Why It’s Critical to Bring Drug Manufacturing Back to the U.S.

May 2020
RJ Panzo

Back in 2017

There were murmurs and ambitions to bring back domestic manufacturing with hopes of bringing down drug costs. There were talks of stronger trade agreements, removing outdated regulations, and reforming the tax code to drive investment—all hoping to strengthen the growth of the pharma-manufacturing industry and to provide as many as 350,000 new jobs over the next decade.

Fast forward to today…

  • The U.S. imported $128 billion worth of pharmaceuticals last year
  • The trade deficit in pharmaceuticals was $74 billion
  • 80% of pharmaceuticals sold in the U.S. (in addition to crucial medical equipment, including face-masks) are manufactured abroad
  • 72% of API manufacturing is done in foreign countries.
  • U.S. API facilities registered with the FDA fell about 10% from 2013 through 2019
  • The U.S. imports 95% of its Ibuprofen and 70% of its Acetaminophen
  • 85% of antibiotics and 40% of Heparin sold in the U.S. are manufactured abroad

Amidst the COVID-19 Pandemic

How has foreign drug manufacturing affected us as a nation?

With looming fears of shortages because of supply interruptions and changes in export policies, the dependence of drugs manufactured in other countries is jarring. Senator Chris Coons said in an interview, “If we have another global pandemic that leads the world to close borders and leads global supply chains to shatter or to break down, we are distinctly vulnerable because we are now so dependent upon globally integrated supply chains.” He added that this could also be applied to other medical products and supplies, such as ventilators, masks, and gloves.

Rosemary Gibson, author of China RX, details the dangers of America’s dependence on China for key medications. Last week, Gibson testified in the Senate that three commonly used antibiotics—azithromycin, ciprofloxacin, and piperacillin/tazobactam—depend on ingredients that are manufactured in China. Domestic production of penicillin has essentially ceased since 2004. It is alarming to consider how this could affect the U.S. in future pandemics. In a speech last year, Chinese economist Li Daokiu bluntly explained China’s strategic options at a National People’s Conference event in Beijing: “We are at the mercy of others when it comes to computer chips, but we are the world’s largest exporter of raw materials for vitamins and antibiotics. Should we reduce the exports, the medical systems of some western countries will not run well.”

Other countries have also been affected and have taken measures to prevent this from ever happening again in the future. According to Japan Times, Japan has earmarked ¥243.5 billion ($2.2 billion USD) of its record economic support package to help manufacturers shift production out of China as the coronavirus pandemic disrupts supply chains between the major trading partners. These new incentives would sever any reliance on drugs and other manufactured items made outside of Japan.

Reasons Foreign Drug Manufacturing Has Gradually Increased

For the last 20 years, US pharmaceutical companies have progressively looked to foreign countries to manufacture their drugs for two main reasons: incentives and labor.

Ireland has become home to some of the largest biotech and pharmaceutical companies. Roche, Novartis, and Merck all have manufacturing sites there, which produce select agents and APIs for the U.S. market. It also has one of the world’s lowest corporate tax rates, at 12.5%. But when it comes to cheap labor and loose environmental regulations, U.S. companies have turned to India and China for their manufacturing. Manufacturing there can cost up to 5 times less than in these other countries simply due to labor costs and favorable tax incentives. In a report from Industry Week, it was said that “Ireland has become a popular manufacturing location for some small-batch prescription medicines. China and India have taken the largest share of the production of generics and over-the-counter medications. Ironically, it is these low-cost medications that Americans now depend on when treating the coronavirus.”

Both tax incentives and cheap labor lead to increased shareholder value, which is another reason why companies turn to overseas manufacturing. In 2007, Pfizer announced that it would outsource 30% of its manufacturing to Asia, lay off 10,000 employees, and deliver $2 billion in savings to its shareholders. This was great…for Pfizer shareholders.

A Glimpse into the Future

Economic modeling, based on the U.S.’ annual drug manufacturing loss of $66 billion to overseas manufacturing, shows a significant increase of jobs by 62% and a rise in the GDP by $200 billion. Federal data in 2018 also shows that pharma-manufacturing jobs paid a median income of $75,000. That’s 47% higher than other private sector companies. Imagine the thousands of additional high paying jobs that could be created by reshoring pharma-manufacturing…

The above is only a hypothetical view. The task of bringing manufacturing back to the U.S. is a bit more complex. According to an NPR interview with John McShane of Validant, “rebuilding U.S. pharmaceutical manufacturing would take substantial investments and patience. To even get to 50% of our drugs being made in the U.S., it will take one to two decades and billions of dollars. It would likely take government incentives to lure pharmaceutical giants back home.”

The U.S. government should meet with leading biotech and pharmaceutical companies to develop a plan that removes manufacturing from foreign countries, prioritizing vital medications that are the most crucial in fighting current and future pandemics. This should also include medical supplies and equipment that would support those outbreaks. Based on an Industry Week report, “our medium-term priority must be to begin rebuilding U.S. manufacturing for national security, patient safety, and economic reasons. And the fundamental change we need is to replace shareholder value with a national economic strategy that makes broadly shared prosperity, strategic security, and economic growth our top priorities.”

Rebuilding America’s Domestic Drug Capabilities

The economic benefits could be substantial as outlined above, but how do we get there? How can the government incentivize our biotech and pharmaceutical companies to bring their manufacturing capabilities back to the U.S.?

In response to COVID-19, $3.5 billion of the CARES Act was designated toward BARDA (Biomedical Advanced Research and Development Authority). Since 2006, BARDA has supported R&D efforts toward the planning of pandemics, bioterrorism, and emerging infectious diseases. Currently, they are supporting Moderna and J&J to help develop their experimental coronavirus vaccines. This aid will help scale up manufacturing in the U.S. to produce 300 million doses every year.

Back in April, a new pharmaceutical manufacturing company called Phlow Corp was awarded $6 million to “secure a supply of medicines and Active Pharmaceutical Ingredients (APIs) at risk of shortage during the current coronavirus pandemic,” the contract summary states. Phlow also states that “it strives to secure the nation’s supply of essential generic medicines by using different manufacturing methods that will allow the U.S. to not rely on importing foreign medicines.” Most recently, Phlow Corp signed a 4-year contract and $354 million deal with the government to manufacture Coronavirus drugs in the U.S. and help mitigate any future shortages. This is one of the largest grants ever given by BARDA.

In addition to government funds, new bills and legislation are being pushed forward. Most recently, congressman Vern Buchanan introduced a bill to bring drug manufacturing back to the U.S. According to The Ledger, “theSecuring America’s Medicine Cabinet Actwould create a federal office for stockpiling adequate supplies of critical medicines and encourage companies to ramp up manufacturing of those drugs following threats by China to cut off medications to the U.S.”

The Pharmaceutical Independent Long-Term Readiness Reform Act was introduced by senators Marsha Blackburn and Bob Menendez. The Ledger explains that this bill “authorizes $100 million to create National Centers for Excellence for Advanced Pharmaceutical Manufacturing with the goal of developing and manufacturing more active pharmaceutical ingredients in the U.S. These new centers will combine public and private partnerships between higher education institutions and private sector groups to produce new pharmaceutical processes and workforce training efforts.”

There is also new legislation being pushed forward to address any future drug shortages. The Mitigating Emergency Drug Shortages (MEDS) Act would focus on expanding current approval pathways and creating incentives for the manufacturing of shortage impacted products. This bill will authorize the FDA to accelerate facility inspections and application reviews, particularly for drugs in short supply. More importantly, it would provide guidance to Congress on ways to incentivize manufacturers to enter back into the U.S. market to potentially avoid any future shortages.