The coronavirus pandemic has exposed something in the pharmaceutical industry that has been evident for a long time - a weak and unsustainable global supply chain.
While the largest pharmaceutical organisations tend to be American and European, the vast majority of API and Generic drug manufacturing takes place in China and India. This dynamic worked moderately well until recently when the global pandemic triggered localised lockdowns and travel restrictions. Virtually overnight, manufacturing sites across China and India were forced to close and drug shortages were noticeable worldwide. Western pharmaceutical organisations began to panic as they felt the effects of a lack of control over their supply chains for the first time.
Outsourcing and offshoring
Previously, Western pharmaceutical organisations manufactured their own Active Pharmaceutical Ingredients (APIs) and small molecules themselves. However, the past 20 years or so has seen a major shift; pharmaceutical organisations have progressively outsourced the manufacture of prescription medicines, over-the-counter medications, and generic drugs to countries like China and India. Incentivised by reductions in cost, outsourcing has strengthened Western pharmaceutical organisations greatly and become an effective way of doing business.
Making manufacturing more affordable additionally allows low-income countries access to afford the basic medicines they require. If these solutions were manufactured in Switzerland, for example, the price of these products would shoot up excessively to cover the costs of local labour laws. With reduced costs, better access, and speed of manufacturing, it’s no wonder why outsourcing has been the go-to for so long.
However, the reliance on China and India for the manufacture and supply of everyday medicines has exposed vulnerabilities in Western countries. The shortfalls have become abundantly clear; further disruptions to manufacturing on a global scale could create severe shortages of vital drugs and medicines. The past 6 months or so has seen people unable to access anything from paracetamol and aspirin to cancer drugs and diabetes medication. With mounting pressure to deliver lifesaving drugs and treatments, it’s time for pharmaceutical organisations to future-proof their supply chains.
Where do CDMOs come in?
The pandemic has been a wakeup call for Western pharmaceutical companies, which has resulted in an increased interest in local Contract Manufacturing and Development Organisations (CDMOs). By utilising these existing CDMOs in the US and Europe, pharmaceutical organisations can take back control over their supply chains. I spoke to a Project Lead from a global life science organisation who stated that:
“The manufacturing business is going to specialists that can manage and create economies of scale. CDMOs are doing our manufacturing for us because they are better suited for those kinds of operations”.
CDMOs are renowned for their acceleration of drug development timelines and technological innovation. With a focus on operations and quality, they are resilient, flexible, and accustomed to change and significant shifts in demand. It’s clear that a prosperous and efficient relationship can be built with these local CDMOs, especially during periods of high demand like we’re in now.
It’s often assumed that by outsourcing manufacturing to a low-cost country, the organisation will increase profit. While cutting costs may well be advantageous, it’s completely dependent upon an effective supply chain. When there’s a break in the supply chain – like there has been during the coronavirus pandemic – then the losses can be great. Another executive I spoke to, a Site Head, hopes that this dependency on outsourcing is taken seriously by not just big pharma, but also by governments worldwide:
“The moment an antibiotic that could be lifesaving costs less than a can of coke signals that something is wrong with the supply chain”.
The Site Head went on to state that:
“If you look at it from an environmental standpoint, if you’re sourcing manufacturing locally it also means you’re not having to ship your products around the world”.
With many pharmaceutical organisations shifting their focus towards achieving a sustainable future, a reduction in global shipping and transport is clearly a positive step in the right direction.
What’s more, with the manufacturing site just down the road, organisations can have oversight of operations to ensure that their drug products are manufactured to the highest quality and standards.
If drug production in US and European CDMOs ramped up, this would arguably introduce more high paying manufacturing roles to the local economy, demonstrating an additional benefit of local CDMOs.
As pharma organisations are placed under increasing pressure to rapidly design, develop and distribute a coronavirus vaccine, CDMOs are the solution. With increased speed, efficiency, and agility, they allow the US and Europe to ease distribution challenges and streamline their supply chains.
Some final thoughts…
Local CDMOs are a better long-term solution. They essentially future-proof the supply chain in the event of global disruptions to come. But how quickly will pharma organisations adopt CDMOs into their long-term strategy? After decades of partnering with China and India, will we see large pharma begin to use less cost effective, but more localised and sustainable CDMO solutions? Only time will tell, but if the global pandemic is anything to go by, US and European pharmaceutical organisations can’t afford to expose any more vulnerabilities to their already weak supply chains.
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* Fraser Dove International is a talent consultancy operating exclusively across the life sciences industry. While our roots lie in executive search, we provide more than the traditional recruitment services. Uniquely placed within the market, we have been providing cutting-edge talent solutions and insight to organisations at all stages of their journey – from start-up to established leaders – since 2013.