In an industry based on innovation, Life Science companies continually reshape healthcare by bringing new technologies and treatments to market every year.
While each new development brings the potential to improve people's health and lives, it also carries an underlying risk of bodily injury arising from the potential side effects of a new device or medicine, which remain unknown until the lengthy clinical trial process collects the appropriate level of data.
Beyond that, these companies also face ever-evolving exposures - from supply chain risks to cyber vulnerabilities – amplified by the industry's increasingly global nature.
Many Life Science companies outsource most of their operations, from research to manufacturing, sales, and cloud storage for their data storage systems. But supply chains that stretch across the globe can prove fragile, as we've seen during the pandemic.
The extraordinary demand for personal protective equipment (PPE), active pharmaceutical ingredients (API), test kits and vaccines quickly revealed pinch points, including shortages of workers, raw materials and production capacity.
Specifically, with production clustered in some regions of the world, the supply chain is vulnerable to shocks. The lengthy lockdown imposed on factories in Malaysia resulted in a global shortage of medical gloves, as the Malaysian market manufactures approximately 65% of the world's supply.
Despite all these disruptions, the sector has successfully managed the most significant risks faced and helped us through this challenging period.
Supply chain issues: Marine congestion around the Shanghai port as a result of the latest lockdown in April 2022 (Source)
As Asia Pacific countries embark on their return-to-normal journey after more than two years of pandemic conditions, let's consider the lessons learned and how the risk landscape evolves as the Life Science sector builds on its preparedness for future pandemics while continuing to manage the impact of COVID-19.
There is a greater reliance on technology (e.g., the cloud, IoT, AI, blockchain, robots) to provide greater supply chain visibility and an enhanced ability to track and trace both manufacturing inputs and finished products. Technology is also helping to overcome distribution challenges, such as the use of automated drones for delivery into remote regions.
Finally, the integration of technology into the supply chain also means that many activities along the supply chain have now gone virtual, with significant volumes of data being stored in the cloud.
Since the pandemic, large pharmaceutical companies (or even governments) are increasingly looking to establish local manufacturing capacity or reduce dependency dependency on major supplier nations. For example, a company was set up in Australia to produce PPE domestically, with their sole client being the government.
In the case of APIs, many healthcare companies currently manufacture them globally, then regionalize their drug products. They are also looking to be less reliant on China and India, the world's biggest suppliers, and replace API sourcing with capacity from elsewhere, for example Thailand or Malaysia.
The risks posed by government interventions, lockdowns and competition for resources have put supply chain diversification high on Life Science corporations' agenda.
Before COVID-19, something would have to go really wrong to lose a supplier. Now companies actively look to have two or three different providers supplying the same component to avoid putting all their eggs in one basket.
However, such diversification could mean an increased workload for the quality control teams, with every component from every supplier requiring quality checks.
Given their heavy reliance on outside suppliers and manufacturers, Life Science firms are not immune to disruptions along the supply chain. There are many ways things can go wrong, and some are outside their control (e.g., COVID-19 clusters among suppliers' employees impacting staffing and ability to meet production and distribution timelines).
In a crisis-prone world, besides making sure their suppliers have a solid recovery plan in place, contingent business interruption coverage can protect Life Science companies against operational and financial implications from supply chain breakdowns. In addition, they need to thoroughly understand critical supply chain components and interdependencies to minimize the duration and impact of any disruptions.
Find out more about risk mitigation and engineering services to help identify vulnerabilities in an end-to-end Life Science supply chain.
Disclaimer - The contents of this article are for informative purposes only and not intended to be an offer or solicitation of insurance products. You should obtain and read the relevant policy documents to determine whether any of the insurance products discussed are right for you or your business, noting different limits, exclusions, terms and conditions apply in each country or territory, and not all cover is available in all countries or territories. Chubb Insurance Hong Kong Limited makes no warranty or guarantee about the accuracy, completeness, or adequacy of the contents. This document should not be relied on for legal advice or policy coverage and cannot be viewed as a substitute to obtaining proper legal or other professional advice, or for reading the policy documents.
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