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Growing risk of pharma supply chain disruption

Source: Middle East Insurance Review | Jul 2020

Healthcare systems around the world face a number of vulnerabilities, one of which is the risk to the global pharmaceutical supply chain.
 
In its latest SONAR report, Swiss Re Institute highlighted breaks in the global pharmaceutical supply chain as an emerging risk that could have an impact on insurers over the next three years. It said further disruptions to the chain could lead to heightened risk of product liability, product recall and medical malpractice claims.
 
Shortages of drugs and medical supplies could lead to an increase in the use of alternative medication and patients switching to other drugs without informing their doctor, both of which could result in greater morbidity and mortality in patients, and subsequently lead to increased insurance claims.
 
“In addition, mistreatment or wrong prescriptions can lead to medical malpractice and professional indemnity claims against hospitals, doctors and pharmacies,” said the report.
All the above scenarios could drive healthcare costs and associated claims even higher.
 
Reliance on China and India
Over the years, efforts to control rising healthcare costs have seen the production of active pharmaceutical ingredients (APIs) become concentrated in emerging markets. Currently, the bulk of APIs are manufactured in Asia, primarily China and India.
 
Healthcare systems in other parts of the world could be put in a vulnerable position if the region is compromised by an infectious disease as we have seen with how COVID-19 has forced lockdown measures that have affected manufacturing industries and supply chains.
 
Political issues involving China, India and the US also add to the risk facing the supply chain. The US and China have been embroiled in a trade war for some time now, while the recent border dispute and altercation between India and China has left bilateral relations between the two countries teetering on a knife edge.
 
Safety and security
Then there are the risks surrounding the delicate nature of pharmaceuticals and their high market value.
 
In a recent white paper, Overhaul (a provider of risk management solutions for shipping and transportation services) highlighted some of the more common risks facing the pharmaceutical supply chain:
  • Temperature excursions – Most pharmaceuticals need to be stored at certain temperature ranges, and exposure to temperatures outside these ranges could negatively impact their effectiveness. The IQVIA Institute for Human Data Science estimates that the biopharma industry’s annual monetary loss as a result of failures in temperature-controlled logistics tops $35bn, although Overhaul suggests the figure could be higher factoring in the safety risks involved if compromised products reach unknowing patients.
  • Cargo theft – The value of pharmaceuticals means that the threat of theft will always be high, whether in transit or at manufacturing and distribution facilities. Cyber theft is also on the rise with industries more vulnerable to malware and ransomware.
  • Counterfeit products – In a 2017 report, PwC estimated the value of the counterfeit drug market to be between $163bn and $217bn per year – the most lucrative sector of the global trade in illegally copied goods. In addition, research from the American Society for Microbiology estimates that 10% of all drugs in circulation are counterfeit. The 2017 PwC report also said that 1m patients die from toxic counterfeit pharmaceuticals every year. M 
 
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