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Philips CEO: supply chains recovering in China — but risks remain

by Thomas Dworetzky, Contributing Reporter | March 09, 2020
Business Affairs
Philips’ coronavirus-hit Chinese supply lines are coming back as workers return to the factory floors — where capacity is now about 80%. But the fiscal impact will show up in the first and possibly second quarter company results, CEO Frans van Houten told reporters last Wednesday.

“This situation has improved, but it’s too early to say how March will develop,” he recommended, noting that, “if our factories stay at 80%, instead of going to full capacity, we will have a problem in the second quarter as our stocks will dry up.”

Offsetting some of the damage has been a rise in demand related to treating the illness. “In China, we have received dozens of extra orders for CT scanners”, he said, according to Reuters, adding, “we also see an increase in demand for other diagnostic equipment and respiratory devices.”

The company has six factories and 8,000 workers in that nation.

More broadly, the virus has slammed production of many raw ingredients made in China — including those for finished drugs, Marianne Udow-Phillips, executive director of the Center for Health and Research Transformation at the University of Michigan, told USA Today.

“Supply chain disruptions could be truly serious for our access to drugs,” Udow-Phillips told the paper. “I think it’s likely the Chinese government will do everything they can do to prevent that disruption because it’s so fundamental to their economy.”

This is especially true for antibiotics, which source roughly 85% of their ingredients from China, Ron Piervincenzi, CEO of U.S. Pharmacopeia, told to the paper.

He also noted that many in the healthcare system have already mounted efforts to secure supplies.

Also Wednesday, co-chairs of the Congressional Progressive Caucus, Rep. Mark Pocan, D-Wisconsin, and Rep. Pramila Jayapal, D-Washington, issued a letter to the pharmaceutical CEOs asking for information on potential supply-chain problems that could trigger shortages.

Further complicating matters is that India — a major source for many drugs — has instructed its drug manufacturers to get permission to export 26 different items, many of them antibiotics.

Supplies of basic health-related goods are also getting squeezed. For example, Henry Schein in Melville, N.Y., which supplies a variety of care-related products to dentists and doctors, sent a letter to its customers informing them that they will be rationing in the face of the spreading coronavirus risk, according to Newsday. Among the items to be rationed are gowns, gloves, goggles, and face shields; and cleaning, diagnostic, surgical and wound-care items.

"We are making every effort to procure as much product as possible, but sourcing realities limit our ability to offer customers the quantities requested," according to the letter dated Feb. 28. "We don’t expect this situation to change in the near term, and the risk is increasing that we may periodically run out of certain restricted items in the weeks ahead."

As part of the efforts, only orders from present clients will be honored and no material will be sent to drugstores, individuals or exporters, the company stated.

Last week, the FDA announced that it is now “closely monitoring” the medical supply chain on the assumption that the virus would lead to “potential disruptions to supply or shortages of critical medical products in the U.S.,” FDA Commissioner Dr. Stephen M. Hahn said at the time.

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