Considerations in Bringing Pharma Back to the U.S.
September 14, 2022
In the wake of the supply chain vulnerabilities that were exacerbated during the COVID-19 pandemic and considering disruptions that continue to date (the U.S. Food and Drug Administration [FDA] currently lists over 100 drug shortages), pharmaceutical companies are reassessing their global operating model. The current pharmaceutical supply chain was offshored to the lowest cost provider and led to the U.S. being heavily reliant on China and India. China is the main producer of active pharmaceutical ingredients (“APIs”), which are the active components in medications that produce the intended health effect. The supply chain disruptions in China have been steep due to their zero COVID-19 policy. In turn, the shortages of APIs from China have led to India experiencing shortages in APIs for use in formulations, which is the end-product of the medicine manufacturing process. Overall, this caused the pharmaceutical industry to experience disruptions in clinical trials and manufacturing, which was made worse by companies overstocking supplies and attempting to schedule resources ahead of time during the height of the shortages.
Being able to control supply chain availability is critical, and dependence on other countries during supply chain disruptions has caused the U.S. government to reconsider onshoring and nearshoring of APIs and essential medicines as a first step to what has been called “Making America Pharma Again.” In turn, this has led to pharmaceutical executives rethinking their current operating models and strategic roadmap. How can U.S. pharmaceutical companies reimagine the road ahead? The important question companies need to ask themselves is what is required to accelerate investments, achieve competitive positioning, and mitigate operational risks in today’s economic environment?
An important factor to include in a strategic roadmap is how to attract investor capital and plan for future spending. With the supply chain lagging behind, companies may not spend money as quickly as they originally planned. Also, given the status of the market in 2022, including inflation, higher interest rates, recession fears, and overall declining biopharma deals as compared to prior years, a slower cash burn might not be a bad thing. However, it also means that progress will take longer, and reforecasting will need to be done, which will require a lot of time and effort from companies to push out future expenditures. This could potentially lead to companies putting a pause on certain programs to focus resources on the lead program that is most likely to generate value going forward. It is important for executives to start with clear goals, then factor in supply chain availability and potential financial implications as key factors in the decision-making process when building a strategic plan and cashflow forecast.
Collaboration is an essential ingredient to spur and sustain innovation in order to achieve a competitive position in the marketplace. Companies need to have the processes, personnel, and technology in place to effectively re-shore pharma. While bringing APIs into the U.S. was a first step, it will take time to bring the supply chain fully domestic again. The U.S. is experiencing continued labor shortages, causing challenges in controlling costs and the bottom line, which is what led to the U.S. offshoring pharma initially. The expectation is that companies will be looking for partners that offer continuity of a program from early-stage formulation and clinical trials to commercial launch and afterwards, which will take time and training. In the short-term, the U.S. will still heavily rely on China and India for several years to come, and it will be important to have a strategic partner that can act as a trusted advisor. From a long-term perspective, pharmaceutical executives will need to ensure their companies have the ability and a system of quality control in place to comply with FDA regulations. Implementing the proper innovative technology will be vital to ensuring companies can effectively bridge their short- and long-term plans.
There are key priorities that require immediate attention to mitigate risks in “Making America Pharma Again.” These include sources, visibility, and information security surrounding the supply chain. With the U.S. re-shoring essential APIs, companies in the U.S. are trying to re-establish some of their research and development facilities and capabilities. To allow for a quicker timeline, these efforts include pilot programs with existing universities and thinking about different ways to take advantage of the resources that are available in the U.S. Based on various surveys of pharmaceutical executives, supply chain visibility was a significant area identified in need of improvement. Effective upstream and downstream visibility will allow companies to be more proactive and responsive. However, with cyberattacks in the health care and pharmaceutical industries on the rise, preventing them will not be possible unless companies –and their partners – endeavor to have the appropriate system protections in place to mitigate cybersecurity risks. Finally, as new plants and facilities are built, it will also be important to develop and establish policies and protocols that consider the environmental, social, and governance impact.
Pharmaceutical companies need to think about better positioning to reach a steady state where materials and labor are domestically available both commercially and for research. The U.S. did not offshore pharma overnight, and bringing it back will not be an immediate change. With the global supply chain pressures beginning to ease, we are in a transitional time. Throughout the COVID-19 pandemic we saw how quickly the pharmaceutical industry could come together to solve a common problem. Continued collaboration and proper use of technology will be vital to the U.S. in paving a path forward to bring new products to market, while securing availability of essential medicines in the future.