The Coronavirus and the Pharmaceutical Supply Chain

As the coronavirus wreaks havoc around the globe, the pharmaceutical supply chain needs to prepare for an exceptionally tumultuous ride.

Around the World

As the virus spreads across the world, countries are taking drastic preventative measures to prevent the spread of the virus.

China

With the virus starting in China, most of the concern has centered on Chinese manufacturers. China exports a significant amount of finished products and, more significantly, active pharmaceutical ingredients across the world; this is especially significant in the United States. In fact, 97 percent of all antibiotics in the United States came from China according to a Department of Commerce study. With so much dependence on the a single country, the supply chain is vulnerable to interruption “whether by mistake or design,” according to Rosemary Gibson Senior Advisor, The Hastings Center and author of a number of books that highlight the risk of US dependence on Chinese pharmaceutical products. The coronavirus may prove to be an exceptional example of how a “mistake” can disrupt such an important supply chain.

With China’s immediate proximity to India, the spread of the virus to India is almost assured.

India

China has captured much of the focus that should be placed on India because India is especially vulnerable to the spread of the virus; and India exported close to one-fifth of generics across the world by volume, totaling $19 billion. A development of particular concern is that since March 3, 2020, India now requires companies to obtain explicit permission before shipping 26 drugs and drug ingredients, most of them antibiotics. Naturally the government wants to ensure an adequate supply of medicines for their own citizens before allowing for the export of product to other countries.

Europe

President Trump in an Oval Office Address remarked that there would be a 30-day travel ban placed on Europe and hinted that, in addition to individuals, it would additionally extend to cargo. The President quickly clarified on Twitter hours later to confirm that the ban would not extend to cargo, but it leaves open a future possibility which would have significant implications for the drug supply chain.

Force Majeure Contract Clauses

Legal and trade relation departments across the supply chain are checking and double-checking Force Majeure contract clauses as the industry prepares for widespread shortages. A handful of wholesalers have already been notified by drug manufacturers to expect shortages and that they will be exercising Force Majeure clauses for relief from their supply requirements.

Expected Dynamics of Increased Pressure on the Supply Chain

Service levels at the Big 3 average around 85%. Widespread shortages, especially with a focus on high volume antibiotics, can decrease that number even more. This may prove to be a boon to secondary distributors as they are more effective in hunting down product and deals – although this can create a number of potential issues and risks.

OptumRx’s VAWD Requirement

One issue that Optum Rx will have to answer for is how widespread drug shortages will affect their VAWD requirement. Optum Rx has increased the number of audits lately – and along with it, news of increasing claw-backs and sourcing policy enforcements. The VAWD requirement has its roots in a good faith effort – ensuring the quality and security of the supply chain. However, if a pharmacy can’t get a patient their medication will they be able to source product from non-VAWD Accredited wholesalers?

The Role of a Secondary Distributor

Secondary distributors will have a unique opportunity to demonstrate their prowess in sourcing product and getting it to customers that need it most. As supply chains are disrupted, secondary distributors are likely to be utilized even more to help customers obtain product.

PBM Reimbursement

An area of major concern for pharmacies is simple a law of supply and demand: “if supply decreases and demand remains unchanged, then it leads to higher price and lower quantity.” Unfortunately for pharmacies, this might mean they get stuck in between a rock and a hard place – increasing costs and historically low PBM reimbursements.

Quality Concerns

A final concern for the supply chain is ensuring the quality and security of the supply chain. The FDA has already postponed most foreign inspections of manufacturing facilities through April due to the coronavirus – potentially giving manufacturers the opportunity to decrease their quality standards. FDA has historically maintained constant vigilance of the international supply chain, conducting over 3,000 inspections last year alone.

Compounding a decrease in manufacturing quality is the risk of adulterated, misbranded and counterfeit product entering the market. When hospitals and pharmacies get desperate to provide drugs to sick patients, they may use less than reputable sources where product may be of questionable quality.

Summary

In summation, the coronavirus has an unknown amount of runway and the pharmaceutical supply chain must embrace its’ responsibility of ensuring the quality and security of drugs.

Image: T.J. Kirkpatrick for The New York Times.