A widespread awakening from the current coronavirus epidemic is how vulnerable the bio-pharmaceutical supply chain of the US is on supply from China. As the spread of COVID-19 has witnessed shortages of PPE, masks and ventilators causing loss of human lives, the issue of dependence on APIs and drugs from China is on everyone’s mind. Rosemary Gibson, author of the book “China Rx “, expressed the fear best, “If China shut the door on exports of medicines and their key ingredients and raw material, U.S. hospitals and military hospitals and clinics would cease to function within months, if not days.”
The global pharmaceutical industry is an important aspect of the world economy today, providing about one trillion US dollars in revenues annually. The American pharmaceutical industry accounts for about 40% of these revenues, being the largest pharmaceutical market in the world with a value of $339,694 million USD, followed by Japan ($94,025 million USD) and China ($86,774 million USD). It is opportune to consider the biopharma industry as a national security asset which saves human lives and USA must be secure and self-reliant.
Review Commission held a hearing on the United State’s growing reliance on China’s pharmaceutical products where Gary Cohn, then chief economic advisor to President Trump, reported that 97 percent of all antibiotics in the United States came from China. About 80 percent of the active pharmaceutical ingredients (APIs) used to make drugs in the United States are said to come from China and other countries like India. It is disturbing to discover that Janet Woodcock, FDA’s director of the Center for Drug Evaluation and Research, in congressional testimony in October said, “The FDA doesn’t know whether Chinese facilities are actually producing APIs, how much they are producing, or where the APIs they are producing are being distributed worldwide, including in the United States. Similarly, we do not have information that would enable us to assess the resilience of the U.S. manufacturing base, should it be tested by China’s withdrawal from supplying the U.S. market.”
“Re-Configuration of the US Bio-Pharma Supply Chain: The New Imperative!
The belief in the basic tenet of Globalization remains unshakable because its rising tide lifts all boats in terms of global innovation, prosperity and human wellbeing. The design of the global supply chain network of sources of supply, manufacturing, warehousing and distribution has been based on optimization of system-wide cost of manufacturing, distribution, transportation and carrying inventory for a required level of customer service. The current coronavirus has demonstrated that conventional methodologies of supply chain design do not adequately factor in considerations of risk for a Black Swan event whose adverse impact is colossal but probability of occurrence is infinitesimal. The reality of a Black Swan event calls for the supply chain to be viewed as a national (or even international) asset where its design calls for a reconfiguration and redefinition of responsibilities for its execution. There is a reason to consider building supply chains of regional economies of the world as opposed to a global one. Furthermore, the traditional responsibility for an enterprise to build its supply chain is superseded by that of the nation or the regional economy because of allocation of scarce resources that are required and super-ordinate powers of the government build manufacturing capacity and distribute products while building a buffer stock.
How do we respond to the challenge of the supply chain for the individual consumer healthcare markets?
First, the supply chain management precept of being demand-driven with short lead time, rapid response and just-in-time manufacturing and distribution must be the guiding principle. This is particularly imperative for the healthcare industry which saves human lives and promotes human wellbeing. Life Sciences warrants a higher standard of security and protection like defense and Hi-Tech have traditionally had in terms of governmental support.
We can learn how the Japanese automotive companies reconfigured the supply chain in the US after disrupting the US market with exceptional quality passenger cars manufactured in Japan. The Japanese auto companies built manufacturing facilities in the US after the 1980s. Another consideration for the US healthcare is the practice of Just-In-Time manufacturing of the automotive company Volkswagen building the Beetle in Sao Paulo in 1993. They demanded that all the suppliers make sub-assemblies available within four hours by building their supply hubs physically adjacent to Volkswagen’s manufacturing operation. Just-In-Time manufacturing was geographically positioned to be consumer-market-centric and not supply-market-centric. This responsible investment decision to ensure the security and resilience of supply is worthy of consideration by the US Healthcare industry. It is extraordinarily beneficial that the US bio-pharma industry is truly multi-national, thereby decentralizing its infrastructure and tapping into regional supplies with control of quality and availability.
Dr. Prashant Yadav, a member of the Advisory Board of BSMA and an Affiliate Professor of Technology and Operations Management at INSEAD, has focused on improving healthcare supply chains and designing better supply chains for products with social benefits, reminded me,
“1. For generics (API and finished product) bring geographical diversity to the supply chain. Just a move from China to US will not change much. We faced big challenges in our Puerto Rico supply base during Maria. So we should look at Asia, LatAm, US and diversify supplier base geographically.
- For more advanced biotech manufacturing we should focus on US and invest even more in automated manufacturing, continuous process manufacturing, etc. The CARES Act can provide some funding for this.”
Finally, a lesson to be learned for addressing our challenges is from the current policy of the Indian Government which has made a 180° vicissitude from the 200-year colonialism of the British who had uprooted the manufacturing industry of India and relocated it to Britain prior to the independence of the country in 1947. The Indian Prime Minister Modi has welcomed foreign companies to the Indian market of 1.3 Billion consumers with the prerequisite that they manufacture the product in India in the short term and establish R&D facility in the long term.
Other Reasons for Strategic Adaptation of the National Supply Chain
The safety and efficacy of Chinese-made pharmaceuticals cannot be ignored.
- We have not forgotten that contaminated supplies of the blood thinning drug Heparin in 2008 led to the deaths of 149 Americans.
- In the summer of 2018, one of China’s largest domestic vaccine makers sold at least 250,000 substandard doses of vaccine for diphtheria, tetanus, and whooping cough.
- In 2008, the contamination of a raw ingredient imported from China and used to make heparin, a blood-thinning drug, was associated with at least eighty-one deaths in the United States. According to an investigative journalist, fraud and manipulation of quality data is still endemic in Chinese pharmaceutical firms.
The chaos of the coronavirus has challenged the nation and its businesses to assess the vulnerability of the supply chain of healthcare and to significantly enhance its resilience, robustness and agility in order to save human lives.