Supply problems at the start of the COVID-19 pandemic sparked concerns about fragile pharmaceutical supply chains. Australia must consider how it can drive forward its domestic industry while also being a strong voice for regional cooperation.

On 31 July 2019, the United States government’s US-China Economic and Security Review Commission met to discuss the growing reliance on Chinese biotechnology and pharmaceutical products. It concluded that US dependence on the import of medicines and a lack of transparency in supply chains is a major issue of national security. In February 2020, this concern was echoed in Australia in a report published by the Institute for Integrated Economics Research (IIER). The report identified that Australia currently imports 90 percent of its medicines and has been facing critical shortages of essential pharmaceuticals for some time. It argues that interruptions to pharmaceutical supply chains would not only have devastating consequences in the midst of a global health crisis but could leave Australia unable to provide the medicines it requires in the post-COVID-19 landscape.

Given the current state of the US-China relationship and the alarming consequences of an insufficient supply of pharmaceuticals, the discourse in the United States has unsurprisingly, in some cases, focused on the role Beijing may play to block the supply of essential medicines. Such concerns about the potential for Chinese hostility are not unique. The Economic Times, an Indian newspaper, recently broke news of the incipient trilateral Supply-Chain Resilience Initiative (SCRI) that they report is designed to reduce reliance on an increasingly aggressive China. Despite such concerns, the IIER report is careful to state that it is simply highlighting weaknesses in fragile supply chains and is not designed to raise geopolitical alarm bells. Hostile supply chain interruptions, it notes, are not necessary for the manifestation of an Australian crisis. Disruptions caused by manufacturing issues, difficulties in procurement, offshore political instabilities, and shortages resulting from pandemics and natural disasters also highlight the vulnerability of Australia’s reliance on imports.

For Australia, this distinction, and the way in which this problem is framed, matters. It is not practical for Australia to completely provide for its own pharmaceutical supply needs, and as such Australia will have to continue to import active pharmaceutical ingredients (APIs) and end-products to satisfy domestic demand. However, by underpinning the discussion of pharmaceutical security with assumptions about hypothetical geopolitical hostilities, policymakers risk obfuscating cooperative regional solutions by distancing Australia from one of the world’s largest sources of low-cost products. Pharmaceutical resilience in the Australian case can only be realistically achieved with stable and predictable interstate cooperation. Therefore, solutions must seek to foster better relations with regional partners, not damage them with the postulation of worst-case scenarios. Domestic solutions to increase resilience should thus focus on enhancing Australia’s existing strengths and accompany simultaneous regional activities which foster interdependence and comparative advantage. Australia’s pharmaceutical supply chain dependence is both a local and international problem that demands multi-level thinking when weighing solutions.

At the regional level

On 19 August, The Economic Times announced the existence of preliminary discussions of the trilateral SCRI between India, Japan, and Australia. The aim, as stated by The Economic Times, would be to turn the Indo-Pacific into a manufacturing powerhouse by building mutually complementary relationships with partners including ASEAN. While the move to increase the transparency and redundancy of API’s and end-products is a good step forward to increase regional resilience, it need not be membership exclusive.

Policymakers may draw on the example of the European Commission (EC), which established the “Pharmaceutical Strategy” in June of this year. With this strategy, not only does the EC seek to address supply-chain dependence, but it recognises the problem as an opportunity for innovation and increased cooperation among member states and industry. By seeking also to ensure patient access to new medicines, make medicines more affordable, foster innovation in industry, reduce environmental footprint, and advance EU pharmaceuticals on the global stage, the Pharmaceutical Strategy expands the scope of the problem, and thus the opportunity.

While the absence of a single overarching regional institution in the Indo-Pacific makes such a strategy challenging to implement, it is not impossible or even significantly out of step with current regional activities. In fact, both ASEAN and APEC have undertaken steps to pursue collective solutions to pharmaceutical challenges. ASEAN’s Mutual Recognition Agreement on Good Manufacturing Practice, inspection of medicinal products, and ongoing work towards pharmaceutical harmonisation clearly demonstrate a willingness to pursue efficiency gains from a higher degree of interstate cooperation. Additionally, APEC’s “Roadmap to Promote Global Medical Product Quality and Supply Chain Security” offers a wealth of suggestions for increasing supply-chain security through interstate collaboration informed by leading experts from across member states. Interest in collective action clearly exists, however there remains significant scope to expand and pursue collective action in a more comprehensive regional agreement.

Policymakers discussing the possibility of a trilateral agreement would be remiss to not consider the benefits that could be achieved within a broader and more membership-inclusive regional pharmaceutical agreement. Such an agreement, given adequate funding and powers of arbitration, could significantly increase efficiency, transparency, and accountability among all signatories. Collective funding could allow for collaborative research into new medicines. Shared efforts at stockpiling and accounting for regional consumption patterns could allow more efficient planning of manufacture and distribution within the region, particularly in the event of unexpected outbreaks of disease. A regulatory body could implement a broad Track-and-Trace-style scheme to reduce counterfeiting, while also setting minimum standards and conducting testing to ensure all genuine end-products comply with safety and efficacy guidelines. As ambitious as such an agreement would be, COVID-19 has demonstrated clearly that coordination beyond the state level is necessary for the challenges of a globalised world.

At the domestic level

To understand the relative strengths and weaknesses of Australia’s medical technologies and pharmaceutical sector, to identify opportunities to improve domestic resilience, and to increase Australia’s prominence in the global value chain, decision makers may turn to the 2017 review from the Department of Defence Science and Technology, as well as the CSIRO’s Advanced Manufacturing Roadmap and Medical Technologies and Pharmaceuticals Roadmap.

These reports clearly outline that while Australia has an international reputation for high-quality academic research and a wide-ranging repertoire of assays and technologies for early-stage discovery in infectious disease and public health, Australia faces several challenges in translating this early-stage research into market-ready products and technologies. Limited manufacturing capability, university graduates with little industry-relevant training, and the high costs of late-stage drug development resulting in offshoring are among the greatest challenges preventing Australia from meeting its own domestic needs.

Addressing these shortfalls will require a commitment to strategic long-term planning and an investment in technologies and research that may not return value on investment in the short-term horizon. For instance, development of automated, digitised “Industry 4.0” scaled manufacturing sites would allow Australia to become increasingly self-reliant over time. A focus on graduate skill training achieved through the expansion of programs like the Australian Research Council’s Industrial Transformation Training Centres program would further supplement the growth of this industry. Additionally, further investment into projects like the CSIRO’s “Advanced Biologics Facility” for the rapid and cost-effective manufacture of biologics for late-stage discovery and clinical trials will help drive down the cost of on-shore development, allowing smaller biotech companies to enter the overseas market without having to offshore.

Moving forward, Australia’s priorities must focus not only on enhancing domestic resilience, but also on increasing its presence in the global market and cementing its position as a valuable partner. Australia’s recent discussions with AstraZeneca regarding the University of Oxford’s AZD1222 SARS-CoV-2 vaccine candidate demonstrates one such promising example of how Australia may play a more direct role in the development, production, and distribution of pharmaceutical products.

Iain D. Johnson is a teaching associate at Monash University’s School of Social Sciences and an incoming MEXT scholar at Waseda University’s Graduate School of Political Science.

Stefan Nebl is a PhD candidate researching medicinal chemistry at the Monash University Institute of Pharmaceutical Sciences.

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