Insights

Coronavirus: Pharmaceutical Supply Chain Disruptions and Product Shortages

March 5, 2020

Property & Casualty

This blog post can also be found on our “Coronavirus: Your Business and People Risks” resource center. 

The vulnerability of the US pharmaceutical supply chain has once again been exposed, this time due to complications from the spreading Coronavirus. Stephen M. Hahn, MD, Commissioner of Food and Drugs at FDA, announced recently that one drug is now in short supply due to supply chain disruption from the Coronavirus (COVID 19). FDA did not identify the drug involved or the condition it treats, but confirmed that the Active Pharmaceutical Ingredients (API) used to manufacture it are not available. In this particular instance, there are available drug substitutes for patients in the United States, but FDA has identified around 150 prescription drugs at risk of shortage, both products currently on the market and drugs in clinical trials.

Pharmaceutical medications

Outsourced Manufacturing of API: Pharmaceutical Safety, Efficacy, and Quality Control in the Wake of Coronavirus

A large number of pharmaceutical companies outsource manufacturing of their products to contract manufacturers that source API from China—and quality control has been a recurring issue. In the mid-2000s, Heparin out of China was contaminated due to serious deficiencies in good manufacturing practice, leading to the deaths of at least 81 people in 2007 and 2008 and a widespread recall of the popular blood thinner.

There have been several additional quality control issues from Chinese and Indian manufacturers in more recent years. In response, FDA has stepped up programs to inspect Chinese and other overseas facilities to ensure quality assurance, but these inspections are typically carried out every two years by a small team of only around 30 people and that team is now hampered from conducting these inspections due to travel restrictions to and from China.

Thirteen percent of all facilities that make API for drugs sold in the US are located in China. While India also provides a large number of contract manufacturers, those companies too source 75% of their API from China. It has been estimated that as much as 80% of API for US-branded pharmaceuticals and over-the-counter drugs are formulated with API from China, while 90% of API for commonly prescribed antibiotics such as amoxicillin, doxycycline, penicillin, etc., are produced there, as well as anesthetics such as Epinephrine, Propofol, and the painkiller Fentanyl. As demand for these products increases within China itself to treat the COVID 19 virus, it could lead to rationing and further drug shortages.

FDA is Closely Monitoring the Coronavirus Situation

FDA has reached out to US drug manufacturers to remind them of their legal requirements to report anticipated pharmaceutical supply disruptions and is asking companies to review and evaluate their entire supply chain, including API supply.

FDA has also reached out to manufacturers of medical devices to ascertain if they could be prone to possible shortage. Currently, there are no medical device shortages reported within the US market. However, unlike drug manufacturers, device manufacturers are not legally bound to report anticipated shortages. FDA states it is taking proactive steps to stay in touch with manufacturers on this issue.

There have already been reports of supply challenges for personal protective equipment, such as masks, gloves, gowns and respirators; however, FDA is not aware of any specific widespread shortages. China manufactures around 50% of the worldwide supply of surgical masks. One manufacturer, which normally exports 600,000 to 700,000 masks a month has completely stopped exporting them and the export of masks has trickled down to almost zero. US pharmacies and healthcare facilities are beginning to feel the effects.

In order to mitigate critical human drug shortages, FDA is also considering lengthening drug expiration dates, improving critical infrastructure through improved data sharing, requiring more accurate supply chain information, and establishing reporting requirements for device manufacturers.

Congress Getting Involved

California Congresswoman Anna Eshoo chairs the sub-committee on Health and is a member of the Energy and Commerce Committee, and California Congressman Adam Schiff chairs the House Intelligence Committee. Both have sounded alarms about possible pharmaceutical shortages as a national security issue. In September 2019, they wrote:

The supply chain already poses a significant public safety issue due to the quality deficiencies that keep arising in the manufacturing of drugs overseas—but the problems run deeper. Depending on any single supplier for such lifesaving goods would be troubling, but when that supplier is China, at a time of rising tensions and conflict, it’s a national security issue that demands the attention of the administration and Congress.

They state further that to address this urgent matter, policymakers need to understand where the potential choke points exist and how we can develop capacity outside of China to make up for any possible supply disruptions. Government agencies should work with the private sector to find ways to rebuild our domestic manufacturing capacity for generic drugs, if necessary, and to diversify our sourcing.

Missouri Senator Josh Hawley recently introduced legislation in The Medical Supply Chain Security Act. This proposal would amend the 1938 Federal Food, Drug, and Cosmetic Act to allow the FDA to monitor medical devices shortages with greater accuracy and efficiency.

What Can Companies Do to Mitigate Supply Chain Disruption Exposure?

There are no simple solutions to this complex and evolving issue. Some things that companies should consider include the following:

  • Review supply chain risk management plans and contracts, identifying critical single and sole sources.
  • Evaluate whether API manufacturing can be brought in-house or if it can be outsourced in the United States or elsewhere in the world. Consider multiple sources for manufacturing and storage to build in planned redundancy.
  • Review and update communication protocols for reporting shortages to FDA, physicians, and patients.
  • Review contractual agreements with critical suppliers. Ask to examine their crisis management plans and any alternative manufacturing sites they may have available (build into contingency plans).
  • Consider increasing the amount of product stockpiled in the United States or elsewhere. Plan to have a minimum of 12–24 months of API on hand to allow time to qualify new suppliers if problems arise.
  • Consider forming beneficial manufacturing partnerships with other pharmaceutical companies that need the same API you utilize.
  • Review relationships with transit providers; review routes and develop contingency plans in the event that your existing carrier or transit route is shut down.
  • If production has been shut down for a period of time, review your QA procedures and stability testing procedures for start up to ensure product quality when production is restored.

Insurance Coverage for Supply Chain Concerns

An event such as COVID 19 that causes labor shortages and manufacturing delays, leading to the inability to source API and to a loss of income, would be considered a business risk and outside the scope of most insurance programs. This is primarily since this type of event does not involve any type of “Physical Damage to Tangible Property,” which is the coverage trigger for most property and business income insurance policies.

A well-crafted combination of insurance coverages, including property, cargo stock throughput and contingent business income, can respond to protect the values in your supply chain from losses if there is actual physical damage at facilities where your API or product is being manufactured or stored, or if it is lost or damaged in transit.

An experienced broker with expertise in life sciences exposures can help identify and mitigate your risks. Woodruff Sawyer’s Life Science Team specializes in assisting such companies in evaluating supply chain risks and in crafting optimal insurance solutions. Reach out to me or any of our Woodruff Sawyer team members for an evaluation of your current program.

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All views expressed in this article are the author’s own and do not necessarily represent the position of Woodruff-Sawyer & Co.

Linda Van Fossen, CPCU

Vice President, Account Executive

Contributor, Property & Casualty

Linda joined Woodruff Sawyer in 2004, and in her role as Account Executive, she focuses on developing business opportunities and providing risk management consulting to our clients.

408.369.3502

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Linda Van Fossen, CPCU

Vice President, Account Executive

Contributor, Property & Casualty

Linda joined Woodruff Sawyer in 2004, and in her role as Account Executive, she focuses on developing business opportunities and providing risk management consulting to our clients.

408.369.3502

LinkedIn