The CARES Act & Your Supply Chain: What You Need to Know

By Jeremy Friedler Rashi Gupta

The COVID-19 pandemic and resulting economic crisis exposed the vulnerabilities of both domestic and global supply chains across multiple industries. Given the complexity and far-reaching global nature of their supply chains, pharmaceutical and biotechnology companies were required to diligently monitor CDMOs and internal manufacturing facilities, while enacting business continuity and risk mitigation plans to initiate the appropriate measures to safeguard the supply of medicines to patients throughout the pandemic. Long term, the pandemic has also triggered a turning point in how the biopharmaceutical industry needs to realign their supply chains in order to build resilience in the event of future disruptions.

Additionally, the pandemic revealed the limitations of increased dependence on overly globalized and geographically dispersed biopharmaceutical supply chains. Many of these supply chains have limited plans in place for supply redundancy and diversification. As a result, we witnessed delayed cGMP commercial production schedules, capacity reductions and production decommitments due to prioritization of COVID therapeutic product production at CDMOs, and a threat of temporary bans on raw material exports from China and India (two of the largest providers of key starting materials and active product ingredients). These examples, among others, sent shivers down the spine of the entire industry as they enable the potential for both near and long-term drug shortages.

With an intent to address these challenges and provide a framework for future biopharmaceutical supply chain resilience and risk management, the U.S. Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was signed into law on March 27, 2020. Tucked away in 335 pages of legislation, there are specific mandates and provisions to ensure biopharmaceutical companies implement proper measures to monitor and mitigate future supply chain risks and prevent potential future drug shortages.

CARES Act Provisions Relevant to the Pharmaceutical & Biotechnology Industry

The CARES Act includes many provisions that directly impact the pharmaceutical and biotechnology industry to address gaps in reporting requirements to the Food and Drug Administration (FDA), increase transparency in the biopharmaceutical supply chain to avoid drug shortages, and mitigate risks to overall national security.

Notable relevant provisions:

• Expansion of the Scope of Products Subject to Notification: Section 506C of the Federal Food, Drug and Cosmetics Act (FD&C) requires manufacturers of certain drugs to notify the FDA of current or potential drug shortages. The CARES Act broadened this reporting category to include drugs and APIs “that are critical to public health during health emergencies.” The requirements for classification as “critical” are still undefined. However, biopharmaceutical manufacturers of these products will come under intense federal scrutiny and need to analyze mitigation plans for potential shortage conditions.
• Product Discontinuances & Manufacturing Interruption Notification: The FDA requires adequate and timely information to evaluate any supply disruption and determine a course of action for preventing and mitigating possible shortages. With the intention of enhancing the FDA’s overall visibility, the CARES Act mandates alerting the FDA regarding a notification of product discontinuance or disruption in the manufacturing of covered drugs and biologics products critical to public health during a health emergency. Additionally, API shortages that may lead to meaningful disruption in supply of covered products in the U.S. will also now require reporting. Companies must disclose the reason for discontinuance or interruption, estimated shortage duration, current API source, and any alternate API suppliers.
• Pharmaceutical Manufacturers to Report on Annual Production Output: Pharmaceutical manufacturers must now send the FDA an annual report on specific volumes of API and drug product manufactured at validated CDMOs and manufacturing facilities.

Impact of the CARES Act on Pharmaceutical & Biotechnology Supply Chains

All of the CARES Act provisions demonstrate critical requirements for building supply chain resilience. However, designing, developing and maintaining a supply chain redundancy risk management plan will likely impact biopharmaceutical manufacturers the most. In particular, emerging biopharmaceutical companies who have not yet developed supply chain risk mitigation strategies or business continuity/disaster recovery plans.

Development of a Redundancy Risk Management Plan: Per CARES Act Section 3112: Additional Manufacturer Reporting Requirements in Response to Drug Shortages, manufacturers of covered products must now develop, maintain and implement a redundancy risk management plan. This plan identifies and evaluates risks to the supply of the drug product for each establishment in which that drug product or its API is manufactured. Redundancy risk management plans are now subject to inspection, potentially by the FDA or the Department of Health and Human Services (HHS) directly.

In accordance with CARES Act requirements, biotechnology and pharmaceutical companies will now have to perform a clinical and commercial manufacturing supply chain risk assessment in order to develop their redundancy risk management plan. This ensures responsiveness to potential drug shortages.

Emerging biopharmaceutical companies may not have conducted an end-to-end supply chain and supplier risk assessment or developed a supplier redundancy strategy yet. We recommend beginning with assessing internal and external supply risks related to the following criteria:

• Quality/QMS Maturity & History
• Redundancy Strategies & Plans in Place
• Supply or Supplier Diversification
• Business Continuity & Disaster Recovery Plans
• Effort Required to Source & Validate Additional Supply or Suppliers
• Suppliers’ Strategic & Technical Capabilities
• Geographic or Geopolitical Risk

Proper evaluation of internal and external assessments and scoring across these specific criteria and dimensions will lead to the development and maintenance of a redundancy risk management plan to comply with the CARES Act and inspection requirements, while enabling supply chain resilience in the form of proper risk mitigation plan levers to be pulled at the appropriate timing.

Furthermore, it is recommended that both established and multinational biopharmaceutical companies also continue to assess internal and external supply chain risk and business continuity/disaster recover plans in light of the CARES Act provision.

Key Takeaways

• Both emerging and established biopharmaceutical manufacturers need to develop or revisit their supply chain redundancy risk management plans to comply with the CARES Act, which begins with detailed internal and external supply chain and supplier risk assessments.
• While the CARES Act does not outline a specific format, redundancy risk management plans should be developed in a manner that is “inspection ready” by a U.S. government agency.
• The CARES Act appears to target and prioritize commercially available therapeutics. However, assessing and developing a redundancy risk management plan for your clinical supply chain is strongly recommended to comply with the spirit of the CARES Act and increase resilience capabilities that could potentially prevent disruption in the clinic.
• While the COVID-19 pandemic highlighted overall supply chain weaknesses within biopharmaceutical supply chains, the CARES Act mandates near-term provisions to mitigate future drug shortages. However, we anticipate that additional U.S. government intervention will continue to occur to further mitigate biopharmaceutical supply chain risks and build enhanced resilience (see recent findings from the Biden administration’s 100-Day Supply Chain Review).

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