The growing impact of Environmental, Social, and Governance (“ESG”) on pharmaceutical supply chains.

The Russian invasion of Ukraine has been touted as the final nail in the coffin of globalisation, confirming the nationalisation of key industries and products.

With respect to pharmaceutical manufacturing, this is accelerating a trend which has been ongoing for 10 years, the repatriation of drug manufacturing from Asia to the US and Europe has been further advanced both by the covid 19 pandemic and now the war in Eastern Europe. These events are driving a reconsideration of critical medicine supply chain security, with key products now manufactured closer to market and second sourced. This is driving both public and private investment in manufacturing, reflected in enhanced M&A volumes and valuations for the pharmaceutical manufacturing sector, particularly in Europe and the US.

Asia and especially China still has cost advantages leveraging manufacturing scale, lower costs, and standards, which have been reflected in lower costs of APIs and intermediates. However, investors are and will increasingly impose enhanced ESG standards (and costs) on not only the manufactured drug product, API but intermediates, in fact the whole supply chain. This will of course result in both higher costs but a normalisation of supply chain manufacturing standards and costs across the US, Europe and Asia.

While there is a current trend to nationalisation of key industries, the world is more connected and networked than ever before, therefore trade and the world will become global, manufacturing to more universally consistent, ethical, sustainable and environmental standards.