Drug shortages are at record highs but what are the factors driving that? In the first of two blogs examining the issue, we look at ten common drivers of pharma supply chain risk, before exploring top strategies for increased supply chain resilience.
No matter where you look, drug shortages are worse than ever. In the US, the American Society of Health-System Pharmacists (ASHP) reported 323 active medication shortages in the first three months of 2024 – the highest since it started tracking in 2001. That includes 48 new shortages already in the first quarter of 2024 – against 156 in total for the entire year in 2023.
Chemotherapy drugs were among the top five types seeing shortages, according to the University of Utah Drug Information Service. Basic and life-saving products in short supply included oxytocin, Rho(D) immune globulin, standard-of-care chemotherapy, pain, sedation, and ADHD medications.
“All drug classes are vulnerable to shortage,” ASHP CEO Dr Paul Abramowitz told reporters. "Some of the most worrying shortages involve generic sterile injectable medications, including cancer chemotherapy drugs and emergency medications stored in hospital crash carts and procedural areas.”
It’s a similar story in the UK, with the chief executive of Community Pharmacy England saying the situation is “beyond critical”. Its survey found 79% of pharmacy staff saying that medicine shortages were putting patient health at risk. In Europe, meanwhile, said Janet Morrison, national pharmacy bodies across 26 European countries (all those participating in the PGEU survey) reported shortages in 2022 and 2023.
But what’s driving that? The answer is: No one thing. Pharma businesses have long faced a ramping up of risk to their supply chains due to everything from operating models to trade wars and weather. From 2000 to 2018, there was a 20-fold increase in recorded drug shortages in Europe. Here are ten factors that have ramped up risk for pharma supply chains.
1. Offshoring and Consolidation
This could otherwise be termed the quest for cost reduction. Looking for cheap manufacturing has resulted in about 80% of active pharmaceutical ingredients being produced abroad, mostly in China and India. That’s added to supply chain complexity and introduced or added to a wide range of the other risks listed below, from trade wars to weather risks and quality concerns.
Put simply, as we’ve noted before, cutting costs comes at a price. It means an increasing reliance, particularly for generics, on a small group of offshore suppliers in countries vulnerable to wide range of risks that are better but more expensively manged domestically.
2. Just in Time for Disruption
Closely related to and exacerbating the risks from offshoring is the move toward just-in-time (JiT) manufacturing. Over the last few decades, life sciences have increasingly adopted Toyota’s pioneering approach: “Making only what is needed, only when it is needed, and only in the amount that is needed.”
For life sciences, however, it works better in theory than practice. The concept of “need” is arguably different when it comes to cancer drugs than it is for headlights. Regulatory requirements making it difficult to simply switch suppliers in the event of a disruption, geographically dispersed supply chains, and difficulties anticipating demand surges (such as during Covid) also arguably made JiT less suitable for life sciences. Again, a cost-cutting measure exacerbated vulnerabilities to many existing supply chain risks.
3. Regulatory Risks
As stated, part of the reason for arguing just-in-time manufacturing is a poor fit for pharma and life sciences are the regulatory requirements. Apart from anything else, these require lengthy qualification or process revalidations for critical ingredients or components. Just swapping suppliers is often not that simple.
Regulatory action is also often behind disruptions to supply. A study led by Intersys with the Institute for Manufacturing at the University of Cambridge some years ago found that more than two thirds of life sciences shortages (69%) were linked to Official Action Indicated notices issued by the US FDA, with a higher prevalence of issues in China and India than in the US and Europe.
Nor is it just regulatory issues around quality and product safety that life sciences businesses must contend with. They also face all the other regulatory pressures and risks to supply chains common across industries, from employee safety to modern slavery.
4. Mergers and Acquisitions
Even if businesses don’t already have such risks in their supply chains, or have a handle on them, they can inherit them. Acquisitions can see companies take on the problems of their purchases that can dog them for months or years – one reason why due diligence is so important.
Even if they’re not involved themselves, M&A activity between suppliers can concentrate supply chain risks. Previously distinct suppliers can come to share common risk factors. It’s been an increasing risk in recent years, with the number of deals in the life sciences sector increasing by 13% between 2011 and 2021 and the rate doubling between 2019 and 2021, according to McKinsey. And while the global M&A market slowed in 2022 and 2023, life sciences bucked the trend: 2023 saw deal values up almost a quarter.
Successful M&A deals are notoriously difficult in the sector – as the McKinsey article notes:
“Culture looms especially large in pharmaceutical deals because so many deals involve large companies acquiring small companies. Many small companies owe much of their success to their distinctive culture and ways of working. The acquirer is buying not only the target’s tangible assets, but also the talent and culture that nurture the company’s innovation engine and entrepreneurial spirit.”
5. Cyber Risks
Cyber and data protection risks are also among the regulatory risks common across industries. They are, however, particularly acute for pharma and life sciences businesses. The data managed at points in the supply chain – patient data and medical information – could not be more sensitive, or the risks of disruption or intrusion from bad actors – to hospital systems or connected medical devices – more serious.
“For the health sector, cyberattacks are especially concerning because these attacks can directly threaten not just the security of our systems and information but also the health and safety of American patients,” the US Health and Human Services deputy secretary has said.
As we’ve noted previously, the risks continue to increase as attacks become more frequent and sophisticated, and an explosion of data from sensors, cloud computing and other devices expands potential points of vulnerability.
6. Weather Risks and Climate Change
Acts of God will always be a risk, but offshoring to regions at greater risk of and less resilient to extreme weather events has exacerbated the life science industry’s exposure. Even while manufacturing relatively close to home, however, the sector can be exposed to a concentration of manufacturing in particular regions. The reliance on hurricane-prone Puerto Rico as a key production centre for pharma manufacturers is an obvious and old example.
Climate change and increasing evidence of more frequent extreme weather events continue to bring these risks to the fore for pharma – whether through disruption to their own or suppliers’ operations, rising insurance premiums as underwriters become increasingly wary of the risk, or regulatory requirements to report on the impact of climate change on their supply chains.
7. Transport and Logistics
Transport risk is a function of the global supply chains that have come to dominate pharma industry. The greater distances involved inevitably introduce increased uncertainty and risk to the supply chain.
It’s not just major events like the Suez Canal blockage in 2021 but the attritional impacts of less significant delays, damage, and theft that can add to uncertainty and costs. Temperature requirements for many pharmaceutical goods add to the challenge. While connected sensors, devices and systems on the Internet of things have been valuable aids to managing cold chain distribution, the scope for disruption remains.
8. Demand Shocks
It’s not just supplies that determine shortages. As with disruption to supply chains, rapid increases in demand can result in shortfalls.
There was plenty of evidence during Covid, when analysis of FDA data from early 2020 with SCAIR® showed that demand surges caused the majority of shortages. It doesn’t take a pandemic to bring it about, either. Take the export ban on hormone replacement therapy drugs in October 2019, introduced in response to shortages. As Jansen, one of the manufacturers, offered at the time, it wasn’t supply disruptions causing the problem but simply an “unprecedented increase in demand.”
Part of the difficulty in predicting such surges is that many drugs serve as alternatives to others – as in the Jansen case. A supply chain disruption to one alternative, then, can rapidly lead to shortages in another.
9. Trade Wars and Real Wars - Geopolitical Risks
The ongoing conflict in Ukraine (which few predicted) is a powerful reminder of the geopolitical uncertainty facing global supply chains. But problems can occur long before anyone picks up arms.
Before Ukraine and a bigger direct risk to many pharma supply chains, the US-China trade war was the dominant geopolitical issue preoccupying many in previous years. With Donald Trump again the presumptive nominee of the Republican Party for the 2024 election, it’s an issue that could soon return to the fore.
Along with the pandemic and global shipping disruption, such risks have been a driver for increased government efforts and demands to protect critical supply chains. As the UK government’s strategy noted, “The COVID-19 pandemic, Russia’s illegal invasion of Ukraine, and disruption to shipping routes have all demonstrated the potential impact of global events on the reliable flow of vital goods.”
10. Quality, Counterfeiting, Fire, Flood, Theft and Everything Else
The bucket for all the rest of the risks facing pharma supply chains is big. Pharma and life sciences face the risks of supply chain disruption common across industries – and a few of their own.
Being aware of the range of risks is essential to mitigating and managing them. However, calculating the likelihood of disruption from any, given the unpredictability and complexity of the issues, is near impossible. That’s why SCAIR® focuses on impact rather than probability. Companies can’t necessarily predict what might happen, but they can quantify the potential impact of supply chain disruptions – regardless of their source.
