By Anne-Frances Hutchinson
With exhortations for federal agencies to ‘Buy American’ drugs and medical equipment, the time has come to bring the pharma industry back to shore—but quick fixes aren’t the answer.
Hot and heavy M&A activity, increased drug costs, offshore tax incentives, and the draw of countries offering cheap labor and loose environmental oversight have steadily eroded domestic pharmaceutical production. From 2010-19, the rate of pharmaceutical imports to the US more than doubled to $127.6 billion, and they are now our third largest import behind cars and crude oil.
The pandemic has illuminated disastrous weakness in the global pharmaceutical supply chain, particularly around quality control and availability, and the push is on to reshore drug manufacturing.
Since March, the Trump administration has been working on an executive order to ensure that the drugs, personal protective equipment, and other medical supplies purchased by federal agencies are made in America. The order would prohibit federal agencies from purchasing critically needed drugs and supplies from outside the United States. Those agencies include the VA, the Federal Bureau of Prisons, the Department of Health and Human Services, the Strategic National Stockpile, and others.
The draft order, obtained by Bloomberg News, said, “The executive order would limit any federal contracts for those supplies to manufacturers in the US and would require that production be divided among multiple companies to ensure price competition. The drugs and devices covered by the order include anything used to respond to a public health emergency or biohazard attack. The list of ‘essential medicines’ will be later determined, according to the executive order.”
There are exceptions to the order, including if the treatment or equipment isn’t produced in sufficient quantities in the US, if domestic production isn’t in the public interest, or if the move hikes prices more than 25%.
Announcing the effort, White House trade advisor Peter Navarro explained the three-pronged approach to reshoring drug production as, “Buy American, make it here, deregulate so it’s easy to make it here, and innovate so it’s low priced and we can compete.” He added, “We’ve got $49 billion worth of meds we buy primarily for the VA, the DoD, and the HHS and we’re not enforcing Buy American,” he said. American manufacturers would receive long-term incentives for using advanced technologies such as 3D printing.
The Doing of It
Realistically, the timing of the Buy American drug push is good headline fodder but little else. A letter from an industry group including the Pharmaceutical Research and Manufacturers of America (PhRMA) and the US Chamber of Commerce to Commerce Secretary Wilbur Ross and Trade Representative Robert Lighthizer outlined serious concerns about how realistic such an edict would be as the nation struggles to survive a raging pandemic. “Preventing federal agencies from sourcing medical equipment and pharmaceutical ingredients from abroad … would only exacerbate the supply shortages racking the United States,” they wrote.
A particular concern that will ostensibly be addressed by the order is the quality of active pharmaceutical ingredients, or APIs, manufactured offshore and used in medicines taken by American consumers.
Research distributed by PhRMA in a recent blog post showed that “the majority of APIs, measured in dollar value, used in medicines Americans consumed came from the United States in 2019. Specifically, 54% of the dollar value of the $86.5 billion in API used in medicines consumed domestically were manufactured here in the United States. That’s compared to only 6% of the dollar value manufactured in China.”
That analysis is meaningful for the short term as we anticipate that small businesses will ramp up to help with the immediate production crisis. Rosemary Gibson, Senior Advisor at the Hastings Center and author of China Rx: Exposing the Risks of America’s Dependence on China for Medicine testified before Congress that “Small businesses with expertise in chemistry and pharmaceutical engineering are ready to produce the most critically needed medicines and their ingredients all in the United States using advanced manufacturing technology that lowers the cost of generic drugs.”
Gibson estimated that 90% of the drugs used in hospital emergency rooms are generics; China manufactures 9% of all generics sold in the US but supplies the chemical compounds for at least 25% of the generics made in India.
“Ninety percent of the chemical ingredients for generics in the US to care for people with serious coronavirus infections and are hospitalized are sourced from China,” she said. “Sedatives, antibiotics, anti-inflammatories, and medicines to raise blood pressure are among the medicines used to care for people with severe coronavirus. China produces 90% of the chemical ingredients for these essential medicines.
“Small businesses can play a pivotal role to help assure that the nation’s hospitals have the essential generic medicines they need during the coronavirus and any other serious infectious disease outbreak, as well as in normal medical care situations. By using continuous processes in advanced manufacturing, all the ingredients for many drugs can be made fully in the United States.”
That said, quality problems with offshore suppliers have been an issue for years, and will be solved only by creating long-term, sustainable infrastructure and establishing the incentives and regulatory amendments needed to lure pharma production stateside.
Look no further than an August 2019 request by Senate Finance Committee Chairman Chuck Grassley (R-Iowa), which urged the Food and Drug Administration and the HHS to implement unannounced inspections of companies making pharmaceutical ingredients used in drugs distributed in the United States.
“Unbeknownst to many consumers, according to recent news reports and a GAO report highlighting safety and quality concerns at foreign drug manufacturing facilities, 80% of Active Pharmaceutical Ingredients are produced abroad, the majority in China and India; however, the FDA only inspected one in five registered human drug manufacturing facilities abroad last year,” he wrote.
Grassley pointed to a successful 2013 pilot program created by the FDA that, in India, replaced advanced notice of inspections at pharmaceutical companies that make APIs for use in drugs made in the US with short notice or unannounced inspections. An increased level of secrecy around such visits was also maintained.
The inspections that followed revealed “bird infestations, missing samples, and fake laboratories, all of which negatively impact drug quality and safety.” The pilot ended in 2015 and was not reinstated by the Obama administration. Grassley urged the HHS and FDA “to include unannounced inspections in foreign manufacturing facilities to determine whether they meet the required API and drug quality and safety standards to include sufficient record-keeping, testing, and protections against counterfeiting.”
Reshoring will undoubtedly strengthen the safety of the national drug supply, and may offer significant economic benefits. Lobbyists at the Coalition for a Prosperous America estimate “that an ambitious but realistic reshoring program could create 804,000 US jobs and add $200 billion to annual GDP in the first year.”
Additionally, the organization posits that reshoring ”would reduce US dependence on potentially hostile countries like China. In times of pandemic, there is also a non-zero risk that even friendly nations will prioritize their own citizens over exports. At the very least, the US needs a comprehensive audit of its dependence on individual nations and companies for pharmaceuticals, APIs, and any other key inputs.”
The issue is time.
Rebuilding our domestic drug manufacturing industry isn’t going to happen overnight and, given the current administration’s inability or unwillingness to mount a coordinated national response to the coronavirus crisis, will not take place soon enough to make a significant impact on our current circumstances. Only one thing is certain: There will be other pandemics. The nation’s ability to look ahead and correct course to fully protect the health of the American public may be one of the only gains resulting from these dark days; in time, reshoring a healthy pharmaceutical industry can be part of the new beginning we so desperately need.
Speaking of time, as we went to press the executive order for domestic drug and medical equipment production has yet to be signed. No word from the administration as to when—or if—federal agencies will be mandated to Buy American.