US Pharmaceutical Manufacturing: A National Security Issue

The Trump administration is actively trying to bring pharmaceutical manufacturing back to the United States. Sure, it will create jobs, but the administration views it as a measure of national security. Given that 70 percent of generic drugs are manufactured outside the US (and over half of brand-name drugs), I’d say the Trump administration is correct on the national security angle.

Drugs are not the only concern. About 80 percent of active pharmaceutical ingredients (API) originate  outside the US, mainly sourced from India and China, according to FDA data. This creates a huge supply chain vulnerability–even if drugs are manufactured in the US, we may not be able to get the ingredients to make them. Most Americans don’t know how much we rely on ingredients produced overseas.

High-value drugs tend to be manufactured in the US by all the major Big Pharma companies: Pfizer, Eli Lilly, Merck, J&J, Amgen, and others. These drugs include some insulin production, biologic drugs, cancer therapies, patented brand-name medicines, specialized hospital drugs, and of course, vaccines.

Most generic medications, such as antibiotics, blood pressure drugs, statins for cholesterol, etc. are either manufactured overseas or depend heavily on overseas supply chains. 

How Did This Happen?

On the surface, the reasons for the overseas shift seem obvious – cheaper labor, pressure to keep generic drug prices low, and fewer environmental compliance costs outside the US.

What is not so clear is that countries like India and China granted us government subsidies to entice US companies to move there.

The change happened over fifty years, a slow steady move away from the US. Globalization was a driver, and like so many global efforts, the Trump administration says the pharmaceutical globalization effort hurt Americans in many ways.

But it wasn’t always that way. After World War II and up to the 1970s, the US was a manufacturing powerhouse that dominated the pharmaceutical industry. All the major companies (Pfizer et al.) did research here, but also produced APIs and manufactured all their drugs domestically.

It changed beginning in the 1980s when cost pressures began as generic drugs became more important. Congress passed the Drug Price Competition and Patent Term Restoration Act (also known as the Hatch-Waxman Act) to ignite the generic drug industry. Drug prices fell for consumers, but pressures increased on the manufacturers to produce generics at the lowest possible cost.

Global trade played a role. Telecommunications, international logistics, and container shipping advanced and expanded, and companies realized they could design drugs in the US but manufacture them overseas. And so it began, and continues to this day. America still leads the world in drug discovery and pharmaceutical innovation, but relies heavily on foreign manufacturing, especially for generic medicines and their ingredients.

In the 1990s, India made a strategic decision to develop a huge pharmaceutical manufacturing sector. Over time, Indian companies became the world leaders in producing both APIs and generics. Even today, India is deemed the pharmacy to the world. US companies began increasingly purchasing ingredients from Indian manufacturers rather than producing them domestically, again due to costs.

Shortly after India entered the market, China made the same decision to enter the Big Pharma supply chain, rapidly expanding its chemical manufacturing of raw materials for APIs. China makes the raw materials, and India manufactures the APIs. Nothing to worry about here.

The Invisible Shift

In 2000, the “invisible” shift occurred and most Americans didn’t even notice. Behind the scenes, more and more APIs were imported and more and more generic manufacturing moved overseas. But because drug patents were largely held in the US and drug research was prevalent here, no one noticed that the industry was far from healthy in the US.

About 10 to 15 years after the shift, concerns started arising when hospitals experienced shortages of injectable drugs, antibiotics, and cancer medications. These shortages revealed that only a few factories worldwide made a specific drug. That’s when Congress started getting involved. 

What happens if a geopolitical incident interrupts pharmaceutical imports? It’s a good question that no one had asked for over 20 years. As negative as COVID-19 was in 2020, one positive aspect was that it further shed light on these supply chain vulnerabilities. For the first time, many Americans discovered how heavily dependent we are on foreign sources of protective gear, medical supplies, and medications.

Another somewhat invisible shift has been the heavier and heavier spending of the pharmaceutical industry on US Congressional campaign contributions and lobbying. Many members receive money from pharmaceutical-industry PACs or individuals associated with the industry. The pharmaceutical and health-products sector is consistently among the largest lobbying spenders in Washington. Money talks. Just watch RFK Jr.’s confirmation hearing. Is it a coincidence that those who screamed the loudest at him–Bernie Sanders, Liz Warren, Bill Cassidy, and others–are the biggest benefactors of Big Pharma money? After all, they could have lowered drug prices a long time ago, couldn’t they?

We’re Not The Only Ones

The US is not unique. Many countries have become dependent on international pharmaceutical supply chains. Europe has become heavily dependent on imports of APIs from China and India, despite their major manufacturing hubs in Germany, Belgium, France and Ireland.

Canada is more dependent than the US, relying heavily on supply chains from the US, Europe, India and China. While Japan does have more domestic pharmaceutical manufacturing than many Western countries, it still depends on imported APIs and raw materials. The country subsidizes domestic production to support its aging population.

Australia is highly dependent on imports, a situation that has been viewed as a national security concern for many years. Its relatively small population makes it difficult to support large-scale manufacturing across the full pharmaceutical supply chain.

The UK is known for its world-class pharmaceutical sector that includes major companies such as AstraZeneca and GSK, but they still import substantial amounts of APIs, chemical precursors and generics.

Even China and India have dependencies, which surprises people. China imports patented medicines and specialized biologics. India depends heavily on China for raw materials.

Every country became dependent for the same reasons–money. Pharmaceutical companies built massive scale in select areas. As production concentrated in a few regions, costs fell, and countries traded lower costs for national security supply chain risk and less domestic ability to be self-sufficient.

Can We Rebuild?

After the COVID debacle, Trump views pharmaceutical manufacturing as a strategic asset, similar to food security and energy production. Other countries agree, and the US is not the only one reshoring drug manufacturing–Europe, Japan, Australia, and Canada are too.

Trump has pushed for reviews of supply chain vulnerabilities, faster regulatory pathways, domestic investment, government incentives, and tariffs, which Trump has effectively used to push manufacturers to relocate production to the US. The idea is simple: get incentives for building manufacturing plants in America or suffer very large tariffs on certain imported pharmaceutical products. Importing drugs becomes more expensive which makes US production more attractive. As a result, more manufacturing is relocating here for biologics, advanced medicines, and critical APIs.

While all of Trump’s measures are beneficial and are working, can we ever rebuild enough domestic manufacturing capacity, and can we do it while keeping drug costs low? Domestic production is more expensive–it’s the reason companies went overseas in the first place.

And can we do it at the same time that Trump is compelling manufacturers to lower prices here based on what they charge other countries? On May 12, President Trump signed an executive order titled “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients.” The order directs the Department of Health and Human Services (HHS) to establish a most-favored-nation (MFN) price target that would apply to the prices charged to the Medicare and Medicaid programs. HHS communicated MFN price targets to drug manufacturers in May, clarifying that reference prices were generated for all branded drugs or biologics that do not have generic competition. HHS will also facilitate direct-to-consumer (DTC) purchasing programs that allow drug manufacturers to sell products at the MFN price target to individuals or businesses. The executive order directs HHS to take action against drug manufacturers that fail to voluntarily make MFN prices available to government health programs. The administration wrote letters to 17 manufacturers outlining steps they should take, and they have 60 days to comply. Read the details of the order here. 

The reality is that the pharma industry has suffered from the globalists and their globalization efforts. Many countries rely on the same small set of manufacturing regions for critical medicines and ingredients. Recent efforts are definitely a step in the right direction, but let’s hope for a continued pattern over years to come.