Coronavirus May Disrupt U.S. Pharma/Life Sciences Supply Chain

How the coronavirus outbreak may impact U.S. prescription drugs, medical devices, PPE and nutritional supplements

As of February 13th, 60 million people in China have been quarantined to prevent the spread of the dreaded coronavirus.  For those of you keeping a close eye on the situation to make informed decisions, here is a real time coronavirus COVID-19 global case tracker by Johns Hopkins.  More than 13 million individual passenger flights have been cancelled and air carriers including Delta Air Lines have suspended flights to the mainland until March.  The coronavirus, now rebranded by The World Health Organization as COVID-19 is projected to have the most significant impact on the global economy in years.  In China, already lifestyle patterns have changed, as eating outside the home and shopping in luxury stores has declined.  The outbreak of COVID-19 remains centered in Wuhan, known for being a thriving center for bio-pharmaceutical research and development. 

The expansion of the coronavirus is amplifying the impact on global business and in many ways, challenging established supply chain strategy across the globe.  Tourism in mainland China as well as other popular locations across Asia including Japan and Singapore has plummeted rapidly.  The disruption in supply chains has caused consumer prices, including food prices to spike, at least temporarily to their highest rate in over eight years.  The demand for personal protective equipment (PPE) is nearly 100 times higher than normal.  Prices are over 20 times higher than is typical.  Consumers are stockpiling masks and protective gear, increasing shortages of personal protective equipment.  This increased need for personal protective equipment is hitting the world at the same time as flu season in the United States, challenging the healthcare supply chain.

Risk and Potential for Disruption in the Pharmaceutical and Life Sciences Supply Chain

 

Prescription Drugs and Active Pharmaceutical Ingredients

Did you know that the vast majority of the critical ingredients needed to manufacture drugs on which many Americans rely are produced in China?   In addition, today China is the largest exporter of vitamins and antibiotic raw materials.

The United States pharmaceutical supply chain depends upon Chinese manufacturers.  At this point, there is no information available to the public about the proportion of critical medications which originate in China and the specific locations of the manufacturing facilities. This may include contract manufacturers hired by U.S. pharmaceutical companies to produce prescription drug products.  Typically, using Chinese manufacturers results in a competitive advantage of lower costs for production and often for raw materials.  In today’s world of complex global trade, China and India have the dominant share of drug manufacturing operations.

Fifteen percent of the world’s production facilities that manufacture active pharmaceutical ingredients needed to product 370 essential drugs are in China while 21 percent are in the U.S.  Yes, the life science supply chain truly stretches across the globe. The United States General Accounting Office (GAO) estimates that there are 400 drug manufacturing facilities in China.  In some cases, there are no alternate suppliers for the American market, a major risk for U.S. consumers of life sciences and healthcare goods.

It is unknown what the facilities produce and in what amounts.  Most of the ingredients needed to make prescription drug products are made in China. Life sciences tools companies are likewise affected.  Only two weeks ago, major pharmaceutical companies and suppliers of active pharmaceutical ingredients notified the public and their customers that advance preparedness and supply chain planning enabled them to deal with the temporary interruptions stemming from the outbreak of the coronavirus.  Both drug companies and pharma ingredient suppliers issued admonitions, however that supply chain disruptions may occur due to prolonged plant closures, travel bans, transportation and logistics limitations and worker shortages.  While some pharmaceutical companies and life science industry businesses have been trying to find alternative suppliers, they have recognized that the process of locating a new supplier that would be used for only a few months is cumbersome.  A few companies are considering moving production to other countries, away from Asia.

Another matter of concern is the ability of the FDA to oversee the $13 billion-worth of prescription drugs, medical devices and food products that are exported from China. 

Fears have been raised about the FDA’s ability to monitor and help ensure compliance with good manufacturing standards.  There are also concerns regarding supply and demand needs in the United States, especially when the increased demand of China is included.

Prior to the coronavirus outbreak, the FDA had reported to Congress that it has insufficient staffing to meet its oversight duties in China.  Oversight work is also limited by its inability to conduct surprise inspections in China as well as by the substantial language barrier.  With the coronavirus outbreak, FDA agency staff are leaving China.  All travel by FDA agents to China has been cancelled. At this point, due to the stop in nonessential travel to China by U.S. citizens, it seems likely that the conduction of inspections will be limited to those FDA personnel who are based in China.  This significantly limits the FDA’s ability to patrol compliance and conduct the necessary inspections, impacting medical products, drugs and medical devices.

Newly approved drugs must have inspections when entering the United States however companies may continue to ship drugs which have already been approved by the FDA.  Without inspections, however, the quality of the drugs cannot be validated.  The FDA does have another tool that can help safeguard public health.  If the FDA were to receive information regarding a potential public health risk from a Chinese facility that it was unable to inspect due to the coronavirus outbreak, the FDA could issue an import alert. The FDA import alert could prevent the products from entering the United States, a temporary safeguard until FDA inspections could resume.  Also, the FDA could test and sample drug product at ports of entry to the United States.  The FDA could also try to get data remotely from manufacturers.

Medical Devices

According to recent data, there are 11,529 class II and class III medical device manufacturers in China, primarily in four geographic areas.  Each has experienced incidents of the coronavirus outbreak.  Life science industry experts anticipate that most of the 11,000+ manufacturing companies are or will be affected as employees will effectively be placed on leave due to quarantines, preventing any production of medical devices.  In addition, many of the medical device manufacturers likely have at least some staff members who have traveled to Hubei province or the city of Wuhan.

Most of the flow from China to the U.S. is of either intermediate manufactured product or lower-value finished product rather than high value finished product.  These products range from hearing aids, wheelchairs and dentures on the low end to high end consumables such as diagnostic imaging and endoscopy devices.  Much of the lower end medical device goods can be purchased from other manufacturers around the world.

Personal Protective Equipment (PPE):  Masks, Respirators, Safety Goggles, Surgical Gowns, Gloves

With the concern about and spread of the coronavirus, medical professionals, police and the public are wearing masks and respirators in public in huge volumes. China is the largest provider of masks and respirators to the rest of the world. Because China is using more personal protective equipment because of the outbreak, it seems likely that fewer masks will be available to other countries that have been regular customers of Chinese manufacturers, including the United States.

Currently, 95% of the surgical masks and 70% of the respirators used in the United States are made overseas.

 It was recently reported that China has escalated the production of masks to more than 20 million masks per day.  According to the Chinese foreign ministry, safety goggles and masks were in short supply within China and an international appeal for more was issued.  The demand for PPE has increased worldwide, especially since this is the height of flu season. 

Another recent newsworthy event is the recall of contaminated surgical gowns by Cardinal Health valued at $96 million.  The product recall involves nearly 9 million surgical gowns manufactured between September 2018 and January 2020 in a manufacturing plant in China.  Worries about potential cross-contamination of the surgical gowns and procedure packs sparked the recall, 7.7 million were distributed to 2,807 healthcare facilities across the U.S.  The result was a shortage which resulted in delays in surgical procedures at some healthcare facilities across the country.

Medical and hospital associations are working with the U.S. Department of Health and Human Services to plan in advance, secure supplies of PPE and keep up to date on issues involving shortages and supply chain risks and disruptions.

Nutritional Supplements

As with generic drug ingredients, a large proportion of ingredients for nutritional supplements originate in China.  Because of the recent trade war, some manufacturers of supplements advance purchased ingredients and are now stocked with raw materials.  Wuhan is situated in an area well known for sourcing of amino acids and vitamin C.

American consumers tend to be unaware that many of the ingredients found in dietary supplements.  To date, there is no concern that ingredients could be contaminated with the coronavirus.

Summary

Let’s face facts.  China has been a dominant force in the manufacturing of life sciences and healthcare products for many years and will likely remain so for years to come.  The future of life sciences and healthcare logistics will involve the ability to continue to transport goods across country borders to satisfy consumer needs.  With the fact that 97 percent of all antibiotics and 80 percent of the active ingredients needed to make drug products originate from China, the United States needs to pay careful attention to the impact and extent of the coronavirus.  Much has come to light since the outbreak started.  Government officials, industry trade associations and the public are becoming increasingly aware of the need for sophisticated supply management and demand planning for the products that have such a tremendous impact on the health and safety of people across the globe.

With the coronavirus outbreak, transportation and logistics have become complex as Wuhan and Hubei were closed to quarantine the spread of COVID-19 and travel to and from China restricted.  Concern for both the public and patient outcomes for those suffering from the virus were dominant.  Defining a supply chain strategy for the life science industry in China while dealing with the complexity of worker shortages, minimal transportation and logistics in and out must be done so as to deal appropriately with conditions as the coronavirus spreads is highly problematic and would benefit from the use of technology tools.

Proper supply chain planning will only take us so far.  The dominant concentration of production by one country, the same country experiencing the largest incidence of the COVID-19 outbreak is dangerous for all other countries, putting their healthcare supply chains at risk.  Media and periodicals across the life sciences industry are brimming with articles from those across the world about coronavirus and its implications for global trade and the life science supply chain. Join the conversation.  Being aware of the issues helps you be forewarned and better able to react and safeguard your part of the life science supply chain.

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