So what can authorities do to ensure a steady supply of medicines? We see two options.
The first is to accumulate medications. so that when there is a disruption in the supply chain, countries or corporations have several weeks’ worth of stock left. However, this is expensive and pharmaceutical companies and health insurance companies will not want to cover the costs of additional inventory. Governments would therefore need to continue purchasing large quantities of a variety of drugs to avoid potential shortages, which could have unintended effects on prices and shortages.
A second option is relocation, which is a popular idea among Western policymakers. However, that will also be expensive as labor costs are relatively high in Europe, production facilities need to be built and staff trained. Additionally, building supplier networks and generating economies of scale will also prove challenging. And given their tight profit margins, offshoring would likely mean higher generic drug costs. This is because, at the moment, only 25% of European demand for generic medicines is actually produced in Europe, compared to 77% for patent medicines. Additionally, competition with foreign manufacturers means some form of government subsidy will be necessary to keep the lights on.
There are more “modest” alternatives multisourcing and close relocation. Multisourcing involves working with multiple suppliers to make supply chains less fragile, but this is difficult in a concentrated market. Nearshoring involves moving production to geographically and/or politically close countries, but the question is whether this would fundamentally differ from reshoring from a cost perspective.
Governments will need to emphasize prevention to keep costs down
In addition to storage and relocation, prevention It is also important in the long term. Prevention will not solve drug shortages, but as societies age and demand for drugs increases, costs will rise regardless of drug prices. And since many diseases are lifestyle-related (think of the type 2 diabetes drug metformin), governments will also need to emphasize prevention to keep costs manageable.
If Europe wants to be autonomous with respect to drug production and produce 60% of the demand for important generic drugs in its country, it would need to increase production by the quantities shown in the table below. Of course, there are many more generic medications, and this simply serves as an example to illustrate that for some medications, an increase in capacity should be manageable, while for others it would be a significant challenge.