Writing in the ‘Beyond Borders: EY biotechnology report 2022’, EY analysts note the pandemic has prompted greater government involvement in supply chains – and it expects to see this involvement deepen in the future. Drug production – and the associated supply chains – could see a move away from complex global networks to more localized ones.
So what will this look like in practice? Future models are still evolving – and biotech companies and governments need to communicate to come up with the most resilient ones, say the analysts.
Increased focus on supply chain security
Despite great concern, the biotech industry ‘largely met’ the challenges posed to the supply chain over the height of the COVID-19 pandemic, in contrast to other industries which experienced significant disruptions.
“While there were reported shortages of certain raw materials and consumables among biotechs (such as the sterile filters used in biological drug manufacturing), very few products have been unavailable during the crisis,” notes the report. “In fact, within the US, issues have been reported for less than 1.5% of the more than 20,000 FDA-registered prescription drugs in 2020 and 2021.”
However, the pandemic did increase the focus on the security of the supply chain, as well as drawing more attention from policymakers.
“A yearlong review of US public health supply chains, published in February 2022, reaffirms the Biden administration’s ongoing efforts to encourage domestic production and innovation, develop redundancies and ensure that diversification within drug supply chains continues.
“The EU has made similar moves, with its Pharmaceutical Strategy for Europe adopted at the end of 2020 aiming to “develop the EU open strategic autonomy and ensure robust supply chains.”
In an effort to effectively monitor its supply chains, the EU has imposed temporary vaccine export restrictions to secure supplies of vital medicines, assessed stockpiles and built regional capacity via its Health Emergency Preparedness and Response Authority (HERA).
“These moves toward greater governmental involvement in supply chains are likely to continue.”
From local to global and back again
The last few decades has seen an increasingly globalized shift of biopharmaceutical supply chains. Driven by anxieties over the security of national drug supplies, however, a reversal may be under way: with increased localization of supply chains and a greater emphasis on regional or national self-reliance.
“Other macro factors fueling this shift include the changing globalization model wherein global trade agreements are declining in relevance in favor of increased regionalized trade and bilateral agreements. The pandemic may have accelerated this trend, but as the armed attack in Eastern Europe in 2022 emphasizes, COVID-19 will not be the last major crisis of the 21st century.
"Future global shocks are likely to heighten geopolitical tensions further; whether they come in the form of future pandemic outbreaks or cyber attacks (or even cyber war), the impacts of climate change or yet unforeseen crises will impact global stability. In response, we are likely to see greater concern from policymakers about enabling supply chain resilience within their regions.”
From initiatives to mandates: Potential government involvement
Biotech companies are already taking certain measures to build resilience into their supply chains: such as implementing multi-sourcing, leveraged local contract development and manufacturing companies (CDMOs) and establishing cross-registered manufacturing sites.
Furthermore, EY suggests companies may begin collaborating more closely with nation-states to build strategic inventories or initiate public-private partnerships.
Policymakers also may actively seek to force greater localization of supply chains through measures such as R&D credits and incentives; export quotas; procurement mandates; or limitations on market access for companies without a local footprint. More radically, governments could seek to impose localization of some or all stages of the biopharma supply chain.
“The degree of logistical challenges and investment needed to make this concept a reality would depend on the scope of the effort. It would be relatively simple for a biopharma to localize secondary product packaging.
“By contrast, localizing active pharmaceutical ingredient (API) manufacturing would be a major challenge, both in terms of the scale of capital investment and the levels of technical and quality competency required.
“What would governments gain from localization? A localized supply chain would have a significant capability to respond to local conditions. However, it would entail building and maintaining infrastructure, services and talent at local sites. Separating operations from established centers of excellence in quality, process engineering, regulatory and IT operations might negatively affect supply chain reliability. There may be political benefits from localization — for example, in the creation of jobs for a local workforce — but it is unclear if these incentives would justify the effort and expenditure.”
One solution, therefore, might be a move towards hybrid models: creating a much more interactive set-up than previously seen and involving stakeholders from across the spectrum.
“Many approaches to building resiliency have been suggested, from hub-and-spoke manufacturing models to joint manufacturing or joint warehousing operations between companies, establishment of a joint procurement clearinghouse or the use of digital technology to build greater end-to-end transparency across the supply chain. Success in combining these approaches will depend on the costs and opportunities they generate for governments and companies.
“The biotech industry, policymakers and other stakeholder partners will therefore need to establish a dialogue for mutual education. In collaboration, they can adapt supply chain models to deliver the results prioritized by each partner in the future.”
The report can be found in full here.