Confronting the fragility of medicine supply chains is an Economist Impact report, sponsored by LEO Pharma A/S. The white paper examines the complex causes of disruptions in the supply chains for drugs, with a particular focus on their active pharmaceutical ingredients (APIs). Disruption of supply chains was a common feature of the pandemic. Yet, the structural and economic circumstances that helped contribute to these problems were in existence well before covid-19 made its first appearance.
We examine in the white paper how reducing the threat of API shortages is likely to require a combination of actions from manufacturers, purchasers and governments or regulatory agencies. We suggest that future policies should be built around the following principles:
- Purchasers need to find ways of aligning incentives. Off-patent drug producers operating on narrow profit margins have little reason to ensure the reliable supply of raw materials. Creating aligned incentives that focus on resilience rather than the lowest price would help.
- Better transparency and communication between manufacturers and purchasers is vital. Producers of APIs need to keep communication lines open so that purchasers will have advanced warning about potential disruptions. In return, purchasers need to be able to give manufacturers as much warning as possible about potential demand spikes.
- Health systems need to put measures in place to better prepare for shortages. Better forecasting, whether by regional health officials or hospital pharmacies could help identify likely demand for essential medicines. Planners could also determine potential alternative medicines to be used in the event of shortages or priority systems for prescribing drugs during scarcity.
- Drug manufacturers need to ensure multiple sources of APIs. Declining profitability of certain medicines, industry consolidation and dependence on natural resources to make raw materials for certain medicines have led to a situation where many APIs for an essential medicine are produced by a single company. Drug manufacturers need to work with each other, and with government or regulatory agencies where necessary, to ensure multiple sources of APIs.
- Supply chains need to be made shorter. Concentration of production of APIs in one or two geographical locations, frequently in low- and middle–income countries (LMICs), leaves supply chains especially vulnerable to external shocks. Onshoring of manufacturing may be one solution to this problem.