The escalating war in the Mideast so far has not appreciably disrupted global pharmaceutical supply chains, but with no clear end in sight, the potential exists for the conflict to change the calculus for production, shipping and, ultimately, pricing for different medicines in different countries, according to industry experts.
For now, the greatest impact is likely to occur in the immediate region, where only a smidgen of the world’s medicines and active pharmaceutical ingredients – 0.3% and 0.6%, respectively – are produced, according to US Pharmacopeia, an independent organization that develops standards for medicines and tracks global supplies.
Nonetheless, the conflict is already disrupting key global shipping and air corridors, suggesting manufacturers – especially those in India and the European Union that are vulnerable to closures in the Strait of Harmuz – will need to find alternate transportation routes. And this raises expenses that may eventually get passed on to customers.
“A sustained crisis would likely constrain the availability of air cargo capacity, particularly on routes serving affected regions,” said Frank Van Gelder, who heads Pharma.Aero, a supply chain consulting firm. “At the same time, broader pressures, such as rising fuel costs linked to instability in oil production, could significantly increase the cost of transportation and thus the final buying price of the product.”
The anticipation that the war will force companies to eventually alter some operations reflects the interwoven nature of the pharmaceutical supply chain.
Notably, China and India have about 1,400 facilities producing active ingredients, about double the number in the U.S. and the European Union, according to QYOBO, a supply chain analytics firm. At the same time, India is also home to many of the world’s largest generic drug makers, supplying needed, low-cost medicines to countries, rich and poor.
But those active ingredients contain so-called key starting materials, including petrol-derived substances, which now cost more and could take longer to ship to India. Eventually, this means the generic companies in India will face extended production times and higher expenses as they work to maintain supplies.
Generics “are the ones which will get impacted and they’ll get impacted around the world, because the margins for some of these products are so thin that anything that changes in input material cost does get passed onto the eventual payer, whether it’s a patient or a third party payer like an insurance company,” Prasant Yadav, a senior fellow at the Council on Foreign Relations, who noted India makes about 60% of generics shipped globally.
However, Markus Felgenhauer, who heads QYOBO, believes that even if the war runs more than two months there would be a minor to moderate impact on active ingredient manufacturing in India, because solvents and basic chemicals from the Mideast are largely commoditized and alternative sourcing from Singapore or China can be tapped. There’s “more hype than supply chain threat,” he explained.
Disruptions can also spell trouble for cold-chain medicines. These must be stored, transported and overseen within strict temperature ranges to ensure they remain safe, potent and effective. But the surge in oil prices not only increases transportation costs, but also demand for limited cargo capacity, which reduce the size or frequency of shipments.
“Those most at risk are biologics, such as blood products and live vaccines, which often have extremely short shelf lives and must be transported under tightly controlled temperature conditions. Any delay or break in the cold chain can render them unusable,” said Van Gelder.
This can be particularly challenging for Africa, which imports many medicines from India. “In times when there is a crisis —need for rerouting, finding a new shipper — everyone expects money up front,” said Yadav, “and working capital is a big constraint for African private distributors of medicines and hospitals.”
In the U.S., the war occurs at a time when the country remains heavily dependent on overseas sources. U.S. companies produce only 21% of the active ingredients and 19% of the finished medicines domestically, according to US Pharmacopeia. This means disruptions and higher costs to obtain some products that are made elsewhere.
Even so, 43% of the active ingredients used to make medicines in the U.S. comes from the European Union, although there could be an impact if key starting materials are purchased from China and India. For now, though, the ramifications appear muted.
“I don’t think we’ll see anything emergently, but if this drags out significantly, we may see some impacts, likely from key starting materials, or components,” said Erin Fox, associate chief pharmacy officer, shared services, at the University of Utah Health System, who tracks drug shortages.
“The supply chain is definitely global and long, so a prolonged war could potentially create some problems.”
