Biopharma supply chain may be partly onshored, but it won't be easy: GIC event panel

THE Covid-19 pandemic has exposed vulnerabilities in the global biopharmaceutical supply chain, and raised renewed concerns over the offshoring of facilities to Asia.

It also highlighted the heavy reliance on large producer markets - such as China and India - for critical medical supplies.

Now, policymakers around the world will thus be compelled to review their supply chain strategy and management so they can ensure supply and mitigate risks.

That's according to panellists at a session moderated by Doreen Chia, GIC's managing director for public equities and co-chair of the healthcare business group, during the Singapore sovereign wealth fund's annual thought leadership event, GIC Insights.

On the panel were Marc Casper, chairman, president and chief executive officer (CEO) of US life sciences and medical technology giant Thermo Fisher Scientific; Chris Chen, CEO of WuXi Biologics, China's largest drugs development and manufacturing services provider; and Erez Israeli, CEO of India-based pharmaceutical behemoth Dr Reddy's.

"Governments, hospitals and private retailers are now under increased pressure to scrutinise the footprint of their medical supplies," stated a GIC Insights report on the panel discussion, published last Friday.

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As a result, governments will likely seek to increase the security of such supplies "through a certain degree of onshoring and diversification", it added.

Supply chains have moved offshore over time, and span multiple countries in many cases. For example, India manufactures and supplies 40 per cent of generic drugs to the US, while China is a major supplier of pharmaceutical raw materials to India.

In the US, a heavily discussed area has been the manufacturing of critical active pharmaceutical ingredients, also known as APIs, and medical supplies. These manufacturing capabilities are often concentrated outside the US, in countries such as India and China.

According to WuXi Biologics' Dr Chen, there may eventually be a supply chain in the US, one in Europe, one in China and an additional one in the rest of the world. "Post-Covid, it will be a very different business environment," Dr Chen said.

However, decisions to onshore and diversify the biopharma supply chain are not straightforward.

"Low labour costs, state subsidies and easier regulations have helped make markets like China and India attractive as manufacturing hubs; reversing this trend will not be easy," the report stated.

Over decades, the supply chain has evolved into an interconnected network of suppliers around the world to optimise cost and efficiency.

"The economic burden of widespread onshoring and unwinding of the global supply chain remains an issue that has yet to be addressed," according to the report.

Reshoring is a massive and costly undertaking involving considerable time and resources. While the strategic rationale of national security is clear, the economic rationale remains to be seen.

Despite US President Donald Trump's executive order to "buy America" for essential products, it may be neither economical nor easy to replicate in the US on a large scale the infrastructure and capacity found in China and India.

Besides, the US government is not the biggest buyer of generic medicines in the country. Most of the supply in the US goes to commercial mega-buyers, the report stated.

Whether widespread reshoring can be achieved without heavy subsidies is also unclear. Companies will learn from the Covid-19 experience, streamline operations and strengthen end-to-end supply chain processes, to increase their resilience should another pandemic hit.

"But ultimately, in the corporate world, changes to supply chain strategy will still have to be driven by cost and capital efficiencies," the report added.

The panellists noted that strategic shifts in the supply chain may benefit markets with export-oriented economies and policies, like Switzerland and Singapore, rather than the US.

The coronavirus outbreak has revealed the degree of interconnectedness and interdependence of biopharmaceutical supply chains globally.

Private and public stakeholders around the globe have had to collaborate to overcome the significant disruptions - in the manufacturing and distribution of drugs, diagnostics, devices and personal protection equipment - when borders closed early this year.

Companies that manufacture products in single locations for global markets were the most acutely affected during the early onset of the pandemic. Many had to turn to governments for help in getting raw materials and finished goods across borders.

On the Covid-19 vaccine, the panellists noted it is unlikely for one vaccine alone to end the spread of the novel coronavirus.

Instead, it will likely be a "multi-year, complex" approach to manage the disease, said Mr Israeli of Dr Reddy's. "It will be a combination of vaccines, pharmaceuticals, treatment and diagnostics in order to deal with different populations in different places in the world," he added.

The report stated that the pandemic has generated greater interest from both the scientific community and investors in traditionally under-invested areas such as vaccines and infectious diseases.

Thermo Fisher's Mr Casper said: "There will be very significant investments in basic life sciences research and the expansion of infectious disease capabilities, in terms of how to respond, from diagnostics to vaccines.

"Going forward, this will be applied to the many challenges that society faces."

Separately, GIC CEO Lim Chow Kiat said in the foreword of the report that "divisive trends" in areas such as economics, technology and geopolitics will remain for some time, meaning investors will have to be more nimble to be profitable.

As to how investors need to adapt and adjust to the resulting wide dispersion of outcomes, Mr Lim suggested looking under market aggregates and indices more thoroughly, as important risks and opportunities may be hidden in them.