In contrast with Big Pharma, Generic Pharma functions on tight margins and fierce competition.
For generic companies, the principle that stands out is ensuring a secure, consistent, and cost-effective supply chain, to deliver high-quality medicines which are affordable.
When it comes to active pharmaceutical ingredients (APIs), the risks of relying on a single supplier are simply too high to ignore. It’s not just about cost but also about supply security, and the flexibility to manage the unexpected. Why qualify at least two suppliers for your APIs? It’s not just best practice — it’s an essential strategy for survival. Let’s look at some of the reasons.
The Risks of Relying on a Single Supplier
1. Supply Disruptions
API manufacturers aren’t immune to the unexpected.
Corporate restructuring, financial instability, or even natural hazards can cause significant disturbance to your supply chain. Consider these scenarios:
- An earthquake damages critical manufacturing facilities, halting production for months.
- A supplier goes bankrupt, leaving you scrambling for a replacement.
With two suppliers qualified, you build security into your system, ensuring production continues even when facing unexpected events.
2. Shifting Strategies
API manufacturers aren’t static — they make strategic decisions that can suddenly deprioritize your needs.
For instance:
- A company focusing on generic APIs secures a lucrative contract with a big pharma company, reducing their interest in producing generic APIs for smaller customers.
- Another company decides to expand their portfolio with more modern APIs but trims capacity for established ones instead of investing in new facilities.
Without a second supplier, you can find your API supply at risk when your single supplier’s priorities change.
3. Regulatory or Political Risks
The global API supply chain is deeply interconnected with local regulations and geopolitical factors. A single decision can have massive domino effects. Consider this real-world example:
Just a few years ago, the Chinese government banned API manufacturing in a certain region of Zhejiang Province to curb pollution. Many manufacturers in this area were forced to cease production and rebuild factories elsewhere, with a very short time window offered.
For pharma companies relying on the APIs produced in that area, the impact was severe. New API facilities had to be built, qualified and certified, new API process validations had to be conducted and new DMFs had to be compiled and filed with the authorities, new finished product batches needed to be produced, put on stability, new validations were needed and variations filed with the authorities. The entire recertification was a complex process — and not a quick one.
Having a second supplier already qualified puts you in a much better position and can protect your business against such unpredictable shocks.
4. Predatory Pricing Behavior
Some suppliers seem like the perfect partners during development — offering low prices and rapid timelines. But once the API is qualified and your product is ready for launch, they reveal their true colors: dramatically increasing prices when you have little choice but to accept.
Having a second qualified supplier gives you leverage to push back, negotiate, or simply walk away and use your alternative without disrupting your supply chain or profitability.
The Benefits of Qualifying Two Suppliers
Having two qualified suppliers is more than just about managing risks — it’s also a strategic advantage:
1. Supply Chain Security
A second supplier acts as an insurance policy. If one becomes unavailable, the other ensures your production lines keep running.
2. Cost Competitiveness
When suppliers know they’re not your sole option, it keeps pricing competitive. You can compare quotes, negotiate better deals, and avoid getting trapped.
3. Operational Flexibility
Having more than one supplier qualified provides the flexibility to adjust sourcing based on changes in demand, pricing, or logistics. In case of demand surge, being able to buy the API from two sources instead of one will be a massive advantage. As it will in case one of your suppliers faces regulatory issues.
4. Geographic Risk Mitigation
Choosing suppliers in different regions minimizes exposure to risks like natural disasters, trade restrictions, or political instability.
Key Considerations When Qualifying Two Suppliers
While qualifying two suppliers has clear benefits, the process requires careful planning. Here’s what to keep in mind:
1. Avoid Identical Risks
It’s not enough to qualify two suppliers — you need to ensure they don’t share the same vulnerabilities. For example, qualifying two manufacturers located in the same region won’t protect you from geopolitical risks or natural disasters affecting that area.
2. Balance Quality and Cost
Price is important, but quality, compliance, and reliability are essential, too. Select suppliers that offer you both competitive pricing and quality, regulatory and technical standards.
3. Timing Is Critical
Qualifying suppliers during development is far easier and less costly than doing it post-launch. Introducing a new supplier later can turn out to be a very costly process, especially if you have to do it under time pressure.
Real-World Scenarios: Why Having Two Suppliers Matters
Case 1: Predatory Pricing
Although a new product expected to be niche, a generic company decided to qualify a single supplier, who offered unbeatable prices during development. Post-approval, the supplier almost doubled their prices, knowing the generic company couldn’t switch without delaying production. With no second supplier, the company had no leverage and was forced to pay.
Case 2: Regulatory Shutdown
A supplier lost GMP certification due to critical audit findings. Without a backup supplier, the generic company had to stop production while qualifying an alternative — a process that took over a year and cost millions in lost revenue.
Case 3: Natural Disasters
An earthquake seriously damaged a supplier’s facilities, halting API production. Generic companies relying solely on this supplier faced months of delays, while those with a second supplier continued operations without disruption, avoided costly delays and stayed ahead of the competition.
Why It’s Worth the Effort
Qualifying two suppliers requires time, effort, and resources, but the benefits are obvious:
- Cost Savings: Competitive pricing protects your bottom line.
- Risk Mitigation: Dual sourcing minimizes risks from quality, compliance, or supply chain disruptions.
- Resilience: Reliable suppliers ensure stability and flexibility in an unpredictable environment.
Need Help Selecting New Suppliers?
Our team has over 30 years of experience in API sourcing, we are present in all major API manufacturing regions and we have a deep understanding of the market. We can help you find reliable suppliers and build a resilient supply chain.
