Pharmaceutical reshoring: a healthy requirement, a strategic necessity

More than a year into the COVID-19 crisis, the novel coronavirus continues to disrupt our societies, including how the pharmaceutical industry operates; Andrew Badrot, CEO of C2 PHARMA, discusses the ongoing ramifications of the pandemic

In March 2020, the COVID-19 crisis had just begun … and everyone was in panic mode. Shortages of the necessary basic ingredients for pharmaceutical production and delays in shipping started a frantic discussion regarding whether global pharmaceutical supply chains had become too intricate and/or too Asia-centric.

The US and Europe started to investigate how reshoring pharmaceutical manufacturing activities and national prioritisation might strengthen their supply chains.

A year later, there is a new administration in the US and global sentiments continue to vary on whether reshoring is a practical long-term solution to address the health challenges that may arise in the future. Here, Andrew Badrot, CEO, C2 PHARMA, discusses the ongoing ramifications of the pandemic for the pharmaceutical industry and the global politics that go hand in hand with reshoring efforts.

A shift in trade winds

Although vaccines are being approved and rolled out, the pandemic crisis continues with new surges in case numbers and deaths occurring around the world. Even so, governments have moved from panic mode to management mode. Plus, there is a new, more temperate administration in the White House.

For many years prior to the Trump presidency, the United States followed a free trade policy based on untethered open markets, no tariffs and a “best person wins” approach. This sort of unleashed capitalism with an emphasis on globalisation, however, resulted in the disenfranchisement of a large swathe of the population and ultimately led to the election of Donald Trump.

The Trump administration took an entirely different approach to trade, instituting decisive policies — including implementing many tariffs — that reversed many decades of numbing unified thinking in terms of globalisation as “a policy for good” and promoted American business.

Andrew Badrot

One big question about the future is whether the Biden administration will revert to the older free trade approach or continue with a similar — albeit more diplomatic and inclusive — trade strategy.

Although the Biden Administration is now expected to be more collaborative and some free trade policies will likely be reinstituted, I believe much of the strategy developed by the Trump administration will nonetheless be pursued.

President Biden has already said he will focus on increasing US competitiveness and helping those middle-class families affected by globalisation.1

For instance, Biden has not made moves to cancel tariffs imported from allies or, for that matter, from China.2 He has also referred to China as the “most serious competitor” to the United States and promised to “take on directly the challenges posed [to] our prosperity, security and democratic values” by China.3

By all indications, a full-on trade war between the US and China will be a part of our future. China, for its part, also pursues an unapologetically hegemonic policy and has quelled any aspiration of political freedom in Hong Kong.

It has also shattered the glass ceiling by implementing the first measure of vaccine nationalism in recent memory, by forcing foreigners wanting to enter mainland China from Hong Kong to be vaccinated with a Chinese vaccine or else face a heavy handed paperwork procedure.4

Although the Chinese Communist Party is seeking to spread its political system around the world, their values are the antithesis of the value of the democratic nations of the world. Europe remains weak in its projection of power; it must rely on an impossible consensus among 27 countries.

That squarely leaves the burden on the US to strongly project democratic values onto the world stage and establish a counter-narrative to China’s “efficient state.”

Despite the intrinsic weakness of any democratic system, the American one has been proven time and again to be highly resilient. The Biden administration understands that and frames its agenda in this democracy versus autocracy conflict of ages.

The prospect of a country that rules by censorship and oppression taking the position of the world’s economic leader should be alarming to those who value independent thought and freedom of expression.

Revisiting reshoring

In this context, the concept of pharmaceutical manufacturing as a “strategic national asset” is the new reality that we need to flush out and implement. The reliance on lower-cost supply in emerging economies in Asia, particularly China, is a model that fails catastrophically in severe pandemic situations.

Even without a pandemic, it could be an issue if China were to halt exports of certain raw materials and the pharma ingredients used to produce important medicines as a retaliatory measure — in essence weaponising life-saving treatments.

At the top of the list are antibiotics, which have been commoditised and thus offer little incentive for investment in innovation and new drug development for the West.

Others include common blood pressure medications and treatments for prevailing chronic diseases. The potential consequences are so acute that the US Pentagon and top military officials were voicing the need for action back in the autumn of 2019.5 And now China has started to restrict rare earths. How long before pharmaceuticals?

Imagine if the next pandemic was caused by a bacterium rather than a virus. Would China export any raw materials to other countries looking to produce antibiotics?

Stockpiling antivirals and antibiotics is not an effective way to meet demand during a pandemic; it is only suitable for short-term requirements. The huge quantities required in a pandemic cannot be practically set aside.

Manufacturing drugs in Western countries while retaining high environmental standards, however, will drive innovations that will benefit future society. It simply needs to be subsidised.

Local production capability is not required for every drug. The idea is to domesticate the supply chains for the top 100 medicines that treat the most common diseases, with a focus on pandemic-related medications.

The state of vaccine distribution in various countries is a clear example of how local manufacturing can help to ensure security of supply. Countries that locked-in vaccine supplies early on — notably the US and UK, both of which have significant domestic manufacturing capabilities — have a much higher percentage of their populations vaccinated.

As early as 28 January 2021, the BBC reported that the UK and US had administered 11.4 and 7.1 million doses of vaccine per 100 people, compared with 2,3. 1.6 and 0.7 in the European Union (EU), China and Russia, respectively.6

By 12 April, the Bloomberg vaccine tracker estimated that 797 million doses had been given across 154 countries — with the wealthiest 27 countries (including the US and China) accounting for 39% of this figure.7

Interestingly, in both the US and the UK, initial response to the pandemic was poor and inadequate compared with many other areas of the world. But, bold actions were taken to ensure access to vaccines.

In the US, all those that wish to be vaccinated could be by the summer. Europe, by contrast, had a more effective response to the pandemic, but failed to put plans in place to secure vaccine supply.

The EU was simply outmanoeuvred, failing to act decisively under the weight of its bureaucratic administration. As a result, local supply will likely fall well short of the number of doses it promised. On 10 February, EU Commission President Ursula von der Leyen finally admitted their failure to procure enough vaccines for the bloc.8

Looking to the future

The pharmaceutical industry must continue to push for government investment in local manufacturing capabilities for key medicines.

In addition, the US and Europe must work with other democratic countries, including India, to establish secure, robust parallel supply chains that are totally independent from China. This way, governments will build trust by collaborating between like-minded nations to ensure ample supply of critical medicines in the event of natural disasters.

Some argue, however, that it is not realistic to build manufacturing capacity to meet pandemic needs because it will sit idle until the next crisis hits.

That is a fallacy, particularly considering the advances happening in drug manufacturing to decrease footprints and optimise the outputs of facilities in all types of formats.

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Such capacity needs not sit idle, but it will need to be subsidised. And although building out manufacturing capacity may cost a lot of money, those costs are dwarfed compared with the price of a pandemic.

The cost to build a robust supply chain becomes negligible when compared with the $10 trillion of forgone gross domestic product from the current pandemic during 2020–2021.9

Harvard researchers estimate the cumulative financial costs of the COVID-19 pandemic related to lost output and health reduction in the US alone to be more than $16 trillion.10

Meanwhile, the value of the entire global prescription drug market was estimated by IQVIA to be approximately $1.3 trillion in 2020.11

Making an investment in sufficient drug manufacturing capacity for a future pandemic would be in the single digit per cent range of that total number. By my estimates, governments could support local manufacturing strategies for key drugs for 1000 years and barely dent the cost of a single pandemic!

Education is essential

Of course, if governments continue to seek out the lowest cost suppliers for drugs, regardless of their location — at least until quality and regulatory issues arise — then local pharmaceutical manufacturers that operate in high labour cost countries — according to high quality, safety and environmental standards — may not be able to compete and could be forced out of business.

The solar industry in Germany in the late 1990s and early 2000s is an example. Germany was the biggest market for solar energy because the government had committed to switching from fossil fuels to green energy.

German companies received taxpayer money to build their factories and citizens received subsidies for installing photovoltaics in their home and fields. Until the end of the decade, that is.

By that time, Chinese factories using Chinese State subsidies had begun producing much cheaper solar panels, and Germans began buying them with local government subsidies … sending German taxpayer money to support Chinese factories. The German factories closed as a result, leading to significant job losses.

Buying products from a country is nothing more than an indirect vote of confidence for that country’s political system and can therefore impact people’s livelihoods globally.

A key component of a local supply strategy, therefore, is education. We need to educate the broader population regarding how to use the power they have when they consume to do so strategically and understand that their buying power has global repercussions.

My recommendations remain the same

In May 2020, I made three recommendations to suggest how onshoring drug production could be effectively achieved. These recommendations are still valid today.

We need to create government-funded financial incentives to manufacture essential drugs domestically and/or establish economical barriers to importing them. Regulations should be implemented to mandate the use of locally made ingredients and the domestic production of essential drugs.

Global quality standards must also be strengthened so US, EU and Japanese health authorities can inspect foreign manufacturing facilities without prenotification. Such a move must be made carefully, however, to ensure that governments do not abuse regulatory audits and use them to provide preferential treatment to local producers.

A supply chain from cradle to grave must also be established so that all the starting materials, ingredients and excipients necessary to produce essential drugs are made domestically.

By creating stable economic environments and comprehensive policies to build innovative and flexible manufacturing assets, countries will be able to rapidly establish independent pipelines for essential APIs and drug products.

Implementing sustainable domestic pharmaceutical manufacturing capabilities will not only help to ensure that future pandemics can be managed effectively from the outset, but will contribute to stronger, healthier and more secure societies. It is important to make the changes needed now and invest to secure our future.

References

  1. www.ibj.com/articles/matthew-levy-biden-likely-to-chart-new-course-on-trade-policy.
  2. https://apnews.com/article/biden-global-trade-policies-c8b6af63440cd27a48b600375e512b95.
  3. www.scmp.com/news/china/diplomacy/article/3120618/first-foreign-policy-address-president-biden-calls-china-most.
  4. www.nytimes.com/2021/03/12/world/china-vaccines-hong-kong.html.
  5. www.nbcnews.com/health/health-care/u-s-officials-worried-about-chinese-control-american-drug-supply-n1052376.
  6. www.bbc.com/news/world-europe-55844268.
  7. www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution.
  8. www.cbsnews.com/news/eu-covid-vaccine-failure-ursula-von-der-leyen-admits-mistakes-delays-shortages.
  9. www.economist.com/finance-and-economics/2021/01/09/what-is-the-economic-cost-of-covid-19.
  10. D.M. Cutler and L.H. Summers, “The COVID-19 Pandemic and the $16 Trillion Virus,” JAMA 324(15), 1495–1496 (2020).
  11. www.iqvia.com/insights/the-iqvia-institute/reports/the-global-use-of-medicine-in-2019-and-outlook-to-2023.

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