Should America reshore more generic drug manufacturing? Will it really keep our supply chains safe from disruptions? For our September cover story, we took a deep dive into these questions to untangle the arguments around reshoring generic drug production. Find out why we walked away so obsessed with Rosemary Gibson and why Phlow Corp. might be the company that settles the debate around reshoring once and for all.
[Audio Clip] “It’s a great day for our country. Tomorrow morning, Americans will be going to work to make critical medicines that we need to help people with coronavirus recover. Those medicines will be made right here, in the United States of America. And it takes advantage of the incredible talent of the people we have in this country and their desire to make these products right here, in the United States.”
Karen Langhauser: That’s Rosemary Gibson talking in mid-May of this year on an episode of Steve Bannon’s podcast, War Room: Pandemic titled “victory day”
Her appearance was scheduled within days of the U.S. government announcing an agreement worth up to $812 million with Phlow Corp., a startup in Virginia promising to provide end-to-end manufacturing capabilities for a host of essential generic medicines.
[Audio Clip] “There’s a group of people that got together to launch a generic manufacturing company here in the United States. Good people with brilliant minds that want to make those drugs here. And even better, Steve. They’re going to be making drugs for the strategic national stockpile. And even better, they’re going to be using advanced manufacturing technology to produce these products, which are faster, smarter, cheaper, have a smaller environmental footprint and we have real-time quality control.”
I realize that any association with Steve Bannon might give some Americans pause when it comes to listening to what Rosemary Gibson has to say, but Gibson is clear about this not being a political statement on her part. Nonetheless, her work studying China’s chokehold of the global drug supply has found a welcome home among conservatives who have embraced a China-bad/U.S.-good world view. And although Gibson is humble and thoughtful, she has become a central figure in a fiery debate about whether or not the U.S. should put more generic drug production back on home soil.
I’m Karen Langhauser, chief content director of Pharma Manufacturing magazine, and you’re listening to Off Script — Pharma Manufacturing’s podcast featuring conversations that run beyond the pages of our publication about what’s trending in the drug industry.
This week, for our first episode, we’re diving into the central question behind the cover story from our Sept issue — can and should more generic drugs be made in America?
It’s a question that has riled the industry for the past several months as the Trump administration has embarked on a campaign to reshore production for essential medicines, specifically for medications being used to combat Covid-19. And on the surface, this seems like it should be a simple question to answer.
For many years, American lawmakers on both sides of the aisle have sounded the alarm over China’s growing chokehold on the generic drug supply. And if America wants better control over the quantity and quality of its generic drugs, reshoring should be the sure-fire fix to secure our supply chain.
But of course, it’s much more complicated than that.
According to some of the industry experts we interviewed this month, reshoring is not only a fix for something that isn’t necessarily broken — it could actually make our control over the supply chain worse. So, what’s going on?
This week I’m joined by our senior editor, Meagan Parrish, who wrote this month’s cover story, “Bring it home: Inside the movement to put generic drug production back on America’s shores.” Thanks for joining us, Meagan.
Meagan Parrish: Thanks for having me.
KL: So, I want to start by asking about what led you to decide to tackle this topic for our Sept issue?
MP: This article is actually a sort-of follow up to a cover story I wrote in December called “The Recall Effect.” For that article, I examined the impact of the blood pressure medication recalls that had swept through the industry to find out what it could mean for long-term quality control in the generics space.
And actually, I initially went into that article thinking that I was going to write a sort of run down of what the biggest regulatory changes were for the pharma industry in 2019. It’s sort of a basic, not super exciting regulatory guide that we create every year. But early on in the interviews process, I spoke with David Gortler, who is a former FDA official and at that time was working as an FDA consultant — and he had a very startling take on what was going on that year.
It isn’t news to anyone who works in pharma that China controls a large percentage of the world’s supply of generic active pharmaceutical ingredients, or APIs. But because I’ve only been covering the pharma industry for a few years, the full extent of this situation was news to me. And what is particularly concerning is that these APIs come from facilities that are not inspected as regularly as those in America and that the lots of APIs coming into the U.S. are not necessarily all tested for quality.
There are quality control systems in place through pharma companies and third-party audits — but the blood pressure medication recalls demonstrated that it’s not a full-proof system and there are loopholes that will allow lower-quality ingredients to infiltrate our drug supply.
So I ended up changing gears and instead of writing our typical regulatory run-down, I wrote the whole article about how tainted APIs from China were at the root cause of many of these recalls and how many feel that the FDA needs to do a better job of tracking API imports — both for quality and quantity.
At the time, the idea of reshoring more production was certainly being floated by some of the experts I spoke to — but given how globalized and fragmented the supply chain for generic drugs has become, it’s not an idea that was necessarily at the forefront of solutions for this problem.
Now, of course, it’s like we’re living in an entirely new world. As the pandemic has spread and America has faced concerns that there could be shortages for essential medicines, the push to reshore production has picked up considerable steam.
KL: And didn’t the original article you referenced, “The recall effect” win some pretty big awards?
MP: Yes it did. I was very honored to find out that the American Society of Business Publication Editors (or ASPBE) gave it a Gold award for the feature article category — first on a regional level and then a national level. And then I was floored to find out that I was selected to receive a Stephen Barr award, which is the ASPBE’s yearly “best in show” award). So clearly this is an issue that I think resonated with a lot of people who read the article.
KL: So, as you embarked on writing this new article focused solely on reshoring, why cast Rosemary Gibson as a central figure in this debate?
MP: If you’re researching the issue of China’s control over the global generic drug supply, you won’t get very far before you come across Rosemary’s name. She literally wrote the book on this.
In 2018, Rosemary released her book “China RX: Exposing the Risks of America’s Dependence on China for Medicine” and since then, she’s been called upon regularly by the media and by lawmakers to talk about the various threats being posed by China’s control of our drug supply.
I first read about her work while researching The Recall Effect but then of course came across it again and again while researching this article on reshoring. Then when I interviewed Harry Moser of Reshoring Initiative, who is definitely a reshoring advocate, he insisted that I talk to her and in fact gave me her phone number. To be honest, at that point, I didn’t think I’d need to interview her because she’s quoted so much that I already knew everything she was going to have to say.
But then I came across some criticisms of a statistic that came out of her book and I really wanted to get her take on those concerns.
The statistic, which is now being cited over and over by lawmakers and the press, is that China controls 80 percent of the world’s supply of generic drugs.
The problem with this statistic is the FDA doesn’t actually track the volume of API imports into the U.S. – other countries might track this more specifically but we don’t in the U.S.—we only know the number of API facilities. So no one can say with certainty how much control China has of the global generic drug supply.
And the problem with this statistic, is that it’s really an estimate – but it’s being cited as proverb by many people involved in this debate. And I think a lot of people would argue that you really shouldn’t be basing policy on a best guess.
KL: Yes I’ve absolutely heard that 80% being called into question. Did Gibson explain how she came up with that estimate?
MP: She did. She was very gracious when I talked to her and very open about discussing her work. But if you’re very concerned with hard data, you’re not going to find her answer very satisfactory. She told me that she based this 80 percent number off of a comparison between the U.S. market and an estimate by the Indian government that China controls 70 percent of their imports for both APIs and key starting materials (or KSMs) for APIs. So she reasoned that the U.S. market is likely the same and in fact likely 10 percent more and that’s how she came up with 80 percent.
So although there isn’t hard data to back this up, that doesn’t mean that her estimate is too far off. In fact, earlier this year, we launched an ongoing series called Global Dose where we examine the pharma market in other countries and while writing about Brazil and Russia this year, they also talked about the extremely high number of API imports they receive from China. About 10 years ago, Russia in fact estimated that it imports 90 percent of its APIs from China and created a national program to reduce that figure to 50 percent. So the 80 percent estimate is in line with what other countries say they’re experiencing.
I think it’s also important to note that although some industry groups point to data showing that there is a smaller number of API facilities in China compared to other major API exporters such as the EU and Ireland, they often don’t distinguish between branded and generics. And if you factor in branded APIs then the situation does look quite different. But for the purposes of this article and the debate about reshoring, I zeroed in on just the generics space, and even more specifically, on “essential” generic medicines.
KL: So Is Gibson a reshoring advocate?
MP: Not necessarily. I don’t think that Rosemary meant to thrust herself into the middle of this issue in a political way. In fact, when I talked to her, I asked her how the book China RX came about and she said she was just looking for a new book to write when she came across this topic and decided to tackle it. So, she’s sort of a reluctant advocate but is now nonetheless a leading voice on this issue.
And whether she likes it or not, she has also become I think a very revered figure by the right, who are obsessed with hating China right now. But even so, this is still a bipartisan issue and she’s been well received by Democrats on the Hill as well.
KL: If the push to reshore generic drug production has bipartisan support, which, let’s face it, is a rarity these days, why aren’t we doing more of it? Or why didn’t we do it sooner?
MP: That’s a good question. I have to be honest, when I first set out to write this article on reshoring, I thought that reshoring seemed like kind of a no-brainer. Yes, you want to have facilities here that the FDA inspects more regularly that the plants in China. And yes, you want easy access to those drugs when you need them. And certainly you don’t want China hanging this sword over your head. So, I thought this article would most likely be about how the efforts by the White House are progressing to reshore generic drug production.
Of course, once I got into this article and began looking at it from different angles, the view of this as an easy solution to solving our dependency on China became a lot murkier.
KL: What has the Trump administration been doing?
MP: Well it’s no secret that President Trump is not a fan of China right now. We’ve been engaged in several aggressive trade measures against China. Trump has also long been a major advocate for American manufacturing. And so unsurprisingly, the idea of reshoring drug production is right in line with his broader agenda.
As we’ve seen, Trump is also not afraid of using Executive Orders to push his policy initiatives, especially when it comes to the pharma industry. So in the spring, the Administration began floating the idea of an executive order that would require government agencies to purchase essential medicines — which still need to be defined by the FDA — from suppliers in America. This is what has become known as the “Buy American” order, which was eventually signed in August.
Meanwhile, the US government has begun striking major deals with American companies to manufacture generic drugs and APIs in the U.S. In May, BARDA struck a deal that could be worth up to $812 million with Phlow Corp, a company that was launched earlier this year specifically to provide end to end manufacturing for essential generic medicines.
Then later in the summer, another government agency — the International Development Financial Corp — granted a $465 million loan to Eastman Kodak to manufacture generic APIs.
So the government has been using both carrots and sticks to prompt more generic manufacturing in the U.S.
KL: So why isn’t this all a good idea?
MP: First of all, some in the generics industry think that these issues have been overblown. I talked to someone at the Association for Accessible Medicines (or AAM), the generic industry’s largest trade group, who said that our supply chain is already secure. He argued that there have been very few drug shortages since the coronavirus pandemic began, that China is a stable partner for the generics industry in the U.S. and that basically the system works – so, why mess with it?
There are also arguments that if we stop relying on China for KSMs and APIs and instead rely on manufacturing facilities in the U.S., we will expose ourselves to the same risks we currently have. Basically, the argument is — the more facilities we source ingredients from, the better. So instead of turning our backs on China to get products here, we should create more redundancies and simply make sure that we don’t just have one supplier, but also back up suppliers all around the world. Because if we end up with only a few suppliers in the U.S., what happens if those suppliers are shut down due to a weather event or some kind of other catastrophe? If that happens, then where will we be? So, just because your supplier is in the U.S. that doesn’t mean that your supply of these products is safe.
There are also concerns that manufacturing in the U.S. will cause prices for generic drugs to spike. It’s no secret that it’s cheaper to get these KSMs and APIs from China — and when you’re making drugs with very low margins, you want to make them on the cheap. Otherwise, it’s not financially doable.
So when you look at it that way, it starts to feel like maybe the government is forcing an issue rather than providing a solution in a way that helps both the industry and patients.
And of course, it doesn’t help that the government made two questionable choices with its picks for the first companies to receive funding support for generic manufacturing.
First we have Phlow, which before this year, had never manufactured generic drugs before.
And then we have Kodak, which has also never been a player in the pharma space. And on top of that, now you have all this shadiness around the Kodak deal, which really makes you wonder how they landed this contract. Because a few days after the loan to make generic APIs was announced, reports surfaced that executives at Kodak made questionable stock deals around the time of the announcement when the company’s shares shot up by a considerable amount. Now, the loan is on hold, the SEC is involved and is investigating it. And most recently, the inspector general of the agency that awarded Kodak that loan said that they are looking into whether or not the Trump administration had any conflicts of interest associated with Kodak.
So, it’s not a good look for the president. And making matters worse is the fact that it doesn’t appear that the Trump administration engaged the generics industry ahead of those deals to find partners that are established manufacturers.
But on the flip side, reshoring advocates argue that the generics industry has been spoiled by China for far too long — and they don’t want it to change because this is how they get cheap ingredients for generic drugs. When you talk to reshoring advocates, they tend to take a patriotic tone and make it sound like it is the duty of American manufacturers to fix this reliance on China and bring manufacturing for everyday drugs back home.
KL: If it’s unclear then who exactly is right — the industry or lawmakers — what was the key takeaway?
MP: I think like everything, there are elements of truth on both sides. But one key takeaway for me was that if the U.S. government really wants to reshore drug production for essential medicines, it would be better off coming up with a long-term comprehensive plan. About 10 years ago in Russia, the government launched its plan to reduce its reliance on API imports from China and this plan included a host of financial incentives for boosting generic production and it set concrete goals. Now, Russia didn’t exactly meet all those goals, which is why it’s now working on a new 10-year plan. But the plan did offer a clear roadmap for addressing this issue — rather than what we seem to be doing for now, which is just creating unfunded mandates and one-off investments that may or may not have a long-term impact on reducing imports from China.
I think what the industry wants is clarity and support. With the right financial incentives, I’m sure generic companies would be happy to produce here more.
What’s also going to be interesting to see is how things work out with Phlow Corp. Although Phlow as a company is new, it is run by industry veterans. And what they’re trying to do is use advanced manufacturing technologies such as continuous to provide end to end fully American made generic drugs. They are using AMPAC Fine Chemicals as a supplier for their KSMs and they say that if AMPAC can’t source a KSM in the U.S., they will find some kind of engineering workaround to make the APIs without imported ingredients. And then Phlow is going to make the APIs using KSMs from AMPAC, which will then be turned into finished dosage forms by CivicaRx, a really interesting generics manufacturing company that was launched in 2018 to make drugs for hospitals. The idea behind Civica was that if they could get enough hospitals to sign on as purchasers of generic drugs, then they would have enough stable, long-term contracts to make generic drug production more financially feasible. So Civica Rx is now on board with Phlow. And Rosemary Gibson is on Phlow’s board of directors, which she says she’s doing to help keep them on track and make sure that what they’re doing is in the public interest. And Phlow claims that the drugs they produce will be cheaper than other generics on the market. But we don’t know for sure if this is all going to work and we won’t know for a few years. But if they pull it off, I think that they could in fact prove that with the right setup — including the right partners and with financial backing — more generic drug production in the U.S. can indeed be a viable option once again.
KL: Well, I'm sure this is an issue that we'll be hearing more about in the future. Thanks for chatting with me today, Meagan, and keeping us updated.
MP: Thanks so much for having me.
KL: This is Karen Langhauser, and you've been listening to Off Script: A Pharma Manufacturing Podcast. Stay healthy and stay informed.