Global Pharma Supply Chain Survey Shows Free Trade Not The Solution

It is a bit ironic that viewers of an online Politico EU event, hosted by multinational pharmaceutical company Janssen, owned by Johnson & Johnson, would fail to put open markets and free trade as a solution to resilient medical supply chains. It was tied in a distant second, competing neck and neck with further collaboration between private drug manufacturers and the Biomedical Advanced Research and Development Authority (BARDA) of the U.S. Department of Health and Human Services. Both got just 17% of survey respondents. Greater harmonization of regulation between the U.S. and Europe came in first with 52%.

While the poll by Politico EU on Monday was small, only 75 people responded, it shows that the often preferred solution of laissez-faire market forces within the strict ideological circles of big business and politics is a losing argument now.

There is a lot at stake in the global pharmaceutical industry.

Both Europe and the United States are rethinking their pharmaceutical supply chains and national policies for a biotech industry.

The European Commission is proposing to change its pharma legislation next year. It will be the first time the Commission has thought of doing so since the year 2000.

At the heart of the Politico event, part of its Evolution of Healthcare Series, is what the two biggest pharmaceutical markets should be thinking about the industry’s relationship with the government. Government contracts to shore up critical medical supply chains, funded by BARDA, was used as good example, though there was some pushback on doing that for popular drugs like antibiotics, for instance.

“Where you’re never going to have a natural market…that is when it makes sense for the federal government to come in…and provide financial assurance to companies that there will be a market, even if that market is just a stock pile,” said Michelle McMurry-Heath, an ex-JNJ executive and associate science director at the FDA’s Center for Devices and Radiological Health. She is now president and CEO of Biotechnology Innovation Organization (BIO). She said BARDA paying for stockpiling drugs “makes sense”, though she was more specific and was not talking about the generic drugs that Americans use daily and the FDA says are in short supply.

The FDA produced a list in October 2020 of hundreds of essential medicines it deemed were at risk of being unavailable during high demand, and other emergencies.

Why would you want to have a single country, whatever country it is, dominate 90% of the critical starting materials needed for making generic drugs? You woldn’t have 90% of essential food coming from a single country. You wouldn’t have 90% of oil coming from a single country.  – Rosemary Gibson

More than 75 countries banned exports of various essential medicines, components and other medical supplies (like hospital gowns) because they needed these products for their own people during the pandemic. Those recent bans started the conversation about the government’s role in the supply chain, and in manufacturing, particularly manufacturing commodity products like generic drugs. Some 90% of the drugs prescribed daily are generic.

Rosemary Gibson, who spoke at the Politico event as a senior advisor to the Hastings Center, also said that new, advanced manufacturing techniques were also needed as part of a reshoring effort. She said new, high tech equipment can reduce drug costs by as much as 40%, but reminded panelists and viewers that price should not be the reason to set up shop anywhere. The reason for that was pretty clear all three panelists: China will just come in and strong arm everyone on the price front.

Moreover, China is a key part of the global pharmaceutical supply chain. It accounts for way more than half of the global sourcing for key starting materials (KSM) used as inputs in the active pharmaceutical ingredients that get turned into injectables, vitamins or prescribed medication.

“This is a catastrophe waiting to happen,” Gibson said. “There is opportunity right now for governments and industry to partner together, invest in advanced manufacturing, and create a more resilient supply chain that – in some cases – should be closer to home. It’s good for public health. It gives us the assurance that when you need medicines, they’ll be there.”

Politco EU moderator, Carlo Martuscelli, played devil’s advocate and asked the panelists what the U.S. and Europe could take from the China model for its own nascent – and booming – biotech industry.

Nathalie Moll, director general, European Federation of Pharmaceutical Industries and Associations: “China invested an amazing amount in biotech innovation over the last 15-20 years that allows them to innovate, create and manufacture. All three.”

Michelle McMurry-Heath: “Beijing is not picking winners and losers, they are stirring the development of as many types of drugs as possible. China fast tracks these drugs. They are saying, we are no just going to accelerate one therapy, we are going to accelerate up to 10 areas of new therapies and then send all of those out into the world to compete on price and side effect profiles and the winner will rise to the top. Then they will win on price. We are going to lose this race, and this is a race, let’s make no mistake about that.”

Rosemary Gibson: “China is engaged in a very strategic and brilliant industrial policy. They invested heavily in anti-bacterial medicine over 20 years ago, then the prices collapsed, and it drove out producers in the U.S., India and elsewhere. The U.S. needs to view things like critical medicines as a strategic investment in this country, just as China has done.”

It’s not that anyone on the Politico panel wants to be like China. But if the multinational companies that make our medication are not thinking locally, but globally, then the China model wins. It wins because no one can ever out-subsidize or under-price China.

Gibson brought up the time when China labs making Vitamin-C supplements were told by their government not to raise prices. It took many foreign players out of the market. The lack of transparency, and the desire to control prices in order to maintain manufacturing dominance rules the day in China.

The Food and Drug Administration is hamstrung in China. Gibson used another word: “crippled.”

McMurry-Heath agreed: “Rosemary is right. We are crippled in getting the information we need (from China).”

The pandemic has opened a window of opportunity for U.S. policy makers to use the purchasing powers of the federal government to diversify our manufacturing base and make sure medical supply chains are more resilient.

There is also a role for governments to go after companies that are participating in price manipulation, which squeezes out competition, regardless of the regulatory framework the U.S. and EU seem to think matters most.

On October 20, CPA released a report titled “Generic Drug Shortages and How a Race to the Bottom in Price has Upended 30 years of Hatch-Waxman,” which details how a loophole in the Hatch-Waxman Act of 1984 has led to generic drug shortages, offshoring of domestic production to China and India, and price gouging. The report documents specific generic medicines and foreign companies that have slashed prices or acquired their American competitors to gain a monopoly over the production of one drug, only to gouge U.S. patients by raising prices as much as 2,000% once they eliminate their competition.

Europe is worried about losing out on innovation to China, and to some extent, the U.S., though the two sides are closely linked. The Pfizer vaccine was made in partnership with BioNTech of Germany.

The U.S. pharmaceutical industrial base has been depleted over the years, which needs to be our biggest concern. Some direct financial support to re-establish the U.S. as a global pharmaceutical manufacturer will be needed, as is the case with BARDA and Phlow. Both have had a strong partnership over the last year in order to reshore and restock the national stockpile with critical medicines the FDA says are in short supply.


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