Pharmaceutical formulation is the production process which combines APIs and excipients to produce a final medicinal product prior to packaging. Broadly speaking, the manufacturing process is like that used to make specialty chemicals. For example, the production of certain categories of APIs may require 10 or more kinds of pharmaceutical intermediates in a process to transform raw materials into an active ingredient. Pharmaceutical formulation is highly complex, capital intensive and subject to stringent national and international health regulations.
Unlike commodities, APIs must be sourced by certified producers from certified suppliers around the world. Therefore, any disruption to the production or delayed shipments from suppliers will affect global drug production. Lockdowns in many parts of the world can disrupt the production of critical drugs. Care must be exercised to exclude critical pharma ingredients from any form of lockdown or delays that might prevent them from being shipped to production sites.
The discovery and development of new drugs requires pharmaceutical firms to make big risky investments. Based on a survey of 10 pharma companies covering 106 randomly selected new drugs, the estimated average pre-tax industry cost for development of a prescription drug from discovery to US Food and Drug Administration (FDA) approval is US$2.6 billion. In 2018, the return on investment for pharma companies was less than two percent. Both the high costs and limited returns can lead to a decline in research and development (R&D) productivity.
At the same time, many pharma companies are facing a “patent cliff”, a drop in the sales of a drug when its patent expires. The industry’s first such fall took place between 2011 and 2016, with a corresponding revenue loss of US$106 billion. A second patent cliff has been playing out since last year and is expected to run through 2024, resulting in an estimated industry loss of US$114 billion in revenue.
Due to the twin pressures of low R&D productivity and the patent cliff, many pharma giants such as AstraZeneca, GlaxoSmithKline and Pfizer have in the past decade formed strategic partnerships around the world where both ownership and management of the capital-intensive production processes are in the hands of contract manufacturing organizations. This strategic shift has not only helped big pharma giants to lower the high capital cost of production but also reduce the burden of quality and regulatory compliance. These developments have led to highly distributed global supply chains.
The global supply chain structure in pharmaceutical production spans multiple drug application areas including treatments for conditions in cardiology, oncology, pulmonology, neurology, diabetes control, and pain management. Domestic US firms are the top suppliers (28 percent) of APIs for the US pharma market, followed by suppliers in European Union nations (26 percent), India (18 percent), and China (13 percent). Protracted disruptions as a result of the Covid-19 pandemic such as the shutting down of Chinese factories could lead to a global shortage of ingredients for the production of other drugs, particularly in North America and EU, which together account for 56 percent of global production.
Preventing another global health crisis
Healthcare facilities in most countries are now dedicated to fighting Covid-19. Understandably, it would be a very daunting task for many national health authorities to consider planning and building strategic stockpiles of drugs used for other serious diseases. There are compelling reasons to do so.
Without the timely supply of critical drugs, many medical procedures for non-Covid-19 illnesses will be compromised and potentially resulting in the premature deaths of at least tens of million people globally. Not having access to important medication for patients with pre-existing conditions can make them more vulnerable if they should test positive for Covid-19. This can compromise already stretched resources and healthcare personnel. A singular case in point was the rush to use hydroxychloroquine as a Covid-19 treatment, despite weak anecdotal evidence of its effectiveness. This led to a shortage of the drug on which lupus and rheumatoid arthritis patients relied.
In anticipation of these of drug shortages, a well-planned, multi-pronged approach might be called for rather than channelling all resources to one disease, even if eradicating Covid-19 is a clear priority. There are more than 200 countries and territories infected by Covid-19 and there is great uncertainty as to how long this pandemic will last. Without a smart strategy for drug manufacturing and distribution across products, the coronavirus could well lead to another global health crisis, with significant collateral damage – a sharp rise in deaths from chronic and acute diseases.