Reshoring Pharma – Where do We Stand Two-Plus Years Later

Our reliance on specific geographies and the relocation overseas of large swathes of pharmaceutical production created vulnerabilities the industry had largely ignored. The pandemic was the wakeup call – showing us the costs of failing to keep supply chain security top of mind.In case you missed it (and I don’t think anyone did): COVID-19 put pharmaceutical supply chains under the microscope – and like most other industries, the pharma sector came up short.

A decades-long, ever-expanding dependence on foreign suppliers, cross-border product manufacturing and rapid turnarounds brought our guard down. Our reliance on specific geographies and the relocation overseas of large swathes of pharmaceutical production created vulnerabilities the industry had largely ignored. The pandemic was the wakeup call – showing us the costs of failing to keep supply chain security top of mind.

State of the Supply Chain Pre-COVID
Prior to the global pandemic, regulatory agencies were already concerned about the reliance of U.S. pharma on offshore supplies. Although the U.S. still leads in the discovery of new pharmaceutical products, the nation does not lead in the manufacturing of active pharmaceutical ingredients (APIs – not by a long stretch.

The production of pharmaceutical ingredients largely occurs on foreign soil. According to the Food and Drug Administration (FDA), in 2019, the U.S. was only responsible for 28 percent of API manufacturing, and even that figure has steadily declined over the years. The number of APIs produced in China doubled over the nine-year span from 2010 to 2019.

The relocation of API and excipient production to non-U.S. soil provides multiple economic advantages when production and delivery go as planned. The labor force in certain areas of the world, such as China, provides greater productivity at a diminished cost. Nevertheless, the global effects of COVID-19 caused numerous disruptions to the supply chain as the number of lockdowns and ill staff members grew, and shortages and delays reverberated up and down supply chains.

Supply Chains Still Heavily Impacted
Two-plus years after the start of the pandemic, in many ways the crippled state of the supply chain remains. The changes in COVID protocols have not resolved issues with cargo delivery. The transport of API and excipient components is often delayed—sometimes by months.

Packaging components, such as labels, bottles, and caps, may also arrive far slower than expected (if at all) and prices for many of these consumables have skyrocketed. The associated higher costs are often non-negotiable, and pharmaceutical companies are forced to absorb the new pricing with budgetary increases or the redistribution of organizational funds.

Reshoring Production

Domestically, the weaknesses in the pharma supply chain did not go unnoticed. The pandemic prompted U.S. suppliers to bolster pharmaceutical production. Domestic shipments grew to $221 billion in 2020—an 11-percent increase above 2019 estimates. Concurrently, during the same year, China increased its volume of pharmaceutical shipments to the U.S. by 46%.

The repatriation of American pharmaceutical production is even being promoted at the executive level of the U.S. government. During his tenure, Former President Trump approved an executive order ensuring the domestic production of certain medications. Likewise, President Biden added a request for a review of the pharmaceutical supply chains to help manage risk.

There are a number of ways to mitigate the risks of offshore production. Experienced contract development and manufacturing organizations (CDMOs) such as LGM Pharma, are helping clients meet production demands and lower costs by expanding the number of suppliers they screen and qualify for development partnerships. Mitigating Pharma Supply Chain Risks

There are a number of ways to mitigate the risks of offshore production. Experienced contract development and manufacturing organizations (CDMOs) such as LGM Pharma, are helping clients meet production demands and lower costs by expanding the number of suppliers they screen and qualify for development partnerships.

More generally, identifying dual, or multi-sourcing opportunities, finding secondary suppliers in geographically distinct regions, and leveraging a combination of on- and offshore facilities are various strategies that can mitigate risk – and over the last two years all have become increasingly popular options.

Supply chain issues and the lessons learned have been universal. Some API manufacturers in India, for example, are reconsidering their reliance on Chinese suppliers in the wake of delays and massive price increases. These manufacturers have started reshoring production of key starting materials and intermediates.

Most pharmaceutical products have global demand, so a worldwide network remains a necessity. The extension of some production to American suppliers can mitigate the risk of supply chain interruption.

The Realties of Reshoring Pharma Manufacturing

Reshoring, while an attractive geographical risk mitigation option, isn’t without its challenges. Building and validating new facilities can take years and consume sizeable budgets. EHS concerns, which may have been one of the drivers for offshoring decades ago, remain and can pose considerable limitations. Once operational, there are still likely to be foreign supply chain dependencies whether for reagents, intermediates, APIs or consumables.

These are among the reasons why the complete transfer of drug manufacturing to domestic suppliers is not generally viewed as workable by industry insiders. While some segments of the drug industry may continue to grow domestically, biologics, for example, tend to be manufactured in the U.S. Due to these issues, companies will likely continue to source abroad.

A Mixture of Supply Chain Solutions Emerge

Many participants in the pharmaceutical industry interact with global partners to provide medications to citizens around the world. The complete avoidance of all offshoring activities may not be possible. What we’ve seen emerge is more of a combination of solutions, including:

  • region-specific supply and manufacturing hubs to serve local populations (in the U.S., E.U. and Asia, for example)
  • identifying multiple suppliers of key intermediates and APIs to avert disruptions
  • reshoring specific, high-value or high-importance product manufacturing (e.g., antibiotics).

Among all of these actions that companies are taking – bringing Key Starting Materials (KSMs) and intermediate production in-house, ensuring availability of supply and production capacity to serve specific, more regional geographies, bringing critical drug manufacture onshore – there is a common theme at play: make the drug closer to home, whether that’s in the U.S., Asia, E.U. or elsewhere.

Supply Chain, Cost Pressures Linger

In January of this year, Hamilton Lenox, the Senior Vice President of Business Development & Operations at LGM Pharma, identified the labor market, ongoing supply-chain challenges/disruptions, and price increases as top issues the industry would confront in 2022. His January thoughts in the DCAT Value Chain Insights piece on Supply Chains remain valid, as these look set to continue impacting the pharma sector well into 2023.

“The world is experiencing increased shortages of products and raw materials, longer lead times, disruptions in shipping and significant cost increases.”

“Prices are rising at the fastest pace in nearly 40 years, and this translates into higher prices (and longer lead times) for drug substance and drug product services.”

“Recruiting and employee retention continue to be challenging, with strong competition for good candidates, and the tight labor market also is leading to higher salaries and benefits, further driving up costs. Also, in this type of labor market, many organizations are seeing increased turnover.”

Protecting Pharmaceutical Product Quality

Whether pharmaceutical production is reshored to the U.S. from overseas, or splinters into regional production hubs, assessing supplier quality will still remain a top priority. Supplier qualification processes have become more stringent in the last few years, and regardless of supplier location, collaborations must be guided by quality assurance measures and include processes for the evaluation and implementation of process improvements.

Moreover, necessary actions that verify quality must occur, including the confirmation of Current Good Manufacturing Practice (CGMP) certifications for associated suppliers, and the review of regulatory databases for compliance violations. Onsite audits have largely restarted and are an important tool to verify a potential partner’s readiness to produce at the intended quality level.

If the reverberating supply chain crises of the last few years have taught us anything, however, it’s that companies must have supply chain visibility which extends multiple layers deep.

The role of quality assurance in supply chain continuity is indispensable. At LGM Pharma, we have developed an extensive network of experienced and proven API producers with a stellar track record of regulatory compliance. Amid the current global supply chain issues, we have worked closely with our clients to circumvent challenges, successfully supporting more than 6,000 deliveries over the last 3 years.

Contact us here to discuss API supply needs or your latest drug product manufacturing project.

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