China’s Role in Global Generic Pharmaceutical Supply Chain

To discuss the potential impact of COVID-19 on the generic pharmaceutical market, and especially the effect of quarantines and travel bans on supply chains, GLG recently met with Steven Lynn, the former Director of the Office of Manufacturing and Product Quality at the Food and Drug Administration, Center for Drug Evaluation and Research’s Office of Compliance. Mr. Lynn also has served as the Global Head of Group Compliance and Audit at Novartis and Vice President of Global Quality Compliance at Mylan. His edited comments follow.

GLG: To start, how much of the world’s supply of APIs (active pharmaceutical ingredients) originate from China?

Steven: That’s the trillion-dollar question. A number from the FDA that’s been around for a long time is about 60% or 70%, so it’s honestly hard to know the true current percentage. Drug manufacturers and suppliers must register with the FDA, but the agency doesn’t know how much volume is being produced at manufacturing sites around the world. They would like to get that data, but under current law they can only request it. It’s safe to say, however, that a great proportion of the world’s APIs come from China, whether it be a new drug, a generic drug, or biotech raw materials. Most of those APIs are then exported to India, where the finished dosages are made. But the European Union also has significant API production, and there’s quite a bit in the United States as well.

GLG: Has the picture changed in any way recently?

Steven: Chinese API production probably has gone down a little in branded and generic drugs. I say that because many companies are looking at the compliance issues coming out of India and China and trying to get out. At the same time, those companies can’t find another supplier of that API, so many companies have said they are stuck where they are and doing the best they can with what they have – which is why I think a great proportion of API is still coming out of China.

The same goes for the finished dosage forms coming out of India. A lot of companies would like to move out but often can’t due to funding reasons. It’s simply cheaper to do production in India or China than in the EU or the U.S., so they’re stuck where they are.

GLG: What about more API production in the U.S.? Is that possible?

Steven Lynn: I don’t have any statistics on current U.S. production, but I’m guessing it’s maybe about 10% of the total. The big question is capacity. Do U.S. sites have the capacity to add more product? Do they have extra lines available to start production? There’s also the issue of whether they have approval from the FDA or the European Medicines Agency (EMA) to produce a product at that site. If they don’t, it takes several months to accumulate the data they need for an application. Then approval could take months. So capacity and regulatory approval are the big obstacles to producing APIs outside of China.

GLG: Do generic manufacturers do more of their production in China than branded manufacturers?

Steven Lynn: Where production is done generally is not disclosed, but based on my experience, I would say that both sides are exposed. There is probably more exposure on the generic side than on the branded side, where production is a bit more dispersed.

GLG: Is single sourcing more common than dual sourcing?

Steven Lynn: Most manufacturers on the branded side probably use dual sourcing as a result of FDA pressure. On the generic side, dual sourcing probably is less common since it’s more expensive and a lot of generic drugs don’t make much money. In fact, some of them actually lose money, but manufacturers produce the drugs for public health reasons. In a way, the COVID-19 crisis could present an opportunity to analyze supply chains and identify the drugs we are making, where they are made, and where the active ingredients are coming from. If it’s China, do we have a secondary source? If not, do we have enough supply in-house, and how long will it last before we exhaust it? And if we have a secondary supplier, do they have the capacity to gear up, and would FDA approvals be necessary?

This is an area where dual sourcing and owning your own production facilities can help. For contract manufacturers dealing with multiple clients, there are only so many things they can do to please 50 clients, so a lot of them would have to prioritize and put production of the most critical drugs first – say, oncology or crash cart drugs. But the big questions are whether they have all the raw materials they need and whether they have the capacity to get it done in a particular time frame.

GLG: Let’s look at the supply issue. Do the firms have enough raw material on hand?

Steven Lynn: From my experience, many manufacturers have warehouses full of raw materials or APIs. But I don’t recall anybody having years of product on hand as a result of the process improvements in manufacturing that have been adopted in recent years. It’s hard to know how many of them are doing lean supply because it’s a risk-versus-reward issue in that storing API takes money, especially if it’s something that requires refrigeration or freezing, for example. Especially in some of the warmer climates, there are always temperature issues.

GLG: Finally, putting on your hat as a former FDA official, what should the Food and Drug Administration be doing now?

Steven Lynn: They’re probably already doing it, but I’d have analysts working to get the most up-to-date information possible on how much API is on hand, how many sites are registered in China and around the world, where they are, and how long they can supply U.S. manufacturers product in final dosage form before running out.

The FDA also puts out an updated drug shortage list once or twice a week, and it looks to see what companies that are reporting short supplies are doing. The FDA will be looking at companies that are approved to produce that drug but are not [doing so] and see if they are willing to produce it. The FDA can’t force anyone to manufacturer products, of course, but companies will often start production voluntarily, especially if there’s a public health need.

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About Steven Lynn

Steve has more than 20 years of quality and regulatory compliance-related experience in the pharmaceutical, biopharmaceutical, medical device, blood, plasma, and tissue industries. Steve is currently the Principal Consultant/Owner for Lynn Consulting, LLC, which provides expert GxP consulting services to the life sciences industry. Prior to this role, Steve was the Global Head of Group (Corporate) Compliance and Audit at Novartis AG. In this role, Steve led the corporate compliance and audit functions for Novartis. Prior to joining Novartis, Steve was the inaugural Vice President of Global Quality Compliance at Mylan, Inc. in Canonsburg, Pennsylvania.

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This article is adapted from the GLG webcast COVID-19: Impact on Generic Pharmaceutical Supply Chain. If you want access to this webcast or would like to speak with Steven Lynn, or any of our more than 700,000 experts, contact us.