Pharmaceutical Intermediate Exporter
The COVID-19 pandemic has revealed many problems in American society ranging from public health and racial disparities to economic challenges and supply chain limitations. As was true with many nations around the world, the United States was caught without a detailed plan for dealing with a pandemic. Hospitals were unprepared for the deluge of patients and health care providers did not have access to the supplies they needed to protect themselves. State and national leaders provided mixed cues on how to shut down and when to reopen, and there continue to be sharp partisan differences in how people feel about wearing masks and getting vaccinations.
Darrell M. West
The Brookings Institution
The result has been nearly 600,000 American fatalities, the loss of millions of jobs, and a widening in the inequities that exist based on race, gender, age, income, and geography. While more than half of Americans now have received at least one dose of the COVID-19 vaccine, a significant number indicate they don’t want to be vaccinated. That reticence runs the risk that the virus will not be eradicated and could return at some point in the future.
Among the most fundamental challenges that remain as we move forward is the fact that most pharmaceuticals and protective personal equipment are manufactured outside the United States. It was a shock for many people to learn during the pandemic that many of their essential medicines and products came from outside the country. In keeping with trends that have emerged in recent decades with manufacturing in general, China and India are big suppliers of medicinal drugs, as are places such as Germany, Switzerland, the United Kingdom, France, Israel, South Africa, and Brazil. Most American drug companies have outsourced manufacturing to foreign locations. In that situation, supply chains are long and there often are logistical problems that limit availability of needed treatments.
Now, a new report from the Washington University Olin School of Business outlines several reasons why this is the case and what we need to do about it. In terms of the causes of drug shortages, authors Tony Sardella and Paolo De Bona cite a 2019 U.S. Food and Drug Administration analysis that emphasized three factors: “1) the lack of incentives to produce less profitable drugs; 2) the market not recognizing or rewarding manufacturer for mature quality management systems, 3) logistical and regulatory challenges that make it difficult to recover after a disruption.” Taken together, these problems help people understand how we reached the current point and what leaders can do to address these matters.
According to the authors, there are a number of ways to improve the situation. These steps include decreasing dependence on foreign drug-makers, developing U.S. drug manufacturing, providing financial support for domestic capabilities, and offering faster drug approval processes.
Decrease single-country dependence
Part of the current challenge is the heavy reliance on foreign manufacturers. Few medications are made in the United States and that creates domestic risks. In a world with a considerable number of geopolitical uncertainties, it is challenging to rely on nations with which America has an adversarial relationship. Right now, there are many complicating issues in the relationship with China including trade, national security, and foreign policy. As the two countries move from a relationship that emphasized cooperation to one that is either competitive or conflictual, the risk of medical drugs being made in China increases. Depending on how relations ebb and flow, there could be times where China needs to redirect drug and PPE manufacturing to domestic needs as opposed to foreign ones. Or they could use its control of drug production to reward allies and punish adversaries. Either way, it is risky for the United States to rely heavily upon China during a time of considerable tension.
Develop U.S. drug manufacturing capabilities
At the same time, it makes sense to reduce reliance upon foreign manufacturers and develop U.S. drug manufacturing capabilities. For medicines that are essential to the health and well-being of Americans, it is vital to have some drug manufacturing options. That type of capability would insulate the U.S. from international disruptions and supply chain logistical problems. The same is true for necessary PPE and medical devices. There is legislation pending in the U.S. Congress that is designed to encourage American drug manufacturing.
Strengthen “made in America” requirements
The U.S. government long has had a “buy American” policy but it was vaguely worded and weakly enforced, so that stance has lost much of its relevance. President Biden has signed an executive order that clarifies the definition and puts stronger regulatory protections in place to make sure the policy is implemented. The order includes a mandate that American-made products must include materials with at least 55% domestic content. Companies can assemble products in the United States but the component parts must come from within the country. Having stronger “country-of-origin” requirements would boost the meaningfulness of “buy American” provisions.
Define the market to include friendly nations
In thinking about domestic drug manufacturing capabilities, it is important to consider the overall drug marketplace and how American firms fit into the global landscape. It would obviously be costly to cease all foreign operations and rely only on U.S.-based facilities. But it is important to think about the geographical combination that would bring needed security to American health products and medicines. It may take a novel combination of domestic and friendly foreign sites to ensure products are available when the U.S. needs them.
Avoid guaranteed contracts
Protecting the production of essential medicines requires a manufacturing competition policy that actually is pro-competition. Guaranteeing contracts for one or two firms in a sector gives them enormous power and sometimes squeezes out competitors. It is important to spread federal resources around so that more companies benefit and more have incentives to manufacture drugs for the United States.
Provide financial support
There are a variety of ways the federal government can provide assistance to domestic drug producers such as tax credits, loans, infrastructure investment, and direct support for production facilities. Any of those methods would improve the U.S. manufacturing climate and make it possible for firms to re-shore drug production and strengthen domestic supply chains.
Offer faster drug approval processes
The last recommendation is to expedite federal drug approval processes. Right now, the U.S. Food and Drug Administration protocols require lengthy times and considerable resources to navigate. Anything that speeds up the process, while still protecting patients, would be helpful. Expediting these processes would make it possible for companies to get drugs to market quicker and offer assistance during vital times. This would ultimately help companies financially and provide drug access to patients who would benefit from its use.
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