The tensions facing the global supply chain have been building in the pharmaceutical industry since even before the pandemic began, said Apurva Saraf, CEO of privately-held Cosette Pharmaceuticals (South Plainfield, New Jersey), in a recent interview.
About five years ago, China, a central producer of active pharmaceutical ingredients (APIs), began shutting down tens of thousands of factories as a result of environmental infractions.
After the SARS-CoV-2 virus emerged in Wuhan, additional factory closures constricted production further.
There was a “rolling effect” when the pandemic began in China and later spread to Italy and New York and New Jersey in the U.S. — all critical areas for the pharmaceutical industry, Saraf said.
Repeated stringent lockdown measures in countries such as China, Italy and India reduced the flow of drug ingredients throughout the world.
In addition to being a central API producer, China is an essential manufacturer of key starting materials — the building blocks for many drugs. India is a prominent producer of vaccines and generics.
In the first 18 months of the pandemic, the supply shock for injectables was especially intense given the vial shortage that resulted from the pandemic.
Billions of glass vials globally were set aside for COVID-19 vaccines.
Saraf recounts that glass vial and rubber stopper lead times had increased to 2-3x of an average last year and shipping costs have spiked to 2-4x of pre-COVID levels at various times.
Russia’s invasion of Ukraine poses an additional complication to a pharma supply chain already under duress. Restrictions on Russian oil could lead to increased shipping costs and higher prices for products such as pill bottles and syringes. Additionally, Russian sanctions and limits on travel to Russia and Ukraine complicate the logistics between Asia to Europe.
Additionally, central shipping lines once operating with thin margins have recently decided to increase their rates. “Freight from India with a 40-ft container cost $3,000 per container pre-COVID,” Saraf said. “It cost $18,000 per container last month – for the same container, same weight, same ports.”
In addition, climate change could also pose further supply chain challenges given the growing risk of fuel instability and extreme weather, as a recent UN report concluded.
As a result of this confluence of factors, pharmaceutical companies are forced to become more diligent on what they store and stock.
It is also leading to hoarding of key components. “The same issue that happened with consumers and toilet paper is happening right now with [pharma] components,” Saraf said.
Companies might order, say, enough rubber stoppers to last 12 to 18 months. “The guy who needs them next month is stuck,” Saraf said.
The situation could lead to sporadic outages of critical drugs, Saraf notes. “Will people die because they can’t get a drug? I don’t think so,” he explained. But the situation might require FDA to play a more active role in reallocating supplies of a given drug across the country.
The U.S. also might rely on allies to supply drugs. “If Canada has an approved product on hand that is in short supply in the U.S., we could import it,” Saraf said.
“But in general, supply is squeezed,” Saraf said.” Our customers are very concerned.”
As a result, the pharmaceutical industry will likely continue moving away from concepts such as Kaizen and lean applied to the supply chain.
“Everybody’s built in a little bit of a cushion where you have four or five months of product or components in the channel,” Saraf said. “Now, you can take a shock.”