Dinalog VU An Exploratory Analysis of The Dutch Pharmaceutical Supply Chain

AN EXPLORATORY ANALYSIS OF
THE DUTCH PHARMACEUTICAL

SUPPLY CHAIN
REPORT JANUARY 2021
AN EXPLORATORY ANALYSIS OF THE DUTCH PHARMACEUTICAL SUPPLY CHAIN JANUARY 2021
Commissioned by TKI Dinalog

Authors prof. dr. W.E.H. Dullaert, dr. Y. Ghiami, dr. C.J.
Jagtenberg, dr. R. Romero Silva, dr. P.L.J. Wissink -
Department of Operations Analytics, School of Business
and Economics, Vrije Universiteit Amsterdam, Amsterdam,
the Netherlands
Title An exploratory analysis of the Dutch Pharmaceutical
Supply Chain
Design Michelle Haak Miesart
Final editing Liesbeth Brügemann TKI Dinalog
All rights reserved.

No part of this publication may be reproduced and/ or
published by print, photoprint, microfilm or any other
means without the previous written consent of the authors
of Vrije Universiteit Amsterdam. The copyright of this
report remains with the authors.
© 2021 Dullaert/ Ghiami/ Jagtenberg/ Romero Silva/

Wissink - Vrije Universiteit Amsterdam
2
ABSTRACT
The outbreak of the COVID-19 pandemic challenged could compromise its efficiency and robustness. The
the Dutch pharmaceutical supply chain (PSC) main results indicate that the Dutch PSC is part of
and required tremendous creativity and effort various international PSCs. Therefore, it is exposed
from PSC partners to guarantee the availability to several demand and supply characteristics and
of drugs in the Netherlands and, consequently, vulnerabilities that also affect other countries.
Dutch patients’ well-being. At the same time, the Simultaneously, the regulation and specific
COVID-19 pandemic exposed and compounded organization of the Dutch pharmaceutical sector has
existing issues and vulnerabilities in the Dutch PSC. a significant impact on national supply and demand
This report presents an exploratory analysis of the dynamics and how the Dutch PSC can be managed.
structure of the Dutch PSC. Insights were gathered This report wants to shed light on these issues and
from the literature and a series of interviews were provide guidelines to further improve the PSC’s
conducted with key PSC actors in the Netherlands. performance.
We identify the current challenges and solutions
provided by different supply chain actors and extract Keywords: Pharmaceutical supply chain, incentives,
and analyze dependencies and vulnerabilities that vulnerability, drug availability and shortages
3
TABLE OF CONTENT AN EXPLORATORY ANALYSIS OF THE DUTCH PHARMACEUTICAL SUPPLY CHAIN JANUARY 2021
1. INTRODUCTION 5
2. LITERATURE REVIEW 6
2.1 Supply chain structure, flows and actors of the PSC 6
2.2 Risks and medicine shortages 7
3. DUTCH PHARMACEUTICAL SECTOR 11

3.1 Overview of the current situation 11
4. METHODOLOGY 14
4.1 Scope 14
4.2 Data collection approach 14
4.3 Supply chain mapping 16
4.4 Risk and vulnerability assessment of PSCs 16
5. RESULTS 18
5.1 Pharmacist stage 18
5.2 Wholesaler stage 24
5.3 Manufacturer stage 26
5.4 Risk and vulnerability extraction 30
5.5 Risk and vulnerability mapping 34
6. CONCLUDING REMARKS 37
7. RECOMMENDATIONS 39
Acknowledgments 40
References 41

4
1 INTRODUCTION
The COVID-19 pandemic is widely regarded as Unsurprisingly, drug shortages, the organizational
one of the largest crises the world has faced in structure and how to strike a balance between
the past century. The coronavirus crisis has had product availability and healthcare affordability have
many impacts on our society, including causing been the subject of social and political debates,
massive disruptions to global supply chains. These including attention from television programs like
disruptions have affected the supply of our most Zembla (2018, 2020) and BNNVARA (2020). Several
basic needs, including food and medicine, thereby dedicated studies were conducted; they will be
impacting companies, consumers, and patients. described in Section 3.
In the light of the COVID-19 crisis, TKI Dinalog called The COVID-19 crisis has both exacerbated and
for exploratory studies on the supply chain structure, exposed the magnitude of medicine shortages in the
supply chain dependencies, and supply chain Netherlands, increasing the urgency to explore new
vulnerabilities of the Dutch food, pharmaceutical, solutions. The small-scale, exploratory research
and manufacturing industries. TKI Dinalog expressed initiative of TKI Dinalog and Topsector Logistiek has
an interest in understanding how supply chains the specific purpose of contributing to exploring
have evolved over time and how supply chain new solutions. More specifically, it aims to explore
structures and operations could be improved. This dependencies and vulnerabilities in the networks that
report answers TKI Dinalog’s call for an exploratory supply the Dutch market from a logistics perspective
study to identify the structure, dependencies, and to understand the supply and demand dynamics
vulnerabilities of the Dutch market’s pharmaceutical better and suggest directions for further research.
supply chain (PSC). For this study, the Operations Analytics department
of the Vrije Universiteit received the support of TKI
The COVID-19 pandemic and associated product Dinalog, Bogin, IQVIA, VIG, and various pharmacists,
shortages in healthcare have brought new attention industry professionals, and other actors in the PSC.
to the importance of drug availability (Shuman et al., Their expertise and help in conducting the research
2020). Drug shortages have been an issue in many is gratefully acknowledged. Any inaccuracies
countries (EAHP, 2020; AMA, 2020) inspiring several or mistakes that remain are, of course, the sole
international research initiatives such as COST responsibility of the authors.
(2020) and EAHP (2020). Research topics include
simulating decision-making in medicine production The remainder of this report is structured as
and trade, highlighting restrictive legal and economic follows. Section 2 reviews the literature on network
frameworks, disclosing disincentives in the supply structures, dependencies, risks and shortages in the
chain, and reflecting on best coping practices (COST, PSC. Section 3 summarizes the Dutch PSC and the
2020). most important parties involved. Section 4 describes
the methodology of our study, followed by the results
The Dutch pharmaceutical supply chain faced several in Section 5. We finish with our conclusions in
medicine availability challenges before the COVID-19 Section 6 and recommendations in Section 7.
pandemic struck: the Royal Dutch Pharmacists
Association (Koninklijke Nederlandse Maatschappij
ter bevordering der Pharmacie, KNMP) recorded
shortages for 750 different drugs in 2018, followed by
almost 1500 shortages in 2019 (KNMP, 2019b).
5
2 LITERATURE REVIEW
This section surveys the academic and professional literature on the network structures,
dependencies, risks and shortages in pharmaceutical supply chains. In particular, we
consulted Google Scholar to look for academic literature and EBSCOHost Business Source
Elite to search content in trade publications and magazines, using the following search
strings: ”pharma supply chain”, ”pharma supply”, ”medicine shortage”, and ”drug shortage”.
The abstracts of the papers found in the search results were screened to select the studies
where insights could be gained about the characteristics of the pharmaceutical supply chain
and the main causes of medicine shortages. Papers focusing only on optimizing one aspect of
the pharmaceutical supply chain were not included to maintain the focus of the study. Finally,
academic papers published in journals that are not indexed in the Journal Citation Reports
were also discarded. Only documents written in English were considered.
2.1 SUPPLY CHAIN STRUCTURE, FLOWS AND

ACTORS OF THE PSC
A typical PSC is comprised of primary and complex structure with several agents interacting
secondary manufacturers, distributors, in all the tasks (Cockburn, 2004). This was not only
wholesalers, and retailers (Cockburn, 2004; caused by the emergence of the biotechnology
Shah, 2004; Amaro and Barbosa-Póvoa, 2008). industry (Cockburn, 2004) but also by a shift of
PSC networks are highly complex, involving the industry towards highly optimized production-
hundreds of supply network members (Danese and inventory-related assets (Rossetti et al.,
et al., 2006). Specific to the PSC are the primary 2011; Heiskanen et al., 2017), driven by increased
manufacturers. They produce the active pressure from external financial incentives, e.g.
pharmaceutical ingredients (APIs). In contrast, stock-shares and dividends (Busfield, 2020).
the secondary manufacturers apply further
transformations or additions to the APIs to Shah (2004) and Rossetti et al. (2011) indicate
produce the final drugs. Interestingly, Grunow et that supply chains in the pharmaceutical industry
al. (2003) mentions that the same API might be lack flexibility. The majority of the manufacturing
produced in different plants and can be delivered processes require highly-skilled workers that
to different, competing secondary manufacturers. need intensive training. Therefore, changing
Furthermore, the number of secondary product variety and volume is challenging.
manufacturing sites tends to be larger than the Furthermore, the highly labor-intensive processes
number of primary locations (Shah, 2004). in this sector contribute to long lead times (4 to 6
months) (Keskinocak and Ozkaya, 2020). Moreover,
Pedroso and Nakano (2009) highlight the fact PSC manufacturers (primary and secondary)
that PSCs have many distribution channels, as tend to have non-dedicated, capacity-constrained
manufacturers supply medicines to a wide variety production lines where they manufacture
of supply chain actors such as wholesalers, different products (Boulaksil and Fransoo, 2010).
hospitals, clinics, large drugstore chains, This results in complex capacity allocation and
governments, regulatory agencies, and NGOs. scheduling tasks.
The complexity of PSCs has increased significantly According to Shuman et al. (2020), manufacturers
since the 1980s, when the pharmaceutical in the PSC hold no capacity buffer following the
industry moved from a widely integrated industry principles of just-in-time production. Therefore,
where large enterprises managed the majority they are unable to meet an unexpected increases
of the value added tasks (drug discovery, clinical in demand. Because of this, market fluctuations
development, manufacturing) towards a more in the PSC are addressed with inventory buffers.
6
2. LITERATURE REVIEW AN EXPLORATORY ANALYSIS OF THE DUTCH PHARMACEUTICAL SUPPLY CHAIN JANUARY 2021
In this regard, wholesalers play a very special role information in the PSC has two paths: a demand
in the supply chain of every country. According to creating path and a material delivering path (with
Rossetti et al. (2011) and Shah (2004), they are the purchasing, sales, and inventory information). In
only members of the PSC that have the capacity addition, pharma manufacturers lack information
to hold additional inventory for a country’s about customer demand as it is shielded by
market. Despite the criticality of the inventory wholesalers (Schwarz and Zhao, 2011), and there
carried by the wholesalers, they have received is a general lack of visibility and traceability in the
some pressure to decrease their inventory levels supply chain.
through the introduction of a fee-for-service
scheme with inventory management agreements To ensure that medicines are available at
in some markets, such as the US (Rossetti et al., ‘acceptable’ price levels, authorities regulate
2011; Schwarz and Zhao, 2011). In this scheme, prices based on several factors such as an
manufacturers only pay wholesalers for the economic evaluation of the drug (the existing
amount of inventory that they distribute while alternative drugs, the therapeutic value of the
they have a limit on the amount of inventory drug, etc.) and income levels (Le Pen, 1997;
they can carry (Zhao et al., 2012), and not for the Martikainen et al., 2005; Paris and Belloni,
volume of products purchased. This reality limits 2013; Vogler, 2020). Since countries and regions
the PSC’s overall capacity to face unexpected are different with respect to these factors, the
events (Woodcock and Wosinska, 2013) such as a outcome of these tools is a price differential
sudden increase in demand, a factory breakdown, across these areas. This market heterogeneity is
or a non-conformance in the quality of an API. also distinctively visible amongst European Union
(EU) members (Martikainen et al., 2005; Kanavos
Due to the financialization of the pharmaceutical et al., 2011; Vogler, 2020).
industry (Busfield, 2020), PSCs have been
pushed to reduce costs further and have 2.2 RISKS AND MEDICINE SHORTAGES
adopted outsourcing as one of the main strategic According to van Hoek (2020), there is limited
decisions for the primary manufacturing stage research on how supply chain managers can
(see, e.g., Jia, 2007; Olson and Wu, 2011; manage risks proactively. This is particularly true
Subramaniam and Dugar, 2012; Sweeney, 2020). for the PSC due to its specific characteristics
For instance, in 2008, Pfizer reported a plan for an and associated risks, which differ from other
increase in the firm’s outsourced manufacturing industries. In this regard, Ward and Hargaden
from 17 to 30 percent (Van Arnum and Drakulich, (2019) developed an exploratory risk assessment
2009). As a result, most APIs are currently of the PSC. They suggest that PSCs could
produced in China (60%) and India (Shuman et al., be overexposed to vulnerabilities as they
2020; Vinci et al., 2020). Although this strategy lack flexibility in sourcing, flexibility in order
has resulted in a better economic performance, fulfillment, visibility, and collaboration.
it has reduced the availability of medicines in the
EU market (Musazzi et al., 2020; Sweeney, 2020). Jaberidoost et al. (2013) carried out a systematic
This is mainly due to being overly dependent literature review on PSC risks. They classified the
on a few suppliers/countries (Heiskanen et PSC risks into seven risk categories: supply and
al., 2017; Shuman et al., 2020), a problem suppliers, organization and strategies, financial,
that is accentuated by the fact that secondary logistic, market, political, and regulatory. The
manufacturing locations tend to be geographically authors found that the most frequently reported
separated from primary manufacturing locations risks were related to supplier issues (failure to
(Shah, 2004). supply the API in terms of quantity, quality and
time), followed by inventory management issues.
In addition to the physical flow of goods, Pedroso Furthermore, by interviewing pharmaceutical
and Nakano (2009) suggest that PSCs have industry experts, Moktadir et al. (2018) identified
one additional channel compared to traditional fluctuations in imports arrival and machine or
supply chains: a technical information flow. equipment failure as some of the most impactful
This technical information flow is needed risks in the PSC of Bangladesh. Jaberidoost et al.
to communicate product characteristics to (2015), however, found that risks associated with
physicians that prescribe medicines to patients. the political/financial instability of their study’s
Thus, Pedroso and Nakano (2009) suggest that scope, e.g., sanctions, interest rates and currency
7
fluctuations, were the most relevant risks in Weerdt et al. (2015a) and Fox and McLaughlin
Iran’s PSC. (2018) identify over 26 definitions for medicine
shortages formulated and used by different PSC
While many risks have been identified in the PSC, stakeholders, e.g., regulators, manufacturers,
the most relevant ones cause a strong unintended wholesalers, and hospitals. This lack of
effect on the main value-adding activities provided consensus has created communication problems
by the PSC. According to both Uthayakumar between different parties involved (Musazzi et
and Priyan (2013) and Narayana et al. (2014), al., 2020) and has made it difficult to compare
PSCs provide consumers with added value by countries and regions in terms of medicines
delivering medicine availability, affordability, and shortage levels (Bogaert et al., 2015). To address
safety. This value is created only if all the agents this issue, the European Medicines Agency (EMA)
involved in the product value chain (biotechnology, has suggested the following definition (Heads
pharmaceutical, and healthcare) have an effective of Medicines Agencies, 2019): “A shortage of a
interaction to produce value (Narayana et al., medicinal product for human or veterinary use
2014). However, out of the three factors identified, occurs when supply does not meet demand at
medicine availability is the added value that can a national level.” Nevertheless, determining a
be most affected by supply chain management medicine shortage remains a very challenging
efforts. Therefore, medicine shortages are one of task. Fox et al. (2014) and Bogaert et al. (2015)
the most relevant risk effects to study in terms of point out that in studies on particular PSCs,
the operation of PSCs. researchers and policymakers present a
modified definition for shortages depending on
The COVID-19 pandemic disrupted many supply the stakeholders’ interest. Costelloe et al. (2015)
chains, including PSCs, and caused high levels define medicine shortage as “the inability to
of stock-outs. Shortages, however, are not new purchase a particular drug from wholesalers on a
to PSCs (Shuman et al., 2020). An emphasis on particular day” whereas Heiskanen et al. (2015)
efficiency rather than responsiveness has been adopt the definition suggested by Besançon and
one of the main drivers for companies to use Chaar (2013) as “a drug supply issue requiring
outsourcing as an effective tool to cut their costs a change that impacts patient care and requires
(Downey, 2008; Rossetti et al., 2011; Nagurney et the use of an alternative agent.” Focusing on
al., 2013). This supply chain elongation coupled European hospital pharmacists, Pauwels et al.
with other characteristics (such as little capacity (2015) consider drug shortage as “a shortcoming
and inventory buffer at different stages across the in the supply of a medicinal product that affects the
PSC) of the supply chain has made shortages a patient’s ability to access the required treatment in
characteristic of PSCs. Numerous professionals due time.”
and academics have reported that shortage levels
in the pharmaceutical sector have increased Several studies investigate and categorize
in recent years, see, e.g., Gray and Manasse the main causes of medicine shortages, e.g.,
Jr (2012); Bogaert et al. (2015), and Miljkovic´ Besançon and Chaar (2013), Birgli AG (2013), Fox
et al. (2020). The literature confirms that this et al. (2014), and Acosta et al. (2019).
issue is a global challenge that is experienced
in different regions such as North America (see, Besançon and Chaar (2013) investigate the main
e.g., Eggertson, 2011; Hall et al., 2012; Jia and causes of drug shortage and divide them into two
Zhao, 2017, and Tucker et al., 2020), Europe groups: demand-side and supply-side related
(see, e.g., Heiskanen et al., 2017; Benhabib et causes. On the demand side, the researchers
al., 2020; Pharmaceutical Group of European identify demand fluctuation, limited purchasing
Union, 2020, and Sweeney, 2020), Asia (see, e.g., capability (affordability and capability to pre-
Kanchanachitra et al., 2011 and Bochenek et al., finance a purchase), structure of the tendering
2018), and Australia (Quilty et al., 2011). process and contracts (if a tender policy gives
an exclusive contract to a manufacturer, other
Despite a general agreement on the increasing manufacturers would be out; hence fewer
shortage levels of medicines, no harmonized alternatives would be available on the market.
definition for the concept of a medicine If the winning manufacturer faces shortages in
shortage was introduced until recently. De capacity, the market would undergo a shortage
8
period), and non-traditional demand (exporting/ Fox et al. (2014) investigate causes for shortages
parallel trade) as causes of shortages on the for generic injectables, listing mainly quality
demand side. Arfwedson (2004) defines parallel issues, discontinuation, increased demand,
trade as follows: re-importation (or parallel trade shortages of raw materials, and a loss of
as it is known in Europe) occurs when products manufacturing sites (natural disasters).
protected by patent, trademark or copyright are
first placed into circulation on one market, then Acosta et al. (2019) associate shortages with
(re-)imported into a second market without the four principal determinants: market (such as an
authorization of the original owner of the intellectual increase in sales, price-related aspects, voluntary
property rights.” Several researchers identify price withdrawal, parallel or gray market, etc.),
differential across countries and regions as a supply chain (structure of the network or supply
(potential) cause for parallel trading, e.g., Darba chain in the country, supply of raw materials
and Rovira (1998), Szymanski and Valletti (2005), and excipients), manufacturing process (quality
De Weerdt et al. (2015b), and Vogler (2020). concerns, changes in the product formulation,
Exchange rates could also act as a driver for industrial development capacities, production
parallel trading (De Weerdt et al., 2015b). For a problem), and political/ethical issues (regulatory
list of cases of parallel trade in the EU, interested problems, public policy, etc.).
readers are referred to studies performed by Bart
(2008) and Pauwels et al. (2015). Several characteristics of pharmaceutical
products and the markets in which they are
On the supply side, Besançon and Chaar (2013) sold have received additional attention. The
list the following: manufacturing stopped pharmaceutical sector has mainly followed just-
production of a medicine, availability of raw in-time principles due to high inventory costs
materials, batch recall, market structure (many (Ventola, 2011; Birgli AG, 2013; Fox et al., 2014;
generics have single or few manufacturers), Bogaert et al., 2015) or high costs associated with
inventory (given that it is common practice in recalling items from different markets (Mirtallo et
the PSC to adopt just-in-time principles, hence al., 2012). This has resulted in smaller inventories
keeping no or little inventory, the PSC is unable to of raw material, semi-finished products, and
meet the demand in case of any sudden increase), finished products at different stages of the PSC
information management (lack of tools that (see, Fox et al., 2009; Mirtallo et al., 2012; Birgli
systematically signal potential shortages along AG, 2013; Shuman et al., 2020). Furthermore,
the PSC). manufacturers outsource part of the production
to subcontractors who receive most of the APIs
Birgli AG (2013) classifies the causes of shortages from only a handful of producers (Heiskanen et
into three categories: economic, business, and al., 2017). Ventola (2011) points out that 80 percent
manufacturing/ supply chain. Economic causes of the raw materials used in pharmaceuticals
are identified as the root causes of the other two sold on the US market are imported from Europe,
categories. Economic causes are said to consist India, or China. Besanc¸on and Chaar (2013)
of price reductions and reductions in spending, assert that the PSC is structured in such a way
reference pricing, legislation supporting parallel that a few manufacturers rely on one source and
distribution, delays in payment, and tendering that the number of these sources is limited. They
(for generic drugs). Business-related causes also identify that these sources are located in few
involve reduced product introductions/ market countries, such as India and China, which further
withdrawals, parallel distribution, quotas/ supply increases supply risks due to long distances to
chain filters, and tightening of payment terms. the destination markets and cultural differences
Manufacturing/ supply chain-related causes limiting the consistency of good manufacturing
encompass fewer manufacturing sites, the just- practices at offshore facilities (see, e.g., Gray et
in-time supply chain, channel strategy including al., 2011, comparing quality risks of inshore and
Direct to Pharmacy (DTP), and changes in API offshore plants). Consequently, PSCs are highly
legislation. Birgli AG (2013) identifies several dependent on the producers of raw materials
causal relations between the causes in the (Besançon and Chaar, 2013). If quality issues
different categories and emphasizes that product arise at raw materials producers, a PSC is easily
shortages can increase the risk of counterfeits disrupted with shortages occurring at all its stages
due to affordability and accessibility issues. (Bogaert et al., 2015; Heiskanen et al., 2017).
9
To maintain the quality of medicines, regulators

establish and monitor good manufacturing
practices (GMPs) (see, e.g., Kweder and Dill,
2013; De Weerdt et al., 2015b). In case of any
non-conformity to GMPs, authorities employ
a predefined set of corrective actions, such as
recalling all the products from the market or
shutting down production lines or plants. If plant
closure is part of the enforcement action, then
the production line could restart only when the
manufacturer fully complies with GMPs (see,
e.g., Ventola, 2011; Besançon and Chaar, 2013;
Pauwels et al., 2014; Bogaert et al., 2015; Iyengar
et al., 2016). Enforcement actions can, therefore,
be drastic and may span a long period of time.
10
3 DUTCH PHARMACEUTICAL SECTOR
3.1 OVERVIEW OF THE CURRENT SITUATION

First, we list a set of key players in the field. The covering the majority of the Dutch population. When
government is involved in several forms: the a patient needs a certain drug (molecule), they
medicines evaluation board (‘College ter Beoordeling should receive the version their insurance selected,
van Geneesmiddelen’, CBG (2020)) decides on drug and not any of the other equivalent versions that the
registration, then the Care Institute Netherlands pharmacy also stocks. This is called a preference
(‘Zorginstituut Nederland’ Zorginstituut Nederland policy (‘preferentiebeleid’) (KNMP, 2020). This
(2020)) decides on reimbursement. The Ministry of tendering process was first introduced in 2008. For
Health, Welfare and Sport (Rijksoverheid, 2020b) a description of the Dutch pharmaceutical sector
is involved in limiting the cost of drugs, see also before that time, see De Wolf et al. (2005). Hospital
Rijksoverheid (2020a). The quality and safety of pharmacies are not bound by the preference policy
care is supervized by the Health and Youth Care and have instead united in procurement groups.
Inspectorate (‘Inspectie Gezondheidszorg en A total of seven groups cover all 120 hospitals in
Jeugd’, IGJ) (Ministry of Health and Sport, 2020), the country. The points described above lead us to
and there is a government research institute conclude that the market for Dutch pharmaceuticals
called the National Institute for Public Health is highly regulated.
and the Environment (RIVM, Rijksinstituut voor
Volksgezondheid en Milieu (2020)). Moreover, several The pharmaceutical sector in the Netherlands
industry associations are active in the Netherlands. differs from that in other countries. In particular,
For drug manufacturing, these are ‘Biosimilars en IQVIA (2020) observes that tendering per insurance
generieke geneesmiddelenindustrie Nederland’ company is rather unique in Europe (only Germany
BOGIN (BOGIN, 2020) for biosimilars and generic has a similar system). Pharmaceutical expenses per
drugs and ‘Vereniging Innovatieve Geneesmiddelen’ person in the Netherlands are among the lowest
VIG (VIG, 2020) for innovative drugs. Finally, there is in Europe (Eden McCallum, 2017; OECD, 2020,
a pharmacists’ organization called the ‘Koninklijke Figure 5.15) and, perhaps as a consequence, Dutch
Nederlandse Maatschappij ter bevordering der pharmacies are among the biggest (Eden McCallum,
Pharmacie’ (KNMP) KNMP (2020) and a wholesalers’ 2017). The low expenses can for a large part be
organization called the ‘Bond van Groothandelaren attributed to the insurance companies that have been
in het Pharmaceutische Bedrijf’ BGPharma very successful at lowering drug prices, however,
(BGPharma, 2020). their system has more consequences than merely
the price level, as we will see later.
The Dutch pharmaceutical sector is bound by
many regulations. On a national budgetary level, A high-level overview of the Dutch PSC appears in
the so-called budgettair kader zorg (BKZ) limits the Inspectie Gezondheidszorg en Jeugd (2018) and
total amount spent on health care. On a product can be summarized as follows. The API is produced
level, the wet geneesmiddelenprijzen (WGP) is a law (e.g., in China) and then turned into a tablet (e.g., in
that enables the government to set a maximum India). Subsequently, a European country imports
price for specific drugs (Farmatec, 2020). This the drug. It needs to be tested in a European
maximum is defined as the average price of such laboratory before it can be released. The drug is then
drugs in surrounding countries (currently defined stored and distributed within Europe. Eventually it
as Belgium, France, Norway, and the United reaches pharmacies, optionally via a wholesaler.
Kingdom, but the selected countries change over Manufacturing APIs in Asia is certainly a financially
time). Reimbursement by basic health insurance attractive option, but is from a Dutch perspective also
is limited to products listed in the Geneesmiddelen associated with enhanced international corporate
vergoedingssysteem GVS (Rijksoverheid, 2020). responsibility risks (Fransen et al., 2019). Some
Generic drugs sold in public pharmacies are European manufacturers are still active, especially
tendered by a number of health insurance companies for drugs with a complex manufacturing process.
11
3. DUTCH PHARMACEUTICAL SECTOR AN EXPLORATORY ANALYSIS OF THE DUTCH PHARMACEUTICAL SUPPLY CHAIN JANUARY 2021
While the authors of this report are unaware of the Several root causes of shortages have been
exact numbers for the Netherlands, we can look at identified. Inspectie Gezondheidszorg en Jeugd
our neighbors to get an indication of the share of (2020) reported on the situation in 2019. The most
Asian and EU production. The German interest group frequently mentioned cause was a delay in the
of generics and biosimilars reports that 63 percent production or release of the end product (58%;
of the issued API certificates are for Asia, and 33 n=1766). Another reported cause was a surge in
percent for Europe (Pro Generika, 2020). demand (21%; n=637); this surge often occurred as
a consequence of a shortage of a similar product.
3.1.1 Drug shortages The least frequently mentioned cause of shortages
In recent years, Dutch PSCs exhibited challenges were business economic reasons (1%; n=31).
in terms of medicine availability. In 2018, the The National Institute for Public Health and the
Netherlands recorded shortages for 750 different Environment (RIVM) finds a cause in supply chain
drugs, followed by almost 1500 shortages in 2019 dependencies (Weda et al., 2019). It also states
(KNMP, 2019a). A shortage is defined as being that causes are often outside of the Netherlands.
unavailable throughout the Netherlands for at Carp et al. (2018) analyzed shortages over time
least 14 days. The list, published under the name and found a stronger increase in shortages for
Farmanco, is drawn up and maintained by the preferential drugs than for drugs in general. IQVIA
pharmacists’ organization KNMP. In contrast, (2020) notes that separate tenders per insurance
the medicines evaluation board CBG (CBG, 2020) company create a situation where multiple products
collects reports of shortages and expected need to be available for the same contract, and
shortages from manufacturers. In 2019, it received that seems to generate more reported shortages.
3070 such reports about 1965 different drugs Finally, Carp et al. (2018) suggest that low prices
(Inspectie Gezondheidszorg en Jeugd, 2020). When a have decreased manufacturers’ interest in the Dutch
manufacturer fails to report an anticipated shortage, drug market. International manufacturers would
IGJ can impose a fine (the so-called ‘bestuurlijke sometimes choose not to sell to the Netherlands to
boete’). These fines were raised significantly avoid parallel imports from the Netherlands to other
(Weda et al., 2019; Nederlands Juristenblad, 2020) countries.
to a maximum of € 860,000 in December 2018.
Subsequently, the CBG only publishes unresolved 3.2 MITIGATING ACTIONS
shortages, which amount to only a few per year. Several solutions to drug shortages have been
Hence, signals for potential drug shortages mentioned. The Dutch Ministry of Health, Welfare
reported by the CBG differ from signals observed by and Sport is planning to impose an ‘iron stock’
pharmacies through the KNMP (Postma et al., 2018). requirement, defined as five months worth of stock
for all drugs on the Dutch market (Tweede Kamer,
Shortages can occur both in originator drugs and 2020). Four months worth of stock should be kept
generic drugs. Recent evidence from the Dutch by manufacturers; one month by wholesalers
Ministry of Health, Welfare and Sport (2019, 2020) (Pharmaceutisch Weekblad, 2020). The expected
finds that 60 percent of the reported, anticipated effect of such an iron stock was studied and claimed
delivery problems in 2018 were linked to generic to resolve 85 percent of the temporary shortages
drugs, whereas the remaining 40 percent were (Kerstens et al., 2019). Increasing stocks is also
linked to originators. IQVIA (2020) studies several proposed in other government-related documents
other European countries and finds that 80 percent such as Weda et al. (2019); Veldman (2020). However,
of the shortages occur in generics. It is unclear how several PSC partners raised a concern that iron
this compares to the Dutch numbers mentioned stock is not the solution to several more deeply-
earlier since the quantity of expected Dutch delivery rooted problems, and several financial challenges
problems that materialized into actual shortages related to keeping iron stock are still open to debate
were not specified. European and Dutch ratios may (NPO Radio1, 2020). Therefore, iron stock remains a
differ in practice. For example, Pauwels et al. (2015) controversial topic and does not enjoy support from
surveyed hospital pharmacists about shortages in all industry partners.
anti-infective drugs. In contrast to other European
countries, they found that Dutch shortages were Weda et al. (2019) establish that reducing shortages
exclusively in generic drugs rather than in originator requires international collaboration. A recent
drugs. government document (Veldman, 2020) discusses
the medical industry’s resilience in light of the
12
3. DUTCH PHARMACEUTICAL SECTOR AN EXPLORATORY ANALYSIS OF THE DUTCH PHARMACEUTICAL SUPPLY CHAIN JANUARY 2021
corona crisis. It emphasizes how international

dependencies in drug production and import made
the Netherlands and Europe vulnerable. It claims
there is a political consensus about reducing
dependence on China and India, and observes an
increasing number of calls for reshoring parts of the
medical production industry. The document explores
the option of having stand-by production capacity,
and advises the Netherlands to pursue this for
medical equipment and protective equipment, but
not for drugs because the current capacity is limited.
13
4 METHODOLOGY
4.1 SCOPE
Although this research was inspired by supply chain chain structure. The four different product types that
challenges and specific drug shortages during the we will analyze can be classified in a 2 x 2 matrix, see
corona crisis, the Dutch PSC displayed challenges Table 1.
in terms of medicine availability in previous years
(KNMP, 2019a). Therefore, the research consortium Off-patent Patent protected
decided to focus on the structure, dependencies
Chemically syn- ... ...
and vulnerabilities in the Dutch PSC in general. In thesized
other words, issues related to COVID-19 may arise to
Biological ... ...
illustrate the variety of issues that the PSC is dealing
with, but COVID-19 will not play a leading role in this
research. Table 1. Classification of pharmaceutical products. The middle column
contains all products that are currently not under patent. Such a product
can either still be produced by the original manufacturer, or by others.
Due to the large number of drugs in the Dutch PSC, These variants from other manufacturers are called generics (for che-
the consortium wanted to narrow down the research mically synthesized drugs) or biosimilars (for biological drugs). In the
rightmost column, products are called specialty drugs (the chemically
scope by classifying and selecting products that synthesized ones) and biologicals.
could help focus ideas.
Based on an initial literature review and exploratory

interviews with different (Dutch) PSC stakeholders, Note that the distinction between off-patent and
we learned that pharmaceutical products can patent protected is reminiscent of the distinction
be classified in various ways. For example, by between functional and innovative products by Fisher
distinguishing between (1) commercial trade vs. (1997) and Lee (2002). Both Fisher (1997) and Lee
pharmacy preparation, (2) inpatient (hospital) vs. out- (2002) distinguish between functional and innovative
patient (e.g., pharmacy, drug store), (3) prescription products to reflect the demand uncertainty a supply
vs. over-the-counter drugs. Another classification chain faces. Lee (2002) also considers supply
would distinguish between generic or innovative uncertainty by taking stable and evolving production
medicines, ‘orphan’, biological medicines, and processes into account. The resulting 2x2 matrix
vaccines. Given our study’s exploratory nature and lead to the traditional overview of four supply chain
the focus on supply chain implications, we focus strategies: efficient supply chains when demand and
on four different types of products with varying supply are stable, responsive supply chains when
characteristics in terms of market, regulations, and supply is stable but demand is uncertain due to the
technological processes. This decision is inspired innovative nature of the product, risk hedging when
by the fact that generic and patent-protected drugs supply is evolving but demand is fairly stable, and
typically face different market conditions and that agile supply chains in case both demand and supply
production technologies can differ (chemically are considered uncertain. For each of the supply
synthesized vs. biological). By studying different chain strategies, a variety of supply chain decisions
types of products, we aim to understand different need to be made to ensure that the required level
PSC structures, vulnerabilities, and dependencies in of cost efficiency or demand responsiveness is
order to acquire a more comprehensive impression achieved.
of the industry. For each of these types, we want
to examine the current supply chain structures, 4.2 DATA COLLECTION APPROACH
incentives, and industry dynamics that have resulted A qualitative exploratory study seemed most
in the current structure and the implications they appropriate based on our objective to collect
have in terms of product cost and product availability. information and perspectives related to the structure
Moreover, we want to identify potential levers to and operations within the Dutch PSC. A qualitative
influence supply chain performance and/or supply exploratory approach allows the researcher to
14
4. METHODOLOGY AN EXPLORATORY ANALYSIS OF THE DUTCH PHARMACEUTICAL SUPPLY CHAIN JANUARY 2021
gather detailed information about a phenomenon organizations. Interviewees were informed of the
directly from the people confronted with it on a nature of the interview in advance and could invite
daily basis. This approach is most relevant when colleagues with complementary expertise, which
the phenomenon is not completely understood due several interviewees did. The key information is
to its specificity or difficulty studying it. Different summarized in Figure 1.
strategies have been developed for conducting
qualitative exploratory research. For this project, We used a semi-structured interview format with
we used a multiple case study approach supported open-ended questions for the interviews with the
by structured interviews (similar to Chaudhry and pharmacists, wholesalers, and manufacturers.
Hodge (2012)). Collecting evidence from multiple This enabled us to follow the same procedure for
cases is an established method to make the results each interview and gather consistent information
robust (see Yin (1994)). throughout (Sekaran and Bougie, 2003; Kvale and
Brinkmann, 2009). This format (as opposed to
Prior to the interviews several preparatory traditional surveys) allows the interviewees to cover
meetings were held. In addition to interactions some topics that were not considered initially and to
with consortium partners VIG and BOGIN, we also obtain more knowledge from the interviewees.
benefited from conversations with pharmacists’
organization KNMP, a hospital pharmacist with All interviews were conducted through video-
experience in the generic drug manufacturing chats online because of COVID-19 restrictions.
industry, a manufacturer of patent-protected drugs, The interviews were not recorded; this allowed the
and the wholesaler organization BGPharma. Each interviewee to talk freely.
of these parties informed us about various aspects
of the Dutch PSC; this enabled us to conduct the The interviews started with a brief round of
interviews that followed efficiently. introductions of the participants (interviewees and
interviewers), an explanation of the purpose of
We interviewed eight pharmacists. In this report, the project and the meeting, and the next steps.
they are referred to as PH1–PH8. We aimed for a At least two interviewers participated in each
varied selection: some work in public pharmacies, interview, taking detailed notes that were sent back
others in hospital pharmacies, and university to the interviewees for validation. The research
hospital pharmacies. Moreover, we interviewed team processed the feedback, and the information
two leading wholesalers (W1 and W2), and four collected in the interviews was studied to identify
manufacturers (M1–M4), a mixture of generic common topics for each echelon of the PSC.
and patent-protected manufacturers. All of the Responses provided by just a single interviewee
interviewees are active in the Netherlands and were were marked for further analysis if they suggested a
considered knowledgeable given their professional very specific and relevant characteristic of the PSC.
experience and current functions within their
Pharmacy Manufacturing
Category Interviewee Public Hospital University hospital Off patent Patent protected
Pharmacist PH1 x
PH2 x
PH3 x
PH4 x
PH5 x
PH6 x
PH7 x
PH8 x
Wholesalers W1
W2
Manufacturers M1 x x
M2 x
M3 x
M4 x
Figure 1. A schematic overview of our interviewees.
15
In the interviews with pharmacists, we asked them Masoumi et al. (2012) focus on multiple competing
to mention drugs that are important for the Dutch PSCs, each of which has a structure similar to
market. This overview of drugs will help us in the what is presented by Susarla and Karimi (2012).
following ways: Hansen and Grunow (2015) visualize a PSC that
• To understand the range of products involved. starts from API production and delivers to a set of
• To identify relevant manufacturers to interview. heterogeneous markets, i.e., the blistering stage
• The overview may trigger wholesalers or includes market-specific information. The SC
manufacturers to elaborate on particular visualization offers a detailed representation of the
vulnerabilities that occur in the SC of a specific various production stages (formulation, production,
drug. blistering, packaging) and inventories that are held
at the different stages of the supply chain.
We consider pharmacists equipped to create such
a list since they have an overview of all products on Our study focuses on examining the pharmaceutical
the market and of shortages. They experience the supply chain dependencies, vulnerabilities, and
difficulty of switching the patient to an alternative associated shortages in the Dutch market, inventory
treatment. locations and targets. Therefore, we will use the
SC visualization by Hansen and Grunow (2015) as a
We asked each pharmacist to list three drugs that starting point and enrich it with insights provided by
they found important in each quadrant of Table 1. the interviewees and the literature.
Those three drugs had to display different levels of
product availability in recent years: one that was (A) 4.4 RISK AND VULNERABILITY ASSESSMENT OF
always available, one that had temporary shortages PSCS
(B, between two and five months)1, and one that had A map of the PSC enables us to relate potential
structural shortages (C, more than a year). When we risk drivers and vulnerability drivers of drug
use the word ‘shortage’, we imply the EMA definition shortages to its structure. Frameworks to identify
as described in Section 2: that demand exceeds and assess supply chain vulnerabilities and risks
supply on a national level. are abundant (see, e.g, Rao and Goldsby, 2009; Ho
et al., 2015; Hosseini et al., 2019, for overviews).
Subsequently, we asked the pharmacists’ Most frameworks are generic in the sense that
organization KNMP to verify whether the mentioned they can address a broad range of different supply
drugs were placed in the correct category and chains and products. Such assessment frameworks
availability level. All products for which KNMP typically rely on several predefined risk and
was unable to confirm the category, for example vulnerability driver categories and subcategories,
because the stated availability did not agree with the e.g., demand-side risks, supply-side risks, and
Farmanco list, were removed from the list. catastrophic risks (Wagner and Bode, 2006). This
approach of using predefined categories of risks
4.3 SUPPLY CHAIN MAPPING has been used by studies concerned with identifying
In the supply chain management literature, vulnerabilities and risks in the PSC. For example,
researchers adopted different ways to visualize Ward and Hargaden (2019) identify, among several
pharmaceutical supply chains depending on the pre-selected risks, ‘connectivity’, i.e., the degree
focus of studies. Focusing on distribution networks of dependence on external organizations, as the
that start from a logistics center, Zhuan et al. (2008) greatest vulnerability of the PSC in Western Europe,
use connectors between entities to represent the especially when it concerns the PSC’s inflexibility in
flow of products in the network. In the diagram, sourcing and order fulfillment. Similarly, Enyinda et
arrows indicate whether a drug can be shipped al. (2010) and Moktadir et al. (2018) use a predefined
from a logistics center to a customer, either directly set of risks to gauge the importance of different
or through a distribution center and/or a transfer risks in the PSC. In contrast, Jaberidoost et al.
center. Susarla and Karimi (2012) provide a generic (2015) use a combination of pre-selected risks and
illustration for a multinational pharmaceutical interviews with open-ended questions to identify the
supply chain that includes the suppliers of raw most relevant risks in the PSC.
materials, primary and secondary manufacturers,
distribution centers, waste treatment plants, and The richness of pre-selectable risk driver categories
consumer markets. The diagram, however, gives and the applicability to various supply chains
little information on which entity keeps inventory. are among the strongest features of generic
1. Note that manufacturers are obligated to report an anticipated shortage to the Dutch government two months in advance (Meldpunt Geneesmidde-
16 lentekorten en -defecten, 2020).
vulnerability assessment frameworks, but they can As we aim to explore the vulnerabilities associated
also be regarded as limitations in the light of this with the overall PSC structure for four different
study. Firstly, despite several notable attempts to drug categories (rather than targeting general
unify and harmonize several risk categorizations vulnerabilities for specific products), we do not
(e.g., Pettit et al., 2013; Pournader et al., 2014; attempt to apply a generic vulnerability assessment
Ho et al., 2015; Hosseini et al., 2019), risk drivers framework directly. Nonetheless, we recognize the
and included subfactors still commonly vary from potential of risk driver categorizations for exposing
one framework to another. While vulnerability vulnerabilities in the PSC. Therefore, in the first
assessment frameworks can address supply chains phase, we pursued a set-up where interviewees
at multiple, inextricably linked, levels (Peck, 2005, could freely discuss their concerns with respect
2006), it is unclear how (and which) risk drivers to structural dependencies and vulnerabilities in
specifically affect the supply chain structure. Also the PSC in a series of semi-structured interviews
complicating the lack of consensus in risk driver (cf. Jaberidoost et al., 2015). In the second phase,
classifications is the differences in perspective we structured and related the results of these
about their usage. While some frameworks adopt interviews back to the relevant stakeholder
approaches that exploit the selected risk drivers dependency categories and risk driver categories
as a starting point for subsequent data collection defined within the risk and vulnerability frameworks
(e.g., Pettit et al., 2013; Moktadir et al., 2018), others of Pettit et al. (2013), Ho et al. (2015), Moktadir et al.
merely use risk categories as a means to structure (2018), and Hosseini et al. (2019) whenever possible.
data collected in earlier stages (e.g., Hallikas et al., Moreover, based on the interviewees’ inputs, we
2004; Manuj and Mentzer, 2008; Chowdhury and reflected on the impact of the supply chain network
Quaddus, 2017). Although the latter approach is structure and how it is operated.
arguably less restrictive with respect to the (a priori)
scope of the data collection phase, its downside is
that only few standardized data collection formats
(questionnaires, surveys, field studies) exist to
extract risk drivers directly from stakeholders in
specific supply chains. Developing methodologies to
overcome these limitations are beyond the scope of
our research.
17
5 RESULTS
To visualize the pharmaceutical supply chain network and structure the inputs received
from the different SC partners on dependencies, vulnerabilities, and associated shortages
in the Dutch market, we have adjusted the SC visualization of Hansen and Grunow (2015).
Based on the interviews with different Dutch PSC actors, we decided to add raw material
suppliers, excipient manufacturers, pre-wholesalers, and particular, distinct ’markets’ such
as hospitals, (public) pharmacies, patients, and other markets. Note that we have reduced
the level of detail for the secondary production stage by removing packaging and blistering
from the Hansen and Grunow (2015) framework.
Figure 2 gives a general overview of the PSC structure that supplies the Dutch market. The
structure, dependencies, and vulnerabilities in the PSC will be explained in more detail in
the following subsections.
5.1 PHARMACIST STAGE

As described in Section 4, we asked the pharmacists We further narrowed down the list by selecting
to nominate several drugs that they found important one item per category in consultation with our
for the Dutch market. The mentioned drugs were consortium partners. This resulted in the products
classified according to the four quadrants in Table 1 mentioned in the first column of Figure 3. Note that
and their availability level. We only kept the products the patented drugs are found in the bottom half of
that KNMP could verify were placed in the correct this table (the ones for which just one manufacturer
category, resulting in a number of items per category is listed).
shown in Table 2 (note that several drugs were
mentioned more than once).
Other sectors,
e.g. food
Whole-
saler
Raw material API API Pharmacies
suppliers manufacturer Pre-
whole-
saler
Whole-
Raw material API API saler
Manufacturer
suppliers manufacturer
Hospitals
Pre-
Raw material Excipient Exci. whole-
saler
Whole-
saler
Manufacturer
Raw material Excipient Exci. Other

markets
Figure 2. The pharmaceutical supply chain delivering to the Dutch market.
18
5. RESULTS AN EXPLORATORY ANALYSIS OF THE DUTCH PHARMACEUTICAL SUPPLY CHAIN JANUARY 2021
Drug type Availability Off-patent Patent

different medical conditions, and patents expire at
protected
different dates in different countries. Tafinlar is an
Chemically A 8 5 oral cancer treatment typically provided through
synthesized B 6 11
C 7 8
hospital pharmacies. It is expensive and always
available, even during the corona crisis (PH6).
Biological A 4 5
Finding patent-protected drugs with availability
B 2 3
C 3 0 issues turned out to be challenging for the
interviewed pharmacists. Innovative products are
Table 2. Number of different products suggested by pharmacists. generally known to have higher margins and are
typically supported by responsive or agile supply
Then we give a short description of each of chains (Lee, 2002). Our consortium partner VIG
the selected drugs, starting with the generics. recommended that we list Floxapen: an antibiotic
Omeprazole, listed by PH2, is used to reduce that is off-patent but for which the original
stomach acid and was selected because of its manufacturer still holds a reasonable share of the
frequent use. PH7 mentioned Microgynon 30 and the market. VIG was also able to identify one patented
corresponding generic versions: the most popular drug that faced a shortage of more than a year:
oral contraceptive pill. A worldwide shortage of this Thyrax, used to treat thyroid hormone deficiency.
product in 2018 resulted in a lot of media attention. The shortage occurred when the manufacturer
PH8 listed Valsartan: an oral medication used was moving their production facility, and the issue
to treat high blood pressure. Recent shortages attracted attention because thyroid patients are very
are attributed to a product recall due to an sensitive to changes in their medication. Keytruda
impurity found in the API. The impurity is called was mentioned as a biological that is always
N-nitrosodimethylamine (NDMA, nitrosamine). available and was considered important because it is
Infliximab is a so-called monoclonal antibody one of the most expensive drugs in the Netherlands
used to treat a number of autoimmune diseases (PH6). Finally, along the lines of a suggestion
(PH6). Only a few biologicals with shortages were from PH7, the VIG recommended the inclusion of
mentioned. Our selected product for this category is Novorapid: a type of manufactured insulin (‘insulin
Somatropin: an often-used growth hormone that has aspart’), an injectable treatment for diabetes.
few alternatives, according to PH6. Note that after
cross-checking the pharmacists’ list with KNMP To prepare for our interviews with other supply
and our consortium, there were no biologicals left in chain partners, we aimed to better understand the
category C (unavailable for more than a year). selected drugs’ position in the Dutch market. To that
end, we investigated manufacturers’ market shares
We also selected patented drugs, although this was for the selected drugs by analyzing Dutch sales
more complicated than selecting generics. It is not data provided by IQVIA. This information is found in
always possible to concisely state when a drug loses Figure 3.
its patent: one drug can have multiple patents for
19
Drug Type Avail # Manufacutrers Biggest market Biggest market Competitor Data
Man. share Jan 2019 share Oct 2020 enters market reliability
Omeprazole Chem A 13 Apothex NL, AstraZeneca, 23% Astra- 25% AstraZeneca Perfect
syn Aurobindo, Bayer, Boots, Zeneca
Centrafarm, Focus Care,
Healthypharm, Hexal pharma,
Mylan, Prolepha Research,
Sandoz, Teva NL
Microgynon 30 Chem B 9 Apothecon, Aurobindo, Bayer, 34% Focus Care Regular**

generics* syn Focus Care, Mylan, Pfizer, San- Pharmaceuticals,
doz, Teva NL, Theramex NL 26% Mylan BV
Valsartan Chem C 9 Novartis, Focus Care, Aurobin- 43% Teva, 40% 50% Krka Perfect
syn do, Centrafarm, Krka, Mylan, Novartis
Sandoz, Teva NL, Xiromed
Infliximab Biolo- A 5 Biogen, Pfizer, Merck Sharp 74% Celltrion 37% Biogen, 30% Poor
gical Dohme, Celltrion Healthcare, Healthcare Celltrion Health-
Sandoz care
Somatropin Biolo- B 6 Pfizer, Eli Lilly, Novo Nordisk, 42% Pfizer 28% Pfizer Good
gical Ipsen, Sandoz, Ferring
Dabrafenib Chem A Novartis Not yet in Low

(Tafinlar) syn October 2020
Flucloxacilline Chem B Aurobindo Before 2007 Perfect

(Floxapen) syn
Levothyroxine Chem C Aspen Europe Perfect

sodium (Thyrax) syn
Pembrolizumab Biolo- A Merck Sharp Dohme Not yet in Poor

(Keytruda) gical October 2020
Insulin aspart Biolo- B Novo Nordisk Ocotober 2020 Perfect

(Novorapid) gical
Figure 3. Drugs that resulted from our interviews with pharmacies and background information. The original manufacturer is written in bold. Market
shares were measured as a fraction of revenue. The second-largest market share is also mentioned when it is significantly close to the largest mar-
ket share.
*A combination of ethinylestradiol (30 micrograms) and levonorgestrel (150 micrograms), sold under the brand names Microgynon, Stediril, Lovette
and Generics.
**Market share for this medicine was not calculated based on revenue but on prescriptions per manufacturer. This data was available in ranges only,
e.g., 100001-500000, not specific numbers.
Due to the high impact of COVID-19 on the PSC’s using the classification from Table 1. Pharmacists
daily operations, we also asked pharmacists to indicated that additional changes in availability at
highlight notable additional (i.e., previously non- the time exclusively related to temporary (category
existent) changes in the availability of drugs B) shortages of off-patent, chemically synthesized
during the first wave of COVID-19. We compiled products.
the responses from the pharmacists in Table 3
Drug type Availability Off-patent Patent protected
Chemically synthesized A 0 0
B Propofol (5) 0
Midazolam (5)
Hydroxychloroquine (2)
Remifentanil (2)
Paracetamol
C 0 0
Biological A 0 0
B 0 0
C 0 0
Table 3. Notable changes in the availability of drugs during the first wave of COVID-19 (in parenthesis: number of pharmacists that mentioned the
products).
20
Pharmacists listed the following reasons for the generally reflected in Table 2. However, none of the
drug shortages reported in Table 3 during the first pharmacists specifically reported additional drug
COVID-19 wave. Propofol is used to sedate patients shortages for patent-protected drugs, nor increases
in operating rooms. It is also frequently used for in availability (category A) of specific drugs. Instead,
intubating patients (PH1, PH3) and was mentioned pharmacists exclusively indicated temporary
in the treatment protocols of virtually all Dutch availability issues (category B) with off-patent,
hospitals (PH1). It faced shortages because of the chemically synthesized drugs.
sudden increase in patients that needed intubation
following COVID-19 complications. PH1 mentions 5.1.1 Network structure and practices according to
that the shortage was further exacerbated because pharmacists
patients with comorbidities (e.g., obesity) were Figure 2 illustrates how patients can receive drugs
hospitalized relatively frequently and needed higher from a public pharmacy or the hospital pharmacy as
doses of Propofol for intubation. a part of their treatment. Section 3 explained how
generic drugs sold in public pharmacies are subject
As a result of the Propofol shortages, Midazolam to tenders organized by insurance companies (the
was used as an alternative for sedation (PH1, PH7). so-called preference policy). Recall that hospital
PH2 mentioned that, during the COVID-19 crisis, pharmacies are not bound by these tenders and
Midazolam was also used in homes for the elderly to have created procurement groups to organize their
relieve the pain of COVID-19 patients who could not own tenders.
be hospitalized. Interestingly, PH7 commented that
when hospital pharmacists also faced Midazolam Drugs administered in a hospital are not reimbursed
shortages, pharmacies were allowed to produce per item but as part of a larger treatment package
batches of Midazolam for their own use. This (‘Diagnose Behandel Combinatie’, DBC). The
reduced the pressure on the supply of Midazolam at government decides how much is reimbursed for
public pharmacies. the majority of those treatments. In contrast to the
preference policy, the insurance company does
Remifentanil, a painkiller, also experienced not know exactly what brand is provided. Given
increased demand during the first wave of COVID-19 these predetermined reimbursements, hospital
(PH5), thereby causing shortages of this product. procurement groups have an incentive to negotiate
Hydroxychloroquine faced increased demand similarly low prices with manufacturers to avoid
and shortages because of its alleged ability to losing money on every patient that needs a specific
combat COVID-19 (PH8). Lastly, public pharmacists treatment (PH4).
PH7 highlighted that they faced shortages of
Paracetamol due to hoarding and panic buying PH4 compares procurement groups to the
during the first wave of COVID-19. preference policy. When a procurement group
chooses a generic drug producer, they agree
PH8, also a public pharmacist, commented that on a price and commit to that manufacturer for
they have observed a 15 percent decrease in overall a relatively long time (1 to 2 years). Moreover,
sales volumes since the eruption of COVID-19. PH8 procurement groups often purchase biologicals
suggested that this could be explained by the lower that are (very) expensive. PH2 confirms that
number of patients who started new treatments hospital pharmacies dispense the vast majority of
due to the reduced number of visits to general biologicals; public pharmacies can only dispense
practitioners. insulin in this category. PH4 adds that for off-patent
biologicals, the alternatives (biosimilars) are not
Please note that pharmacists indicated that sudden, exactly the same. Although the hospital’s target is to
unexpected increases in demand exclusively administer the preferred drug (the one negotiated
triggered the changes in the availability of drugs by the procurement group) to 80 percent of patients,
during the first COVID-19 wave. Pharmacists did PH4 explains that meeting that target is not strictly
not previously mention this reason for the general enforced. Sometimes, for medical reasons, patients
drug availabilities in Table 2. Furthermore, the are better off with an alternative drug. According to
most notable changes in availability during the PH4, allowing alternative drugs to be administered
first COVID-19 wave occurred in the off-patent, to patients maintains a market for the alternatives.
chemically synthesized quadrant. This seems As a result, they remain approved/ licensed for sale
to be largely in line with the drug shortages in the Netherlands. If the preferred manufacturer
21
faces a shortage, then others can meet the demand. some medicines (e.g. for influenza vaccines where
PH4 speculates that this might explain why hospitals they expect an increased demand due to COVID-19
do not face shortages for biologicals. In contrast as patients want to avoid having pneumococci and
to the preference policy for chemically synthesized COVID-19 infections at the same time) (PH8), raw
drugs, PH4 observes that the Dutch market is not materials being unavailable because a manufacturer
very interesting for manufacturers whose drugs are has gone bankrupt or has seized production (PH8),
not preferred. and quality issues in batches (PH4).
Public pharmacies are either independent or belong Pharmacists observed that generic drugs in
to a chain. In both cases, they place their orders with the Dutch PSC are manufactured by just a few
a single distributor (wholesaler). Note that some manufacturers abroad - typically in India and China.
wholesalers have their own pharmacy chains. In the When shortages occur, increased demand cannot be
event of a shortage, PH2 indicates that wholesalers met (PH5). Biologicals are more commonly produced
distribute the drugs evenly between pharmacies, in Western countries. According to PH1, this could
regardless of whether a pharmacy is independent make the supply chain for biologicals shorter and
or part of their chain. PH2 also indicates that in may explain why there are fewer shortages in this
the event of a shortage at the pharmacy, they ask category.
other pharmacies to deliver the drug or send the
patient directly to other pharmacies. These lateral Some respondents were unaware of shortages in the
shipments or transfers of patients are not common biologicals category (PH1), had no delivery issues
and therefore are not added to Figure 2. for expensive biologicals (PH3), and were never
confronted with delivery issues for patent-protected
During the interviews, all the interviewees drugs in oncology or immunology (PH3).
confirmed the structure and logic of the 2 x 2 matrix.
Several of them reflected on the striking differences Aside from the fact that hospital procurement
in product availability they observed in the different groups allow non-preferred drugs to be used, the
quadrants. The interviewees indicated that most high margins in patent-protected drugs are also
shortages occur in the upper left quadrant of Table 1 mentioned as one reason why shortages typically
(chemically synthesized, off-patent) (PH3, PH5) and do not occur in this category (PH4). Sometimes
that they face few shortages for patent-protected hospitals experience a problem with patent-
drugs (PH5). In fact, several interviewees indicated protected drug availability, but the problem lies
having difficulties in identifying patent-protected with the wholesaler. If they call the manufacturer,
drugs with shortages (e.g., PH1, PH6). they hear that it is available (PH4). The availability
of specific drugs at wholesalers and manufacturers
Pharmacists listed several chemically synthesized, will be discussed in Sections 5.2 and 5.3.
off-patent drugs for which they experienced
shortages, reflecting on the impact and possible Some pharmacists have the impression that the
causes. If drug shortages occur, they are usually supply to some countries (in casu: the Netherlands)
acute and cause severe problems that last for a is reduced in favor of others as drugs that are not
relatively short period of time (PH8). Mentioned available in the Netherlands are often still available
causes include problems with a specific API (PH8), abroad (PH6). They observe that the Netherlands is
the introduction of new regulations or systems not the best market because of price-control (and
(e.g. a track-and-trace system introduced in 2019) low prices) and the limited size of the market (PH5).
requiring adjustments to the packaging of drugs Interviewee PH3 puts this in perspective: when a
(PH7), and hoarding behavior for specific drugs. biosimilar was put on the market and sales prices
Examples of the latter include Hydroxychloroquine were reduced by 80 percent, originator Abbvie stayed
– it was hoarded because it was suspected to be on the market, possibly because the overall market
effective against COVID-19; this created significant size is sufficiently large to deliver the product to the
problems for rheumatism patients who had no market (also at much lower prices) (PH 3).
alternatives (PH8) - and Paracetamol (PH7). Other
mentioned causes of shortages are the complexity Other interviewees, such as PH8, indicate that
of the production process of some drugs, which there is too much focus on cost-efficiency in the
makes it difficult to scale up production (PH2), long Dutch PSC. Dutch pharmacies hardly make any
lead times between placing orders and delivery for profit from selling a box of medicine. To make a
22
living, pharmacies need larger volumes. According alternative solution for patients that live close to the
to PH8, this explains why Dutch pharmacies are on border is to buy their drugs in a German or Belgian
average larger than those in other countries. PH2 pharmacy, which PH2 sometimes recommends.
also indicated that the size of Dutch pharmacies is
becoming larger and that very small pharmacies Some hospital pharmacies have suppliers that
are closing. PH8 claims that the supply chain could produce some drugs themselves in the face
from wholesaler to pharmacy has to be incredibly of stockouts. PH5 indicated having a manufacturer
efficient, otherwise it would not be financially in Gorinchem that can produce alternatives, but
feasible. The interviewee is convinced that the Dutch raw materials are not always available. While it is a
PSC is approaching a breaking point (PH8). solution that could be used, it is neither cheap nor
quick (PH5).
The production process and origin of tablets’ raw
materials are kept secret, even if the patent on the 5.1.3 Explanations provided for the current
product has expired. This makes contaminations situation
difficult to predict and next to impossible to trace Pharmacists gave a multitude of explanations for
(PH2). the shortages. For example, PH4 indicated that
the PSC lacks flexibility in the sense that when
5.1.2 Issues and mitigation there is a change in demand (forecast), the supply
Although most commonly-used drugs are always chain (manufacturers) cannot react accordingly or
available (PH8), drug shortages are a challenge to change their plan. Another cause cited by several
public and hospital pharmacists. Some hospital pharmacists was that price levels and associated
pharmacists indicated facing hundreds of delivery margins on products have an impact on product
issues/product shortages per year (PH3). Depending availability (PH6, PH8).
on the hospital size, one person is required one day
a week (PH3); up to four or five pharmacists are in The high margins on patent-protected drugs are
charge of monitoring drug shortages and finding mentioned as one reason why shortages typically do
alternatives (PH5). It is hard to find alternatives for not occur in this category (PH3, PH4). When hospital
some drugs (e.g., Questran and Plaquenil) (PH8). pharmacist PH4 experiences a problem with patent-
In other cases, an alternative product may exist but protected drug availability, the problem lies with the
patients suffer when switching between products wholesaler. If PH4 calls the manufacturer, the drugs
(e.g., Thyrax for thyroid patients (BOGIN) or drugs are always available.
for psychiatric patients) (PH3).
International price differences are also suggested
When no alternatives are available on a national as the cause of larger product unavailability in
level, it may be possible to acquire the product from the Netherlands. PH8, familiar with the Dutch
abroad2. The inspectorate can give a waiver so that and Belgian situation, indicates that prices are
drugs can be imported (PH4, PH5). When a drug has typically lower in the Netherlands and uses this to
been out of stock for a long time, the drug is listed explain why drug shortages are much larger in the
in the Staatscourant and pharmacies are allowed to Netherlands than Belgium. If drug shortages occur,
import the drug, e.g. via the international pharmacy PH8 believes pharmacists in the Netherlands import
in Venlo. Those imported boxes can only be sold for most frequently from France, followed by Germany.
a limited period, so it does not make sense for a
pharmacy to stock up on the product from abroad. Temporary shortages are observed, particularly
Ordering drugs via the international pharmacy costs when a drug goes off-patent (in the transition
more, including additional shipping costs, and it phase). PH1 has experienced two months of
is not always clear who will pay for the extra costs shortage in such cases. If patents expire, generics
(insurance company, patient, or pharmacist) (PH2). or biosimilars are immediately available and prices
can drop by 90 to 95 percent, making margins very
PH3 explains that imports can bring up many small (PH6). PH1 speculates that, in anticipation of
additional issues, such as different packaging, use this moment, production of the original product is
instructions in a foreign language, and dosages that reduced in advance, resulting in a shortage briefly
differ from what is required for the Dutch market. before patent expiration.
Pharmacists then have to solve this; PH3 writes
an addendum to the foreign leaflet themselves. An
23 2. Note that this section deals with pharmacists’ import. Wholesalers can also import drugs, see Section 5.2.
Expected price drops are believed to have significant over-the-counter (OTC) drugs sold at supermarkets
impacts on product availability in the Dutch supply and drugstores (‘drogisterijen’) then the product
chain. These price drops are not only caused by range in the Netherlands is thought to be much
expiring patents but also by changes in legislation larger, perhaps more than 20, 000 (W2). The exact
or the preference policy. An example is provided by numbers appear inconclusive. W1 indicates that the
PH8, who points out how the adjustment of the WGP total assortment that can be ordered is probably
law announced for April 2020 (eventually postponed larger than 75,000 SKUs.
to October 2020) would imply that pharmaceutical
companies would face lower prices for their drugs W1 and W2 elaborated on the different market
in the Netherlands. The moment the law was segments that they supply. According to Figure 2,
to change, any existing stock would have to be they can supply pharmacies (either their own or
devalued. PH8 noticed how the anticipated price independent pharmacies), hospitals or hospital
drop caused stock in Novorapid to run low at the pharmacies, self-dispensing doctors, and other
wholesalers in March 2020. The preference policy markets. Examples of ‘other markets’ that were
causes shortages according to several pharmacists mentioned include pharmacies in the Caribbean
(PH3, PH4). PH3 clarifies this by observing that the (within the kingdom of the Netherlands), and other
demand for a product (drug) is fairly stable, but exceptional customers most likely exist. In addition,
that the short contracts that are being offered to W2 stated that a wholesaler cannot supply directly to
suppliers disturb the market and make it difficult for a patient; all drugs have to go through a pharmacy (a
companies to maintain a large amount of stock as claim confirmed by PH2).
they face the risk that they will be left with unsold
stock once a new drug is selected (PH3). Generally speaking, all wholesalers carry a
complete medicine portfolio. A notable exception
5.1.4 Pharmacist recommendations relates to drugs used in hospitals. Only three Dutch
Pharmacists indicated that price levels contribute to wholesalers choose to serve this segment of the
product unavailability issues, and some also think market as it requires significant investments in
that pricing can improve the PSC. PH6 thinks that terms of expanding the assortment and supporting
‘in the Netherlands, the expensive drugs are too ward services (W2).
expensive and the cheap ones are too cheap.’ The
pharmacist is puzzled by the fact that some drugs Although Dutch wholesalers are in direct
cost less than a Mentos even though they are subject competition with one another, W1 indicates
to much more stringent quality requirements. At that there is also collaboration. Since they are
the same time, PH6 wonders why certain costly all committed to helping patients, they have
drugs are offered when the difference in life quality occasionally supplied each other’s pharmacists
or expected life duration is small compared to other if a problem occurred at one of the wholesalers
drugs. (e.g., a change in IT systems resulting in disrupted
deliveries). Moreover, shipments between
PH2 thinks that increased international wholesalers are also possible to resolve specific
collaboration and a quicker response of inspection product shortages at a given wholesaler.
services to contaminations could improve the PSC.
Wholesalers receive supplies either from a pre-
5.2 WHOLESALER STAGE wholesaler or from a manufacturer’s warehouse in
This subsection describes the results from our the Netherlands or elsewhere in Europe. A pre-
interviews with two wholesalers active in the wholesaler can be affiliated with another wholesaler
Netherlands, labeled W1 and W2. or a manufacturer. In both cases, it can be operated
by 3PL (W2). The pre-wholesaler is not the owner
5.2.1 Network structure and practices of the product (manufacturers are the owners;
Wholesale operations are based in every consignment stock) but it keeps safety stock and
country; they receive supplies of medicines from supplies wholesalers (W1) and potentially other
manufacturers, keep an inventory of drugs, and parties with the manufacturer’s product, as depicted
meet the demand that arises in the country. Four in Figure 2.
leading wholesalers on the Dutch market carry
almost the same medicine portfolio. According to Some Dutch wholesalers have pre-wholesale
W2, they stock 12, 000 to 13, 000 SKUs. If we include activities within the group; others do not (W2). W1
24
explains that a pre-wholesaler is always a separate of patients’ (Geneesmiddelenwet, 2020, Art 49 part
legal entity from the wholesaler and that they cannot 9), regardless of the manufacturer’s market share,
share data. the manufacturers of registered drugs had to react
quickly to cover the demand that could no longer be
According to W2, they do not receive drugs from covered by imports (W2). Secondly, changes in the
outside of Europe, but the marketing authorization WGP law can have a significant impact on import
holder they buy from can purchase products outside and export relationships. When Norway was added
of Europe. to the Dutch list of reference countries instead of
Germany, it implied a complete rearrangement
Their visibility upstream in the supply chain ends at of the portfolio at W2. All of a sudden, import was
the distribution point in Europe. W1 reports that a no longer interesting. Again, the manufacturer
lot of generic drugs come from Asia. There are still has to step up to meet the demand. W2 explains
manufacturers in Europe, but capacity is limited in that the manufacturer will only discover this issue
the Netherlands. Only a few production sites remain, a few weeks before, or possibly a week after, the
such as Apotex (currently: InnoGenerics) (W1). moment it happens. A notable discrepancy is that
manufacturers are obliged to signal changes in
W2 explained how parallel trade - importing from product availability, but other supply chain partners
and exporting to other EU countries - has played (e.g., parallel traders) are not obliged to do so. The
a role for the last 40 years and how it is related to situation is challenging for manufacturers, but W2
price levels and volumes. According to W2, there points out that manufacturers decided to introduce
is not much export, and around 10 percent of the a price difference among European countries. When
Dutch market is import. This estimate is confirmed this results in imports and exports, regulation forces
by a figure of 12.1 percent import in 2018 found in them to adapt to changes in demand quickly.
Stichting Farmaceutische Kengetallen (2019).
Another reason for shortages is quotas (W1). To
To narrow the focus, we showed the interviewees reduce import and export flows, manufacturers
the selected drugs in Figure 3. W2 emphasized that can decide only to sell a limited amount to each
the supply chain situation of chemically synthesized wholesaler. Recall that in Section 5.1.1, pharmacist
drugs is completely different from biologicals. PH4 indicated that wholesalers are sometimes out
Firstly, the complexity of the production process of of stock while manufacturers still have products
biologicals is not to be underestimated. The active available. This might be due to quotas. W2 indicates
ingredient sometimes has to go to through as many that shortages due to quotas only rarely affect the
as 17 different production sites. Secondly, production patient. When it does, it tends to be for patent-
of biologicals involves living organisms for which protected (single source) products because there are
one cannot speed up production; this can sometimes only a few alternatives available (W2). W1 explains
be done for chemically synthesized drugs (W2). that manufacturers can determine the height of their
quotas based on Farminform (2020) data on the drugs
5.2.2 Issues and mitigation delivered to patients each month. By totaling the SKUS
Reflecting on the current issues with product for one product or molecule, total sales are known,
availability in the Dutch PSC, wholesalers observe and a fraction can be assigned to each wholesaler.
that out-of-stocks usually become available again According to W1, the data lags two months behind and
within 3 to 4 months. Wholesalers say that the real if a wholesaler has additional demand - for example
root cause of supply chain problems can only be because they acquired new pharmacies - then they
answered by the manufacturers (W1). contact the manufacturer to obtain more product, but
this can take a few months (W1).
Sometimes shortages are related to parallel
trade. Import and export relationships may change If shortages occur, W1 allocates the same
suddenly, and the impact on the supply chain can percentage of products to each of its customers,
be profound. W2 illustrated this with two examples. spreading product availability across all parties
Firstly, during the first COVID-19 wave, several involved. If W1 runs out of stock, there are two
countries (including Portugal) blocked drug exports possibilities to acquire drugs: import the regular
to retain stock for their own citizens. Because way, or get permission from Dutch government to
marketing authorization holders are obliged to import without paperwork.
supply the market ’sufficiently’ to meet the ’needs
25
W1 observes that the supply chain of generics 5.2.3 Wholesaler recommendations

witnessed a major change in 2008 after the • Reconsider testing strategies (W1): When the
introduction of the preference policy. Changes preference policy was first introduced, the first
in the preference policy make it very difficult for 3-4 weeks of supply came in by plane and the
supply chain partners to forecast demand (W1). rest by boat. The products that arrived by plane
Manufacturers already start decreasing the stock of were tested in a lab - which could take two
a product that may lose preference in the future (W2). weeks - before the product could be released
The new preferred party also has little time to ramp to the market. Those lab results were also
up production in time to have sufficient inventory applicable to the product that later arrived by
available (W1, W2), so one can face a temporary boat (W1). Nowadays, drugs need to be sampled
stockout for both products; this can last six to eight from both shipments, even if they are from the
weeks (W2). This results in a domino effect where same production batch. W1 wonders if this is
manufacturer 3 or 4 gets involved, even though they necessary if temperature and other conditions
were not initially involved in the preference policy at during transport are met. W1 also wonders why is
all. These manufacturers typically have limited stock, it not possible to do independent EU testing in the
and suddenly they need to supply the whole market. country where it is manufactured since this could
As a result, their stocks are also quickly drained. W2 reduce lead times.
states that bouncing back and forth between labels
can take as long as 12-24 months for some products • Reconsider the frequency of adjusting the WGP
before the situation stabilizes. By then, the next law and the preference policy (W2). The current
pricing round is already coming up. According to W1, approach of adjusting the WGP twice a year and
an additional challenge for manufacturers is that having insurance companies changing their
they need to plan the production of the end product, preferred suppliers once a year (at different
and they require the excipients and the APIs before moments in time) leads to many moments when
production can start. In fact, sourcing for drugs one needs to make important decisions. This
starts years in advance (W1). creates uncertainty or insecurity in the supply
chain according to W2. According to the same
W1 points out that the current practice of tendering interviewee, the Netherlands already has very
per insurance company implies that for a common competitive prices for generics and it is unclear
drug like Omeprazole, three to four different labels why contracts for more mature drugs have to
have to be kept in pharmacies and wholesaler be tendered so frequently. As a solution, W2
warehouses even though the active ingredient in suggests fixing some longer-term contracts for
each label is the same. these products and focusing efforts elsewhere, for
example, aiming for better prices for other drugs.
Although tendering has reduced prices, W2 wonders
whether patients are better off. There are other, • Predict shortages or recalls for specific products
non-financial ’costs’ related to switching generics using data on (increased) Internet searches for
frequently: (1) compliance (‘therapietrouw’) and specific drugs (W1).
(2) losing the placebo effect since drugs ‘become
Smarties’ (are perceived as Smarties) when they are • Keep the following outlook in mind: Amazon is
changed frequently (W2). already selling pharmaceutical products in the
US and W1 speculates it is only a matter of time
W2 observes that the generic supply chain is before they do so in Europe. Our laws currently
operating at maximum capacity, and hence any do not allow that, but laws can be changed or
hiccup will lead to problems. Leading manufacturers challenged (W1).
sometimes operate at 103 percent capacity
utilization to be able to produce at say 22 cents a 5.3 MANUFACTURER STAGE
box, which they can deliver to the Dutch market for This subsection describes the results from our
25 cents. To illustrate the difficult situation generic interviews with four drug manufacturers labeled
manufacturers are in, W2 contrasts this with the M1–M4, as detailed in Figure 1.
60-70 percent capacity utilization that originators
employ to be able to meet demand. 5.3.1 Network structure and practices
The interviewees confirmed the PSC’s overall
structure depicted in Figure 2, indicating that the
26
simplified model is basically correct (M3) and that it M1 points out that there has been a decline in
probably covers 99 percent of the volume in the the number of API manufacturers, and smaller
Dutch market (M1). M2 specializes in biological manufacturers have disappeared from the market
drugs. Each of their manufacturing plants make over the last decade. According to M1, this is
dedicated product groups or a specific molecule related to increased competition, pressure on
using only raw materials as inputs (APIs as such are prices, and economies of scale. Continuously
produced within the plant). Moreover, the company increasing competition and pressure on prices
consolidates finished products produced across the from the market have pushed pharmaceutical
globe in Europe, from where consolidated shipments companies to reduce their operational costs. The
are sent to national wholesalers. Almost their nature of production costs and increasing quality
entire supply chain, from plant to patient, is a cold- and safety requirements, which cost the same for
chain. This puts specific demands on storage and small or large companies, are pushing smaller
distribution. M4 produces chemically synthesized manufacturers from the market when producing a
and biological drugs and confirmed the overall given drug no longer is profitable.
structure of the supply chain.
M1 points out that pharmaceutical (secondary)
Procurement As Figure 2 illustrates, the PSC manufacturers cannot easily exchange API and
typically starts with the production of raw excipient manufacturers for their registered drugs
materials. Although China and India are important since they receive a registration for a specific drug,
manufacturing countries of raw materials for the using specific APIs and excipients. If a manufacturer
PSC, M1 points out that raw material production is wants to change these, they must go through the
a chemical process that occurs in plants all over entire product registration procedure once again,
the world, including the Netherlands and Belgium. which requires a lot of time and effort (M1).
Although several raw material manufacturers are
typically available, the raw materials used in the The origin of the drugs supplied to the Dutch market
PSC can also be used in other industries. This can varies amongst the interviewees. M1 produces
cause shortages in the PSC (M3). According to drugs globally; 60 to 70 percent of the drugs are
M1, the same applies to API manufacturers, so- produced in Europe. For the Dutch market, 70
called primary manufacturers, since they produce percent is produced in their own plants, and third
chemicals for different industries, e.g., food and party manufacturers produce the rest. For M2,
pharmaceutical supply chain. API manufacturers 95 percent of the shipments for the Netherlands
do not produce for the PSC exclusively so there is originate from the European consolidation center
competition between different supply chains for (which sources products from own production
their capacity. Even for producing excipients (such facilities across the globe). The remaining 5 percent
as sugar), the pharma product will have higher is imported from the Far East and is sent directly
standards, so the barriers to entry are very high (M3). to the pre-wholesaler (M2). M3 estimates that the
M1 confirms that excipients have become more and drugs they supply to the Netherlands originate for
more important over the last few years, and they are 50 percent from Europe and 50 percent from India.
being monitored closely to safeguard product quality. Only a few specific products come from the USA,
and they are more expensive (M3). Within Europe,
Unlike raw materials, which can be processed by a lot comes from France and Eastern Europe.
several chemical manufacturers, the number of API Quite a lot of pharmaceutical production occurs in
manufacturers is limited. M1, M2, and M3 (page 1) all France because French insurance companies only
state that there are only a few (sometimes only 1 or reimburse what was produced in France. Hungary
2) manufacturers available worldwide for some APIs. and Poland have invested a lot in manufacturing
sites and the consolidation of manufacturing started
According to M1 and M2, this makes generics supply in Eastern Europe, but production later moved
chains quite vulnerable to any disruption, e.g., to India. API production has consolidated even
contamination or natural disaster. To illustrate this, more than the manufacturing of final products.
M1 gives the example of a drug for tuberculosis. A lot of M3’s APIs currently come from China for
There used to be only a single API manufacturer in cost reasons. For M4, all finished products for the
Fukushima. After the tsunami hit the region in 2011, Netherlands are produced in Europe or at least
the API disappeared from the market and caused receive a final production step (not only packaging)
shortages for two years. at their own or third party plants in Europe (M4).
27
Lead times and production planning Estimates how their production sites keep safety stock as
of lead times for the Dutch PSC vary significantly neutral packs, packed products. These are not
amongst the interviewees, depending on the finished products as they are only finished when
materials’ origin and the specific product concerned. prepared for a certain country in their language
(M4). Since the way inventory levels are set and
Manufacturers that are located in the EU and monitored is closely related to mitigating the supply
receive APIs from outside the EU face long lead chain challenges of the PSC, they are discussed in
times between placing an order and receiving it. M1 detail the next subsection.
reports a lead time of six to seven months for APIs
manufactured in India, clarifying that these lead The interviewees confirm the downstream supply
times are usually not an issue since demand is fairly chain’s overall structure in Figure 2, and the
stable and ordering and replenishment processes depicted product flows via pre-wholesalers and
are typically well organized. As a result, M1 keeps wholesalers to make their products available to
little to no safety stock for APIs. M1 also indicates patients.
that product replenishments are a ‘continuous’
process. Only if one needs to make changes in the When asked if manufacturers ever deliver directly
leaflet or the box of a drug does one notice that to hospitals, M1 states that this only happens for
it takes approximately six months to receive new very specific products. M2 mentions direct deliveries
batches. to pharmacies, but such direct deliveries to
pharmacies are typically invoiced to the associated
M2 indicates that if one had to start production for hospital. M2 also delivers very expensive drugs
one of their products from scratch, it would take directly to Dutch hospitals within two hours’ notice
three months to get a final product. As production since the product can be life-saving for patients,
is regular and replenishments are continuous, one and hospitals cannot keep such expensive products
does notice the 3-month lead time. M2 faces a stable in stock. M4 ships high-volume, low-value products
demand for its products, has stable output and uses to hospitals, hospital pharmacies, and local
a 3-year production plan for its products. pharmacies via wholesalers. Low-volume, high-
value products are shipped directly to hospital
M3 explains that sourcing from India makes pharmacies and local pharmacies (M4).
planning harder. Because everything is produced in
bulk, production runs are larger. Ceteris paribus, M2 observes a market development: it sees
the time between production runs, increases and increased “direct to patient” deliveries, which they
lead times become longer. M3 explains that an order operate in several countries, mentioning websites
for the Dutch market now has an average lead time like onemed.nl and thuisapotheek.nl.
of six to nine months whereas it used to be three
to four months. Products are shipped by sea, and According to M3, national data shows that the
sourcing outside of the EU (e.g., from India) means demand for drugs consumed by the Dutch market
you need to do EU testing, which takes at least a is almost stable and that variation in demand is
month, sometimes even longer according to M3. caused by supply chain actors and practices in the
downstream supply chain.
M4 has an imprecise long-term planning over four
to five years, but 6-18 months is the real planning 5.3.2 Issues and mitigation
horizon; one to six months of production are more Production M3 emphasizes that margins for
or less fixed. M4 states that lead times can vary per generics have fallen to almost unsustainable levels.
product, for some products it is a matter of weeks As a result, generic companies are pruning many
and for others months. The company distinguishes products from their assortment. Many years ago,
between lifesaving drugs and those which are they were aware of five to seven producers for a
not, and examines whether competitors have given drug; now only four, three or two remain.
alternatives. Critical products are given priority in Having fewer manufacturers on the market
terms of production and delivery. operating at high utilization rates increases
vulnerability and lowers the resilience of the supply
Storage and distribution All interviewed chain. M3 illustrates this via one of its European
manufacturers maintain stocks of finished products, factories that had to close due to COVID-19.
which they store at pre-wholesalers. M4 clarifies According to M3, recovering and producing the
28
entire backlog took a long time, especially because As a manufacturer of both generics and patent-
the plant was already operating above 90 percent protected drugs, M1 points out the financial
utilization. challenges in maintaining the current stock levels.
Assuming sales of 80 million boxes of generic
Large production batches are common. drugs per year in the Netherlands, at an average
Manufacturers try to reduce changeovers price of € 2.60 per box, keeping six months’ worth
because they need to clean production facilities in stock amounts to € 40 million. If one wants to
for every change of product. According to M3, it keep more inventory in stock, say for € 80 million,
is still common to package products at the same then it becomes clear that this cannot be done at an
location where they are produced. M3 also uses average price of € 2.60 per box (M1).
postponement, whereby products are bulk produced
at the plant, shipped to a different packaging Most of M1’s products are also supplied by other
location, preferably in Europe, where the product is pharmaceutical companies. If M1 faces a backlog,
quarantined and testing can be done for the entire other producers can often provide the required
bulk shipment at once. Since many products can products. M3 explains that if competitors run out
only be tested at one lab in Europe, these labs are of stock and when they do not notice that they are
often too busy to test immediately and testing can covering the demand of other suppliers, their own
take four to six weeks (M3). M1 confirms that testing safety stock will decrease rapidly. As this happens a
is done at the level of a shipment batch (rather than lot and can lead to shortages, M3 closely monitors
a production batch) and that testing can sometimes safety stock levels.
take a long time, but it generally takes two weeks.
When demand suddenly increases strongly,
Based on what experienced by M1, most of the drugs manufacturers of generics have little flexibility left
pass the quality tests, but there are rejections due with which to respond. M1 uses the demand and
to packaging mistakes, e.g., missing information or supply dynamics of a functional product during
issues with leaflets. If a batch is rejected then it can the first corona wave to illustrate this point. In the
take six months to receive a resupply. In most cases, spring of 2020, many people thought that if we
competitors will be able to absorb the backlog. needed more gloves, we should just order them
When reflecting on reshoring the production of raw and they would be delivered quickly as stocks were
materials and APIs, M1 argues that many facilities available. There was stock available for months
and much of the knowledge and expertise in this of demand under normal circumstances but not
matter are no longer in Europe. This makes it almost to handle the strong increase in demand. In fact,
impossible to regenerate production in Europe. If production capacity had to be adjusted to meet the
India and China were to adopt the same safety and new demand!
environmental measures, then it would become
financially less attractive to produce there (M1). M3 M1 clarifies how they thought about backup API
confirms that Indian plants are huge and modern production and backup drug production facilities in
compared to most European plants, that the people the past. Given the costs to maintain such backup
are well educated, yet labor is cheap. capacity and the current market conditions (price
levels), it is clear that manufacturers (of generics)
Inventory M1 keeps four months of sales in stock on can no longer maintain such backup capacity and
average at the pre-wholesaler for the Dutch market. that they have to base their capacity utilization on
The stock level varies across different products and regular demand (M1).
ranges from four weeks up to two to three years
(M1). M2 indicates that for high-risk products (of According to M1, patented drugs are priced much
which they deliver 30 percent of the market), they higher so manufacturers can afford extra stock.
have at least one month’s worth of the total market In fact, they must have extra stock. Since doctors
demand in stock for the Netherlands. M3 specifies prescribe a specific patented drug to the patient,
that their normal safety stock equals three months they need to be able to supply their product,
of their own sales volume. For more difficult otherwise they lose that patient (M1).
products with a good shelf life, they keep six months
of stock (W3). Parallel trade and quotas Manufacturers M2, M3
and M4 confirmed that parallel trade complicates
their production planning.3 M2 emphasizes that they
29 3. M1 did not deny this statement, parallel trade simply did not come up in that interview.
allocate quotas very carefully to ensure product reasons and the world we live in. M1 would,
availability on the Dutch market. When problems however, like all countries to recognize EMA for
occur with import flows (that they do not control product registrations and sees great potential in
and can amount to 80 percent of the total demand increased cooperation and synergy between EU
for some drugs in the Netherlands), they face countries.
difficulties when they must suddenly supply the
entire market demand. M2 also indicated how the • M4 suggests so-called ‘shared pack’ medicine
corona crisis affected parallel trade. During the first boxes that can be given to multiple countries.
wave, Norway and England suddenly closed their This would increase flexibility when the minimum
borders for certain drugs, affecting the availability order quantity is large compared to national
for the Dutch market (given the share of imports at demand. According to M2, the downside is that
the time). parallel trade could be stimulated, and increased
parallel trade increases volatility in the supply
M3 confirms that parallel trade leads to oversupply chain. According to M4, shared packs were more
or undersupply. As a result, you need more safety prevalent in the past than nowadays. Along these
stock, which is expensive to maintain. lines, M2 is currently exploring whether a central
hub can deliver boxes for the whole Benelux with
Shelf life M3 brings up shelf life problems, and leaflets in two languages. M3 observes that the
observes that shelf lives decreased over time situation is already similar for medicines with a
based on regulations (now 24 months at most from EU registration text since that text is the same in
the time it is produced). Moreover, M3 observes every language.
a tendency to prescribe for 12 months instead of
3, to have fewer dispensing fees. This produces • M3 thinks we can reduce our dependency on
waste and requires all products to have at least a Asia by creating incentives for local production,
12-month shelf life (M3). In contrast, M4 claims that for example, by offering a higher reimbursement
it does not have waste due to expiring products, not for drugs that are produced in Europe. M3
even for biologicals with a short shelf life. emphasizes that only increasing prices would
probably be insufficient and that production in
Preference policy Manufacturers made statements Europe would have to be properly defined.
regarding the preference policy that confirmed
what we saw in previous sections. M3 lists frequent • M1 adds that if better prices were offered for
tender changes and changes that are not known generics, then a budget could be created to add
soon enough as factors that complicate production an extra API in the dossier, have a second source,
planning. M1 states that some generic drug or increase the safety stock. All of these would
manufacturers choose not to participate; in other reduce risks.
words, they do not make price offers to insurance
companies. They accept losing part of the market • M1 sees an additional area for improvement
due to that decision. Nonetheless, they can still concerning pharmaceutical vigilance (studying
have a significant market share in the Netherlands and reporting side-effects of drugs). Right now
in other ways. M3 adds that insurance companies every company has to file the side effects of their
tender 80 percent of the market; the remaining free drugs individually, even if they are all producing
volume is tendered by wholesalers. the same drug, e.g., paracetamol. National or
European platforms for pharmaceutical vigilance
Contaminations M1 is very worried about supply would make sense to M1.
chain disruptions due to contaminations such
as nitrosamine. Nitrosamine is known to be an This concludes the description of our results
issue for Omeprazole and Valsartan, but M1 is from manufacturer interviews. The following
convinced that if we can identify more toxic products section gathers and categorizes the main risks
in end products, then we will discover more and vulnerabilities according to all interviewees -
contaminations. pharmacists, wholesalers and manufacturers.
5.3.3 Manufacturer recommendations 5.4 RISK AND VULNERABILITY EXTRACTION

• M1 is convinced that the pharma supply chain’s The concerns that were expressed by the
complexity is related to quality and safety interviewees regarding vulnerability in the PSC are
30
listed in Table 4. The vulnerabilities are categorized of the stakeholder group, relate to the limited
into several operating environments: (i) lean number of suppliers of raw materials (1), the lack
supply chain and manufacturing practices; (ii) of transparency in the PSC (13), the Dutch tendering
the competitive environment; (iii) the exchange of scheme (20), and the inflexibility in demand (37). Be
information; (iv) the legal environment (including aware that the (perceived) vulnerabilities in Table 4
policies, regulations, and bureaucracy); and (v) the should not be interpreted or treated independently.
product or operations environment. The concerns The values between parentheses refer to specific
that were expressed most frequently, i.e., by at risks identified in Table 4.
least 50 percent of the interviewees regardless
# Operating Vulnerability or risk Manu- Whole- Hospital Public Total

environment factu- salers phar- phar-
res macies macies
1 Lean Single sourcing of raw materials (including ’molecules’) 75.0% 50.0% 60.0% 33.3% 57.1%
manufacturing and/or lack of alternative raw material suppliers
2 Lean Consolidation of manufacturers and/or lack of alterna- 50.0% 50.0% 40.0% 33.3% 42.9%
manufacturing tive suppliers
3 Lean Panic buying or stockpiling by patients or pharmacies 75.0% 50.0% 0.0% 33.3% 35.7%
manufacturing
4 Lean Lack of redundancy in production capacity 75.0% 50.0% 0.0% 0.0% 28.6%
manufacturing
5 Lean Geographic concentration of suppliers 25.0% 0.0% 20.0% 33.3% 21.4%

manufacturing
6 Lean Long lead times 25.0% 0.0% 20.0% 33.3% 21.4%

manufacturing
7 Lean Inability of manufacturers to react swiftly to changes in 0.0% 0.0% 20.0% 0.0% 7.1%
manufacturing demand and demand forecasts
8 Lean Inability of parallel traders to react quickly to shortages 25.0% 0.0% 0.0% 0.0% 7.1%
manufacturing
9 Lean Unavailability of raw materials at local backup 0.0% 0.0% 20.0% 0.0% 7.1%
manufacturing production facilities and inflexibility of backup production
10 Competitive Competition for raw materials with other industries, 25.0% 0.0% 0.0% 0.0% 7.1%
environment especially the food industry
11 Competitive Consolidation of procurement 0.0% 0.0% 20.0% 0.0% 7.1%

environment
12 Competitive Lack of facilities, knowledge, and expertise to reshore 25.0% 0.0% 0.0% 0.0% 7.1%
environment raw material production
13 Information Lack of transparency about inventory levels and import 75.0% 100.0% 20.0% 33.3% 50.0%
exchange /export volumes among manufacturers and between
manufacturers and wholesalers
14 Information Lack of transparency and control of (conditions at) raw 50.0% 50.0% 0.0% 66.7% 35.7%
exchange material supplier
15 Information Lack of transparency and control of supply and demand 50.0% 50.0% 0.0% 33.3% 28.6%
exchange volumes due to parallel trade
16 Information Lack of information transparency about orders between 25.0% 50.0% 0.0% 33.3% 21.4%
exchange raw material supplier and manufacturer
17 Information Lack of automated ordering processes between manu- 25.0% 0.0% 0.0% 0.0% 7.1%
exchange facturer and wholesaler
18 Information Lack of good systems to monitor drug availabilities 0.0% 0.0% 20.0% 0.0% 7.1%
exchange
19 Information Lack of information transparency between pharmacy 0.0% 0.0% 0.0% 33.3% 7.1%
exchange and manufacturer/wholesaler about prices, volumes,
and source of raw materials
31
# Operating Vulnerability or risk Manu- Whole- Hospital Public Total

environment factu- salers phar- phar-
res macies macies
20 Legal Frequent tendering processes 75.0% 100.0% 60.0% 0.0% 57.1%

environment
21 Legal Complex and expensive procedures regarding the use of 75.0% 50.0% 20.0% 0.0% 35.7%
environment ’shared pack’ boxes and multilingual boxes/leaflets
22 Legal Frequent WGP recalibrations 25.0% 100.0% 20.0% 33.3% 35.7%

environment
23 Legal Complex, unharmonised, and expensive registration pro- 25.0% 0.0% 40.0% 0.0% 21.4%
environment cesses among EU member states for new and existing
drugs
24 Legal Legal restrictions prohibiting or complicating the im- 25.0% 0.0% 40.0% 0.0% 21.4%
environment port/export of drugs by unlicensed SC partners
25 Legal Differences in legal (quality) requirements for the same 25.0% 50.0% 0.0% 0.0% 14.3%
environment ingredients by the OTC board, EMA board, and food
industry
26 Legal High costs of (complying with) complex legal policies 25.0% 0.0% 20.0% 0.0% 14.3%
environment
27 Legal Long external quality and safety testing procedures 50.0% 0.0% 0.0% 0.0% 14.3%
environment
28 Legal Changing government regulations on approved APIs 0.0% 50.0% 0.0% 0.0% 7.1%
environment
29 Legal Counterfeit products 25.0% 0.0% 0.0% 0.0% 7.1%

environment
30 Legal Lack of clear regulations for (safety) stockkeeping criti- 0.0% 50.0% 0.0% 0.0% 7.1%
environment cal products at wholesaler and manufacturer level
31 Legal Legal barriers prohibiting export in case of shortages 25.0% 0.0% 0.0% 0.0% 7.1%
environment
32 Legal Legal barriers requiring multiple quality tests of the 0.0% 50.0% 0.0% 0.0% 7.1%
environment same batch for every shipment
33 Legal Legal requirements requiring redundancy in phar- 0.0% 0.0% 0.0% 33.3% 7.1%
environment macy inventory
34 Legal Long reimbursement procedures at the EMA following 25.0% 0.0% 0.0% 0.0% 7.1%
environment production in special circumstances
35 Legal Penalty mechanisms regarding differences between 25.0% 0.0% 0.0% 0.0% 7.1%
environment tender prices and market prices
36 Legal Tendering processes requiring pharmacies to hold a lar- 0.0% 50.0% 0.0% 0.0% 7.1%
environment ge variety of labels containing the same active ingredient
37 Product Inflexibility in demand due to medical reasons and 25.0% 100.0% 40.0% 66.7% 50.0%
environment bureaucracy
38 Product Contamination and quality risks 50.0% 50.0% 0.0% 100.0% 42.9%
environment
39 Product Operational complexity of the drug production pro- 25.0% 50.0% 0.0% 33.3% 21.4%
environment cess
40 Product Media exposure of (presumed) contaminations 0.0% 50.0% 0.0% 33.3% 14.3%
environment
41 Product Increases in drug prescription period (by doctor) 25.0% 0.0% 0.0% 0.0% 7.1%
environment
Table 4. Reported vulnerabilities (in percentage of the stakeholder group that expressed concern).
32
In downstream order, interviewees indicate that anticipate, alert, react, and prevent disturbances in
price pressures stimulating an increasingly the supply of raw materials.
cost-efficient PSC induced a consolidation of API
producers of generic drugs (1), along with low-cost Interviewees argue that price-pressures have not
country sourcing of APIs and excipients. Accordingly, only encouraged consolidation of raw material
the upstream tiers of the PSC are more prone suppliers but also of manufacturers (2). Moreover,
to disturbances. Among the sources mentioned these price-pressures are also presumed to be
for such disturbances at raw material suppliers, the reason for high utilizations of manufacturers’
interviewees identified turbulence factors (Pettit production capacity and lean inventory
et al., 2013) such as natural disasters, pandemics management strategies. As a consequence, the
(including COVID-19), (geo)political disturbances and lack of redundancy in production capacity (4), i.e.,
interventions, and supplier/ customer disruptions the inability to scale-up production beyond the
(Pettit et al., 2010) such as product recalls and base level of capacity, and the high expenses of
rejected batches including contaminations (38), keeping additional volumes of (safety) stock, are
plant shutdowns and general seizure of production, named among the top reasons for making generic
and decreased production levels. One interviewee drug manufacturers prone to disturbances in
described how a supply disruption at one API either supply or demand. Because raw material
supplier created ‘domino effects’ of stock outages suppliers in the prior PSC tier suffer from similar
at the few remaining suppliers. Interviewees also vulnerabilities, disruptions impacting either stage of
expressed concerns regarding the prolonged time production may intensify the negative consequences
needed to recuperate from disturbances occurring for supply.
at consolidated suppliers of raw materials. The
consolidation and low-cost country sourcing of raw For production facilities operating at tight
materials are also presumed to be the reason for a production capacities, accurate production planning
geographic concentration of raw material suppliers is essential (Chopra and Sodhi, 2004). Interviewed
(5), mainly in India and China, thereby complicating manufacturers indicate their dependence on a
risk diversification. One interviewee recalled combination of internal demand forecasts and
irregular shutdowns and decreased production by demand forecasts supplied by third parties. The
local authorities following smog pollution policies majority of our interviewees characterize the
as an example of a disturbance exacerbated by the demand for drugs at the molecule level, safe for
geographic concentration of raw material suppliers. exceptional demand disruptions such as panic
buying (3) and unforeseen events (including
The geographic remoteness of raw material COVID-19) as relatively stable and predictable.
suppliers for most generics (5), combined with However, interviewees report a lack of information
price pressures, has caused the PSC’s upstream transparency (13) about intermediary (i.e.,
tiers to rely almost exclusively on waterborne wholesale) supply and demand levels, as well
transportation modes. As a result, lead times as inventory levels at other manufacturers,
tend to be long (6), making these tiers inflexible thereby complicating production planning and
with respect to unexpected changes in demand stock management. Similarly, frequent tendering
or unforeseen setbacks in supply (3, 7, 39). This procedures (20) are named among the top sources
corresponds to earlier findings regarding causes of unwarranted disturbances in demand across
for drug shortages observed by Weda et al. (2019) the majority of the interviewed stakeholder groups.
and Inspectie Gezondheidszorg en Jeugd (2020); see This observation reflects earlier findings of VIG
also section 3. Several interviewees also criticized (2020) regarding the Dutch preference policy (see
the lack of information transparency and control section 3). More specifically, interviewees signal a
of API operations (14) regarding local working deterioration of inventory levels prior to a tender
conditions, means of sustainable production, date, instigated by ramped down production
and (potential sources of) contaminations, in line levels in anticipation of potential changes in
with similar findings by Fransen et al. (2019). preferential suppliers. Interviewees also indicate
Similarly, interviewees also criticized the (16) that low inventory levels often persevere for a
lack of information transparency regarding order prolonged period beyond the tender date since the
cancellations (including order recalls), and order new preferential supplier needs time to ramp up
delays. Some interviewees raised the concern that production. Interviewees assert that the inflexibility
such intransparencies make it more difficult to of lean manufacturing practices, spurred by price-
33
pressures, are not suitable for coping with frequent Note that the majority of the frequently mentioned
and abrupt changes in demand. The interviewees vulnerabilities regarding the upstream part of the
also observe that whenever a stockout occurs PSC concern (lean manufacturing practices of)
at a preferential supplier following a tendering chemically synthesized products (see also Table 1).
process, stocks at the remaining suppliers – who
typically keep low inventory levels as they were not Biological products seem to observe fewer
designated as preferential suppliers – are drained vulnerabilities in the upstream PSC; most
relatively quickly. vulnerabilities in the upstream part of the PSC for
biologicals are linked to the complexity of their
In addition to frequent tendering processes, frequent manufacturing process (39) – see also section 5.2.
WGP recalibrations (22) are also mentioned as a The vulnerabilities in the downstream part of the
source of price (and therefore demand) disturbance, PSC, on the other hand, mostly concern EU and
especially when recalibrations involve a change country-specific challenges. In contrast to the
of countries on the reference list. National and upstream part of the PSC, these vulnerabilities are
international differences in price, supply, and shared among all types of pharmaceutical products,
demand are believed to trigger wholesalers to regardless of their type. The number of different
rebalance stocks through parallel import and products suggested by pharmacists (Table 2) seems
export. Some interviewees criticize the lack of to support the notion that shortages of chemically
information transparency surrounding the imported synthesized products are observed more often than
and exported volumes (15), which are believed shortages of biological products (not corrected for
to exacerbate the existing intransparency (13), differences in demand).
and further complicate stock and production
planning. Interviewed manufacturers also express 5.5 RISK AND VULNERABILITY MAPPING
their concerns about complying with government In an attempt to map the results of Table 4 to
policies regarding their obligation to duly report vulnerability factors in the literature, every unique
shortages. Some interviewees argue that the vulnerability concern expressed by an interviewee
penalties associated with not keeping sufficient was linked to one or more vulnerability factors
stock, regardless of preferential supplier status, and risk drivers identified in the vulnerability
as well as the penalties associated with not duly assessment frameworks of [a] Pettit et al. (2013),
reporting shortages, which can be suddenly caused [b] Ho et al. (2015), [c] Hosseini et al. (2019), and [d]
by reasons beyond their control, in a relatively small Moktadir et al. (2018). Because the vulnerabilities
sales market may be a reason for manufacturers to extracted in Table 4 specifically target the PSC’s
withdraw from the Dutch market. structure, the resulting mapping encompasses
a broad combination of relevant subsets of
Initiatives by manufacturers and pharmacists vulnerability factors from the literature. Table 5
to prevent stockouts, such as their own import/ shows the average number of uniquely articulated
export (24), the use of multilingual packs (21), vulnerability concerns related to each vulnerability
switching resale channels (25), or the switch to subfactor mentioned by an interviewee; this is
another API supplier (23), are often costly, long, expressed as the aggregate number of concerns
and hindered by legal barriers, according to several by the stakeholders in a group divided by its
interviewees. Interviewees also expressed the desire corresponding number of interviewees. The last
for harmonized legal frameworks concerning drug column in Table 5 shows the total percentage of
registration systems at the EU level. interviewees that articulated one or more concern
that could be linked to a particular vulnerability
Since lean manufacturing practices, a lack of subfactor.
information transparency, and legal regulations and
policies arguably contribute to the PSC’s inflexibility For example, if an interviewed manufacturer
in supply, the overall PSC’s inflexibility is further expressed a vulnerability concern (8), viz. the Inability
complicated by an inflexibility in demand. Several of parallel traders to react quickly to shortages, it was
interviewees describe the inability or undesirability mapped to the vulnerability subfactors Flexibility
of patients to switch to different labels, both due in supply, external and integration capabilities
to therapy compliance (”therapietrouw”) and a and Import/ export channels (parallel trade). On
potential loss of placebo effects. average, an interviewed manufacturer expressed
2.0 unique concerns that were mapped this way
34
to the latter vulnerability subfactor, Import/export A word of caution is in order here. First, observe that
channels (parallel trade). In total, 64 percent of the Table 5 does not account for the beliefs that PSC
interviewees expressed at least one concern that partners may hold about the relative importance or
was mapped to the vulnerability factor Import/ export impact of particular vulnerabilities. Furthermore,
channels (parallel trade). Table 5 does not distinguish between causes and
effects. Consequently, some subfactors might
Table 5 ought to expose the top vulnerabilities in arguably overlap somewhat. For example, certain
the PSC’s structure as perceived by the interviewed Government policy and regulations are also believed
PSC partners. According to the results, the top five to enhance Price pressures. These Price pressures
vulnerabilities of the PSC structure relate to (i) its may, in turn, be a potential source of lean stock
inflexibility in supply, (ii) the impact of government management practices that exacerbate the lack of
policy and regulation, (iii) the lack of additional stock Additional stock and redundancy in inventory. Coming
and redundancy in inventory, (iv) price pressures, full circle, the lack of Additional stock and redundancy
and (v) challenges related to production-ordering in inventory may have inspired certain Government
policy. More than 75 percent of the interviewees policy and regulations. Therefore, Table 5 should not,
expressed at least one concern that could be by any means, be used to pinpoint a root cause of
related to any one of the factors mentioned above. PSC’s vulnerabilities.
There also seems to be a consensus among
the interviewed groups about most of the five Nonetheless, the overview in Table 5 provides a
vulnerability factors that pose the biggest potential first impression of the primary focus points and
threat to the robustness of the PSC. priorities that may initiate a discussion on ways to
improve the management of the Dutch PSC. It could
Furthermore, hospital pharmacists emphasized also serve as an input for a future, more extensive
the challenges associated with raw material vulnerability assessment: From descriptive research
replacements, raw material availability, and the to prescriptive research.
lack of backup suppliers and single sourcing, while
public pharmacists often named potential safety
hazards, reputation damage and brand image (i.e.,
the symbolic profile of the brand), and geographic
segregation as potential vulnerabilities.
Vulnerability Risk driver Vulnerability subfactor Man. Whol. HPh. PPh. Total [%]
factor [b]
Resource Limits Supply-related / Flexibility in supply, external and 7.0 6.5 4.0 2.7 20.2 100%
manufacturing integration capabilities [c]
External Policy/regulatory, Government policy and regulations [a] 4.5 6.0 2.4 1.3 14.2 100%
Pressures legal, and
bureaucratic
Resource Limits Supply-related / Additional stock and redundancy in 4.5 4.5 1.0 1.3 11.3 79%
manufacturing inventory [c]
External Financial Price pressures [a] 2.8 3.5 1.6 1.3 9.2 93%
Pressures
Resource Limits Supply-related Production-ordering policy [c] 2.8 3.5 1.2 1.3 8.8 93%
Sensitivity Manufacturing / Potential safety hazards [a, b] 1.3 2.5 0.4 2.0 6.2 64%
operational
Resource Limits Supply-related Raw material replacement [c] 2.0 1.5 1.6 1.0 6.1 64%
Supplier/ Manufacturing / Plant shutdown [c] 1.8 1.5 1.0 1.3 5.6 71%
Customer operational
Disruptions
Supplier/ Supply-related Backup supplier and single sourcing [b] 1.5 1.5 1.4 1.0 5.4 64%
Customer
Disruptions
Resource Limits Supply-related Raw material availability [a] 1.8 1.0 1.4 1.0 5.2 64%
35
Vulnerability Risk driver Vulnerability subfactor Man. Whol. HPh. PPh. Total [%]
factor [b]
Turbulence Demand-related Unexpected or drastic changes in client 1.5 2.0 0.6 0.7 4.8 71%
demands [a]
Sensitivity Demand-related Symbolic profile of brand [a] 1.3 1.5 0.0 2.0 4.8 50%
Connectivity Supply-related Import/export channels (parallel trade) 2.0 1.5 0.6 0.3 4.4 64%
[a]
Connectivity Infrastructure Geographic segregation / supplier 1.3 1.0 0.4 1.7 4.3 71%
separation / facility dispersion [c]
Turbulence Demand-related Unpredictability in customer demand [a] 1.0 2.0 0.6 0.7 4.3 71%
Supplier/ Manufacturing / Production restoration [c] 1.5 1.0 1.0 0.7 4.2 64%
Customer operational
Disruptions
Connectivity Infrastructure Lack of information transparency [b, d] 1.0 1.5 0.4 1.0 3.9 64%
Sensitivity Manufacturing / Importance of product purity / 1.0 1.5 0.0 1.3 3.8 50%
operational contamination risk / quality risk [a, b, d]
Resource Limits Demand-related Flexibility in demand [c] 0.5 1.5 0.4 1.0 3.4 50%
Connectivity Supply-related Reliance upon specialty sources [a] 0.5 1.5 0.4 1.0 3.4 50%
Connectivity Infrastructure Reshoring production facilities [b] 1.0 0.5 0.2 1.0 2.7 50%
Deliberate Policy/regulatory, Product liability [a] 1.0 0.5 0.2 1.0 2.7 50%
Threats legal, and
bureaucratic
Connectivity Infrastructure Degree of outsourcing [a] 0.5 0.5 0.0 0.7 1.7 36%
External Policy/regulatory, Corporate responsibility [a] 0.5 0.5 0.0 0.7 1.7 36%
Pressures legal, and
bureaucratic
External Macro Social/cultural changes and grievances 0.5 0.5 0.0 0.7 1.7 36 %
Pressures [a, b]
External Macro Environmental issues [a] 0.5 0.5 0.0 0.7 1.7 36%
Pressures
Turbulence Macro Exposure to geopolitical disruptions / 0.5 0.5 0.0 0.7 1.7 36%
political instability [a, b]
Resource Limits Supply-related Production capacity [a] 0.8 0.5 0.0 0.0 1.3 29%
Resource Limits Supply-related Multiple sourcing [c] 0.3 1.0 0.0 0.0 1.3 21%
Sensitivity Manufacturing / Complexity of process operations [a] 0.3 0.5 0.0 0.3 1.1 21%
operational
Resource Limits Supply-related Concentration of capacity [a, c] 0.3 0.0 0.2 0.3 0.8 21%
Connectivity Infrastructure Restructuring existing transport 0.0 0.5 0.0 0.0 0.5 7%
(flexibility in transportation) [c]
Connectivity Infrastructure Reliance upon information flow [a] 0.3 0.0 0.0 0.0 0.3 7%
Supplier/ Demand-related Customer disruptions [a] 0.3 0.0 0.0 0.0 0.3 7%
Customer
Disruptions
Table 5. Number of (uniquely) articulated concerns related to risk driver categories, adjusted for number of interviewees.
Last column: percentage of interviewees expressing concerns related to risk category. Man.: Manufacturers;
Whol.: Wholesalers; HPh.: Hospital pharmacies; PPh.: Public pharmacies. [a] Pettit et al. (2013); [b] Ho et al.
(2015); [c] Hosseini et al. (2019); [d] Moktadir et al. (2018).
36
6 CONCLUDING REMARKS
Triggered by the initial logistics impact of the interviewees expressed vulnerability concerns that
COVID-19 pandemic on a variety of industries, relate both to international challenges as well as
TKI Dinalog called for exploratory studies on the challenges closer to home. While most upstream
supply chain structure, supply chain dependencies, PSC challenges concern practices that occur both
and supply chain vulnerabilities of the Dutch food, inside and outside the EU, most downstream PSC
pharmaceutical and manufacturing industries. This challenges relate to phenomena that occur in the EU
report attempts to answer this call for the Dutch and mainly in the Netherlands.
pharmaceutical supply chain (PSC).
Vulnerability concerns in the upstream PSC
The COVID19 pandemic challenged the Dutch are primarily related to off-patent, chemically
healthcare system to offer dedicated care for large synthesized (generic) drug supply chains that
numbers of patients. Thanks to the creativity and often involve production steps outside the EU.
efforts of Dutch PSC actors, the availability of key Here, interviewees most frequently referred to the
drugs (e.g. propofol and midazolam) and, therefore, limited number of API suppliers and a decline in
the well-being of patients could be ensured. At the the number of manufacturers for some drugs (see
same time, the COVID19 pandemic and associated also Table 4). Lower prices have contributed to
product shortages brought new attention to the these developments. For the remaining supply chain
importance of drug availability. As the Netherlands actors, lower prices have further increased the focus
has faced growing drug shortages in the past (for on cost efficiency, resulting, for example, in larger
750 different drugs in 2018 and almost 1500 in 2019, production batches and difficulties in maintaining
KNMP (2019b)), this report aims to understand additional inventory (see Table 5) or spare production
the more structural supply and demand dynamics, capacity (Table 4). This limits the potential to recover
dependencies and vulnerabilities in the Dutch PSC quickly in the event of supply chain disruption.
to contribute to improved reliability and resilience
during regular and crisis situations. Many EU countries experience the above-mentioned
supply chain vulnerabilities in the international
Although the dedicated academic literature upstream PSC, yet both interviewees and industry
on pharmaceutical supply chains does not pay reports, such as NOS (2021); KNMP (2021), suggest
much attention to the fact that there is no single that the Netherlands suffers more from drug
pharmaceutical supply chain as such, interviews shortages than many other countries. This entails
with pharmacists, wholesalers and manufacturers both the number of products facing shortages and
indicated that the supply and demand dynamics the time it takes for shortages to be resolved.
differ structurally for off-patent and patent-protected
drugs and that important differences exist at the Interviewees at different stages of the Dutch PSC
level of an individual drug. Moreover, interviewees indicated that Dutch regulations and organization of
referred to differences in manufacturing and the Dutch pharmaceutical sector influence the supply
distribution processes for chemically synthesized and demand dynamics in the downstream PSC. A
and biological drugs. It is therefore difficult to draw variety of strategies succeeded in lowering prices
conclusions about the PSC in general. (e.g. preference policy, package price model, etc.),
but interviewees indicated that they also impacted
Similar to the finding that there is not a single PSC, demand variability and product shortages.
an exclusively Dutch PSC likewise does not exist. In
other words, the Dutch PSC is, to a large extent, part The six-monthly WGP price adjustments and
of a more extensive, international PSC. As such, its frequent drug tenders by different actors (health
vulnerabilities often stretch beyond our country’s insurance companies, hospital purchasing groups,
borders, and the Dutch PSC competes for available wholesalers) create many moments for major SC
products and production capacity. Consequently, decisions. This complicates demand forecasting,
37
6. CONCLUDING REMARKS AN EXPLORATORY ANALYSIS OF THE DUTCH PHARMACEUTICAL SUPPLY CHAIN JANUARY 2021
stock management and influences import and Interviewees indicated that higher product margins
export flows. The subsequent required changes enable manufacturers of innovative (patent-
in the product assortment may lead to temporary protected) drugs to maintain more inventory and
overstocking and understocking of the affected redundant production capacity, which allows them to
products in the period surrounding WGP and tender better respond to changes in demand. Although the
changes. Interviewees indicated that they can result interviewed pharmacists had difficulty identifying
in domino effects where shortages of one product innovative drugs with shortages, this does not imply
can induce shortages in several other related that no shortages can occur in a more responsive,
drugs. Interviewed pharmacists and manufacturers flexible PSC. If shortages for one particular product
indicated that, although the demand for a given occur, significant efforts are often needed to identify
drug (at molecule level) can be quite stable in the medical alternatives since they may not be suitable
Netherlands, demand variability is created in the or accessible for all patients (for medical reasons
downstream PSC at the level of an individual product including therapy compliance and policy reasons
(e.g. due to changing preferences and changes in including health insurance contracts). However,
import/ export flows). it is well known that a cost-efficient supply chain
operating at full production capacity with low
Although inventory targets and fines could force margins is unable to take sufficient mitigating
PSC actors to maintain more inventory in the supply actions to handle supply and demand variability and
chain (see section 3.2), they do not solve the root the disruptions they can cause.
causes. Moreover, maintaining additional inventory
is only one approach to lowering the risk of supply
chain breakdowns. For example, Chopra and Sodhi
(2004) indicate that having redundant suppliers is
known to have a larger impact on mitigating supply
risk.
38
7 RECOMMENDATIONS
Interviews with pharmacists, wholesalers, and strategies. Such strategies should not be limited to
manufacturers resulted in a variety of observations maintaining more inventory in the PSC; they could
on the current PSC network structure, practices, also include efforts to encourage raw material and
and perceived dependencies and vulnerabilities. API suppliers to be added to drug dossiers, and
As the scope of the project did not allow for an in- making it more attractive for manufacturers to
depth analysis of these findings, the authors think remain active on the Dutch market.
it is worthwhile examining the issues raised and
suggestions made to improve the performance of the We hope that the concise conclusions and
Dutch PSC. recommendations in this report will encourage
readers to examine the issues and suggestions
Industry and government efforts could be directed raised by the interviewed pharmacists, wholesalers,
at improving the upstream, international part of and manufacturers (see Sections 5.1.4, 5.2.3 and
the PSC by e.g. increasing the availability of API 5.3.3). In our view, the contributions from the Dutch
manufacturers, increasing (flexible) production PSC actors are worth examining in more detail as
capacity in the EU, etc. However, the findings from they seem to hold promising potential for further
this report indicate that the supply and demand improving the performance of the Dutch PSC.
dynamics of drugs can also be improved by taking
measures closer to home.
Since regulation has a strong impact on how a

supply chain can be organized, the authors want
to emphasize that cost-efficient supply chains can
work well if both supply and demand are relatively
stable. From a logistics point of view, it makes sense
to reduce variability in demand for the Dutch PSC
as much as possible. Reconsidering the frequency,
timing, and number of tenders and improving
demand transparency in the supply chain could
be two ways of achieving this goal. The COVID-19
pandemic illustrated that supply chain disruptions
and steep increases in demand cannot be entirely
avoided. Sufficient margins and financial incentives
are needed to implement a variety of mitigation
39
ACKNOWLEDGMENTS
First of all, the authors would like to thank TKI
Dinalog for initiating and funding this project.
Secondly, we thank our consortium partners VIG,
BOGIN, and IQVIA for their support and the many
useful conversations we had. We also thank them
for sharing their expertise, data, and industry
contacts with us. Finally, we are grateful to KNMP,
BGPharma, and the various pharmacists, industry
professionals, and other actors from the PSC for
sharing their time and knowledge. We hope that
our report does their efforts justice. Any remaining
inaccuracies or mistakes in the report are the sole
responsibility of the authors.
40
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AN EXPLORATORY ANALYSIS OF

THE DUTCH PHARMACEUTICAL

Commissioned by TKI Dinalog

All rights reserved.

© 2021 Dullaert/ Ghiami/ Jagtenberg/ Romero Silva/

3. DUTCH PHARMACEUTICAL SECTOR 11

2.1 SUPPLY CHAIN STRUCTURE, FLOWS AND

To maintain the quality of medicines, regulators

3 DUTCH PHARMACEUTICAL SECTOR

3.1 OVERVIEW OF THE CURRENT SITUATION

corona crisis. It emphasizes how international

Based on an initial literature review and exploratory

Figure 1. A schematic overview of our interviewees.

5.1 PHARMACIST STAGE

Raw material Excipient Exci. Other

Figure 2. The pharmaceutical supply chain delivering to the Dutch market.

Drug type Availability Off-patent Patent

Microgynon 30 Chem B 9 Apothecon, Aurobindo, Bayer, 34% Focus Care Regular**

Dabrafenib Chem A Novartis Not yet in Low

Flucloxacilline Chem B Aurobindo Before 2007 Perfect

Levothyroxine Chem C Aspen Europe Perfect

Pembrolizumab Biolo- A Merck Sharp Dohme Not yet in Poor

Insulin aspart Biolo- B Novo Nordisk Ocotober 2020 Perfect

Drug type Availability Off-patent Patent protected

W1 observes that the supply chain of generics 5.2.3 Wholesaler recommendations

5.3.3 Manufacturer recommendations 5.4 RISK AND VULNERABILITY EXTRACTION

# Operating Vulnerability or risk Manu- Whole- Hospital Public Total

5 Lean Geographic concentration of suppliers 25.0% 0.0% 20.0% 33.3% 21.4%

6 Lean Long lead times 25.0% 0.0% 20.0% 33.3% 21.4%

11 Competitive Consolidation of procurement 0.0% 0.0% 20.0% 0.0% 7.1%

# Operating Vulnerability or risk Manu- Whole- Hospital Public Total

20 Legal Frequent tendering processes 75.0% 100.0% 60.0% 0.0% 57.1%

22 Legal Frequent WGP recalibrations 25.0% 100.0% 20.0% 33.3% 35.7%

29 Legal Counterfeit products 25.0% 0.0% 0.0% 0.0% 7.1%

Since regulation has a strong impact on how a

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