Tue, 02 Jun 2020

Why Congress Wants to Protect Drug Supply Chainsfrom China

Voice of America
20 May 2020, 23:35 GMT+10

WASHINGTON - In early May, U.S. President Donald Trump was asked during a Fox News virtual town hall when the country would no longer be dependent on foreign pharmaceutical manufacturers for 94% of antibiotics used in this country.

"I think we will have it done within two years," Trump answered. "Everybody makes our drugs, except us."

Trump may have been overly optimistic, but he was reflecting a mounting concern among Americans that they are overly dependent on overseas or offshore companies for most of their pharmaceutical drug needs.

The spread of COVID-19 and the unprecedented pressure it has placed on the U.S. health care system highlights America's strategic dependence on foreign-based pharmaceutical supply manufacturers, particularly in China.

China holds a key position in the global active pharmaceutical ingredients (API) industry, which produces ingredients used in the manufacturing of drugs, and in the production of protective gear such as thermometers, PPEs and masks.

The outbreak of the coronavirus in Wuhan, China, early this year prompted anxiety among industry experts who worried that a shortage of active pharmaceutical ingredients would disrupt pharmaceutical supply chains and create severe drug shortages in the U.S.

Incentives by Japan and France

The U.S. is not alone.

Many western countries, including Japan, France and Germany, found that the pandemic has brought their dependence on imported medical supplies to the fore. As the pandemic disrupts global supply chains, those countries have lost the ability to produce many basic medicines, as most APIs are sourced abroad. There is also a shortage of protective equipment and masks.

The Japanese government has taken action. The government of Prime Minister Shinzo Abe announced April 7 that it would provide $2 billion in subsidies to help Japanese companies move their supply chains back to Japan. On May 12, the government announced that it has begun to work with more than 400 domestic firms to bolster production at home.

Generic drugs are among the most vulnerable fields. Nearly half of Japan's APIs come from China and South Korea. In addition, 70% to 80% of the masks come from China.

In Europe, French President Emmanuel Macron promised "full independence" by the end of the year in the production of protective face masks for France. He also highlighted France's need to achieve independence in other strategic medical supplies.

Some French companies have already responded. Among them is multinational pharmaceutical company Sanofi, which promised to launch a new Europe-based company in order to cut down reliance on Asian drug manufacturing.

10+ bills in the U.S. Congress

In the United States, bringing supply chains back home has long been a policy focus of the Trump administration. Congress is also motivated to act.

"We are seeing at least 10 bills that focus on ensuring the security of pharmaceutical supply chains," said Anna Ashton, senior director of government affairs with the US-China Business Council (USCBC). "In all of our (Capitol Hill) conversations we've been having, we have been hearing that this is a priority."

There are a number of proposals that would mandate the Food and Drug Administration (FDA), the Department of Defense and other agencies to better track where drugs are coming from.

The FDA currently has no clear data to track the amount of medicine imported by the U.S. Instead, it only has data on the location of the factories that produce these drugs. According to its data, 72% of the API manufacturers supplying the U.S. market are located overseas. Thirteen percent of those manufacturers operate inside China.

Ashton told VOA that this is a measured and logical step to trace pharmaceutical sourcing, and will possibly lead to a list of countries of origin for different drugs that are marketed in the U.S.

Another approach, she said, focuses on measures to bring the supply chain back to the United States. Sen. Tom Cotton, a Republican from Arkansas, introduced the Protecting our Pharmaceutical Supply Chain from China Act of 2020, which would ban the use of federal funds to purchase drugs manufactured in China.

A third approach, Ashton said, focuses on providing financial incentives to persuade formerly U.S.-based pharmaceutical companies to return home.

Easier said than done

Big Pharma has expressed concern about an abrupt shift back to the U.S. of their supply chains, in light of potentially costly and time-consuming regulatory requirements. The facilities that manufacture API require strict regulatory approvals in the highly regulated industry.

"They tend to take several years to stand up, not one year or two years or months or weeks," said Ashton.

Pharmaceutical Research and Manufacturers of America (PhRma) spokesperson Nicole Longo told VOA in an email that "building a new biopharmaceutical manufacturing facility can take 5 to 10 years on average before it is operational and can cost as much as $2 billion."

The trade association represents the interest of U.S. pharmaceutical companies and is one of the most powerful lobbying groups in the country.

William McLaury, a professor of supply-chain management at Rutgers Business School, said that there might be a mandate for at least a percentage of the health care supplies to be sourced domestically. McLaury was executive director of the pharma supply chain for Novartis Pharmaceuticals Corporation for over 30 years before his academic tenure.

"There might need to be some type of financial incentive offered to the companies to offset the potential costs incurred to make this transition," he told VOA.

He added that domestic capacity would also have to be ramped up, and regulatory approval of any new supply sources would take some time.

The U.S. Commerce Department and State Department are looking for ways to push companies to move both sourcing and manufacturing out of China. Tax incentives and potential reshoring subsidies are among measures being considered to spur changes.

"We are still in the talking phase on this," USCBC's Ashton said. "I don't think the action is incredibly imminent, but we do think that we will see some sort of legislation make its way through the process this year."

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