Pharma companies face challenges and choices stemming from Middle East conflict

Tensions in the region have been rising for years but few businesses are likely to have planned extensively for the de facto closure of the Strait of Hormuz and pressures on Middle East production and supply. The latter is linked to issues with logistics, staffing constraints, and shortages of certain raw materials used in the manufacture of medicines, many of which are derived from petrochemicals, and packaging components – with Dubai, in particular, being an important pharma transit hub.

• Read more: implications of the Middle East conflict for businesses

More than a month into the Middle East conflict, pharmaceutical companies are likely to have a handle on the specific impacts on their operations. With often large and complex supply chains and dependencies, disruption could stem from seemingly innocuous sources. Even if the supply of medicines or components of them are unaffected, problems might arise owing to a lack of access to packaging components and consumables, like bottles, plastics, and vial stoppers, or if products that form part of the broader medicines delivery ecosystem – like IV bags, syringes, or goggles – are stuck on containers ships at sea or in port backlogs.

While re-routing supplies may be an option in some cases, longer transit times pose a higher risk for cold-chain and short-shelf-life products, like insulin, vaccines, and some oncology drugs.

European markets are specifically susceptible to the disruption caused by the Middle East conflict – but a raft of new EU legislation is under development which could make the trading bloc’s pharma sector more resilient to future geopolitical shocks.

Under existing EU law, holders of a marketing authorisation for a medicinal product and the distributors of those products in the EU have a duty, “within the limits of their responsibilities, [to] ensure appropriate and continued supplies of that medicinal product to pharmacies and persons authorised to supply medicinal products so that the needs of patients in the member state in question are covered”.

Under proposed reforms to the EU’s general pharma legislation, those requirements would be strengthened by duties to explain non-compliance – even in situations where disruption to supply occurs from unforeseen or exceptional circumstances – as well as around shortage prevention planning and the reporting of disruption to supply.

Special measures are envisaged for products classed as ‘critical’ medicines too. The proposed Critical Medicines Act, which is also not yet finalised, contains specific measures designed to support EU-based manufacturing of critical medicines, including financial incentives for projects where there is an existing vulnerability in the supply chain. The draft legislation also envisages the use of public procurement tools by EU countries to strength the supply of those medicines.

The proposed new Biotech Act also contains measures designed to support innovation by biotech companies with a view to encouraging EU-based manufacturing of biologics and biosimilars.

The EU stockpiling strategy, which covers medicines, and looks at – among other things – creating targeted EU reserves, joint procurement and mapping gaps, is a further initiative designed to maximise the EU’s collective heft and ensure individual countries within the bloc aren’t competing against each other for supply.

The proposed reforms do not offer immediate solutions. The focus on boosting EU pharmaceutical manufacturing is an initiative that will take years, even after the new legislation is set, to have effect, while they may not have accounted for the wider supply issues arising from this current conflict even if the rules were in force now.

While pharmaceutical companies may be able to access stockpile reserves to help them overcome short-term pressures, tough medium- and long-term choices may need to be made if the conflict continues through the spring into summer and beyond.

In line with obligations they could face under the proposed Critical Medicines Act, pharmaceutical companies are likely to have to diversify their supply chains and operations so that the disruption of any single site, route or supplier does not interrupt the availability of medicines.

However, diversifying supply chains will take time and could come with risks. If selecting new geographies to site manufacturing processes and facilities, pharmaceutical companies will want to consider local regulatory requirements and the intellectual property (IP) regimes, particularly to understand the level of patent protection available.

Any reshoring of the manufacturing of Active Pharmaceutical Ingredients (API) from jurisdictions outside of Europe is likely to increase the cost of producing medicines and raise broader questions about pricing and remuneration mechanisms for public health systems. Cost increases, in any event, are likely to follow from the rising price of oil and inflationary effects this may have on the wider global economy.

While much of the focus of the coverage of the conflict to-date is on its effect on energy prices and the knock-on economic impact of that, the longer the conflict lasts issues such as the availability of medicines and medical equipment are likely to come more sharply into focus. If they are not already doing so, pharmaceutical companies should enter into dialogue with policymakers and regulators if they anticipate shortages, compliance problems or pricing challenges owing to the conflict over the months ahead.

Even in the absence of any compliance duty in this regard, national authorities – and the public – will view this type of reporting as forming part of a company's social licence to operate.