Contract service providers in India are figuring out ways to tide over the worsening disruptions in the supply chain and escalation of raw material costs as geopolitical tensions arising out of the Russia-Ukraine conflict mount.

Leading Indian players have already embarked on devising strategies like realigning their supply chains to deal with a volatile operating environment as they fear a protracted war could affect their short as well as long-term goals badly.

“Some of the measures we are taking,” says Deepak Sapra, CEO, API and services at Dr. Reddy’s Laboratories Ltd., “are alternative vendor development, a greater degree of backward integration of strategic assets, and building upon synergy effects by leveraging our network of strategic partners and suppliers.”

One of the key manufacturers of Russia’s Sputnik V vaccine, the Hyderabad, southern India-headquartered pharma major has a strong presence in Russia and the Commonwealth of Independent States (CIS) region. In the previous fiscal year, which ended in March of 2021, Dr. Reddy’s sales to Russia accounted for more than 8% of the company’s revenue, coming to $2.47 billion.

According to Sapra, Dr. Reddy’s efforts are focused on addressing the factors including the rise in raw material, energy and logistic costs on account of the macroeconomic situation for the mid- to long-term.
In line with Dr. Reddy’s, several others are also in the process of readjusting their supply chains to mitigate the impact.

Meanwhile, small-time players find the sharp rise in prices of raw materials, solvents, excipients and logistics hit their bottom lines hard. Already, the manufacturing companies are reeling under the supply chain challenges in the aftermath of pandemic lockdowns.

In addition, the high levels of inflationary pressure caused by the crisis in oil and gas industries also have an indirect effect on the contract services industry.

When the input costs go up, there is operational stress in terms of the liability of the operation, say CDMOs.

Manufacturers are also exploring alternative energy sources to avert an energy crisis in the future. Dr. Reddy’s is increasing their investments in renewable energy to have a much higher proportion of the company’s energy needs met by renewable sources, says Sapra. This will have both environmental and economic impact in the long term and is a part of Dr. Reddy’s ongoing environment, social and governance (ESG) efforts to become the leading pharma company in sustainability and environmental stewardship.

Indian pharma has other reasons too to be wary of a prolonging Russia-Ukraine crisis. Russia is one of the biggest importers of Indian generic medicines. According to the Pharmaceuticals Export Promotion Council of India (Pharmexcil), India exported over $181 million worth of pharmaceutical goods to Ukraine in FY21, growing nearly 44 percent over FY20, while exports to Russia were nearly $591 million in FY21, with YoY growth of 6.95 percent.
Ukraine is a relatively small player in global trade. Nonetheless, the eastern European country specializes in and plays a key role in certain commodities pertinent to the pharmaceutical industry.

Ukraine has made a footprint in the drug research and development services front, note industry observers. Specialized Ukrainian firms have developed capabilities in complex synthesis like that of their Russian counterparts. Prior to the war, the country has been offering medicinal chemistry services including the synthesis as well as optimization of biologically active drug compounds. It used to supply off-the-shelf reagents containing drug building blocks and chemical libraries even to drug development start-ups.

When it comes to clinical trials, Russia, Ukraine and other CIS countries have been significant contributors in many therapeutic areas for several years. Ukraine has been part of hundreds of clinical trials every year, shows the U.S. FDA’s clinical trial database.

Today, many of the Ukraine-based clinical trial sites have collapsed, as the Russian invasion has destroyed hospitals and research facilities. Biopharma companies are halting enrollment in many clinical trials in Russia, reports show.
Several pharma and biotech companies have acknowledged likely delays in clinical trials in both Ukraine and Russia and difficulties in producing vaccines and drugs needed in those countries.

The supply chain disruptions, say experts, are here to stay. And the companies can make use of the learnings from the Covid-19 pandemic lockdowns to cope with the New Normal while looking at options to make supply chains more sustainable. Over and above, they argue that none can miss the writing on the wall which is bold and clear: The Russia-Ukraine stalemate is highly unlikely to draw to a close anytime soon.