IQVIA discusses supply chain resilience for CPhI Discover

Informa’s CPhI Discover virtual event is taking place from 17-28th May, and the company recently spoke with Aurelio Arias, Engagement Manager, Thought Leadership at IQVIA ahead of a session he is moderating on the ‘API Landscape, Reshoring and sourcing dynamics’. (Thursday 20th at 3pm CET)

In preparation for the panel, Arias discussed how supply chain resilience has emerged to the top of industry debate again, both as an active response to the pandemic and changing national sentiments – with green manufacturing and digitisation accelerating changes.

CPhI Discover: Can you give us an overview of the reshoring trend? Do we think this is coming from the government; a response to the pandemic; is the result of pharma looking more widely at geo-sourcing strategies?

Arias: As a whole, anti-globalisation has been a growing topic as trade deficits and geopolitical tensions have increased in the past decade.

Within the pharmaceutical industry, the problem of optimising operations at the expense of a redundant network has been long identified, but the cost-savings have been a significant driver to a globalised generics sector. However, the pandemic has stressed this existing system and highlighted real weaknesses in our current model, fuelling calls to enact reshoring policies to enhance national security. Thus, reshoring is a symptom of many problems in the market, including supply chain resilience, but also geopolitical aversion to reliance on other nations, national employment and industry interests to name a few.

CPhI Discover: Do we think tensions between nations e.g. between UK and EU with regards to vaccine manufacturing has further highlighted this issue or is this a temporary consideration that doesn’t have much baring on wider macro-economic factors?

Arias: Tensions between nations has been exacerbated during the pandemic, as what was meant to be a collaborative effort to distribute vaccines and front-line medicines globally has, unsurprisingly, been heavily politicised. The importance of being decisive and negotiating favourable terms on contracts has come to light as critical in securing supply. Yet all this is meaningless if countries are willing to breach or override commercial contracts as they attempt to divert resources for their population.

In the future, contract compliance will be essential as it enables both companies and countries to form a network of agreements to work together. Without this, trust in the system will erode, reducing collaborative efforts and the world will likely be poorer as a result.

CPhI Discover: We often here a lot of talk about reshoring, but globally sourced API remain a key part of the international supply chain – do we see specific types of APIs being re-shored?

Arias: During the height of the pandemic, supply of mass-volume generics such as painkillers, antihypertensives and antibiotics manufactured in Asia were flagged as drug classes most at risk of supply disruptions. This led to countries declaring initiatives to reshore manufacturing of common medicines, like we saw with France and paracetamol.

Manufacturing subsidies and trade tariffs are the main macroeconomic tools that would incentivise domestic production, yet fear of trade wars have kept policymakers from pushing for these measures

It is the high-volume, low-margin drugs that are both seen as vital to treat large populations and have had the highest proportion of manufacturing from the East. The expectations of low-costs for these medicines has been the primary driver for globalisation and it therefore, remains the largest challenge of reshoring them. Payers should be prepared to pay more for a robust supply chain, as the two factors are pulling in opposing directions.

CPhI Discover: Are there any different perspectives from different countries e.g. India & USA being vocal about encouraging domestic manufacturing while others are taking a more nuanced approach?

Arias: Countries that have traditionally had a large manufacturing base have been the most vocal on increasing domestic manufacturing to increase their economic output, but not much has led to policies that would really move the needle.

Manufacturing subsidies and trade tariffs are the main macroeconomic tools that would incentivise domestic production, yet fear of trade wars have kept policymakers from pushing for these measures. India and China have the means to increase manufacturing capacity to counter any Western efforts and this could lead to further price erosion and lower profitability if handled acrimoniously.

CPhI Discover: With over 5 vaccines now in production globally for COVID, do we think this issue has reached its tether or will continue to grow over the next 2-3 years?

Arias: We’ll likely see a rough transition back to normality as global disparities between vaccinations come up against rapid viral variants and the need for booster shots. This will undoubtedly lead to continued scrutiny on the supply chain. However, as countries become accustomed to dealing with the pandemic, they will largely mitigate any real shocks to the system with policies such as prioritising medical supplies to manufacturing workers and investing in smarter monitoring and extensive hygiene protocols along the distribution chain.

CPhI Discover: With the session also looking at digitisation in the supply chain, can we have your view on real time supply chain monitoring, and does this (re)make a case for globalised production bases – i.e. the opposite of reshoring trends?

Arias: Real-time supply chain monitoring could bring about greater price transparency as stakeholders gain a deeper understanding of supply and demand dynamics. It would also allow manufacturers and distributors to react rapidly to shifts in the market to cover any emergencies.

These effects would driver greater efficiencies in the industry by creating a platform for competitive pricing and reducing shortages. However, over-reliance on a transparent real-time system could have the unintended effect of reducing redundancies in the pursuit of savings, such as stockpiles or globalised manufacturing, and therefore lead to shortages from unforeseen events. With careful planning this can be mitigated by designing a system that incentivises a competitive and decentralised supply chain.

Countries and corporations are actively making carbon-neutral/negative pledges for 2030-50. In order to achieve these aims, companies will pressure supply partners to reform their operations to provide greener products

CPhI Discover: What is your perspective on greener manufacturing, modern manufacturing and innovation, therefore helping makes a business case for reshoring in Western markets. Similarly does this even address the problem without true vertical integration (as ingredients and starting materials supply will still be international – mostly coming from Asia). Do you think we might see a two-tier system in say five years hence where cost drivers will see the majority of generics in lowers cost markets still (with only a small number of essential medicines made domestically). And perhaps only newer medicines likely to be reshored to domestic sources – where new techniques and more modern manufacturing might be need to overcome the complexity of newer drugs in the pipeline. What do you think will ultimately play out?

Arias: Countries and corporations are actively making carbon-neutral/negative pledges for 2030-50. In order to achieve these aims, companies will pressure supply partners to reform their operations to provide greener products. Asian countries have made large investments in renewable energy and manufacturers are actively working on their emissions.

This means that cheap ingredients from Asia need not necessarily be more polluting than reshored sources. If the pharma industry continues to drive down prices, and this is largely an ethical question, then reshoring of important large volume medicines will be very difficult. Innovative, complex medicines will originate in biotech hubs but as with all medicines will rapidly migrate to low-cost countries as they scale up production.

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