The House Ways & Means Committee held a mammoth, hours long hearing on the nation’s worsening drug shortage crisis on Tuesday. According to expert testimony given by the witnesses, the crisis is being fueled by poor manufacturing practices that have led to recalls by foreign drug manufacturers, and the race to the bottom on generic drug prices that make it impossible for American generic drug makers to compete with subsidized competitors in India and China.
One of these foreign competitors is Aurobindo, the largest supplier of generic drugs to the U.S. market. CPA released a study this month about Aurobindo, which has been the subject of numerous recalls of blood pressure medicines and more over the last two years. Aurobindo’s position as the main supplier of generic pharmaceutical prescriptions to the U.S. poses health and supply chain risks, let alone the national security concerns due to its reliance on China for key starting materials and API.
The report, covered by Bloomberg, documents that Aurobindo has substantial, alarming ties to Chinese companies sanctioned by the U.S., tied to People’s Republic of China (PRC) military industries, or to human rights violations. This includes ties between Aurobindo and a PRC supplier with documented violations of U.S. pharmaceutical regulations.
“Poor manufacturing quality is the leading cause of shortages,” said Committee Chairman Jason Smith (R-MO-8), adding in his opening statement that many of some 250 medications currently in short supply are made overseas. Over 80% of active pharmaceutical ingredients (API) is made in a foreign currency, with India and China key generic drug suppliers. Citing CPA research, Chairman Smith noted that in 2021, China was the leading source of imported pharmaceuticals by volume.
“We need to incentivize the production of high quality drugs. We should be using tax policy and trade policy to make more medicine and API here in the United States,” Chairman Smith said.
Six witnesses at the hearing each gave their opinion on the dire domestic generic drug crisis. Eugene Cavacini, Senior Vice President and Chief Operating Officer of McKesson Pharmaceutical Solutions & Services [Testimony], said that government incentives could help address the drug shortage crisis due to an overreliance on overseas labs. Cavacini said that shortages of generic injectables and oncology drugs – like chemotherapy drugs cisplatin and carboplatin – were a good place to start using government incentives.
Dr. Stephen Schleicher, Chief Medical Officer at Tennessee Oncology [Testimony] gave examples of patients who are caught between cycles of supply shortfalls and are taken off medication. For carboplatin, they were unable to treat 90 percent of patients on schedule; for cisplatin 50 percent of patients were off schedule, meaning they went an average of 10 days without any chemotherapy treatment. At least one person died – a 62 year old woman who had lung cancer because the oncology center where Schleicher worked prioritized patients with other cancers to receive the drugs in short supply.
“We are still dealing with shortages,” Schleicher told the Committee. “Common sense tells me that shortages of inexpensive generic drugs must be tied to the lack of incentives for drug manufacturers to produce these. I implore congress to act to stop these drug shortages.”
Allan Coukell, Senior Vice President for Public Policy at Civica Rx [Testimony] said a policy response is needed to address the problem.
“Shortages are not a passing storm. This is a built in, permanent outcome of the current system. The U.S. system is built so that buyers get the lowest price, and no one is focused on supply reliability,” Coukell said. “The immediate cause of shortages is quality at the labs and the root cause is low prices. Injectable drugs that sell for less than a bottle of water at the corner store reduces the ability for a U.S. based company to invest, and that leads to production offshore that comes with quality problems that are persistent. Plus, the FDA presence in these countries is inconsistent,” he said without naming the countries. The main two are obvious offenders – India and China, where the FDA presence is minimal to barely existent.
“A policy response is needed to change this market,” Coukell said. He is in favor of a number of mechanisms, including tax incentives to make it viable to invest in generic drug manufacturing at home.
U.S. Dependence on Foreign Manufacturers is a National Security Threat
A 2021 CPA study showed that 90 percent of API is imported. Dr. Jeromie Ballreich, Associate Research Professor at Johns Hopkins Bloomberg School of Public Health [Testimony] said that as much as 60 percent of finished drugs were imported, mainly from India and China.
A report issued by the Inspector General of the U.S. Department of Defense stated that U.S. reliance on foreign medicine sources is a national security threat. China now accounts for 95% of imports of ibuprofen, 91% of imports of hydrocortisone, 70% of imports of acetaminophen, and 40–45% of imports of penicillin.
Chairman Smith asked a witness to explain the dangers of the trend.
Dr. Stephen Schondelmeyer, Director of the PRIME Institute at the University of Minnesota’s College of Pharmacy [Testimony] gave one immediate example. It happened during the pandemic. India limited exports on everything from Vitamin B-12, to more than 20 APIs and antibiotics to shore up supply at home.
“You can’t just go ahead and turn chemicals into tablets without the key ingredients to make it and the majority of those ingredients are outside the U.S.,” Schondelmeyer said. “When countries we rely on put bans on drugs, we are going to be without those drugs and that is the risk. Yes, the U.S. can begin making them, but it is going to take months to years to get that ready.”
Currently, the U.S. is dangerously dependent on foreign manufacturers—particularly in China and India—for essential, lifesaving generic medicines. Since 2002, data shows that imports from India have increased 35x, while the floodgates have opened to allow imports from China to rise to an astounding 165x their 2002 levels. This should sound alarm bells through Washington and highlight the need to pass the PILLS Act in order to address the shortage crisis and rebuild America’s domestic production of generics, antibiotics, and other key medicines.
Schondelmeyer reminded the Committee that India-made over-the-counter eye drops led to deaths and blindness during a recall last year.
“Quality is a major concern at these labs,” he said. “India is responsible for most of the generics coming into the U.S. and yet India does not participate in the International Council on Drug Harmonization; the U.S. does, Canada, Europe, Mexico all do, but India does not. We should not continue buying products from India if they are not going to be members of that and use that as leverage,” he said.
An analysis from Bloomberg last year documented that “India is scandalously short on regulatory oversight” and that “systemic fraud exposed by the investigation — where data was routinely falsified to fool inspectors, increase production and maximize profit — did not result in a regulatory overhaul.”
Rep. Claudia Tenney (R-NY-24) said the Chinese and Indian governments provide massive subsidies to their pharmaceutical industries.Schondelmeyer agreed and said they are given both direct subsidies and indirect subsidies like tax breaks.
“What is the effective way? Incentives or subsidies?,” Tenney inquired.
“A mixture of both,” Schondelmeyer responded. “The critical question is which products are you going to incentivize. We have other reasons for shortages, like companies going bankrupt. I think you start with products that are only made in one country and provide incentives to reshore those.”
Incentives to Reshore Generic Drug Manufacturing
How can Americans bring back drug making, now almost fully in the hands of contract manufacturers and branded generic drug makers overseas?
Ballreich told the Committee that “Congress should consider ways to incentivize domestic manufacturing of critical drugs. Incentives could come in the form of subsidized loans, tax breaks, or the government pays higher prices for generic drugs made in the U.S. Onshoring of the drug supply chain will increase resiliency.”
There seems to be a growing support for policies to incentivize the reshoring of generic drug manufacturing among members on the Committee.
Last October, Rep. Tenney introduced the PILLS Act (H.R. 6109). This legislation would incentivize the strategic reshoring of U.S. domestic production of generic medicines with a domestic production-based tax credit, domestic content bonus credit, and an investment tax credit. Currently, the PILLS Act is the most cosponsored drug shortage bill by Ways and Means Committee members.
Multiple Committee members expressed support for tax incentives to reshore generic drug manufacturing during the hearing.
Rep. Nicole Malliotakis (R-NY-11) expressed concern over U.S. dependence on foreign suppliers. “I, like my colleagues, are very concerned with the fact that China and India provide the APIs and account for roughly 60% to 70% of the generic drugs here in the United States.” She asked the witnesses, “How do we incentivize domestic generic drug manufacturing without exacerbating existing drug shortages or creating disturbances in the supply chain?”
Rep. Vern Buchanan (R-FL-16): “We need to get more American companies making generic drugs. When the cupboard is bare, people are going to pay more money for those drugs. We have to stop kidding ourselves and think how American companies are going to play a role here.”
Rep. Darin LaHood (R-IL-18): “The U.S. drug supply is heavily reliant on foreign suppliers who operate under a different set of safety standards. We have to support American businesses who are looking to prioritize more domestic manufacturing. We need to do more and do it quickly.”
Rep. Drew Ferguson (R-GA-3): “We have three major failures here; one is a regulatory failure, the other is a trade failure and the third is a marketplace failure. No matter what we do as a nation, when we decide to fix something we find a way to get it done. Look at the threat we had with semiconductor production all centrally located in Asia. This body voted to spend a lot of money to make sure we had access to chip production and I think we might want to consider that in the same vein as it relates to the most basic pharmaceutical products.”
Rep. Ron Estes (R-KS-4): “We used to produce the majority of API in the United States, but it almost all moved to Asia. If you need hydrocortisone or an acetaminophen to deal with a headache, it’s probably made in China. We can’t regulate and inspect a lab there like we can here. This highlights to me how important it is to bring this back to the United States.”
Rep. Brad Wenstrup (R-OH-2): “The bottom line is we have an overreliance on foreign manufacturers. Working with our allies is fine with me, but they can cut you off. And if the FDA is not in those labs in China, especially since the pandemic…that is a quality control problem.”