COVID-19: Impact on API Production
and Global Pharmaceutical Supply Chains

COVID-19: Impact on API Production
and Global Pharmaceutical Supply Chains

Executive Summary

  • Widespread city lockdowns and transport restrictions in China during the initial COVID-19 outbreak caused production shutdowns in almost all sectors, including in China’s pharmaceutical industry. The residual constraints are still affecting pharmaceutical suppliers that produce Active Pharmaceutical Ingredients (APIs), which are an essential component in making medicines. 
  • Concerns were expressed in the healthcare industry when the United States Food and Drug Administration (FDA) in late February confirmed its first case of drug shortage, citing that an API manufacturer in China was impacted by the virus outbreak. However, specific details of the manufacturer, the type of API, and the drug it is used in was not mentioned, which created speculations in the global pharma industry.   
  • Following the FDA’s announcement, India, which hosts a large number of generic drug makers, banned the export of 26 pharmaceutical ingredients as well as formulations that are used in the making of generic drugs, such as paracetamol and antibiotics. The regulation was imposed supposedly to tackle possible domestic shortages of medicines as COVID-19 infection cases continue to rise in India. 
  • The scarcity of raw materials due to production stoppages and labor shortages during the COVID-19 outbreak has exposed the weight of the world’s pharma industry on China. The country is a significant contributor to global API output and intermediate manufacturing. 
  • As the full effects on pharma supply chains as a result of the COVID-19 outbreak in China becomes more evident, supply chain managers should diversify their sourcing locations, seek alternative transportation capacity to move cargo, and rethink their manufacturing and sourcing network. 


The global pharmaceutical supply chain will likely be in jeopardy in the coming months as the COVID-19 pandemic persists across the world. Widespread city lockdowns in China, as well as continuing airfreight disruptions, have impacted the pharmaceutical industry, particularly countries depending on raw materials from China. In the healthcare industry, these raw materials are called Active Pharmaceutical Ingredients (APIs), which are chemical compounds used to formulate a finished drug product. On February 27, the US Food and Drug Administration (FDA) issued a statement confirming the first case of a drug shortage due to an API manufacturer being affected by the COVID-19 outbreak in China, though specific details pertaining to the drug in shortage were not disclosed for confidentiality reasons. 

Following the FDA’s announcement, India, the world’s largest supplier of generic drugs, placed an export curb on 26 APIs and formulations for an indefinite period due to mounting concerns in the industry regarding API shortages, stemming from disruptions to China’s pharmaceutical production and subsequent logistics impact. The export curb from India has raised concerns in the US and the European Union as the list of restricted compounds account for 10 percent of India’s total pharmaceutical exports. The European Medicines Agency (EMA), a regulatory body of the EU that evaluates and supervises medicinal products, recently announced that it is collaborating with its European medicines regulatory network to monitor the potential impact of the virus on pharmaceutical supply chains in the EU. Both the FDA and EMA are on high alert as drug shortages and further disruptions to the health care supply chain cannot be ruled out if the pandemic prolongs further. 

To assist supply chain managers in keeping abreast of the situation and help initiate risk mitigation plans, this report explores why India’s export ban is important for the world’ pharma industry, how much the world’s pharma industry relies on China’s API production, as well as health care supply chain implications against the backdrop of COVID-19. The report also examines the risk of the global pharmaceutical industry’s reliance on a single market and how the outbreak may likely change the future of raw material sourcing and manufacturing.   

Why is India’s API export curb important?  

The Indian Ministry of Commerce and Industry on March 3 restricted the export of 26 APIs and formulations containing such APIs amid the growing number of COVID-19 cases in India. (A detailed list of the affected products can be found in Appendix 1.) The measure has caused concerns among the EU countries as India exports about 26 percent of the European formulations in the generic drug market, while it accounted for 24 percent of the generic drug imports to the US in 2018. At the moment, there are around 700 drug-making facilities in India that are reportedly licensed to export to the US pharmaceutical firms. 

At present, the FDA and public health officials are working to understand how India’s new export policy may affect drug supplies. Indian manufacturers that want to continue exporting these restricted APIs will have to apply for appropriate certification from their government. The restricted APIs are used in making generic drugs such as paracetamol, clindamycin, tinidazole, acetaminophen, and antibiotics. At a time when there are no specific treatments or vaccines available to cure COVID-19 and infection rates continue to soar across the world, any restrictions on API exports will push countries into a panic mode. 

The constrained supply of APIs from India is linked to the disruptions in China. Despite being the world’s largest supplier of medicines to several countries, the Indian pharmaceutical industry is highly dependent on China for raw materials to make generic drugs. Indian drug makers import about 70 percent of Chinese APIs in their total bulk drug requirements. Unless the API production in China returns to full operation soon, Indian drug makers may fall short of producing essential medicines. 

The world’s reliance on China’s API 

The scarcity of raw materials due to production stoppages and labor shortages during the COVID-19 outbreak has exposed the weight of the world’s pharma industry on China. The country is a significant contributor to global API output and intermediate manufacturing. The World Health Organization estimates that China accounts for 20 percent of the global API output, though many healthcare agencies have estimated the figure to be double. According to the FDA in 2019, the number of registered facilities manufacturing APIs in China for the US pharmaceutical firms has more than doubled between 2010 and 2019 due to labor availability and cost advantages. 

The export rate of China’s API has reportedly increased by 14 percent annually recently along with its market in share over 70 countries and regions in North America, Europe, Latin America, and Asia. The country’s pharmaceutical manufacturing is concentrated in Eastern and Southern regions. Eastern China, which compromises of Shanghai, Zhejiang, Fujian, Anhui, and Jiangxi provinces, has long been known as a pharmaceutical hub as it hosts a number of small molecule API manufacturers, while the southern region concentrates on biologics. 

This report focuses particularly on API production and will examine the pharmaceutical concentration in the eastern provinces. Hubei province, the epicenter of the novel coronavirus outbreak in China, is adjacent to these provinces and also has a number of local pharmaceutical companies. Figure 1 portrays their locations in eastern provinces, highlighting the number of approved EMA and FDA pharmaceutical facilities in each region. 

Figure 01: Number of pharmaceutical facilities approved by the FDA and/or EMA in China’s eastern provinces in 2019, Source: GlobalData; PharmaSource

While Shanghai hosts a number of major international pharmaceutical companies, such as Bristol Myers Squibb, Roche, and Ajinomoto, Zhejiang province, located just south of Shanghai, hosts the most number of pharmaceutical facilities that export to the US and EU markets. Figure 2 shows that there are more facilities approved by the FDA than its EU counterpart in these regions, though both agencies have similar regulatory standards. The representation is broadly in line with the FDA’s records in August 2019, in which it stated that 72 percent of API manufacturing facilities for the US market were from overseas, with 13 percent in China. 

Figure 02. Overlap of EMA and FDA approved facilities in Shanghai, Zhejiang, Fujian, Anhui, and Jiangxi provinces. Note: Figure not to scale. 
Source: GlobalData; PharmSource, 2019

While the lockdowns in these provinces have already been lifted and the situation in China is gradually improving with provisional authorities having allowed the reopening of essential sectors including pharma factories even in Xiangyang and Wuhan, both in Hubei province, disruption is likely to persist in the coming weeks. 

Labor shortage and production slowdown 

Resuming operation does not necessarily mean a return to full production: several companies have reported capacity utilization rates of up to 50 to 80 percent. Supply of raw materials continues to be hampered as suppliers have not ramped up operation fully yet. Moreover, manufacturers face constraints due to shortage of manpower, as some employees are still stranded in their hometowns due to travel restrictions between Wuhan and other cities at least until April 8, the date Wuhan is set to fully lift its lockdown and resume all transportation. 

During the initial outbreak in China, many Chinese companies extended the Lunar New Year holiday period in late January as the coronavirus outbreak escalated. To limit the spread of COVID-19 infections, the government imposed restrictions on the movement of at least half a billion people across the country in over 100 cities. There has been a significant delay in the return of workers to factories, storage facilities, and trucking operations in China, as employees who were even able to return to work from other parts of China had to quarantine themselves for two or more weeks. 

Until operations resume fully at the plants, pharmaceutical firms may face further delays in the delivery of key ingredients as factories struggle to meet the global API demands. Moreover, there may also be possible disruptions to clinical trials as there are 22 major pharma companies that are conducting studies in China and 18 have sites in Wuhan.  

Airfreight cargo disruption

The transportation of raw materials, medicines, and other chemicals are mainly reliant on air cargo capacity availability. Due to the high sensitivity of the cargo, special handling of such goods is necessary and usually require temperature-controlled storage. However, the aviation industry has been hit by the widespread cancellation of flights due to travel bans imposed on countries with the highest number of COVID-19 cases in an attempt to contain the spread of the virus. 

Intelligence received by Reseilience360 indicates that airfreight for medical cargo has not been significantly affected due to the utilization of charter flights and cargo freighters. However, as the cargo hold of passenger planes transport a large fraction of overall air freight moved, logistic providers and pharmaceutical companies must grapple with capacity constraints and the added financial burden that the charter options can contribute to overall transportation costs. More importantly, any financial pressure experienced by airlines now, and leading to subsequent insolvencies later, will have a significant impact on the overall airfreight market. This is a development that requires careful monitoring.


Given the uncertainty of the COVID-19 crisis and the unpredictability of the scale and duration of this global pandemic, it is imperative that stakeholders in the pharmaceutical industry be prepared while keeping abreast of the developments. Supply chain managers should consider the following short and long term mitigation measures when initiating risk reduction plans. 

Short term measures:

  • Monitor suppliers regularly: To ensure timely response during an emergency, Everstream Analytics customers should have an up-to-date database of the key contacts of suppliers, distributors, and wholesalers. Since raw materials and APIs sourced from one country are likely to be manufactured and packaged elsewhere, visibility of the locations in use is a primary consideration. This will enable organizations to take swift actions in identifying the affected sites while assessing options for alternative providers in order to avoid production delays.
  • Seek alternative shipping capacity: Securing additional air freight capacity through charter flights for critical raw materials required for manufacturing can be a viable option when there is limited market capacity to move cargo. Organizations are advised to work proactively with freight forwarders to assess these alternative shipping options.
  • Allow flexibility in decision making during a crisis: As the situation remains fluid, companies should be flexible in their decision-making process and be quick to communicate decisions to business partners. This will enable organizations to utilize transportation capacity as soon as they become available and be more agile in the face of a crisis. 

Long term measures: 

  • Assess suppliers’ long-term capability to continue production: It is imperative for pharmaceutical companies to proactively assess suppliers’ production capabilities as it is not feasible to rely solely on external regulators for comprehensive inspections at multiple drug-making sites. This can be achieved by establishing an in-house survey, especially as suppliers are geographically spread out, as well as in-person audits. This can help firms to formulate best practices or policies by being able to evaluate the supplier’s strengths and weaknesses. 
  • Identify and secure alternative suppliers: Customers are advised to identify and secure alternative suppliers should the production at an existing supplier become limited or even halted. If inventory stock is close to the critical level in the short term, having alternative sources ready to ramp up production will save valuable time and effort and shorten response times. 
  • Develop contingency plans at manufacturing sites: Each drug manufacturing site should be mandated to develop a crisis management plan that can be deployed in the event of an emergency. This will enable organizations to deploy risk mitigation measures quicker during a crisis, having the appropriate protocols in place well in advance. 


No pandemic is the same in terms of symptoms, the scale of the human impact or its effect on supply chains, thus it may be difficult to assess the probabilities of an outcome. 

The current death toll has long surpassed the fatality rates of SARS or MERS pandemics and has spread outside of mainland China rapidly. As of this writing, the virus has spread to 177 countries around the world, while China is anticipating a second wave of infection from the imported cases. The situation remains fluid and the disruptions caused by the outbreak, both current and potential, are anticipated to have an impact on the manufacturing and distribution operations of pharmaceutical supply chains.  

Overall, the COVID-19 outbreak may be a wakeup call to the pharma industry and governments. It exposes longstanding vulnerabilities of pharmaceutical manufacturers that largely depend on a single market for critical ingredients, and manufacturing operations due to labor availability and cost advantages. 

Apart from China and India, other production facilities of some of the major API manufacturers’ sites are located in Israel, Hungary, Italy, Czech Republic, Austria, Slovenia, Mexico, Puerto Rico, Monaco, the United States, and the United Kingdom. There will, undoubtedly, be a call for other markets to increase their input and fill the shortages. While this may alter manufacturing networks and transport routes overall, the current knock-on effect of API disruption has highlighted the importance of strategically diversifying sourcing, manufacturing, and procurement methods and for pharmaceutical manufacturers to consider reconfiguring their supply chains to mitigate future disruptions.


No.Restricted APIsIT HS CodesTreatments
1Paracetamol and formulations made of it29222933, 30049099drug used to treat fever, moderate pain
2Tinidazole and formulations made of it29332910, 30049023 drug used to treat amoebic and parasitic infections
3Metronidazole and formulations made of it29332920, 30049022antibiotic to treat bacterial and protozoal infections
4Acyclovir and formulations made of it29335990, 30049099antiviral medication to treat infections caused by viruses
5Vitamin B1 and formulations made of it29362210, 30045032vitamin to treat or prevent thiamine deficiency
6Vitamin B6 and formulations made of it29362500, 30045039vitamin to treat or prevent pyridoxine deficiency
7Vitamin B12 and formulations made of it29362610, 30045034vitamin to treat or prevent cobalamin deficiency
8Progesterone and formulations made of it29372300, 30043919used in hormonal therapy
9Chloramphenicol and formulations made of it29414000, 30042050 antibiotic to treat a number of bacterial infections
10Erythromycin Salts and formulations made of it29415000, 30042061antibiotic to treat a number of bacterial infections
11Neomycin and formulations made of it20419050, 30049015antibiotic to fight bacteria in the body
12Clindamycin Salts and formulations made of it29419090, 30042095antibiotic used to treat a variety of serious infections
13Ornidazole and formulations made of it29420090, 30049021antibiotic used to treat protozoan infections
Appendix 1: List of Active Pharmaceutical Ingredients restricted for export by India. Source: Ministry of Commerce and Industry, Republic of India

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