Shockproofing Canada: We can make masks and ventilators, but we can’t make drugs needed to treat COVID-19

Posted on April 17, 2020 in Policy Context

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NationalPost.com – Business/FinancialPost.com

How do we get the medicine we need when Canada imports 70% of our drugs? Naomi Powell looks at a problem not easily solved

Canada needs to become more secure by becoming more self-sufficient. In a new series — Strong & Free: Shockproofing Canada — the Post examines how a country made wealthy by globalization and trade can also protect itself against pandemics and other unknown future shocks to ensure some of our immense resources and economic power are reserved for our own security.

By the time Dr. Marat Slessarev got word that his London, Ont., hospital was establishing a conservation strategy for the drugs needed to ventilate coronavirus patients, talk of a looming shortage had already been buzzing through Canada’s critical care community for weeks.

Everyone had seen the news reports out of Italy, where COVID-19 has torn through towns and cities, overwhelming hospital intensive care units and leaving medical staff to scramble for equipment to care for sick patients.

In the flood of stories about makeshift field hospitals and emergency ventilators arriving on cargo jets from China, intensive care doctors such as Slessarev saw something else: a shortage of the drugs that patients need when they’re hooked up to the lifesaving breathing machines.

“There’s been all this talk about ventilators, but what’s been missed is that in order to ventilate patients, you have to sedate them,” said Slessarev, a critical care physician at the London Health Sciences Centre and assistant professor of medicine at Western University. “When you increase the use of ventilators, you increase the use of the drugs. And there are no infinite stocks.”

The drugs have not run out in Canada yet and a feared surge of COVID-19 patients like those experienced in Italy or New York has so far not materialized.

But amid concerns that supplies won’t last if demand continues at the current rate — which is roughly two to three times what’s considered normal — the drugs have emerged as the latest items on a growing list of medical supplies that Canadian officials are now scrambling to obtain from weakened and broken global supply chains.

As countries slap curbs on the exportation of vital face masks, gloves, ventilators, chemicals and drugs, questions have turned to why an advanced economy such as Canada can’t just manufacture crucial health-care items within its own borders.

Such self-sufficiency, the thinking goes, would bolster the country against the next pandemic or emergency by establishing a web of all-Canadian supply chains for everything from N95 masks to morphine.

Homegrown production may be possible for some items, such as the masks and gowns currently being churned out by domestic automakers and other factories, analysts say, but the situation grows considerably complex when it comes to more sophisticated drugs and equipment.

Some believe the establishment of domestic production capacity for at least certain key medicines is worth exploring, but others say a push for self-sufficiency would mean unravelling vast global supply lines built on decades of international specialization and sacrificing the advantages that come with them.

“Some of these specialty medicines blend all sorts of ingredients from all over the world,” said Simon Evenett, professor of international trade and economic development at the University of St. Gallen in Switzerland. “The solution has to be one involving global sourcing, in which case you have to get other countries to play ball and you can’t be entirely self-sufficient. That’s the simple reality of a lot of these products. You can’t have them without the underlying global structure that supports them.”

Canada imports roughly 70 per cent of its finished prescription drug supply and about 90 per cent of the components used in drugs that are manufactured here come from abroad.

Those figures are the result of a decades-long global shift that began in the late 1980s and eventually led to a wave of consumer goods manufacturing moving to China and India. For medicines, the draw wasn’t just low labour costs, but the opportunity to skirt strict environmental regulations in western countries, said Prashant Yadav, a senior fellow at the U.S.-based Center for Global Development and an expert on pharmaceutical supply chains.

“Over time, as core competencies developed, China became even more efficient at meeting quality and environmental standards on active ingredients and India got to be very skilled at opening channels to sell finished products into North America,” Yadav said. “Now everything you need to be successful in making these products is in these two countries.”

Today, China produces roughly 60 per cent of the world’s active pharmaceutical ingredients (APIs), while India produces about 70 per cent of finished pharmaceuticals. Suppliers from those countries are embedded in the production models of most western pharmaceutical firms.

About 70 per cent of finished pharmaceuticals are produced in this area of the world.

But over time, the vast ecosystem of secondary and tertiary suppliers in each Asian country has become so complex “that the (drug) firms themselves often don’t know how much production capacity each supplier has, where the factories are located and so on,” Yadav said.

“We got to a stage where our collective knowledge got fuzzy, to a point that it’s only when there’s a crisis that we ask how do we find a substitute source of supply.”

The global rush to secure personal protective equipment, such as gloves and masks, illustrates the difficulty of that approach. When well-established supply chains out of China buckled, there were no assurances that alternative sourcing would provide the same quality, Yadav said.

The scarcity of such equipment brought a flood of middlemen into the market, many proffering products of unknown quality at inflated prices,” he said. “You can buy from Vietnam, but how do you know the standards are the same?”

One past solution to safeguarding against potential shortages has been to stockpile essential medicines and equipment, said Christina Adams, chief pharmacy officer at the Canadian Society of Hospital Pharmacists.

Thirteen years ago, Ontario stockpiled some 55 million N95 masks following the severe acute respiratory syndrome (SARS) epidemic in 2002 and 2003. The shortcomings of that approach became painfully clear in March, when it emerged that many of those masks had expired before COVID-19 swept into North America.

“That’s the problem with stockpiles,” Adams said. “You end up sitting on millions of dollars in drugs and equipment. Then you have to keep replacing it. And which ones do you stockpile?”

The alternative, then, would be to expand production capacities for pharmaceuticals and medical supplies at home, but that’s more complicated than it might seem.

There are approximately 13,000 drugs licensed for use in Canada. Apotex Inc., the country’s largest producer, makes just 425 or so of them. What’s more, Canada’s share of global pharmaceutical consumption is just two per cent, compared to 44 per cent in the United States, 25 per cent in the European Union and 12 per cent in Japan.

As a result, trying to fill all of Canada’s drug needs from within wouldn’t make much sense from an economic perspective and would mean much higher prices for consumers.

“How easy is it to make it all here? Not very,” Adams said. “We’re just a very small player. We depend very heavily on global markets.”

But that doesn’t mean a small number of critical drugs couldn’t be domestically produced through a Crown corporation or some other subsidized vehicle, said Joel Lexchin, professor emeritus at the School of Health Policy Management at York University in Toronto. Of course, that would mean convening the best minds to pick the drugs, an imperfect exercise, but perhaps one worth performing.

“Pick 20 to 50 of the most critical drugs most likely to run out,” Lexchin said. “You might pick wrong, but like everything else, you can’t account for everything.”

Manufacturing masks, gowns and other PPE is less complicated. Yadav said Canada could apportion 60 per cent of purchases from global supply chains and 40 per cent from domestic factories, with an understanding that those factories retain the ability to ramp up production to 100 per cent in the event of a crisis.

Ensuring an adequate pharmaceutical supply might come down to tougher government oversight and regulation of the companies producing critical drugs.

For example, the firms could be required to keep larger supplies of critical APIs on hand, and prove on a quarterly basis that they have built-in safeguards for a crisis, including multiple sources of raw materials and supplies that could enable production to continue for as long as a year if the usual sources are disrupted.

“The government needs to say that if you want to sell in this market, you must show that you have control of your own production and can provide secure supply,” Yadav said.

He added that self-sufficiency doesn’t mean creating an all-Canadian production system, which may lead to unintended consequences, including choking off crucial advances in product development.

“The model is inefficient and it doesn’t lead to the innovation you want,” Yadav said. “It’s just too hard to innovate on a small volume.”

Many of the life-saving products Canadians rely upon wouldn’t exist without the intermixing of ideas and specializations that have developed as a result of globalization.

Indeed, for economists, the central benefit of free trade is that it naturally shifts production of specific goods to the countries most efficient and skilled at making them, Evenett said.

For now, we are working in an environment where supply chains are broken, trust is in a deficit, and everyone is just scrambling for supplies
Prashant Yadav, a senior fellow at the U.S.-based Center for Global Development

With that in mind, the best approach to securing supply chains would be to have a pool of countries all contributing their talents and funds to the production of a centralized supply of critical goods that would then be distributed to each member in a time of crisis, he said.

Pandemics tend to move from one country to the next, meaning ventilators, for example, could be sent first to China, then on to the next country and so on.

“That’s the kind of collaborative outcome you actually need,” Evenett said.

Reining in that dynamic in favour of a system that functions only within a country’s borders is where “self-sufficiency advocates go really wrong,” he added.

“A lot of the work going on now, even as countries are acting irresponsibly and fighting each other for supplies, is collaborative,” he said. “Scientists are collaborating like crazy. Advances require the best brains on the planet and I think a lot of countries are modest enough to realize they don’t have the market cornered on brains.”

Countries such as Canada will have to each find their own balance between self-reliance and international cooperation when the COVID-19 pandemic has ultimately run its course, Yadav said. That will mean rebuilding and maintaining the trust that has been shredded over the past few weeks.

“Right now, there is a very transactional mentality out there of ‘who can get the most,’” he said. “It’s like a land grab. That hurts the objective we all have, which is to get more supplies out of the global supply chain, more masks, more ventilators. For now, we are working in an environment where supply chains are broken, trust is in a deficit, and everyone is just scrambling for supplies.”

Shockproofing Canada: We can make masks and ventilators, but we can’t make drugs needed to treat COVID-19

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