Strengthening Australia's life sciences sector and medical supply chain beyond COVID-19

23/07/20

By Sarah Butler and Tom Sorrell

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COVID-19 has re-affirmed the importance of the essential medical supplies1 required to prevent, test and treat illness. In Australia, these supplies are primarily sourced through a long and complex supply chain, with ~68%2 of Australia’s medical supply imports coming from the USA and Europe. These in turn rely on a supply of active pharmaceutical ingredients (APIs), precursor chemicals and componentry from India, China and other countries around the world.

While Australia’s response to COVID-19 has proven effective thus far, a continued increase of COVID-19 cases globally, a resurgence of cases in Victoria, and fluid diplomatic relations between nations such as India, China and the US will continue to stress Australia’s domestic supply chain. To protect its security of supply in the medium and longer-term, a concerted effort to rebuild Australia’s life sciences sector may increase its prominence in the global value chain, improve the resilience of its local supply chain and provide health, economic and security benefits for all Australians. 

Australia’s sovereign needs, capacity and capability

While not often a topic of national discussion prior to COVID-19, equitable access to essential medical products and technologies is a fundamental building block of a well-functioning health system. These products typically form the second largest component of health spending in most countries (after salaries)3, and at the most basic level require a nation to be able to supply:

  • Vaccines (e.g. flu vaccine) required for prevention

  • Diagnostics (e.g. blood glucose tests) required for testing;

  • Therapeutics (e.g. cold & flu medicines) required for prevention & treatment; and 

  • Devices (e.g. surgical implants), consumables (e.g. personal protective equipment), platforms and technologies required to enable all of the above.

Whether these products are developed and manufactured domestically or sourced from overseas is primarily shaped by a number of factors: Namely the policy decisions, regulatory environment, investments and incentives provided by the public sector, and the resulting strategic choices made by global companies in the private sector, who evaluate each factor against competing, alternative jurisdictions.

In 2017, a national capability audit on medical countermeasures (MCM), conducted by the Department of Defence in consultation with 130 representatives from the Australian biotech community4, painted a concerning picture on Australia’s ability to meet its domestic needs. While noting Australia’s strengths in early stage discovery, research and clinical trials, the study also noted its lack of critical mass in end-to-end product development, scarce manufacturing facilities of limited diversity, critical shortages in talent and limited availability of non-clinical services. In line with these findings, manufacturers continue to reduce their presence in Australia, with the closure of local plants by multiple global pharmaceutical companies over the past decade.

Figure 1: Medical countermeasures (MCM) Australian capacity and know-how rating5

    Capacity   Know-how

Therapeutics and Vaccines

 

R&D - non-clinical in-vitro

B
B

R&D - non-clinical in-vivo

D B

Clinical trials

B B

Manufacturing

D B

Regulatory science

D A

Project leadership and management

D A

Diagnostics and Devices

 

Requirements

C A

R&D

D B

Assay development & manufacture

C B

Instrument development & manufacture

D B

Integration, validation & quality

C B

Animal and clinical studies

D B

Regulatory science

D C

Project leadership and management 

C A

Key:
Capacity: A = Oversupply; B = Organised and scaled; C = Organised: D = Individuals
Know-How: A = Expert; B = Practitioner; C = Beginner; D = Nascent

Australia’s recent COVID-19 vaccine efforts illustrate some of these strengths and weaknesses. The University of Queensland’s (UQ) ‘molecular clamp’6 vaccine involves a collaboration between some of Australia’s leading industry participants in research, development and vaccine manufacturing, funded by the Coalition for Epidemic Preparedness Innovations (CEPI) and advised by epidemiology experts.

While promising in its early stages, this vaccine represents just 1 of 132 candidate vaccines in preclinical evaluation at the time of writing, which sit behind 17 candidates already in clinical evaluation7 (the UQ candidate entered human clinical trials in July 2020). While other candidates are also being researched and trialled by various Australian institutions, the piecemeal involvement with other potential vaccines in part reflects Australia’s limited available capacity to evaluate and prioritise multiple candidates concurrently. 

Under a best case scenario for Australia, where the UQ molecular clamp vaccine successfully progresses through clinical trials to commercial launch, the majority of doses will be made by a large-scale contract manufacturing organisation (CMO) partner8 who will almost certainly be located offshore. Should another vaccine candidate prevail, Australia’s access will be at best determined by the WHO equitable access guidelines, or alternatively by bulk purchasing agreements and the strength of its diplomatic relations, for which it is typically not at the front of the queue. And in the worst case scenario in which a vaccine is not discovered, the world will rely solely on therapeutic drugs - for which Australia’s manufacturing capability is notably scarce.

A long and complex supply chain

Due to limited domestic capacity, Australia sits at the end of a long and complex supply chain for the majority of its medical supplies, importing $16.6b of supplies9 and adding just $4.9b of value domestically10. According to DFAT statistics, medical supplies were imported into Australia from over 100 countries in 2018-2019, with the top 10 nations representing 75% of total imports, and the US and Europe alone representing ~68%.11 However, such statistics under-represent the complexity and fragility of the global supply chain.

Figure 2: Medical supplies - imports by trade partner12

Source: Department of Foreign Affairs and Trade, Composition of Trade Australia 2018‐19

While finished drug products continue to be manufactured by pharmaceutical companies in varying locations around the world, the US Department of Trade estimates that ~75-80% of underlying active pharmaceutical ingredients (APIs) (i.e. the part of the drug product which produces an effect) are sourced from India or China13. India alone exported around US$19b of drugs in 2019, and accounted for about one-fifth of the world’s exports of generics by volume14; it’s ‘Serum Institute’ claims to be the world’s largest vaccine manufacturer by number of doses produced and sold (more than 1.5b)15.

In turn, India sources an estimated 80% of key ingredients for medicines from China according to PwC’s Health Research Institute, including bulk API and precursor chemicals. As a result, a drug product purchased in Australia is likely to be imported from the US or Europe, containing an API produced in India, made from chemicals synthesised in China. Similar dependencies exist in the supply chains of complex medical equipment, in which high level assemblies, sub-assemblies and their underlying components have continued to transition to lower cost countries including China (particularly the emerging manufacturing zones in western China), Malaysia and Mexico, before being sold by med-tech developers based in the US and Europe who then on-sell to markets such as Australia.

The potential risks of a global supply chain failure are numerous and far reaching, as illustrated in the case of paracetamol (see case study below).

Case study: Paracetamol

Paracetamol (also known as acetaminophen) is a small molecule analgesic (painkiller) used to treat pain and fever as a component of both over-the-counter and prescription medicines. Like many analgesics, paracetamol products sold in Australia are primarily imported from overseas (80% of the world’s supply of acetaminophen comes from China or India16), with a small number of products advertised as ‘Made in Australia’.

India in turn imports almost 100% of it’s bulk paracetamol from China17, which is also the main source of key ingredients such as para aminophenol, making markets such as Australia highly dependent on continuity of supply in both nations, and exposing Australia to five key risks:

  1. A shortfall in bulk paracetamol, para aminophenol and other excipients (or China’s reluctance to release them) may limit the amount of paracetamol that can be produced in India.

  2. A shortfall in India or China’s manufacturing capacity, potentially caused by a pandemic such as COVID-19, or quality issues (as was experienced with ‘Ranbaxy’ in 2013) may limit the availability of the workforce and hence the manufacturer’s ability to ramp production volumes.

  3. An increase in India or China’s domestic requirements (or other geopolitical issues) may leave a shortfall in product available for export.

  4. An increase in demand from other major export markets (e.g. US, EU, UK) leads to a price escalation/price war, increasing cost and decreasing availability in the Australian market.

  5. Transportation (i.e. ocean, air and ports) is impeded or delayed from China to India, or from India to Australia, limiting the ability to physically ship ingredients and products.

In the early stages of COVID-19, these risks were realised when India placed an export ban on 26 pharmaceutical ingredients including paracetamol. As the ban took effect and as Australian consumers began stockpiling over-the-counter products including those containing paracetamol, Australia found itself in shortfall. Subsequently, the Therapeutic Goods Administration (TGA) has granted approval for imported products such as Tylenol, which are not on the Australian Register of Therapeutic Goods, to boost supply in the short-term18. However, it should be noted that even globally manufactured products such as Tylenol are exposed to the above-mentioned risks, and hence the availability of alternatives will not always be guaranteed.

Australia’s COVID-19 response

Despite its domestic capacity limitations and dependence upon the global supply chain, Australia’s COVID-19 response has been swift, decisive and effective. Lockdown measures have limited the overall number of COVID-19 cases and the severity of the ‘peak’, limiting incremental demand for critical medical supplies. The Federal Government’s A$1.1b increase to the National Medical Stockpile19 has ensured continued access to supplies including personal protective equipment (PPE), antivirals and ventilators, and has proven sufficient thus far.

Domestic manufacturers have ramped up their production, with support in part from the Federal Government and the Australian Defence Force20. Manufacturers from adjacent industries have employed their ingenuity and ‘can do’ attitude to produce supplies, including St. Ali, a coffee roaster turned hand sanitiser producer. And TGA exemptions21 have helped to increase domestic supply of ventilators and in-vitro diagnostics (IVD) devices by encouraging new entrants such as Triple Eight Race Engineering to develop working prototypes with a view to TGA approval and scale manufacturing.

However, in many respects, Australia’s ability to respond has been aided by two key factors: the success of Australian government interventions such as social distancing which has limited domestic demand for medical supplies; and, the low initial growth of COVID-19 in major population centres such as India and Brazil (as well as China’s ability to swiftly control it’s outbreak), which tempered global demand. Now, with global cases escalating and a resurgence in Victoria, Australia’s stockpile and ability to supply will continue to be tested, prompting active consideration of a longer-term solution that better equips Australia to provide surety of supply throughout COVID-19 as well as future pandemics, epidemics and other supply chain events.

Building resilience from Australia’s base - a national call to action

Australia has an opportunity to build resilience from its base, harnessing current areas of excellence and the ingenuity, decisiveness and solidarity shown in its national response to COVID-19 to revitalise its life sciences sector. This in turn would increase its prominence in the global value chain, and improve the resilience of its supply chain. This may be achieved through a three-pronged approach:

  1. Enhance product development & clinical trial capabilities to increase Australia’s role in global product development 
  2. Revitalise scaled manufacturing capabilities to reduce Australia’s exposure to global supply chain challenges
  3. Build an environment that supports innovation, investment and life sciences ‘clusters’

Enhance Australia’s product development & clinical trial capabilities

Australia’s strength in discovery and pre-clinical research, particularly at the Group of 8 universities22 and other medical research institutions would be well complemented by increased capacity in clinical trials and late stage product development. As an example, a new ‘advanced biologics facility’23 will produce the biological proteins that product developers need to take candidate therapeutic drugs from the lab through phase I and II clinical trials without having to go offshore. These capabilities, paired with additional and simplified infrastructure to design, execute and monitor clinical trials and develop & scale processes, platforms and technologies will help to create a streamlined and comprehensive experience for local and global product developers. This in turn may increase the number of products developed and commercialised in Australia, enhancing its ability to contribute to global R&D efforts and improving the likelihood of subsequent domestic manufacturing.

Revitalise scaled manufacturing

A revitalised manufacturing sector, capable of producing finished goods (e.g. medical devices or drug products) and critical input materials (e.g. componentry, API & precursors) would help protect Australia’s domestic supply from threats broader than epidemics including global supply shortages, diplomatic disputes and supply chain events (e.g. port closures, wars, natural disasters). Such a sector would also serve to directly provide a combination of skilled white and blue-collar employment, as well as opportunities in adjacent industries. New and re-entering global manufacturers would join homegrown leaders such as CSL and Cochlear, adding critical scale to Australia’s life sciences footprint. Suppliers may develop in critical adjacencies such as cold chain distribution, vials and stoppers, further amplifying these positive effects.

Build an environment that supports investment, innovation and ‘life sciences clusters’

Attracting global manufacturers will not be easy - it is no secret that Australia, rightly or wrongly, is considered a costly place to operate. Overcoming this perception may require initiatives that address and consider R&D incentives, grants, regulatory efficiencies, corporate and personal income tax rates, skills availability, material availability and the costs of employment, power and other overheads - all factors that global manufacturers evaluate when considering their choice of manufacturing location. The political momentum to engage in this conversation appears to be growing.

An investment in technology and automation will also be key, with digitisation representing one of the key components of building supply chain resilience. Using ‘Industry 4.0’ technologies will help Australia avoid a race to the bottom on cost, and enter a race to the top on innovation, quality, productivity and safety. Examples of high cost countries that have done this successfully are abundant. Life sciences clusters in the UK, Germany, Switzerland, Singapore and China paint an example of the benefits that can be achieved when combining structured sector investments in infrastructure and technology with a strong regulatory environment, IP protection, a highly skilled workforce and funding availability - all of which Australia has at its disposal. 

Aspiring clusters such as Melbourne’s Biomedical Precinct and the planned Sydney Biomedical Precinct will act as a strong foundation, helping to drive health outcomes, economic growth and skilled employment. And regardless of whether Australia develops around cluster models, a distributed model of highly skilled researchers, clinicians, developers, manufacturers and distributors may prove equally effective, so long as they are closely connected.

Figure 3: Example global life sciences clusters24

  Cambridge Life Sciences Cluster 

Basel BioValley

Singaporean Biotech Hub

Description
  • Over 430 companies

  • A workforce of more than 15,500 employees

  • An annual contribution of £2.9b to the UK economy

  • One of the biotech hotspots in Europe with over 700 companies and over 30,000 jobs

  • Embedded in the larger tri-national BioValley (CH, FR and DE)

  • Over 160 companies

  • Gateway to APac market

  • In 2016, Singapore’s medtech industry was valued at over $3b SGD

Success factors

  • Focus on pharma, medtech and genomics

  • World-leading university (University of Cambridge) and renowned research institutes

  • Presence of PharmaCo: leading pharma global HQ moved to this cluster in 2016

  • Strong enabling ecosystem that supports innovation, including a science park and big pharma

  • Focus on pharma and biotech

  • Headquarters (or branch) of leading pharma companies 

  • High ease of doing business - central European location and excellent distribution networks

  • Synergies with other BioValley clusters in France & Germany

  • Strong government support to create a life sciences hub

  • In 1999, ‘biotechnology’ was added as a priority to the country’s ‘Strategic Economic Plan’

  • Public-private partnerships for companies looking to connect with researchers

Revitalising Australia’s life sciences sector is a matter of interest for the health, economic prosperity and biosecurity of the nation. Any initiatives to improve its domestic capability will serve not as a rejection of globalisation and trade, but rather as an enhancement of its global positioning, equipping it with technologies and capabilities that best serve its domestic and global needs and interests. It will help drive both resilience and economic growth, creating jobs and positioning Australia as a global centre of excellence.


Including vaccines, diagnostics, therapeutics, devices, platforms & technologies
2 Department of Foreign Affairs and Trade, Composition of Trade Australia 2018‐19 - includes import of ‘Pharm products (excl. medicaments), ‘Medicaments (incl veterinary)’, Medical electrodiagnostic apparatus’ and ‘Medical instruments (incl. veterinary)’
3 World Health Organisation, Key components of a well functioning health system, May 2010
4 Rayner, C, Pradera, F et. al., Medical Countermeasures Initiative: National Capability Audit 2017, Department of Defence, Science and Technology, 2017
5 Ibid
6 CSL, The University of Queensland, CEPI and CSL partner to advance development and manufacture of COVID-19 vaccine candidate, 5 June 2020
7 World Health Organisation, DRAFT landscape of COVID-19 candidate vaccines, 29 June 2020
As stated by Dr. David Glover, CSL at ‘BIOFORUM PLACEHOLDER: Developing an Australian Novel Vaccine’, 26 June 2020
9 Department of Foreign Affairs and Trade, Composition of Trade Australia 2018‐19 - includes import of ‘Pharm products (excl. medicaments), ‘Medicaments (incl. veterinary)’, Medical electrodiagnostic apparatus’ and ‘Medical instruments (incl. veterinary)’
10 MTPConnect, Medical Technology, Biotechnology & Pharmaceutical Sector Competitiveness Plan - measured as ‘Gross Value Added’
11 Department of Foreign Affairs and Trade, Composition of Trade Australia 2018‐19 - includes import of ‘Pharm products (excl. medicaments), ‘Medicaments (incl veterinary)’, Medical electrodiagnostic apparatus’ and ‘Medical instruments (incl. veterinary)’
12 Ibid
13 Mordor Intelligence, Active Pharmaceutical Ingredients (API) Market Snapshot, 2019
14 Goel, Vindu, As Coronavirus Disrupts Factories, India Curbs Exports of Key Drugs, The New York Times, 2020
15 Serum Institute of India Pvt. Ltd., About Us page
16 Lazarus, David, Column: With most drug ingredients coming from China, FDA says shortages have begun, Los Angeles Times, 28 February 2020
17 Srivastava, Shruti (2020), “India to Boost Drug Ingredient Output to Pare China Reliance”, Bloomberg, 13 April 2020
18 Koehn, Emma, US painkiller to be sold in Australian pharmacies to shore up supply, The Sydney Morning Herald, 25 June 2020
19 Department of Health, National Medical Stockpile – Purchase of Masks,Other Personal Protective Equipment and Pharmaceuticals, March 11 2020
20 Andrews, K, Increasing domestic manufacturing during COVID-19, Minister for Industry, Science & Technology, 17 March 2020
21 Therapeutic Goods (Medical Devices—Ventilators) (COVID-19 Emergency) Exemption 2020, 8 April 2020 and Therapeutic Goods (Medical Devices—Accredited Pathology Laboratories) (COVID-19 Emergency) Exemption 2020, 22 March 2020
22 The University of Melbourne, the Australian National University, the University of Sydney, the University of Queensland, the University of Western Australia, the University of Adelaide, Monash University and UNSW Sydney
23 CSIRO, Building Australia’s new Advanced Biologics Manufacturing Facility, updated 11 May 2020
24 Based on research conducted by PwC Strategy& Germany

Contact us

Sarah Butler

Partner, National Health Leader, PwC Australia

Tel: +61 2 8266 5091

Tom Sorrell

Director, PwC Australia

Tel: +61 410 732 712

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