The pharmaceutical supply chain – from raw ingredients to the bathroom cabinet – is a complicated science in itself. The onset of Covid-19 has also highlighted how fragile it can be. By Elizabeth Flux.
There’s been an invisible baton relay happening across the world for years, but it took a pandemic for most of us to finally notice it – and how fragile it is.
Once the science and development of a drug has been hashed out, rationally you could assume that the manufacturing side of pharmaceuticals should be pretty straightforward: get the ingredients, put them together, package them up. But in reality, the journey from raw materials through to final product is an international effort with many moving parts and, as a result, many vulnerabilities.
The drug supply chain, in its most simplified form, works something like this. Forecasting is done to estimate how much of a particular drug will be required. Based on this, raw materials are gathered and then converted into the active pharmaceutical ingredient (API) – the main and biologically active component of a drug product. After this, pharmaceutical excipients are added – these are all the things in a drug other than its active ingredient, and include fillers, diluents and preservatives. Pharmaceutical companies then distribute the finished drugs through a global logistics supply chain. If they’re coming to Australia, they are freighted by air or sea, are quality tested, go to pharmaceutical manufacturer distribution centres, then to wholesalers, and from there to pharmacies and hospitals. This whole process takes about nine months.
There are variations depending on individual pharmaceutical companies and drugs, but, on a basic level, this is the template for how most of the drugs in Australia get here.
Despite the large impact Covid-19 has had on the world in 2020, when I spoke to Rob Farrier, who works as a community pharmacist and ethical buyer and supply chain manager for a pharmacy group, back in May, he said he didn’t think Covid-19 had significantly affected the supply chain itself. “Covid-19 has not negatively impacted supply at all – not to my knowledge,” he said at the time. “What it has done is, due to panic buying … temporarily caused the demand to exceed the supply … and as a result of that, the market temporarily ran out of stock,” Farrier explained. “But the amount of actual medication that was in the country and that people physically had was absolutely adequate. It was just that some people were stockpiling inappropriately.”
Six months later, he has been shown to be right. Specifically speaking about the pharmaceuticals initially affected by Covid-19, Daniel Lim, a senior pharmacist at St Vincent’s Hospital in Melbourne, explains that “most drug shortages have resolved or stabilised now”.
It wasn’t always a sure thing, though. “If it wasn’t for the country’s successful efforts in flattening the curve, supply chains would have sustained enormous ongoing stress that could have potentially resulted in widespread breakdowns in first-line treatment protocols due to long-term drug outages,” says Lim. “This was a scenario that we were preparing for at our hospital. I’m thankful we didn’t have to activate such contingencies to a large extent.”
“There are still products that are restricted to purchase and export, specifically around Covid,” explains George Vlachos, clinical trials director at Akesa Pharma. “But in terms of the general supply chain, it doesn’t look like it’s that affected. It’s just sort of business as normal.”
Normal, however, as all of the interviewees highlight, doesn’t mean perfect. “I think Australia has become aware of the supply chain of pharmaceuticals – people just didn’t think where it came from,” says Vlachos. In terms of the chain’s vulnerabilities and the resulting shortages, “This happened last year and the year before – different products, but the same sort of style. It’s just I think Covid shined a light on it,” he continues. “It’s made people aware that there always are shortages for a multitude of reasons.”
The vulnerabilities of the chain are numerous, and one of the most obvious ones is the large number of steps it takes in order for drugs to be produced. “All it takes is one of those steps to go wrong and you get a significant delay,” says Lim. “There are inherent vulnerabilities when it comes to drug logistics, which can be highly exposed to real-world events. The pandemic has uncovered and amplified such vulnerabilities for Australia, largely due to the majority of its critical drugs being manufactured overseas and the associated long lead time – from raw material to bedside – required to respond to significant demand shifts.”
At the earlier end of the chain, if there is an accident at a factory that produces API, a shortage of materials for some reason, or if there is a quality-control issue leading to a batch being quarantined, all of this can lead to delays and shortages.
Forecasting, which kicks off the whole chain, is also a tricky business as it requires looking nine months ahead and anticipating demand. For existing drugs, historical data is a huge help, while for new drugs there is more risk and, to a degree, guesswork. Part of the problem is that forecasting relies on statistics, and statistics rely on data – but hospitals and different pharmaceutical companies don’t pool data for a number of reasons, not least confidentiality, and so getting an accurate picture can be difficult. Under-forecasting would lead to the obvious problem of insufficient drugs being produced. But over-forecasting – and thus oversupply – is also a problem, as most pharmaceutical companies, wholesalers, hospitals and pharmacies don’t have the room or the capacity to store large amounts of buffer stock.
At the later end of the chain, Australia has some unexpected, closer-to-home vulnerabilities. In each state Australia will contract or release a tender to supply public hospitals for groups of medications or a particular line of medications. The goal is to get the best medication prices for public hospitals; however, the flip side of this is there’s no incentive for competing pharmaceutical companies to produce or deliver the drug to Australia. As a result, if there is an issue with the tendered supplier, often there are no alternatives.
Another surprising double-edged sword for Australia is due to the Pharmaceutical Benefits Scheme. The bulk of drugs in Australia are on the PBS, which means they are subsidised by the government. “Because of that, the government goes through a process called price disclosure. Price disclosure is a legislated practice under the National Health Act 1953, which essentially means that medications decrease in value the longer that they’re on the PBS,” explains Farrier. As a result, consumers in Australia often pay less for the same drug than someone would in another country – we’re both a small and not very profitable market on the world stage. As a result, Farrier says, “if there’s a finite amount of medication that’s available, due to either raw ingredient shortages, [or] a batch … having failed quality assurance or something of that nature, we’re one of the first markets to have stock withdrawn to go or be redirected to more profitable markets.”
The idea of local manufacturing has been floated, and while it would cut a lot of steps – and thus many of the vulnerabilities to which we are susceptible – Australia, like most other countries, doesn’t currently have the capacity to produce all the drugs it needs in-house, and is unlikely to in the near future. It’s expensive – and, at some levels, dangerous. Having the supply chain spread out so internationally, however, does have pros as well as cons. With so many different countries involved at different points, hostilities between two specific ones are unlikely to break the chain because the ripples would spread too far – it wouldn’t be targeted enough.
Just because the supply chain has withstood Covid-19 doesn’t mean everything has been fine. It means we are getting an up-close look at some all-too-common issues previously only witnessed by people in the industry and those unlucky enough to be on medications that have run out.
This article was first published in the print edition of The Saturday Paper on Nov 28, 2020 as "Chain reactions".
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