Confronting the fragility of medicine supply chains, an Economist Impact report, sponsored by LEO Pharma A/S, examines the complex causes of disruptions in drug supply chains. Purchasers, who use tendering processes that prioritise price over the resilience of suppliers, have driven prices down. Off-patent manufacturers therefore operate on slender profit margins, which has led to consolidation within the industry. This dynamic has in turn created an environment in which supply chains have become extended - largely concentrated in emerging-market countries such as China and India - and increasingly vulnerable to external shocks.
While this is a global trend, the US and the EU face particular challenges. The US with its fragmented health system, and the European Union, where health responsibilities are divided between the EU and member states.
Reducing the threat of Active Pharmaceutical Ingredient (API) shortages is likely to require a combination of actions from manufacturers, purchasers and governments or regulatory agencies. Future policies should be built around the following principles:
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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
Many APIs for essential medicines are now produced by single companies. This situation is a result of the declining profitability of certain medicines, industry consolidation and dependence on natural resources for raw materials. 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
Concentrated 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.
