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    Blog Image

    How Pharma Companies are Dealing with API Shortages

    • Many US-based pharma companies are planning to reshore and move their production closer to home and consumer demand.
    • However, a major challenge in their onshoring efforts is the lack of investment in manufacturing site infrastructure.
    • Supply chain disruptions, booming transportation costs, disorganization and slowdown of API production lines, and the rise in energy prices have compounded the problems of pharma companies.

    November 22, 2022 | Pharma and Life Sciences

    The U.S. government continues to make a push for more domestic manufacturing with its 2021 “Made in America” legislation.

    The question now is: Can this push benefit the country’s ailing pharma industry? Can it change the active pharmaceutical ingredients (API) manufacturing scenario in the next decade and lead to increased production of APIs back home?

    API Prices Continue to Increase

    The surging prices of APIs have become a major concern in the pharma industry. In the last couple of years, the biggest hike was noticed in the price of methylprednisolone, a high-demand medicine for COVID-19. Its price rose from around USD 1,000 to USD 2,800 within a week.

    Booming transportation costs, disorganization and slowdown of API production lines, and the rise in energy prices have led to a steep price hike. The health crisis during the pandemic has highlighted structural supply difficulties that are mainly due to the existence of a fragmented and vulnerable API manufacturing process.

    The U.S. imports nearly 70% of APIs. While China contributes ~15% to the U.S. API market, the European Union, which is currently involved in the Russia-Ukraine conflict, offers ~25% of the API manufacturing facilities.

    Supply chain disruption has led to delays in raw material availability and shortages. The pandemic magnified the challenges of pharma companies’ heavy reliance on foreign contract manufacturing organizations (CMOs). Delivery times for shipments from Chinese CMOs to the U.S. West Coast took less than 50 days till early 2019. In January 2022, these delivery times hit a record high of 113 days.

    How Pharma Companies Suffered

    Pharma companies have undergone a massive test in recent years. While the COVID-19 pandemic kept doctors and healthcare professionals on their toes, it also exposed wide gaps in pharma supply chains.

    The shortage of staff, medicines as well as facilities has put a lot of pressure on pharma companies to quickly transform their operations, especially with regards to the supply chain. Companies must act now, identify potential risks and mitigate their impact by leveraging end-to-end supply chain visibility.

    Can Nearshoring Help Overcome the Challenges?

    Many US-based pharma companies are now planning to move their production back home. As a result, there has been a sharp surge in onshore API programs.

    However, the lack of investment in manufacturing site infrastructure poses a major challenge to pharma companies’ onshoring efforts. Many companies have faced barriers and a lack of capacity while aiming to move back a manufacturing project.

    What Lies Ahead

    The U.S. produced most of the drugs it consumed until the 1980s. The mass transition to overseas contract manufacturing was mainly because of cost advantage. Labor in developing countries such as India and China saved companies up to 40% annually compared to U.S. labor wages.

    However, persistent supply chain delays and the U.S. government push for more domestic manufacturing have encouraged pharma companies to re-shore. This movement may change the API manufacturing scenario in the next decade with increased production returning to the U.S. or Europe.

     

    Tags: pharma

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