“Unbeknownst to many consumers….80% of Active Pharmaceutical Ingredients (API) are produced abroad, the majority in China and India….” So said Senate Finance Committee Chairman Chuck Grassley in a letter to the Department of Health and Human Services in the summer of 2019. The coronavirus pandemic has made us rethink being “unabashed champions of globalization” as medical supplies ran short and treatment drugs and vaccines are clearly an urgent need. The Trump Administration’s recent deal with Phlow Corporation for $354 million to build a plant and manufacture generic COVID-19 drugs is an “America First” effort to bring pharmaceutical drug manufacturing back to the United States. Is this a good strategy?
Why is there so much Pharmaceutical Drug Manufacturing Overseas?
“The reason our pharmaceutical and medical supply chains are dependent on nations like China and India is simple. They can produce cheaper factories, provide lower-cost labor, utility costs and raw materials and impose fewer regulations,” said Georgia Representative Buddy Carter. The FDA said that companies that headquarter in the U.S. or the EU could save between 30% and 40% on manufacturing costs if they outsourced to India. Over the last few decades drug manufacturing has gradually moved out of the U.S. for the reasons mentioned above, and through mergers and acquisitions causing increased plant closures and a resulting decrease in domestic capacity.
“To even get 50% of our drugs made in the U.S., it will take one to two decades and billions of dollars,” says John McShane, Managing Partner at the health care product consulting firm, Validant. To lure phama giants back to the U.S. the government will have to offer incentives and lessen FDA regulations while holding foreign suppliers to the same standards, i.e. removing distortions in the global market. American tax and regulatory policy makes domestic drug manufacturing prohibitively expensive.
Recent Steps to Bring Pharmaceutical Drug Manufacturing Back to the U.S.
In March 2020 Congress appropriated $3.5 billion for the Biomedical Advanced Research and Development Authority (BARDA) to speed up development of a COVID-19 Vaccine. BARDA was tasked with awarding grants and funding research to add important products to the National Strategic Stockpile. Under funding of agencies like this over the years has contributed to the exodus of manufacturing from the U.S.
BARDA made a deal with little-known Phlow Corporation for $354 million to build a manufacturing plant in Richmond, Virginia to produce generic COVID-19 drugs. BARDA can expand this deal to 10 years and $812 million, making it the largest deal in the drug development agency’s history. This deal is considered part of the Trump Administration’s “America First” philosophy to bring pharmaceutical drug manufacturing back stateside. There are questions as to why an award to a brand new company, Phlow has just been in business since January 2020, when there already exists an entire industry, contract manufacturing, that makes drugs for other companies.
Is Prioritizing Domestic Production the Right Choice?
PhRMA, a lobbying group for the pharmaceutical industry, says, “While we support efforts to foster more manufacturing in the U.S., moving all manufacturing here is impractical and likely not feasible. Policymakers must take a long-term, more holistic look at global pharmaceutical drug manufacturing supply chains before jumping to rash proposals that may cause significant disruptions to the U.S. supply of medicines.” Diversification is less risky than concentrating all of the supply in one place. Even domestically the supply chain can be disrupted. International cooperation means the best scientists and drug makers across the world are all working on treatments and vaccines. Making these products available to everyone because basic chemicals, supplies and knowledge has come from all across the world.
The pandemic has made us realize that pharmaceutical drug manufacturing has been a choice between resilience, the ability to withstand a big, unpredictable shock, and efficiency, getting drugs and medical supplies as cheaply and quickly as possible. Right now we believe responding to the shock is the priority, but at what cost?