Navigating Threats to the Pharmaceutical Industry

The pharmaceutical industry contributes significantly to the global economy, accounting for over a trillion dollars in annual revenue. Access to medicines is essential for global health systems, so the smooth delivery of pharmaceutical products is vital not just for the industry’s financial well-being but also for the ability to deliver effective healthcare around the world. This makes operational resilience a clear priority. 

Managing the risks to complex pharmaceutical and biotech industry supply chains requires an intentional approach to manage a huge range of threats and challenges.  

From shifting geopolitical relations and new legislation, such as the BIOSECURE Act, to supply chain disruption and threats to business continuity, understanding the threats to the pharmaceutical industry and how they are changing allows organizations to ensure that they have the correct measures in place to mitigate the impact to their operations.

This blog highlights a series of threats to the pharmaceutical industry, including geopolitics and decoupling, criminality, transportation delays or raw material constraints, and product shortages. 

Geopolitics and the BIOSECURE Act 

The life sciences industry is one with complex, often highly specialized supply chains, with the twin vulnerabilities of being at once spread across the globe yet highly dependent on certain countries for the manufacturing of key ingredients and components.  

This puts the industry at particular risk to geopolitical shifts, which can influence policies that directly affect life science companies and their ability to deliver. Worsening relations between the US and China is one particularly worrisome issue. 

This is perhaps best demonstrated in the proposed BIOSECURE Act, a bi-partisan piece of legislation currently moving through the US House and Senate. The Act is intended to limit the ability of US pharmaceutical companies to contract with biotech companies with ties to ‘foreign adversaries,’ which are currently defined as China, Russia, Iran, and North Korea.  

The BIOSECURE Act was proposed by former Republican Representative Mike Gallagher, who chaired the House China select committee [image source: Francis Chung/Politico]

Under the legislation, the US government would be prohibited from contracting with ‘biotechnology companies of concern,’ while organizations with ties to these companies would be prevented from receiving contracts or funding from the federal government—essentially forcing them to choose between lucrative US government contracts or maintaining relationships with these named companies.

This could have a dramatic impact on US life sciences companies. The BIOSECURE Act initially named four companies of concern – BGI Group, MGI, Complete Genomics, and WuXi AppTec. WuXi AppTec, in particular, has deep ties with US-based pharmaceutical companies, as well as global companies doing significant business in the US, as a critical manufacturer of active pharmaceutical ingredients (API) for hundreds of Western drugmakers. WuXi, through its manufacturing of products for others, likely supports in excess of $100bn of sales in the country, based on the scale of its production and existing relationships with US companies. On 3^rd April 2024, several other companies were added to the list of concern: Innomics, Axbio, Origincell, Vazyme Biotech and STOmics.

Navigating this new reality should be a key priority for pharma companies in 2024, despite the BIOSECURE Act not being expected to pass until after November’s election. Until the legislation and guidance are in place, the compliance of existing and future contracts is hard to understand, but companies should already be weighing the risk of entering into, extending, or even whether they should continue with any agreements with named or potential companies of concern. Instead, for many, work is underway to find compliant replacements so that supplies are not interrupted if/when the legislation takes effect – although this is easier said than done.

Working with business intelligence specialists can help you do the required due diligence when finding new partners to ensure your organization fully complies with the proposed legislation.

The BIOSECURE Act demonstrates the disruptive impact that geopolitical shifts can have. Tracking geopolitical developments is a complex but vital part of managing your organization’s risk. Consulting with business intelligence experts, as mentioned above, should form part of this strategy, but using threat intelligence to track on-the-ground indicators of worsening relations or developing issues near owned assets or suppliers is another tool you can use to stay ahead of risk – helping you stay alert to the potential for further measures that could impact your operation, and avoiding being caught on the back foot when changes happen.

For more information on how you can use threat intelligence to track geopolitical risk, read our article here.

Decoupling

The BIOSECURE Act is just one of several measures being taken by the US government as part of a wider push to ‘decouple’ from certain foreign suppliers. Whether as a result of worsening geopolitical relations, the shock to the global economy caused by the war in Ukraine, or the vulnerability of global supply chains exposed by COVID-19, there is a significant push to onshore manufacturing and production, including in the pharmaceutical industry. This means a lot of stresses on pharmaceutical supply chains.

Another piece of legislation is pending to drive reshoring efforts in the industry. The American Made Pharmaceuticals Act (2023) requires that Centers for Medicare & Medicaid Services give preference to domestically manufactured drugs, thus incentivizing pharmaceutical companies to onshore manufacturing facilities in the US – and potentially harming those that remain reliant on foreign supply.

In addition to putting strain on existing supply chains as life sciences companies scramble to set up new US-based facilities and decouple from suppliers in places such as China and India – which can take years to achieve, even when an alternative already exists – the setting up of manufacturing facilities brings its own issues from a physical security and operational risk standpoint.

New physical assets will require their own security and risk assessment and planning, starting from the time the proposed site is identified. Digging into historical and contemporaneous threat intelligence data is a great place to start, helping you identify common physical security threats, patterns of activity, and potential operational risks that your site, your operations, and your staff might be faced with.

Incidents within 10km of an API manufacturing site in Michigan, identified using the Intelligence Fusion platform [image source: Intelligence Fusion]

This data can then be used to inform a detailed risk assessment. Consulting on the design and construction of your site will also help alleviate any safety risks, such as fire security and operational resilience, reducing the risk of loss from on-site incidents that can damage the site and shut down production.

Mapping all of the sites along your supply chain will also mean that your security and risk team can visualize the threats to each part of your manufacturing and production operations, as well as specific shipment routes, helping them plan for risk across the organization.

Examples of different pharmaceutical manufacturing sites across the globe for a single pharmaceutical company’s supply chain, mapped using the static assets feature on the Intelligence Fusion platform [image source: Intelligence Fusion]

Security threats to the pharmaceutical industry

In addition to legislation, a number of on-the-ground threats can impact the pharmaceutical industry.

One of these is transportation interruption or delays – impacting the timeliness and effectiveness of the delivery of product. This can be caused by adverse weather conditions and natural disasters, major trade route disruption, crime, areas of poor transport infrastructure or regular maintenance work, or by high levels of protest action, to name a few.

Incidents impacting transport and logistics in North America in the first quarter of 2024 [image source: Intelligence Fusion]

Pharma companies can be directly targeted by protest groups – for instance, animal rights campaigners – that can impact upon operations. But often, it is wider protest action, not related to the specific industry, that can have a more significant knock-on effect by shutting down transport routes and causing delays to transportation and delivery of supplies. Other examples of threats to the pharmaceutical industry that can cause transportation delays include physical supply chain disruptions such as travel delays/diversions, road closures and damage to roads, isolated areas, physical damage to laboratories, hospitals, pharmacies, and other medical facilities (including the aftermath of unpredictable adverse weather, and vandalism). A lack of medication storage can mean medication stored in extremely hot or cold temperatures degrades more quickly during transportation, so delays can lead to medication becoming compromised during transit.

Criminality is another key concern. A widely recognized threat to the pharmaceutical industry is the trafficking of counterfeit medication. Although regularly reported, the number of trafficking incidents globally is likely to be greater than estimated. In 2017, the World Health Organisation (WHO) estimated that 10.5% of global medications are counterfeit, with market research suggesting most cases occur in Asia, Europe, and North America.

Counterfeit medications are likely to prevent legitimate medical practices and can increase disease prevalence and mortality rates, along with acting as a contributor to drug-resistant infections.

Counterfeit and illegal medication incidents displayed on the Intelligence Fusion platform [image source: Intelligence Fusion]

Black market medicines are another challenge for the industry. These differ from counterfeit medications in that they are resold for private profit outside of the pharmaceutical industry, as opposed to the sale of fake/replicated products. Illegitimate sales of medications occur in both developed and developing countries. Whilst sales occur mainly in Asia and Africa, every continent is affected by black market pharma activity.  

Despite the unreliability of available data, the estimated global worth of medications on the black market is likely to equal that of the legitimate pharmaceutical industry, which, as stated above, equates to more than one trillion dollars worldwide.   

Examples of threats posed by counterfeit medications include loss of confidence in health systems, including reputational damage for pharmaceutical companies; increased mortality and/or higher prevalence of disease within a country; and the hindrance of ongoing pharmaceutical campaigns, which is likely to be costly for the pharma industry in terms of both time and revenue. The black market trade, meanwhile, can cause loss of profit for the pharma industry with respect to unknown medical sales, an increase of opportunity for criminal activity, and unmonitored prescription and usage of medication – notably lack of visibility of which medications are being used, in turn increasing the threat of prolonged illness/mortality.

Drug shortages and expired medication incidents displayed on the Intelligence Fusion platform [image source: Intelligence Fusion]

While not a priority at present, potential medical shortages should also be a threat that the industry remains aware of. As noted by CIDRAP, the American Society of Health-System Pharmacists has more than 900 drug and dose shortages on its drug shortage list, and the FDA lists more than 200, with a 30% increase in new drug shortages in the US from 2021 to 2022. The situation is worse in countries with lower socio-economic status, such as in Africa, Southeast Asia, and areas within South America, which are likely to experience greater shortages due to lack of availability combined with accessibility, replenishment sustainability, and involved costs. The quantity of unused and expired medications is dependent on the country, likely equating to billions of metric tons per year.

In addition to being a health risk, with the potential to lead to the spread of disease on a global, not just local level, this represents a reputational risk to the industry that should not be underestimated.

Threats and Actions

A key priority for the pharmaceutical industry should be understanding the shifting geopolitical situation and how the sector will likely be affected going forward. This report has highlighted two pieces of proposed legislation that will likely have a significant impact on pharmaceutical operations when passed – especially the BIOSECURE Act. Further deteriorations in international relations will potentially cause further headaches for the industry, given the existing interlinked supply chains that pharma companies rely on. Balancing the need to move away from non-compliant relationships with maintaining supply is potentially the most significant challenge the industry faces right now, and partnering with experts who can help them navigate the situation should be a priority.

In terms of on-the-ground risk, observations suggest that the most reported threats to the pharmaceutical industry lie within the distribution stage. Transportation delay and delivery interruption will likely remain a high threat for causing supply chain disruptions, followed by increased climate-related incidents and distribution of medical supplies to conflict zones. Pharma companies may consider using alternative modes of transport and/or scheduling deliveries outside of protest activity. Storage during transportation may also be revised, to decrease the threat of temperature excursion.

Due to ongoing global economic constraints, coupled with increasing drug costs, the threat of counterfeit products is also likely to remain high. It is likely that more counterfeit medications will circulate and hinder public health and the efficacy of the pharma industry. The threat of black market trade remains highest in areas where medications are less accessible, increasing the threat of medications being illicitly sold for a higher price. Security operations will need to continue to focus on curbing the manufacturing and distribution of counterfeit drugs and black market trade, specifically targeting operations at known criminal organizations.

The threats to the pharmaceutical industry are complex, ranging from legislative challenges tied to geopolitical tensions, to physical security threats and disruption to supply chains. This means that a complex solution is required to help your organization mitigate them.

Sigma7 is the world’s first fully integrated risk solution, providing full risk visibility across your operations.

Whether it’s security and threat intelligence data to help visualize the threats you face, risk engineering and management consultancy services to provide tailored best practice advice, business intelligence and due diligence on potential partners and the business operating environment, or forensic accounting to ensure optimal return on any claims in the event of disruption, Sigma7’s stable of best-in-class risk providers allows our clients to achieve total risk awareness and protection.

To learn more about Sigma7, and how we can work together to understand your entire risk profile, reach out to a member of the team here.

Authors: Jade Patel; Philip Buckingham; Andrew Tait