Drugmakers face the threat of serious disruption to global production if China’s coronavirus lockdown persists and cuts off supplies of Chinese-made essential ingredients, the head of a big Indian pharmaceuticals group has warned.
Umang Vohra, managing director and global chief executive of Cipla, one of India’s largest drugmakers, said supplies for most companies would start running out by the end of this month unless China resumed production.
China manufactures key ingredients in the global supply chain for antibiotics, diabetes drugs, painkillers and antiretrovirals for HIV, although its vital role in pharmaceuticals is less well known than its production of technology, machinery and consumer goods.
Analysts say India, the world’s biggest exporter of generic drugs, depends on China for 70 per cent of its raw pharmaceutical materials.
Mr Vohra told the Financial Times there could be “huge unavailability across the chain” if the shutdown extended beyond February.
The shortages caused by extended factory closures in China will drive up the cost of drug manufacture. The coronavirus outbreak has already caused prices of pharmaceutical ingredients to rise in India as businesses stock up and sellers start charging a premium.
“If this extends beyond February, then I think there would be some panic buying and that could push prices up,” said Mr Vohra, adding that Cipla is working to discourage speculative orders by assuring customers that they have enough inventory until the end of the month.
In the event of a prolonged lockdown — which he did not believe was the most likely scenario — governments could co-ordinate to help tackle supply issues, he said.
Mr Vohra’s comments contrasted with the more cautious public stance of many western drugmakers.
Large generics manufacturers including Mylan and Teva Pharmaceutical would not comment on potential supply chain problems. Pfizer, which has a significant generics business in Upjohn, said it was monitoring the situation closely but had not seen any disruption so far. The majority of its finished products and active ingredients were not sourced from China, it added.
Leading European companies have also been playing down suggestions of shortages — while making clear that the situation could change if the outbreak was unremitting.
One pharma industry leader pointed out that European drugmakers had stockpiled medicines against an expected Brexit on October 31, 2019, a precaution that was, ironically, providing reassurance during the coronavirus outbreak.
At a results briefing last week, Emma Walmsley, chief executive of UK drugmaker GlaxoSmithKline, dismissed the likelihood of any imminent shortages of active pharmaceutical ingredients or APIs. “We are looking at this and, in the short term, we are fine,” she said. The company was “prepared for these kind of issues but we need to keep an eye on how long term [the situation] will be”, she cautioned.
Razat Gaurav, chief executive of Llamasoft, a global logistics provider that works with pharmaceutical companies including AstraZeneca, Bayer and GSK, said it could be tough for drugmakers to switch suppliers, because their manufacturers must be approved by regulators, such as the US Food and Drug Administration, if the drugs are to be sold in those countries.
“There is quite a bit of panic across companies because many pharma companies are heavily reliant on China for sourcing these active ingredients,” he said.
Mr Gaurav added that pharmaceutical companies typically kept between three and six months of inventory — but that is not enough lead time to get another plant certified. Drugmakers are pushing the regulators for expedited approval processes, he said. The FDA did not respond to a request for comment.
“The coronavirus crisis may have a short-term impact but it is a wake-up call for the need in the longer term to plan strategically,” he said.
David Jefferys, head of global regulatory affairs for the European operations of Eisai, a Japanese pharma company, said that while his company was currently facing no problems the situation was “changing day by day”.
“A lot of material is moved by airfreight,” he said, pointing to the extensive disruption to flights in and out of China and other parts of Asia.
The UK government’s health department on Tuesday wrote to pharma companies and medical devices manufacturers asking them to check their supply chains and, if they were dependent on material from China, seek out alternative sources.
Kunal Dhamesha, pharma analyst at SBICap Securities, noted that three years ago a one-time supply disruption caused by China cracking down on polluting factories hit profit margins of Indian pharma companies, especially smaller groups.
“The entire global pharmaceutical industry has a high dependence on China. The crucial point to monitor will be when the factories open again,” Mr Dhamesha said.
Even when plants open again, companies could face logistical problems such as getting enough truck drivers.
Michael Alkire, president of Premier Health, an alliance of about 4,000 US hospitals and health systems, said he had seen the Chinese government push mask-making factories to supply the home market before exporting, causing a drop in supply in the rest of the world.
Mr Alkire oversees two companies that sell to the alliance: ProvideGx, which invests in the production of drugs in short supply, and S2S Global, which makes medical supplies and has had to ramp up production of masks at a site in Cambodia.
