Defending Your Supply Chains From "Foreign Suppliers"

By Louis Garguilo, Chief Editor, Outsourced Pharma

Note this major finding from a recent U.S. Department of Defense (DoD) report on progress from earlier plans of action:

“The DoD Did Not Mitigate the Risks of Disruptions to Its Pharmaceutical Supply Chain, Which Is Reliant Upon Foreign Suppliers, in Accordance With DoD Instruction 4140.01 [DoD Supply Chain Materiel Management Policy].”

Those risks, of course, spring (eternal, it seems) from our openly proffered biopharma business models of full-bore outsourcing.

Drug development and manufacturing outsourcing makes the biopharma industry go round, but it never spins without inherent and solemn risks. Those must be eliminated when possible, alleviated when impossible, and above all always a part of strategic planning.

The DoD’s challenges stem from the fact it does not manufacture its own drugs – sound familiar?

Looking into what the DoD thinks about this predicament (and that is what it is), and the actions it is trying to take in accordance, can be beneficial to even the smallest of emerging biopharma organizations. For example, we may learn:

DoD’s national-level risks, and unsuccessful efforts at addressing them (despite the attention trained on them), offer us another vantage point for the more singular circumstances facing our outsourcing organization.

In fact, I bring this to readers based on a somewhat distasteful thought I had while reading the DoD report:

What if you, for the sake of implementing a more rigorous analysis pertaining to manufactured supply of materials, API and finished product – consider every CDMO a “foreign supplier”? 

As we labor into the year 3 CE (Covid Era), is your organization on a stringent, risk-mitigation path for your supply chain? Perhaps this off-key mindset can help.

First, Figures

But before we dive deeper, let’s quickly rehearse a few statistics mentioned by the DoD.

In 2019, the FDA claimed an estimated 72% of active pharmaceutical ingredient (API) manufacturers supplying the U.S. market were foreign.

According to a 2020 Drug Shortages Task Force report, the U.S. has for decades increased reliance on imported pharmaceuticals, as companies located more production overseas, and increased the use of CDMOs. Reasons for the shift overseas include capacity availability, environmental liability concerns, and low-cost labor.

The DoD states the obvious but also linchpin for its potential supply-chain undoing:

It does not manufacture itself. It is reliant upon commercial suppliers of pharmaceuticals and finished drug products that use active pharmaceutical ingredients (API), “which are largely foreign in origin.”

As of August 2019, the U.S. Food and Drug Administration (FDA) estimated there were 1,788 API manufacturing sites supplying the U.S. market, with 510 located in the United States (28 percent), 552 (31 percent) in China and India, and 726 (41 percent) in other foreign countries.

 “This poses a potential national security risk because [among other risks] foreign countries could prohibit the exports of APIs,” says the report.

History has indeed presented stark reminders of risks, including drug shortages due to manufacturing and quality problems at CDMOs, and events like tsunami (Japan), hurricanes (Puerto Rico), and of course Covid-19 (worldwide).

All told, like the DoD, individual companies should continue to ring risk alarms when outsourcing. Here’s one way to consider answering them.

But They’re Our Partners

When considering our opening paragraphs, readers may have thought:

“I don’t especially like the term ‘foreign’ to begin with.”

“Are you really going to suggest we make risk mitigation plans for outsourcing by considering all our CDMOs as “foreign suppliers”?

“Haven’t just about every biopharma executive you’ve interviewed talked about finding the right “partner,” forging strong “relationships,” and treating CDMOs as a part of our internal “team”?

Agreed, yes, and yes.

But precisely because we are so imbued with the prevailing mindset, we are in peril of overlooking some supply-chain risks. And I’ll make this a more positive exercise than you may be anticipating.

Here’s what the DoD reported it had been tasked with doing, but did not accomplish in full or at all. Both points remind every biopharma to maintain vigilance. Note: I’ve deleted the word “foreign” in each case it appeared, to leave only “supplier” as the subject.

1. While the DoD identified reliance on suppliers in the supply chain as a major risk, it did not conduct a formal assessment of the risk to develop mitigation strategies.
2. For specific purposes, there were no proactive risk assessing of unexpected supply disruptions. Those risks include:
   1. Ever-increasing reliance on suppliers
   2. “Just-in-time” ordering, and insufficient storing of materials/products to use in the event of a supply disruption.

In accordance, the DoD recommended:

• Develop and issue implementing guidance for supply chain risk management for materials. [Perhaps “issue” is key here; guidance should be clear to everyone in the organization]
• Pursue federal legislation requiring pharmaceutical manufacturers include APIs and final drug product country of origin information of the pharmaceuticals’ lot on the pharmaceuticals’ packaging. [Shouldn’t we be doing this as an industry best practice without the need for federal involvement?]
• Maintain the transaction information, transaction history, and transaction statements in accordance with the Drug Supply Chain Security Act; therefore, we consider this recommendation resolved and closed. [Perhaps … are we all the way there?]
• Identify the pharmaceuticals/ingredients most critical to patients [If outsourcing negatively impacts patients, what’s the purpose to outsource?]
• Establish policy for allocating scarce pharmaceutical resources in case of a supply disruption. [Proactive materials management; consider optimal choices beforehand]
• Coordinate to conduct responsiveness testing of contingency contracts. [Including but more than “second sourcing”]

This list was summarized/edited to relate most specifically to our purposes, and so readers can best correlate the above DoD findings with your specific circumstances.

As an elevated “defense” of the integrity of your (offshore and onshore) drug development and manufacturing outsourcing, and during this time in history (the year 3 CE) when there are supply/demand and economic disruptions and uncertainties:

Considering suppliers as separate and somewhat removed entities – putting them at a distance – might be what it takes to subsequently bring you even closer to reliable partnerships.