The Life Sciences sector is facing a period of profound change and disruption. Recent legislation efforts in the US like “Protecting Our Pharmaceutical Supply Chain from China Act of 2020” and “Securing America’s Medicine Cabinet Act of 2020” are once again raising a longstanding struggle in the Life Sciences industry: the trend towards localization.
As I noted in a previous blog,the pandemic shone a light on the over-reliance on countries like China and India – more than 80% of APIs used to manufacture pharmaceuticals come from China or India, and more than 30% of the US’s antibiotics come from China. Yet global concerns weren’t just about supply chain disruptions as countries moved into lockdown, but about the wider issue of drug security when the drug or its active ingredients aren’t produced locally.
As the cost advantages of outsourcing to China diminish, countries across the world, especially in Europe and North America, will expect and incentivize Life Sciences companies to focus primarily on security of supply.
The irony in localization being the new globalization
The trend towards localization is not new but it’s certainly accelerating. However, we aren’t witnessing the end of globalization. It’s simply changing shape. As Life Sciences organizations look to bring back elements of production into their local markets, they must also look to simultaneously build a presence in their overseas markets.
The reality is that if countries want to create drug security with the full production and distribution done locally, large pharma, biotech or medical device companies are going to need to build up their capabilities to meet local market requirements.
And, let’s face it, the idea that you can cut your reliance on well-established trading relationships overnight is virtually impossible. Even if a US-based Life Science company wanted to stop using their API supplier or move production of a drug to a local manufacturing center, it’s going to take months or years to complete.
The most likely outcome is for companies to develop their capability to discretely serve local markets while using a global supply model where it’s appropriate. The result is not the end of global supply chains but, for larger companies, the creation of multi-layered ecosystems with small local supply chains connected to a global backbone.
New levels of supply chain visibility, collaboration, and communication are going to be essential.
The growth of CDMOs and the evolution of the supply chain
One sector of the Life Sciences that has seen rapid growth during the pandemic is the Contract Development and Manufacturing Organization (CDMO) market. Estimates suggest that CDMOs have the most lucrative growth opportunities – going from around $80 billion in 2019 to over $315.7 billion by 2026.
While the pandemic saw many billions in stimulus payments for the sector, the aftermath is going to more than reverse this trend with the shortfalls in public sector budgets to putting a squeeze of the funds available for drugs. The need to up production – to meet goals like localization – while focusing on cost and revenue will increase Life Sciences companies partnering with CDMOs. In addition, many governments are looking to incentivize the use of CDMOs to boost national production.
It seems logical to also suggest that companies will investigate CDMOs to accelerate their presence in their overseas markets at lower cost. To achieve this will require effective supply chain platforms that can quickly connect with new partners and allow effective trading while ensuring that quality and IP are protected.
Can the focus on drug safety inadvertently build resilience?
This evolving ecosystem of companies, suppliers, partners, 3PLs and customers remains vulnerable to the supply chain disruptions experienced during COVID-19. Part of the issue revolved around delays and challenges in distribution and delivery. There have been many instances where vital supplies have been left idling or cold storage units not available as lockdown requirements have created problems at ports and airports.
A lack of visibility and transparency in the supply chain has exacerbated these issues and made it more challenging for companies to know where their cargo is and whether they need to source alternate supply or manufacture a second batch.
The track and trace, monitoring and licensing requirements of regulations such as the Drug Supply Chain Security Act (DSCSA) may help to overcome those challenges and deliver greater levels of supply chain resilience. Life Science companies are a little better equipped to see where inventory is and how their suppliers, logistic carriers and distributors are performing, but it is still a far cry from true end-to-end visibility. The digital systems available to ensure the supply chain visibility needed for DSCSA can also easily be deployed to effectively manage disruptions in supply caused by a pandemic or other natural or geo-political event.