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Pharma: Outsourcing


www.chemicalsknowledgehub.com


Minimizing risk in sourcing pharma intermediates and ingredients


Piramal Pharma Solutions has developed and put in place a China Risk Mitigation initiative to reduce its exposure to supply risks associated with sourcing pharmaceutical intermediates and ingredients from China. Here, PPS explains why it felt the need to take this action.


C


hina emerged as the dominant player in the pharmaceutical intermediates and


chemicals market in the early years of the 21st century. A combination of low manufacturing costs, government support, and other factors led to almost the entire pharmaceutical industry becoming dependent on China for raw materials. The downside of dependency became clear in 2018, when the Chinese government imposed stricter rules on the sector, forcing companies to quickly adapt to the changing situation. The experience showed the value of proactive supply chain management. Companies that quickly recognized and mitigated the threat emerged from the potential crisis with stronger, more resilient operations capable


20


of coping with the multitude of forces that can disrupt globalized supply chains.


Why China matters


The importance of China to the global pharmaceutical supply chain is starkly illustrated by data on its share of the market. Chinese manufacturers are estimated to make 60% of all intermediates.1 and the European Union is 85% to 90% reliant on China for all ingredients. Other major markets, including the US, are also heavily exposed to, and for some medicines wholly reliant on, the Chinese market.2,3


During the 1990s and early


2000s, Chinese manufacturers emerged as essential players in the production of fermentation drugs such as penicillin, amoxicillin and tetracycline, many basic chemicals, and certain specialized chemicals, including


The importance of China to the global pharmaceutical supply chain is starkly illustrated by data on its share of the market. Chinese manufacturers are estimated to make 60% of all intermediates. and the EUis 85% to 90% reliant on China for all ingredients


fluoro- and bromo- compounds. With lower setup and manufacturing costs, ready access to basic chemicals, economies of


scale, a large and relatively cheap workforce, and cost-effective logistics, electricity, and steam supplies, Chinese manufacturers undercut overseas competitors and helped to drive down the cost of drug production. The government further added to the advantages enjoyed by Chinese manufacturers by backing R&D facilities, offering tax incentives and soft loans, and otherwise providing support. However, the government changed its position in 2018. Since then, Chinese officials have imposed stricter controls on pollution and safety. Specific changes included the requirement for companies to set up effluent treatment plants to minimize or eliminate discharge. Increased regulatory monitoring and compliance requirements led to lower capacity utilization and increases in product costs. Around the same time, the government


March/April 2021 • Issue 2


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