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China’s energy crunch threatens pharma supply chains

This week, PharmaCompass looks at the energy crunch in China and its likely fallout on the global pharmaceutical supply chains. Till not so long ago, there was an adage — ‘when America sneezes, the world catches a cold’. These days, the same holds true of China, which is today the world’s second largest economy. It is also the largest exporter of goods in the world, supplying consumer electronics, cars, textiles, chemicals and a plethora of other goods to several countries across the world. The country is striving to emerge as the world’s next superpower by dethroning the US. The pandemic has shown us that the interconnectedness of supply chains can lead to widespread shortages and interruptions in production across the world. Today, China is in the midst of a serious energy crunch. The blackouts may be limited to China, but their impact will be felt along the global supply chains for all products, including pharmaceuticals. Chinese Generic Drug Facilities Registered with the USFDA (Free Excel Available) Curbs on power usage The energy crunch in China is triggered by factors such as a shortage of coal supplies, tougher emissions standards and strong demand from manufacturers and industry. These factors have led to widespread curbs on the usage of electricity. China is the world’s top-most consumer of electricity. As the world’s top producer of carbon dioxide and other polluting gases, China’s ability to cut emissions is seen as critical in the global fight against climate change. The country has said it aims to bring carbon emissions to a peak by 2030 and to net zero by 2060. Recently, the country banned cryptocurrency mining, a highly energy-intensive activity that has stoked a surge in illicit coal extraction. According to the country’s main planning agency, the National Development and Reform Commission (NDRC), only 10 out of 30 mainland Chinese regions achieved their energy reduction targets in the first six months of 2021. To make matters worse, Beijing is contending with an ongoing trade dispute with Australia, the world’s second-largest coal exporter, which has greatly curbed coal shipments to China. “The electricity shortages in China are worsening, and widening geographically. It’s getting so bad Beijing is now asking some food processors (like soybean crushing plants) to shut down,” Bloomberg’s chief energy correspondent said on Twitter. Chinese Generic Drug Facilities Registered with the USFDA (Free Excel Available) Factories halts production Since mid-August, 20 provinces have implemented power cuts, including the manufacturing hubs of Guangdong, Zhejiang and Jiangsu, putting pressure on companies’ earnings. The impact on industries is broad and includes power-intensive sectors like aluminum smelting, steel-making, cement manufacturing and fertilizer production. According to Reuters, China’s factory activity unexpectedly shrank in September due to wider curbs on electricity use and elevated input prices. According to data from the National Bureau of Statistics, the official manufacturing Purchasing Manager's Index (PMI) was at 49.6 in September as against 50.1 in August, slipping into contraction for the first time since February 2020. According to Morgan Stanley, about 7 percent of aluminum production capacity has been suspended and 29 percent of cement production has been affected by the power crunch. Paper and glass could be the next industries to face supply disruptions, they said. Numerous factories have halted production, including many supplying Apple and Tesla. Some shops in the northeast are relying on candles, while malls are closing early to save energy. China is already grappling with curbs on the property and tech sectors, and there are concerns around the future of its cash-strapped real estate giant — Evergrande. As a result, Goldman Sachs and Nomura have revised downwards their projections for China’s economic growth. For Q3, Goldman’s new growth forecasts has shrunk to 0 percent quarter-on-quarter (4.8 percent year-on-year). Nomura has cut its Q3 and Q4 China GDP growth forecasts to 4.7 percent and 3.0 percent, respectively, from 5.1 percent and 4.4 percent previously, and its full-year forecast to 7.7 percent (from 8.2 percent). Chinese Generic Drug Facilities Registered with the USFDA (Free Excel Available) Pharma supply chain concerns According to Fitch Ratings, China is the world’s largest exporter of active pharmaceutical ingredients (APIs) exporter and its two largest export destinations — India and the US — accounted for 16.8 percent and 12.5 percent of China’s total API export value, respectively, in 2019. Over the last few years, both India and the US have been concerned about their high dependence on China for APIs and other drug inputs. Back in December 2019, Chuck Schumer (who is currently the Senate majority leader) had expressed serious concern over the grave national security and public health risks posed by the United States’ growing reliance on China for production of a wide range of life-saving drugs used by the US military and hospitals across the country. Schumer had requested the Government Accountability Office (GAO) to investigate the capability of the US to manufacture finished drug products and APIs. India too has repeatedly expressed concerns over its huge dependence on China for APIs — nearly 70 percent of the country’s APIs are imported from China with dependence as high as 90 percent for certain life-saving drugs. This year, in February, the Indian government had rolled out the Production Linked Incentive (PLI) scheme for drugs and had chosen 11 pharmaceutical companies to make key starting materials, drug intermediates and APIs to reduce its dependence on Chinese imports. Since then, India has levied anti-dumping duties on various chemicals and APIs being imported from China. In March, India had imposed anti-dumping duty on the antibacterial drug — ciprofloxacin hydrochloride and in August an anti-dumping probe was initiated against a chemical (ATS-8) used to produce the commonly used cholesterol lowering drug atorvastatin. And just this month, India recommended the imposition of anti-dumping duty on vitamin C being imported from China. Chinese Generic Drug Facilities Registered with the USFDA (Free Excel Available) Our view PharmaCompass’ database on generic drug manufacturers registered with US Food and Drug Administration (FDA) tells us that there are 155 generic facilities in China that supply generic drugs to the US. Out of this, over half, or 80 facilities are situated in the three provinces of Jiangsu, Zhejiang and Guangdong that are worst hit by the power crunch. Given this, the energy crunch in China definitely poses a risk to the global supply chains for drugs and APIs. The PharmaCompass compilation does not include many Chinese companies that manufacture key intermediates that are used by companies around the world to produce APIs. In October-end, Glasgow (Scotland) would host the 26th United Nations Climate Change Conference (COP26). According to news reports, none of the largest greenhouse gas emitting countries are on track to meet their climate goals. In this scenario, coupled with rising instances of extreme weather conditions and fears of more pandemics in the future, the power crunch in China might just be another reason after Covid-19 for countries to rework their pharma supply chains. Given the volatilities and uncertainties, nations have realized they need to reduce their dependence on countries like China and India in order to keep their economic growth engine moving. Chinese Generic Drug Facilities Registered with the USFDA (Free Excel Available)

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29 Sep 2021

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Faster drug approvals in the U.S. through the 21st Century Cures Act

The proposed overhaul of the U.S. drug approval system through the 21st Century Cures Act won’t take us back in time. With the right safeguards in place, this legislation can help win the fight against Alzheimer’s, Ebola and many other diseases. It seems like the much awaited prescription for patients as well as the industry.Development of pharmaceutical drugs can be time-consuming and extremely expensive. The last industry-funded research estimated the cost of developing each new drug at US $ 2.6 billion. The losing fight against Alzheimer’sOn top of the high cost of development, the failure rate can be quite high. Take the case of Alzheimer’s disease. Since 1998, over 120 programs attempting to develop Alzheimer’s drugs have failed. Between 2002 and 2012, there was just a 0.04 percent success rate of Alzheimer’s drugs meeting the standard.Last week, the fight against Alzheimer’s received yet another setback. US-based Biogen’s biotech drug, Aducanumab, was hailed as a potential breakthrough in March when it became the first Alzheimer's treatment to significantly slow cognitive decline. However, new data published by Biogen last week revealed that Aducanumab failed to significantly slow mental decline, thereby tempering the great expectations the world had from this potential drug. Enter the 21st Century Cures ActClearly, the new drug development process needs to change. On July 10, the U.S. House of Representatives approved the 21st Century Cures Act. The Act seeks to modernize clinical trials and deliver better, faster cures to more patients. The Act is awaiting approval in the Senate. However, several provisions of the proposed act have come under severe criticism. For instance, in The New England Journal of Medicine, Jerry Avorn, M.D., and Aaron S. Kesselheim, M.D., J.D., M.P.H., say “if enacted into law, some of its provisions could have a profound effect on what is known about the safety and efficacy of medical products, as well as which ones become available for use.” Biomarker based drug approvalThe proposed Act encourages biomarker-based drug approval. Unlike conventional drug approvals, which involve extensive clinical trials, where outcomes are studied in patients, the biomarker-based approach works on studying a “surrogate marker”, which is strongly linked with the final outcome in the patient. “A commonly used example is cholesterol. While elevated cholesterol levels increase the likelihood for heart disease, the relationship is not linear – many people with normal cholesterol develop heart disease, and many with high cholesterol do not. ‘Death from heart disease’ is the endpoint of interest, but ‘cholesterol’ is the surrogate marker. A clinical trial may show that a particular drug (for example, simvastatin) is effective in reducing cholesterol, without showing directly that the drug prevents death.” The bill would encourage the FDA to rely more on biomarkers and other surrogate measures rather than actual clinical endpoints in assessing the efficacy of both drugs and devices. The biomarker-based drug approval has also generated its fair share of concerns since “a drug's effect on a biomarker can make approval quicker and less costly, especially if the comparator is placebo, it may not always predict the drug's capacity to improve patient outcomes” But the key point to note is that the FDA already uses surrogate endpoints in about half of the new drug approvals. The legislation would not immediately change FDA approval standards, but they would give the agency greater discretion to approve drugs on the basis of less comprehensive data. Accelerated approvals have been in place since 1992The FDA has had an Accelerated Approval (AA) program in place since 1992. This has already been used extensively in oncology and HIV drugs.And the AA programme has benefited patients. As per an FDA presentation, almost 90 percent of the drugs approved for oncology through the AA process demonstrated a benefit in the post-market study. Since 1995, 49 new drug indications have been launched. In the case of HIV drugs, all indications that were given accelerated approval also received regular approval.For something as dangerous as Ebola, where there still isn’t an approved treatment to contain the spread of the Ebola virus, computational models have been used to evaluate existing drugs. Over 50 FDA approved drugs have now been identified with activity against the Ebola virus. Will it not be wise to use them in the fight against Ebola? Need for vigorous safety monitoringThe essence of the proposed 21st Century Cures Act is positive. Increased and faster drug approvals is great news for patients and the industry. What is needed are the right measures and safeguards to ensure the drug approvals (based on biomarkers) are not ‘free for all’ and there isn’t an unfettered access of such drugs to a large population.More importantly, the proposed act will increase safety monitoring. This means drug developers will have to monitor patients more vigorously using devices, such as smartphones. If drugs get approved based on biomarkers, the smartphone should be leveraged as an integrated health tool that sends feedback on how patients are performing after a drug is administered. Our View There are several smartphone applications available today. For instance, Apple’s ResearchKit allows developers to monitor multiple healthcare outcomes like asthma occurrence, determine the progress of Parkinson’s, share information about the effects of chemotherapy used in breast cancer and also measure gait and balance.Supportive legislation coupled with Apple and Google aggressively getting into the healthcare space, it is just a matter of time before the digital health revolution joins our fight against diseases to benefit patients as well as the industry.

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30 Jul 2015

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