A First! Global pharmaceutical and healthcare sectors ranked first and second respectively for output growth on the… https://t.co/UAzIDOddLO
Supply chain resilience and the cost to pharmaceutical trade
One month after taking office, US President Joe Biden signed an executive order (EO) on 24 February focused on strengthening US supply chains, particularly for pharmaceuticals and active pharmaceutical ingredients (APIs), as well as rare earth minerals, semiconductor chips, and large-capacity batteries. The administration aims to identify vulnerabilities and address them largely by boosting domestic production. The challenges in securing sufficient supplies of personal protective equipment (PPE), ventilators, and pharmaceutical products throughout the coronavirus pandemic - particularly in early 2020 - prompted a call to action for some governments. The US is not alone. The EU, Australia, and Japan are among several markets now actively looking to improve supply chain resilience by boosting domestic manufacturing capabilities and diversifying import sources.
EU pharmaceutical trade increases during pandemic, as UK drops
According to IHS Markit's Global Trade Atlas (GTA) data, the US continued to be the biggest importer of pharmaceutical products globally in 2020, with the value of its imports totaling nearly USD139 billion. If the US were to cut its imports, even by a fraction, in favor of domestic production, the impact would likely be significant. High-income European countries - including the UK, Germany, France, Italy, Spain, and Belgium - are also among the top 15 importers, as are China, Japan, Canada, Russia, and Australia. Among the top 15 global importers of pharmaceuticals (shown in the chart below), only Russia (-23.1%) and the UK (-8.1%) registered a decline in imports in 2020, with all other countries realizing growth despite the challenges of the pandemic. The drop in the UK's pharmaceutical imports is in line with a decline of 8.0% y/y in 2019, and likely stems from the impact of Brexit during the transition period. The value of imports from the top 15 countries represented 76.7% of global pharmaceutical imports in 2020.
In terms of exports, Germany maintained its position as the world's biggest exporter by value in 2020 with USD97.6 billion (up 8.1% y/y) in exports. Most of the same top exporters are also among the top importers, suggesting that these countries play a critical role in global pharmaceutical supply chains. This is particularly evident given the number of countries that pharmaceutical products are sent to and imported from. The Netherlands and India export pharmaceutical products to the largest number of countries - 219 and 213 countries, respectively. All countries reported growth in pharmaceutical exports, with the exception of the UK for both 2020 (-9.3%) and 2019 (-10.6%), a trend that precedes the pandemic and is largely Brexit-related. The value of exports from the top 15 represented 87.2% of global pharmaceutical exports in 2020.
Plans to boost supply chain resilience could come at a cost to pharmaceutical trade
The US continues to move towards a "Made in America" strategy to address supply chain vulnerabilities, an initiative that was heavily advocated by former President Donald Trump and is largely supported by the current administration. Meanwhile, trade patterns between the EU and certain non-EU trade partners, including the UK, highlight the impact of a combination of factors, including new trade dynamics that have emerged during the COVID-19 pandemic, the fairly turbulent start to the new UK-EU trade relationship, and broader efforts to secure medical materials from different locations to avoid disruption. Although no major trends with regards to onshoring production policies can be detected in the 2020 trade data, these would be expected to become clearer by next year.
Both the US and the EU have been willing to limit or block exports of COVID-19 vaccines to neighbors and allies this year, setting the stage for a much more fragmented landscape that is shifting away from globalization. While some policies that address import vulnerability could certainly boost investment in certain biopharmaceutical firms, particularly smaller biotech firms, the sector as a whole could face increasing risks. Among those are compulsory licensing and the violation of intellectual property rights, protection of which has largely relied on strong trade agreements. Furthermore, the industry could face challenges in trying to raise prices to compensate for lost revenue due to trade restrictions and increased tariffs, particularly with pricing scrutiny currently at its peak. The additional manufacturing costs associated with onshoring production of APIs and pharmaceutical products, and shifting dependence away from China and India, are also unlikely to adequately justify large increases in pricing because margins are already very high for innovator products. Generics and biosimilars, however, could conversely benefit from the current environment although they too could see profit margins eroded if production moves to higher-cost markets without mark-ups.
We have already talked about the implications of Vaccine Nationalism, and the elevated risk that protectionist policies could lead to retaliation from former trade partners with repercussions that could ripple across the globe and significantly prolong the pandemic for several years. The same dangerous dynamics and protectionist policies impacting vaccine trade today could become the new norm for the pharmaceutical industry. High-income countries will find it difficult politically to leave future supply chain management of critical pharmaceuticals and vaccines in the hands of the pharmaceutical sector and international markets. Governments have now concluded that global supply chains for critical goods are too vulnerable during crises. Pandemics, cyber attacks, climate shocks, extreme weather events, and terrorist attacks were among the potential crises listed in President Biden's EO as potentially capable of threatening access to critical goods.
Given the current interconnectedness of supply chains as highlighted in our trade data, policies to improve supply chain resilience and ensure security in the face of such threats by some of the biggest global importers could certainly have a negative impact on global trade growth in the pharmaceutical sector.
This blog is based on a strategic report prepared by Margaret Labban and Eoin Ryan
- Pharmaceutical and healthcare sectors jointly top global PMI ranking for first time
- Will physicians become more difficult to find in America?
- California's Medicaid pharmacy "carve-out" set to boost state's negotiating power, introduce IRP for drugs
- Trend towards HTA collaboration boosts need for data
- Barriers to market access for innovative medicines increase in the COVID era
- ESG permeates pharmaceutical pricing strategy
- Delta variant prompts change in policy responses
- What the Aduhelm backlash may mean for pharma pricing in the ‘new normal’
Medi-Cal Rx, that will result in a "carve-out" of the entire pharmacy benefit from managed care to FFS. The move wi… https://t.co/NjH8I8tnUG
The coronavirus disease 2019 (COVID-19) pandemic and governments responses are still impacting the pharmaceutical m… https://t.co/f1o6eJdZKT