The COVID-19 pandemic had a huge impact on the pharmaceutical industry; it disrupted supply chains, delayed production and led to a shortage of medicines. In fact, it’s estimated that close to half of acute care medicines - which includes antibiotics, sedatives and blood thinners - were low in supply during the peak of the pandemic.
Of all the areas affected, the Active Pharmaceutical Ingredient (API) suffered more than most. APIs are used in everyday medications, such as paracetamol, and they are a vital part of the tablet or drug capsule. Without APIs readily available, the supply of many medications was a risk, which is why outsourcing API manufacturing became popular. Not only did this ensure that API supply remained, but it also cut the production costs linked to globalisation.
Globalisation has changed the world economy in a big way; global growth has been boosted, developing countries have had their living standards improved and the inequalities between developed/developing countries has slowly reduced. However, it has also widened the inequalities in many ways. For example, pharmaceutical manufacturing capabilities have been rocketed by the changes to globalisation in light of the pandemic. With an over reliance on Chinese manufacturing, the pharmaceutical global supply chain is extremely fragile.
The Cost of Outsourcing
China is one of the main players in the global pharmaceutical industry, due to the size of production and the lower costs. This has led to APIs from China being highly sought after and used, and previous market leaders have been surpassed. European and North American manufacturers are unable to compete with China, and these also outsource API production to China. However, this does put the West in a risky position. With a key part of the global medicine supply dominated by one country, there is no diversity.
It’s important to establish a range of production locations for APIs, as this will help to create a stable and reliable market. This is why many key businesses within the industry are looking at other production options, many of which are local. This is being boosted by the Life Sciences Industrial Strategy, which aims to encourage ten large and ten small manufacturing facilities to the UK. Though this is likely to be more expensive than having APIs manufactured in China, it’s a more stable and secure route.
The Focus on Onshoring Over Outsourcing
Due to the disruption caused by the pandemic, a lot of pharmaceutical companies are trying to rely less on Chinese suppliers by independently sourcing APIs. By diversifying the manufacturing and production of key parts of the pharmaceutical supply chain, companies reduce the risk and instability that comes with relying solely on one production location. This is why onshoring is growing in popularity.
Currently, the Indian Government is putting a huge amount of money into API production, meaning that companies won’t need to rely on China for such a key part of the supply chain. It’s hoped that this investment will allow India to reclaim some of the market, which it once had, by getting a lot of APIs domestically. Similarly, the European Commission has also set out a similar pharmaceutical strategy, and it boasts a large focus on onshoring pharmaceutical production. Sanofi, a French pharmaceutical company, announced plans to launch an API manufacturer in Europe.
Though diversifying pharmaceutical production is beneficial, it can be an expensive task for companies. This additional cost could fall to consumers or governments, driving up the price of productions being produced. At the moment, the Vaccine Taskforce is working to build the UK’s vaccine supply chain by boosting domestic supply capabilities. It’s also engaging pharmaceutical companies and encouraging them to invest in production that happens on a domestic level. However, it’s not yet clear who will cover the cost of this change in production.
Globalisation will always be present and it’s impossible to avoid, but many pharmaceutical companies are focusing their attention on onshoring as a way to boost local manufacturing capabilities and reduce the reliance on offshore production.
