Unprecedented Sanctions Against Russia Continue to Impact Pharma Supply Chains

Justine Fassion considers how the various sanctions against Russia are impacting pharmaceutical supply chains, and explains why pharma companies will be affected despite the existence of humanitarian exceptions.

In recent years, we have received several sharp reminders of how international events can impact pharma supply chains. During the COVID-19 outbreak, countries all over the world imposed temporary export restrictions on certain medical goods and foods in order to mitigate potential supply shortages. We may soon see similar restrictions as a result of the food crisis. Then, we have the latest sanctions imposed by the international community on Russia, aimed at rendering its war against Ukraine economically unviable.

The sanctions against Russia are in many ways unprecedented. Firstly, they are very broad in scope. Secondly, there has been a very high degree of coordination on them among the G7, despite some differences between the measures in different countries. New measures are being introduced on a sometimes fortnightly basis, with the EU having just implemented its eighth round of sanctions against Russia.

These sanctions are causing significant supply chain disruptions to the life sciences industry, even if their effects on pharmaceutical products and medical devices are unintended:

• Manufacturing: Life sciences companies that have manufacturing sites in Russia for which they need basic parts or equipment are experiencing disruptions, because the exporting of many basic industrial parts to Russia is restricted. There are exceptions which allow licenses to be obtained for shipping parts used in pharmaceutical manufacturing. However, it is complicated to do so because a different exception applies to each category of restricted item, and the authorities are generally hesitant to grant licenses.
• Transportation: The EU has prohibited Russian and Belarusian road transport operators from entering the EU. Again, some exceptions are possible for medical products. However, the prohibition is restricting logistics options, with European transport companies increasingly unwilling to take products into Ukraine, Belarus or Russia.
• Financing and payments: It is becoming difficult to make payments into and out of Russia. Due to the high number of major Russian commercial banks that have been sanctioned, there are only a few options left for companies which need to make payments to non-sanctioned persons such as doctors or hospitals.

Some have reported that pharma companies are not affected by the sanctions because pharma companies fall within humanitarian exceptions. However, while the aim of sanctions policies is usually not to restrict trade in medicines, the sanctions are still having a knock-on effect on many parts of the pharma supply chain. Also, the criteria for humanitarian exceptions are interpreted very strictly by the authorities, and thus a case-by-case analysis may be advisable.

Importantly, when pharma companies are able to benefit from exceptions, this is not a process that happens automatically. Different licenses will need to be applied for in different jurisdictions. These generally come with a variety of conditions attached, if they are granted at all. The overall effect is that pharma companies will continue to experience restrictions on trading with Russia.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.