The pharmaceutical industry is one of the most heavily regulated manufacturing sectors in the world with a wide range of regulations, audits and inspections applying to different aspects of the supply chain. Manufacturers are, for example, well acquainted with stringent GMP requirements.
CPHI participants should expect even more supply chain scrutiny in the future as regulators expand oversight to issues such as antimicrobial resistance and environmental pollution. The European Union (EU) is currently reviewing different aspects of its pharmaceutical regulatory framework, which will inevitably impact manufacturing supply chains.
ESG reporting is coming in a big way
Big pharmaceutical companies are, in a way, anticipating this regulation with ESG (environmental, social and governance) reporting becoming the norm as sustainable finance plays a bigger role in capital markets. ESG reporting requires a significant collection of supply chain data to demonstrate, for example, a company’s commitment to a low-carbon transition.
This can cover carbon pricing analyses, energy usage (efficiency), waste and water. The aim is to oversee the climate risk and to align with global standards for climate change reduction or mitigation.
Companies are required to analyse their wider ecosystem (including manufacturing supply chains) in their analysis. This means collecting data from suppliers on these issues and this data will become increasingly standardised owing to the Corporate Sustainability Reporting Directive, which will establish formal tools and standards for this type of reporting.1
This Directive will also apply to all large publicly listed or privately owned companies and to any publicly listed small and medium sized enterprise (SME). In practice, this will cover most of the EU pharmaceutical sector from 2024 or 2025.
As these legal obligations come into force in the EU, this will impact business at CPHI as future contracts will need to integrate these data reporting elements. We can foresee how suppliers might add new advertising elements to their CPHI stands such as low carbon emissions manufacturing, reduced water use manufacturing or low PNEC wastewater from production (PNEC = predicted no effect concentration) to complement current advertising about GMP compliance.
Although these requirements will create additional work and complexity for the first few years of reporting, the industry will learn to develop standardised and more digitalised reporting tools to facilitate data collection across the supply chain with time.
Stricter PiE (Pharmaceuticals in the Environment) rules can be expected
The EU is also announcing stricter pharmaceutical regulation for the environment. Traditionally, pharmaceutical regulation has focused on the quality, safety and efficacy of medicines. The environmental impact will be a new aspect of medicines regulation to consider — namely in relation to manufacturing and to human use or consumption.
The EU applies strict environmental rules to all manufacturers to reduce the environmental pollution of soil and water. This follows on from industrial accidents and pollution concerns in Europe in the previous millennium. As some aspects of pharmaceutical production can be toxic for the environment, the sector has been a strong focus point for this type of regulation.
Recently, the EU has become anxious about pharmaceutical manufacturing pollution overseas — often related to concerns expressed by environmental NGOs about pollution from production overseas. Most of these worries focus on antibiotic production regarding the development of antimicrobial resistance (AMR) hotspots developing near large antibiotic production centres.2
The EU is expected to introduce legislation requiring stricter control of the environmental waste from pharmaceutical production … with potentially very strict oversight of antibiotic production because of the AMR risk.
The pharmaceutical industry has anticipated this development and participated in the establishment of the AMR Industry Alliance, which has developed an international standard for antibiotic production to reduce its impact on the environment and AMR.3
This is a welcome development that could facilitate compliance with future regulations. By contrast, there are no clear standards to apply for the production of other types of pharmaceutical products. Therefore, EU regulation in this field may prove to be very challenging for the manufacturing supply chain in the future.
This is because pharmaceutical production and, therefore, production waste and environmental impact are not static and they can vary owing to multiple industrial and external (drought reducing river flows, for example) factors.
In addition, pharmaceutical regulatory agencies do not have environmental expertise and will therefore struggle to review any such data. This will be relevant for CPHI participants as production waste standards develop with time and new regulatory requirements come into force. Companies that invest in complying with these standards will be more successful than those that ignore them.
The EU may also restrict the conditions of use of pharmaceuticals for environmental reasons. Already, the EU restricts the use of antibiotics by requiring prescriptions by physicians and stricter national guidelines for those prescribers.
The purpose is to reduce the risk of AMR; indirectly and paradoxically, however, this policy may also undermine efforts to treat AMR patients. Indeed, with strict prescribing rules and commodity pricing rules applied nearly everywhere in Europe, the market for antibiotics is extremely challenging and, in many cases, economically unsustainable.4
This is leading to the rationalisation of antibiotics in different markets in the EU, which reduces the scope of antibiotic molecules available to physicians to treat resistant patients.
The EU may consider applying similar restrictions (for example prescription requirements or restrictions) to other molecules to reduce their impact on the environment related to human use. Indeed, the EU’s Zero Pollution Initiative targets pharmaceutical residues from both farm and human use.5
It is difficult to fathom, however, how the EU will balance environmental objectives such as theses with the more fundamental right of EU citizens to health — including access to essential medicines — which is guaranteed by the EU Charter of Fundamental (Human) Rights (Article 35 states: Healthcare: Everyone has the right of access to preventive healthcare and the right to benefit from medical treatment under the conditions established by national laws and practices. A high level of human health protection shall be ensured in the definition and implementation of all the Union’s policies and activities.).
In calling for the mobilisation of industry for a clean and circular economy in the Green Deal, the Commission stressed the need to leverage the potential of digital transformation as a key enabler to reach the Green Deal objectives.
Capturing those benefits will require a common strategy of digitalisation across the EU to avoid two-speed Europe. It should also lead to an increased use of digital solutions, notably as part of circular economy strategies.
For example, as the Commission called for electronic product information to be implemented for all EU medicines, the removal of the paper leaflet could eliminate paper waste at the design stage itself.
EU pharmaceutical supply chain security: to be improved
Pharmaceutical supply chain security has become a high-level political issue in the EU owing to the COVID-19 pandemic. In some ways, the EU — with its large and diverse pharmaceutical manufacturing capabilities that are able to produce volumes of chemical solid and injectable medicines, biologic medicines and vaccines — is among the most secure pharmaceutical supply chains in the world.
In fact, the EU was a leading global exporter of emergency medicines and vaccines during the pandemic.
EU institutions also played a positive role during the pandemic to keep pharmaceutical supply chains operating by declaring pharmaceutical production to be essential, by reopening EU (internal) borders for pharmaceuticals and other essential goods in early 2020, by providing regulatory flexibility to allow manufacturers to scale-up the production of ICU hospital emergency medicines and COVID-19 vaccines and by preventing EU Member States from hoarding medicines at the expense of their neighbours and the global community.
This also pushed the EU to panic and adopt COVID-19 vaccine export restrictions to the dismay of the EU pharmaceutical industry and which was in total contradiction with the EU’s role as the leading global provider of vaccines and stated ambition of support for global public health solidarity. To be fair, the EU was not the only region to adopt these counterproductive restrictions as the US and India did as much restricting and far less exporting than the EU.
The EU also organised a “structured dialogue” involving the healthcare community (the pharmaceutical and chemical industries, distribution, healthcare professionals, patient groups, regulators and ministries of health) to review the EU’s pharmaceutical supply chain security for the future.6
The dialogue produced four in-depth consensus documents on supply chain security, supply chain disruption risks, defining critical medicines and innovation to supply chain security. Unfortunately, there has been no real follow-up to this initiative.
There was also a downside to supply chain security during COVID-19. Most notably, the EU had access to very little market demand and supply chain data or information during the pandemic. In the early stages of the pandemic, there were huge demand surges for medicines including hospital ICU medicines, common pain medication such as paracetamol or ibuprofen and many chronic disease medicines as patients stocked up.
Later, there would be demand surges for flu and COVID-19 vaccines. The EU struggled throughout the pandemic to predict these demand surges, which created panic in many EU countries and in distribution as hoarding became the only tool to plan for surges.
Much of this was caused by the EU’s failure to standardise data collection in the pharmaceutical sector. For example, the European Medicines Agency (EMA) collected shortage reporting data from pharmaceutical companies and from Member States; but, as the data was not standardised, it was effectively unreadable or unusable.
Similarly, many European hospitals do not have digital management of pharmaceutical stocks, so they cannot predict demand flows. And even though the EU is well advanced with anticounterfeiting serialisation with an EU-wide data system that collects data on the dispense of all prescription medicines to patients, there was no technical capability to use this data to assess demand surges or local shortages.
Similarly, EU data on manufacturing supply chains, which is entirely in the hands of medicines agencies (as this data is supplied as part of marketing approval dossiers and in relation to GMP), was not accessible because of the absence of standardised and digitalised systems.
Therefore, although this data was available to regulators, in practice, they could not read or use it for the purpose of a major health crisis.
On the positive side, the EU provided special competition law guidance for industry to collect this important data and to address demand surges and supply chain bottlenecks under strict surveillance by the Competition and Health authorities.7
In addition, future EU pharmaceutical legislation will improve the digitalisation and useability of supply chain data. For example, the new EMA mandate on shortages requires the establishment of a common digital platform for the collection of shortage reporting data.8
Future EU pharmaceutical legislation is also likely to introduce new digitalisation requirements to the pharmaceutical industry and its 28 medicine agencies. The EU will also explore the use of serialisation data for similar supply chain security purposes. These requirements will vastly improve the data available for a health crisis and, hopefully, improve things such as large-scale drug shortage mitigation.
On the downside, the EU may also introduce more supply chain requirements on manufacturers and marketing authorisation holders to reduce medicine shortages. The EU has experienced a dramatic increase in shortage notifications during the last 10 years; however, the Commission’s own data shows that 90% of reported shortages are localised in a single EU country.9
Industrial shortages (for example caused by API or raw material supply disruptions) would normally affect more than one EU market. This implies that the shortages are driven by local market conditions in which payers and procurers seek to obtain low prices for medicines.10
As the EU has limited authority and even less political will to correct local market failures causing shortages, it is probable that the EU will increase shortage reporting requirements and other regulatory measures on manufacturers and marketing authorisation holders in the future.
This will only deliver vast amounts of unhelpful data as earlier shortage reporting leads to the reporting of more risks than actual shortages and mitigation plans only make sense for certain critical drugs. By contrast, the EU will also introduce measures to facilitate product allocation across the EU.
As a region with 27 countries and 22 languages, packaging is not easy for the EU market. The EU has promised to simplify these requirements and enable the use of digital leaflets in the future (as it allowed for COVID-19 vaccines very successfully). This should make life much less complicated for manufacturers supplying the EU market in the future.
To conclude, CPHI companies can expect EU regulation to have a big impact on their business in the future. Whether it’s related to reporting, to the environment, to AMR or to supply chain security, more reporting and, hopefully, more standardised and digitalised tools to enable that reporting will be required.