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

The COVID-19 pandemic is reshaping the global supply chain, and the Trump administration has a message for established generics drugmakers: Bring your manufacturing on shore, or we will find new companies that do.

That’s how Bernstein analyst Ronny Gal summarizes the two recent contracts the U.S. government signed to bring drug manufacturing to American soil. But will companies follow?

The HHS’ Biomedical Advanced Research and Development Authority just inked a $354 million four-year deal with a company called Phlow to make generic medicine and active pharmaceutical ingredients in Virginia. The Department of Defense awarded a $138 million grant to ApiJect to expand U.S. production capability for prefilled syringes, following a $450 million deal the company won from the HHS.

Both deals fall in the injectables category and involve significant investments to upgrade facilities and purchase future products. They both tap relatively new companies, which appear to be using innovative manufacturing technologies, Gal noted in a Tuesday report to clients.

Where does that leave traditional generic players such as Teva, Novartis’ Sandoz and Mylan? They may choose to join in, Gal projects.

The Association for Accessible Medicines recently rolled out a blueprint (PDF) for improving the security of the U.S. pharma supply chain. It’s about identifying a list of essential medicines that should be made in the U.S., creating a network of friendly and reliable manufacturers and several financial incentives including HHS grants to support facility construction.

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But Gal noted that the administration’s language and actions suggest it wants more drastic approaches to fulfill President Donald Trump’s “America First” economic promises.

“For far too long, we've relied on foreign manufacturing and supply chains for our most important medicines and active pharmaceutical ingredients while placing America’s health, safety, and national security at grave risk,” Peter Navarro, director of the White House Office of Trade and Manufacturing Policy, said in a statement about the Phlow deal.

“The COVID-19 pandemic has reminded us how health threats or other sources of instability can threaten America’s medical supply chains, potentially endangering Americans’ health,” HHS Secretary Alex Azar said in his statement.

Currently, China and India are the world’s largest suppliers of APIs. But the public health emergency has renewed concerns of reliance on such outside supplies. The virus has halted manufacturing activities around the world and spurred at least one export ban as India scrambled to preserve pharma output for its own use.

The COVID-19 crisis presents an opportunity for generics companies to get a break from pricing pressures and even investigations of dubious marketing behavior. “Even in the longer term, we don’t rule out the possibility that customers may be willing to consider higher prices for more reliable supply,” SVB Leerink analyst Ami Fadia wrote in an investor note in April.

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But now, traditional generic players will face new competitors with new facilities, novel technologies and cozy relationships with the buyer—the U.S. government.  

Gal suspects traditional companies will join in. “These are sizable capital investments, and companies with existing infrastructure have no reason to hold back,” he said.

This is particularly true for those that established U.S. facilities not long ago. Amneal Pharmaceuticals, for example, is the largest U.S.-based player with API capacity, Gal noted. In December, the company took a 65.1% majority stake in AvKARE, a generic supplier primarily focused on serving the DoD and the Department of Veterans Affairs.

Other companies could use the 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.

They may not have much choice, anyway. Navarro recently proposed a “Buy American” executive order, which would soon require federal agencies to purchase U.S.-made medical products.

Meanwhile, Sen. Tom Cotton, an Arkansas Republican, and Rep. Mike Gallagher, a Republican from Wisconsin, recently introduced the Protecting Our Pharmaceutical Supply Chain from China Act, which calls for a complete cutoff from purchases of APIs and finished drugs from China. Sen. Marco Rubio, a Florida Republican, put forward the Strengthening America’s Supply Chain and National Security Act, a bipartisan bill which could require companies to provide the FDA with more transparency on the source of their APIs.

Of course, there’s the realistic question of whether shifting manufacturing back to the U.S. is possible from the environmental and cost perspectives. “Nevertheless, the reverberating impacts of COVID-19 may compel the government to assist pharma companies to take the steps necessary to bring manufacturing of essential drugs back to the US for the prospect of greater control and assurance of the supply chain, as well as the creation of thousands of jobs for the U.S. workforce,” Fadia said.