Cooperation is key in securing supply of medicines regardless of cost pressures

Supply chains in the pharmaceutical industry are long and vulnerable to disruptions. Inflation, cost pressures and lack of resources are a concern when securing the availability of medicines. Finland's national security of supply is guaranteed thanks to cooperation, despite the existing challenges.

The COVID-19 pandemic has affected the long and global supply chains of medicines. However, as Johanna Pakkanen, Director for Supply Chain and Procurement at Orion Corporation, points out, the challenges existed long before the pandemic, as the centralised production of raw materials is vulnerable to disruptions.

“The active pharmaceutical ingredients of generic drugs in the global market come from China and India. Thanks to our buffer and intermediate stocks, problems were not immediately evident. Once the buffer stocks were depleted, the number of disruptions has increased and there is no longer similar flexibility. This has led to global problems in access to medicines.”

At a seminar for pharmaceutical operators and decision-makers held by Orion in December 2021, Pakkanen talked about the security of supply of medicines and the impact of inflation on the pharmaceutical industry.

The US and inflation affect the price of pharmaceuticals

Pakkanen admits that the US holds considerable power as the primary export country for pharmaceutical raw materials, proprietary products and generic products. Therefore, the country also affects demand and determines the price level of medicines.

“As a small country, Finland has to work hard to obtain products – in fact, purchasing is, more than anything, selling: we have to sell ourselves as favoured customers. Changing suppliers at the drop of a hat is not possible, as is the case with other consumer products, because the processes and supply chains are long and take years to build and it take time to meet the regulatory requirements.”

Prices generally react to high demand and shortages. Timo Lappalainen, President and CEO of Orion Corporation, stresses that the pharmaceutical industry's licensing system will not allow rapid changes to supply chains anywhere in the world. Even under cost pressures, it is simply not possible to make quick changes.

According to Martti Hetemäki, Professor of Practice, the US is a driver of global inflation, and inflation drives up prices.

“Inflation is like a sleeping dog – if it is woken up, it is difficult to get it to go back to sleep. Rising inflation is becoming the norm.”

Access to low-volume medicines must be secured – price regulation as challenge

In Orion's view, the impact of inflation on reduced availability and rising costs is felt most in reference-priced generic products used in treating major public health problems.

These medicines include painkillers, blood pressure and high cholesterol medicines, and antidepressants. Antibiotics are also available as generic preparations. As a rule, the wholesale price per three months’ supply or course is less than EUR 10.

The price increase pressures on medicines are considerable, but Lappalainen points out that the pharmaceutical industry is a sector in which dynamic price increases are not recognised. In Europe, price mechanisms for medicines are strictly regulated.

Both Eija Pelkonen, Director General at the Finnish Medicines Agency Fimea, and Lauri Pelkonen, Director of the Pharmaceuticals Pricing Board, agree that reform of the pharmaceutical sector offers a natural opportunity to review the overall status of pharmaceutical services. Price regulation is in itself a viable system, but they believe that steps need to be taken to safeguard the future of low-volume generic medicines.

Prices depend on demand as well as the availability of shipping containers

Pakkanen finds that the prices have developed at a rapid pace. The prices of basic chemicals used by different industries have more than tripled in the 21st century, and the price of plastic has risen by nearly 50% in the last couple of years. For example, plastic components are used in vaccines.

“The demand exceeds the supply, which has at the same time decreased because the COVID-19 pandemic, among other developments, has kept industrial sites in China closed.”

The shortage of shipping containers has been an ongoing problem for several years and during the pandemic it has only become worse. The containers are in the wrong place – China exports more than it imports. Large ports and border crossings have been closed down. Both sea and air freight prices have risen due to capacity problems and high demand. The shortage of HGV drivers has impeded overland transport.

“We are competing against bigger countries for capacity. Security of supply is the top priority. Cooperation between the different operators involved, communication with the authorities and proactive risk management are all vital for securing access to medicines in the future,” says Pakkanen.

Cooperation produces health

A drug distributor and a wholesaler operating in the middle of the value chain both face similar cost pressures. Logistics costs are on the rise, and medicine distribution is all about logistics.

“Although there is no way of knowing, nobody is expecting the costs to decrease. The price mechanisms in pharmaceutical services are slow to react to changes, yet the security of supply must always be guaranteed. Finland should maintain its reputation among pharmaceutical operators as a country of interest, and we must ensure our competitiveness and security of services,” says Elisa Markula, President and CEO of Oriola, a distributor of pharmaceutical products.

So far, the distribution and availability of medicines has remained almost faultless: 98 per cent of customers are able to obtain their prescription medicines from the pharmacy when they need them. If necessary, restrictions can also be imposed: when there was a global shortage of paracetamol during the first year of the pandemic due to bulk buying, availability was temporarily restricted in cooperation with the authorities.

Markula says that few industries are as capable of successful cooperation to secure value chains as the pharmaceutical sector.

According to Lappalainen, security of supply requires Finnish-based production so that the wide range of necessary products is available at all times.

“What we need is accurate foresight from both the pharmaceutical operators and the authorities. Our common goal is to produce health for everyone in Finland.”

Text: Tarja Västilä

16 December 2021