we know now, who can deny the fragility of the industry’s supply chains? As the demand for sterile manufacturing capabilities rose during the pandemic, we saw many companies struggle to source the ingredients they needed to operate, resulting in shortages of vital medicines – both prescribed and over-the-counter – around the world (1). The sudden and extended lack of drug substance and other ingredients needed to manufacture drug products can be traced to two issues. Firstly, the additional strain on global healthcare systems quickly consumed supply capacity. Secondly, and most crucially, the economic lockdowns that paralyzed much of the world throughout the first six months of 2020 led to the closure of key factories that were producing vital pharmaceutical ingredients.
The problem was most acute in China – now one of the world’s leading suppliers of basic raw materials and APIs – where a number of factories closed as part of efforts to prevent the spread of COVID-19 during the first quarter of 2020. In fact, the pandemic restricted global ingredient supply right at the point when demand peaked in the second quarter. Media around the world carried images of pharmacy shelves empty of over-the-counter painkillers and other treatments.
Bringing API supply home
As a result, pharma is now rethinking its supply chains in a bid to reduce reliance on any one single market or source and to demonstrate that they have strong and robust business continuity plans in place to prevent a repeat of the events back in spring 2020. Some companies are in the process of switching their ingredient supply to manufacturers that are geographically closer to home to help guarantee they have the materials they need to meet future spikes in demand (2).
But this recent move towards onshoring pharmaceutical ingredient supply is not driven by companies alone. Recognizing the national security implications of a disrupted pharmaceutical industry, governments around the world are encouraging (or toying with forcing) drug companies to localize their supply chains. For example, lawmakers in the US have openly discussed legislation that would mandate the production of APIs on America’s shores – a costly move for the industry. This “Buy American” order would exempt the import of drug ingredients if they are already in abundant supply or if their procurement from within the US would increase costs by more than 25 percent. This is a move that the pharmaceutical industry has significant reservations about (3).
Similar moves are happening in India. Pre-COVID-19, the nation’s pharmaceutical industry relied on Chinese suppliers for as much as 70 percent of its required APIs. Responding to the disruption at the beginning of the outbreak, the Indian government set aside a fund of $1.2 billion to support the sector. It also announced the creation of a new production-linked incentive scheme designed to encourage the development and expansion of homegrown API and ingredient suppliers. The government hopes these steps will play a key role in ending the dependence of India’s pharmaceutical sector on Chinese suppliers (3).
The relatively new demands for onshoring are already having an effect on pharmaceutical companies worldwide. We are witnessing greater investment in local manufacturing sites for API production in a number of markets – either by existing manufacturers or newcomers moving into the ingredient supply space. And that will have significant consequences for the industry in the future. A greater prevalence of local suppliers will shorten supply chains for many manufacturers, militating against the impact of border closures or economic lockdowns overseas.
Not only does a move towards onshoring provide new opportunities for manufacturers to expand and grow within individual markets, but it will also help to build more robust supply chains in future – protecting the sector from spikes in demand and regional manufacturing disruption.
Meeting the onshoring challenge
There are downsides to the localization of the supply chain; for one, it may well lead to higher production costs, as companies select suppliers based on their location rather than price. For many North American and European manufacturers in particular, it could be considerably more expensive to work with local suppliers compared with former partners in Asia. The potential added cost needs to be weighed against the benefit of sourcing locally before any decision about onshoring supply is made.
And though the move to localize ingredient supply offers plenty of exciting opportunities, it poses other challenges. Companies establishing new facilities or expanding existing sites for API production must achieve effective and validated containment and sterile transfer where required – a challenge in today’s complex pharmaceutical manufacturing environment, where ingredients often pass through multiple production lines and manufacturing facilities before they become the finished drug product.
Those companies seeking to establish new partnerships with local suppliers must be confident that their new ingredient providers are compliant with stringent local regulations governing sterile and high potency pharmaceutical production. A failure to do so will likely undermine their efforts to attract new customers within their local market. Moreover, if API suppliers want to benefit from renewed and increased demand from local customers, they need to ensure they have the capacity to deliver reliable supply – after all, that is the crux of the trend. For many, this will mean not just investing in new production equipment for their existing facilities, but the acquisition of new sites as well. To maximize the return on this investment, manufacturers need to carefully select the right equipment to optimize productivity – while maintaining the highest quality and safety standards, of course.
For example, the transfer of APIs and other materials from one manufacturing process or facility to another can waste time and cause delay, as well as being a point where line operatives may be exposed to potent and hazardous APIs. However, this can be avoided – while also increasing productivity – through the careful selection of the right process components. Valves specially designed for containment can support the efficient and rapid transfer of powders into and out of process equipment, while protecting operatives from exposure. Manufacturers can also opt for single-use valves, bags, or other equipment, which offer flexibility as well as access the highest level of sterility assurance, while reducing time spent cleaning and validating equipment.
The events of the past 18 months have highlighted the weaknesses and vulnerabilities of today’s globalized industry. If we are to prevent similar issues arising during a future pandemic, companies need to learn lessons from COVID-19 and take steps to de-risk their API and ingredient supply.
Onshoring supply chains to more local providers can help achieve this goal, safeguarding operations from future global manufacturing disruption. At the same time, companies should ensure their supply isn’t too heavily dependent on a single market – even if it is local – to reduce vulnerability to supply shocks. Indeed, companies must strike a balance between localization and supply chain diversity if they truly want to ensure their operations are resilient.
Whatever the future brings, API manufacturers worldwide should take steps now to prepare for changes in demand.
- S Romano et al., “Time-trend analysis of medicine sales and shortages during COVID-19 outbreak: Data from community pharmacies”, Res Social Adm Pharm, 17, 1, 1876-1881 (2021). PMID: 32482587.
- Pharma Manufacturing, “Bring It Home” (2020). Available at: https://bit.ly/3asqXaT
- The Pharma Letter, “Indian government moves on APIs, as Chinese supplies are returning” (2020). Available at: https://bit.ly/3gaok12