Yuliyana Manolova, director Business Development Contract Manufacturing at Acino, explores the challenges generics manufacturing in Europe faces, and the actions pharma companies must take to better navigate the current market environment.
Key insights:
- Europe is witnessing an unprecedented call for energy rationing, which has the potential to complicate and harm the generic pricing.
- The rising material and utility costs call for an immediate conversation on adjusting the market ceiling prices for less expensive and extensively regulated generic products.
- There is an obvious need for proofing the pharma supply chain by enacting legislation to provide financial assistance to manufacturers and healthcare systems in the event of pandemic or war.
The global pharmaceutical generics market is currently going through a very difficult time as a result of the pandemic and the war in Ukraine. Pharmaceutical companies are trying to find a way to reduce supply chain dependencies and diversify risks, against the backdrop of the highest industry inflation in many years. The European Union Producer Price index indicates a clear pattern of rapidly rising manufacturing costs. The prices for certain APIs, excipients and packaging materials went up by multiples, signalling the need for immediate discussions amongst stakeholders in the pharmaceutical value chain to ensure product supply continuity.
In addition to these challenges, Europe is witnessing an unprecedented call for energy rationing, including for medicines production, which has the potential to complicate and harm the generic pricing. Generics manufacturing in Europe is critical to ensure patient access to affordable, high-quality medicines.
Material prices climbing
The manufacturing costing structure for different pharmaceutical forms and formulations can vary significantly depending on the process. Some products are labour intensive, with stable labour rates and materials price fluctuations do not have a significant impact on the costs. Others are almost entirely material driven, especially in finished product manufacturing. It is not uncommon for materials to account for 95-96% of the cost (API, excipients and packaging components). They are often supplied from external sources, and when purchasing prices skyrocket, there is no other way but to transfer the increases through the value chain. This is particularly valid for APIs. They are registered in the dossiers and diversifications require substantial investment in validation and stability studies, as well as time for marketing authorisation updates.
Second sources for excipients and packaging materials should be investigated based on the yearly volumes used by a company. In certain circumstances, establishing a second source results in reduced MOQs and, thus, higher pricing. Therefore, to mitigate supply risk and ensure competitive prices, we may end up raising costs.
Price pressure and the impact of increasingly stringent regulations
Securing supply of life-saving medicines is the highest priority for both the pharmaceutical manufacturers and local governments. The rising material and utility costs call for an immediate conversation on adjusting the market ceiling prices for less expensive and extensively regulated generic products. The industry cannot absorb the current cost increases entirely. Some of these increases must be passed further in the value chain in order to ensure supply continuity. The generic RX market in Europe is characterised by exceptionally low prices. In Germany, the tender business lacks transparency and has fixed financial contract terms for years ahead.
If all stakeholders do not come to a common understanding of the situation and do not take swift and meaningful measures in response to the recent cost changes, suppliers will likely incur temporary losses and eventually will be forced to discontinue products or even go out of business. With fewer suppliers on the market, costs will rise in the long run, which is not in the best interests of patients or healthcare systems. Therefore, in order to secure better prices in the long-term, the short-term solution is to immediately adjust the current prices to match rising costs.
There is an obvious need for proofing the pharmaceutical supply chain by enacting legislation to provide financial assistance to manufacturers and healthcare systems in the event of pandemic or war. The German Ministry of Health, for example, should reconsider their plans to drive down generic prices by requesting further rebates, since such actions would raise the risks of product discontinuation in the current economic context.
Energy rationing
Production of pharmaceutical products, unlike other goods, is subject to rigid monitoring, which allows no production flexibility. Rationing energy is not an option for pharmaceutical manufacturing plants as it may permanently disrupt and damage the product. If the manufacturing process is interrupted for any reason, there is a risk that the product will no longer comply with its analytical specifications and it will have to be scrapped. This would increase the manufacturing output, possibly delay supply to market, and add additional expenses to the already heavily burdened generics producers. The continuous supply of gas and electricity is critical for both supply continuity and financial sustainability of generics manufacturers.
To ensure product supply continuity, it is critical to maintain an open dialogue with all stakeholders in the pharmaceutical value chain. Immediate actions on price adjustments for affordable generic products are required. Actions towards tax breaks, direct financial assistance, rebates removal and elimination of energy rationing for the sectors might help stabilise the situation. The industry is facing challenging times, and we must find a way to better navigate the current market environment. This is an opportunity for a transparent dialogue, fast decision-making and collaborative partnerships that may serve as a model for avoiding a crisis.