Panel: Diversified Trade in Pharma Could Boost Resilience, but Other Policies Matter More

Barely more than half of the pharmaceuticals' value consumed in the U.S. is domestically produced, but re-shoring is not the answer to vulnerabilities in the supply chains for drugs or medical equipment, panelists said at a think tank event.

Center for Strategic and International Studies senior adviser Meredith Broadbent said CSIS wanted to partner with Belgium to talk about how to add more resilience to medical supply chains by redeveloping trade rules. She said the bipartisan, bicameral bill introduced last year, the Medical Supply Chain Resiliency Act (see 2307050030), was inspired by CSIS findings. That bill suggests that the Office of the U.S. Trade Representative negotiate reciprocal reductions or eliminations of tariffs for pharmaceuticals and medical devices.

Sebastien Miroudot, senior trade policy analyst from the Organization for Economic Cooperation and Development (OECD), said that while government policies, such as new stricter regulation in the EU for medical devices, can make supplies more scarce, most of the problems of shortages have only indirectly been due to government policies, in government's price-making capacity as a buyer of drugs.

The OECD released a report on securing medical supply chains earlier this year, and Miroudot said it found that the majority of shortages are due to problems in manufacturing that result in recalls or stopped production.

He said that drugs that are injected are more likely to be in short supply -- they are more difficult to manufacture than pills -- and most shortages are of generic drugs.

Jeffrey Borden, vice president for the North American supply chain at Sandoz, the world's largest generic drug manufacturer, agreed.

He said that 50% of the drugs on the shortage list in the U.S. cost less than $1, and 80% are under $10. He said when buyers care only about price, the end result is just one company making the drug.

In contrast, he said, in the EU, a fair price for anti-infectives means Sandoz has dedicated lines to the product, and open capacity.

Miroudot said that when prices for generics are so low that they're not very profitable to produce, supply chains cannot be diverse. He suggested instead of choosing suppliers on the lowest price, countries consider valuing diversification of supply.

Monica Gorman, special assistant to President Joe Biden for manufacturing and industrial policy, said Medicare is considering adjusting payments to address market failures. She agreed that prices paid to manufacturers for some drugs provide "insufficient incentives for redundancy or resilience" and that "led to brittle supply chains." She said overconcentration among middlemen between insurers and manufacturers also is problematic.

Pedro Facon, deputy CEO at The Belgian National Institute for Health and Disability Service, said political talk about reshoring medicine production in Europe and the U.S. is the wrong prescription. "You shouldn't try to find a simple solution to a complex problem," he said. He said he represents the Belgian public body that purchases drugs for its residents, and he recognizes that trying to reshore would make medicine more expensive. "It's very important that we have nuanced solutions, a basket of measures," he said.

Facon suggested that there should be a floor on prices in procurement, but also said governments should be able to find the industry if there are shortages.Gorman, who spent most of her career in the private sector, including leading New Balance's trade compliance, said that a "control tower" in Health and Human Services during the pandemic gave the government visibility into where supplies were available, but now that the crisis has passed, information sharing between the private sector players who control the supply chains and the government, which wants to improve resiliency, has ebbed. "We have to have the private sector at the table," she said.

International Trade Today asked if there's a mismatch between political rhetoric and the pressing problem. Congress tends to focus on the concentration in China of active pharmaceutical ingredient production, along with production of the chemicals that make APIs (see 2211150045), and the administration also has pressed India to diversify its sources of API beyond China (see 2401120068).

Gorman replied that although generic steroid injectables are the most common category of shortage, and therefore is the current acute problem, "you need to be looking at longer term vulnerabilities" such as this one.