U.S. seeks to 'onshore' drug production in response to COVID-19. Is pharma even interested?

American flag
Congressional leaders have filed a number of bills aiming to bring drug manufacturing back to the U.S. (iStock)

With the COVID-19 pandemic shining a spotlight on the global pharmaceutical supply chain, U.S. legislators have put forward a raft of legislation that would seek to "onshore" drug manufacturing at the expense of major producers abroad, particularly China.

Guess who's wary of that proposal? Big Pharma.

Congressional leaders have argued in recent months that U.S. reliance on drugs made or sourced outside the country has created a security issue that could be addressed by erecting parallel supply chains stateside and eliminating reliance on potential bad actors abroad.

Meanwhile, the White House is reportedly working on a "Buy American" executive order that would require government agencies to purchase American-made medical products, and that order could eventually include pharmaceuticals.

But the biggest obstacle to that plan could be the pharmaceutical industry and its lobbyists on Capitol Hill.

With legislation piling up, the Pharmaceutical Research and Manufacturers of America (PhRMA), the industry's biggest lobbying group, has pushed back against Congressional support for a supply chain shake-up.

The industry's reasoning isn't complicated: Manufacturing stateside would likely cost a princely sum compared with the cheaper wages and lower costs abroad, and would upset the balance of pharma's global supply chain.

"While we support efforts to foster more manufacturing in the United States, moving all manufacturing here is impractical and likely not feasible," a PhRMA spokesperson said in an email. "Policymakers must take a long-term, more holistic look at global pharmaceutical manufacturing supply chains before jumping to rash proposals that may cause significant disruptions to the U.S. supply of medicines."

RELATED: Trump picks little-known U.S. firm to spearhead $354M pandemic drug pact

Want an example of how high the bill could go? Just look at the U.S. government's deal late last month with little-known Phlow Corporation for a $354 million manufacturing plant in Richmond, Virginia to produce generic COVID-19 drugs and active pharmaceutical ingredients (API).

The agreement, funded by the Biomedical Advanced Research and Development Authority (BARDA), can be expanded to up to 10 years and $812 million, making it one of the largest in the drug development agency's history. The deal will come with the participation of CivicaRx, a generics maker started by hospitals fed up with rising drug prices, and API supplier AMPAC, among others.

The Phlow deal was part of the Trump administration's "America First" philosophy to bring drug manufacturing back stateside and out of the hands of foreign governments like China and India, two of the largest producers of API in the world.

Another BARDA deal signed this week gave $628 million to Emergent BioSolutions to scale production of targeted COVID-19 vaccine candidates to make "tens to hundreds of millions" of doses available through 2021 at three of its Baltimore-area facilities.

RELATED: How Civica helped under-the-radar Phlow nab a $354M COVID-19 manufacturing deal

But the extent to which either country has control over the U.S. drug supply isn't well known––even PhRMA doesn't have a grasp on exactly where its members source their active ingredients (API) "because this information is generally considered proprietary," a spokesperson said.

In an October 2019 hearing before the House Committee on Energy and Commerce, FDA Director Janet Woodcock said an estimated 28% of the API in U.S. drugs was produced stateside, a figure that has decreased in recent years.

"While there are many reasons for this shift, underlying factors that are often cited include the fact that most traditional drug production processes require a large factory site, often have environmental liabilities, and can utilize a low-cost labor force," Woodcock said.

Chinese exports made up an estimated 13% of API used in U.S. drugs while India produced 18%, according to the FDA.

A separate FDA report (PDF) in 2011 found that both China and India had an advantage over the U.S. in terms of labor costs, presenting an attractive offer for U.S. and European drugmakers. In fact, the FDA found that companies headquartered in the U.S. or EU could save between 30% and 40% on manufacturing costs if they outsourced in India. 

RELATED: India, hoping to challenge Chinese dominance, plans API production push: report

But for U.S. legislators, the trade numbers––as sketchy as they may be to find––and the industry's bottom line aren't the only side to the story.

Chinese and Indian manufacturing facilities are the most frequently cited by the FDA for quality control issues, and the novel coronavirus pandemic and the Trump administration's ongoing trade war with China have injected geopolitical concerns into the country's drug supply.

Strident legislation like Arkansas Republican Sen. Tom Cotton's "Protecting our Pharmaceutical Supply Chain from China Act," filed earlier this month, would require government payers to phase out reimbursement for drugs made or sourced in China by 2022. Other bills have also directly targeted China's role in the supply chain as a possible national security issue.

RELATED: FDA's Hahn: No sign China has affected U.S. drug supply during coronavirus pandemic

Less punitive bills like Florida Republican Sen. Tim Scott and Georgia Rep. Buddy Carter's "Manufacturing API, Drugs and Excipients (MADE) Act," introduced last week, would incentivize the onshoring of drug manufacturing through tax credits granted through federal Opportunity Zones.

"The COVID-19 pandemic has made it more clear than ever that America cannot continue to rely on foreign entities like China for anything, especially when it comes to lifesaving medications," Carter said in a release. "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, impose fewer regulations, and more."

Scott and Carter's approach reflects the thinking of advocacy groups like the Association for Affordable Medicines (AAM), the nation's largest lobbyist for the generics drug industry.

In April, AAM released its "blueprint" (PDF) to onshore generic manufacturers, including identifying a list of essential medicines that should be made in the U.S., creating a network of friendly and reliable manufacturers, and offering several financial incentives, including HHS grants to support facility construction. The result? A more secure U.S. supply of generic medicines with more jobs for U.S. workers, the organization figures.

RELATED: Will established generics firms take Trump's cue and bring drug manufacturing to the U.S.?

As far-fetched an idea as that might be, with most of the world's largest generic makers stationed abroad, it's not without its merits, according to some analysts.

In a note to investors last week, Bernstein analyst Ronny Gal noted that the BARDA deal with Phlow could drive traditional generic players to pursue U.S. incentives to bring their manufacturing stateside.

Take Amneal Pharmaceuticals, for example: The company is the largest U.S.-based player with API capacity and took a 65.1% majority stake in December in AvKARE, a generic supplier primarily focused on serving the Department of Defense and the Department of Veterans Affairs.

Other companies could use incentive money to upgrade existing onshore facilities if they get aggressive, Gal argued. Mylan has its Morgantown, West Virginia, site; Teva has a campus in Irvine, California; and Pfizer’s Hospira has facilities in North Carolina.

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