Re-configuring Global Pharma Supply ChainsBy
In the wake of the COVID-19 pandemic and concerns over pharmaceutical supply-chain vulnerabilities, the policy debate to repatriate and increase domestic drug manufacturing in the US is receiving increased attention. This week presumptive Democratic nominee Joe Biden released a detailed plan, and Congress has introduced several bills. What proposals are on the table?
A plan for addressing supply-chain vulnerabilities in the US
Presumptive Democratic nominee Joe Biden released a plan this week (July 7, 2020) to address supply-chain vulnerabilities in the US, including for pharmaceuticals, medical equipment, and other critical products, arising from the COVID-19 pandemic and overall as part of national-security concerns. “While medical supplies and equipment are our most pressing and urgent needs, US supply-chain risks are not limited to these items,” said a statement from his campaign. “The US needs to close supply-chain vulnerabilities across a range of critical products on which the US is dangerously dependent on foreign suppliers. America needs a stronger, more resilient domestic supply chain in a number of areas, including energy and grid-resilience technologies, semiconductors, key electronics and related technologies, telecommunications infrastructure, and key raw materials.”
The plan calls for a set of targeted proposals to “ensure the US has the domestic manufacturing capacity necessary for critical supply chains,” said the statement. The plan specifies that Biden, if elected President, would launch a review of US supply-chain vulnerabilities and implement a national strategy to close them. This would include signing an executive order to inventory US supply-chain vulnerabilities, directing relevant agencies to identify the specific critical products where the US faces national-security supply-chain vulnerabilities and to address them, and working with Congress to pass a law making this process permanent as part of a quadrennial Critical Supply Chain Review that will include updating the list of critical products that would be the focus of supply-chain security planning.
The plan calls for several measures, including what it terms as building “long-term supply-chain resilience for pharmaceuticals” and outlines several specific measures. The first measure calls for using the Biomedical Advanced Research and Development Authority (BARDA), which is part of the Department of Health and Human Services, to ensure adequate production of vaccines and other medical countermeasures to address COVID-19 and provide incentives for the production of vaccines and other medicines in the US. The plan also calls for using other federal authorities, including direct compulsory licensing of vaccines “where companies are slow in producing them or are charging excessive prices, to rapidly scale up vaccine production as needed.”
Secondly, the plan also calls for leveraging federal healthcare purchases, such as through Medicare, Medicaid, the Department of Veterans Affairs, and other health programs, as well as federal procurement more generally, to encourage pharmaceutical companies to make key drugs, drug inputs, and medical devices in the US while ensuring fair and transparent pricing. The plan calls for the Commissioner of the US Food and Drug Administration (FDA), the Centers for Disease Control, and the Department of Defense to identify critical drugs and medical products and to create a market for US-based manufacturing by directing federal agencies to purchase versions of these drugs that are made in the US and that use US-made sourced ingredients.
Thirdly, the plan calls for incentives in the US tax code to encourage on-shoring of pharmaceutical supply chains and pharmaceutical production in the US.
These specific measures for pharmaceutical manufacturing and supply chains are further supported by overall measures in the plan to reduce supply-chain vulnerabilities in the US. Specific measures impacting manufacturers in the overall plan are outlined below.
Increase federal stockpiles. The plan calls for increasing US strategic stockpiles of medical supplies and other critical goods while using federal procurement authorities to ensure that stockpiled products are made in the US to the greatest extent possible, thereby creating an incentive for on-shoring production of those goods.
Require companies to develop plans to address potential supply-chain disruptions for critical products. The plan says that Biden, if President, would work with Congress and direct regulatory agencies to require companies that manufacture, distribute, and use designated critical products in the US to regularly identify potential supply-chain vulnerabilities and develop plans for addressing them. Where deemed necessary to protect what the plan terms as “critical infrastructure and supplies,” the plan specifies that targeted restrictions on imports from nations, such as China and Russia that pose national-security threats, would be imposed.
Promote surge-manufacturing capacity. The plan calls on the President, Congress, and the private sector to work together to develop standing plans to enable surge-manufacturing capacity in the US for key critical products. This will include the following:
- Compensating companies where necessary for maintaining excess production capacity and inventory for designated critical products;
- Encouraging companies to create databases of product designs for supplies that might be needed during a national crisis;
- Using legal authorities during crises to ensure product designs and patents can be licensed and utilized quickly if needed to ramp up production in the US;
- Pursuing public–-private partnerships to improve manufacturing capacity, such as The National Network for Manufacturing Innovation initiative;
- Invest in a new Critical Supply Chains Workforce that would be financed by the Critical Supply Chains Workforce Development Fund that would invest in the workforce skills needed to help bring back US manufacturing of key supply-chain products and components. This measure calls for partnerships with state, local, and tribal governments to maintain adequate base production capacity in all regions of the US and to put in place executive functions with clear chains of command;
- Create new incentives to spur domestic production of critical products in the US to provide targeted investments and incentives for companies to manufacture designated critical products in the US, such as new targeted financial incentives, including tax credits, investments, matching funds for state and local incentives, R&D support, and other incentives to encourage the production of designated critical materials in the US;
- Work with allies to protect their supply chains and to open new markets to US exports; and
- Eliminate trading practices that create price differentials for US companies purchasing raw materials from abroad to create fair pricing for raw materials.
Earlier this year (March 2020), Peter Navarro, Assistant to the President and Director of the Office of Trade and Manufacturing, said in media interviews that he was working with President Donald Trump to finalize an executive order that would provide long-term incentives for US-based companies to produce medications and medical supplies domestically in the US. The strategy behind a proposed executive action consists of a multi-facet approach that would require federal agencies to purchase US-produced pharmaceuticals and medical equipment, deregulation, and incentivizing new technologies to encourage domestic production of pharmaceuticals and medical equipment in the US. Separately, in May (May 2020), the White House announced that President Trump and his Administration was releasing a plan to restructure the Strategic National Stockpile to increase supplies of critically products, integrate predictive analytics to determine needs, use technology to provide real-time visibility of supply chains, and to reduce dependency on foreign supplies. The President also signed an Executive Order to provide the authority to ensure that the US is producing critical goods necessary to build up its strategic stockpiles. Under the order, the United States International Development Finance Corporation will provide financing to key industries producing vital goods and services.
Legislative proposals in the US
In the US, there have been several bills introduced this year in response to the COVID-19 pandemic as well as last year (2019) that call for an assessment of US-based drug manufacturing and measures to ensure US-based production of critical or essential drugs. In late June (June 2020), US Senators Marco Rubio (R-FL) and Elizabeth Warren (D-MA) introduced bipartisan legislation to direct the Federal Trade Commission (FTC) and the Secretary of the Treasury—acting through the Committee on Foreign Investment in the United States (CFIUS)—to conduct a study on the US reliance on foreign countries and the impact of foreign direct investment on the US pharmaceutical industry and DNA analysis industries. The bill, the US Pharmaceutical Supply Chain Review Act, would require the FTC and Treasury, through CFIUS, to provide Congress with a report within one year of passage that evaluates the following: (1) how overreliance on foreign countries for pharmaceutical products impacts the US supply chain and domestic manufacturing capacity; (2) how foreign direct investment from abroad affects the US’ ability to produce drugs, as well as their key components; (3) how foreign direct investment in US genome-sequencing technologies affects domestic capacity to sequence or store DNA; and (4) the number of foreign investment transactions in the pharmaceutical industry and the sequencing or storage of DNA in the US that CFIUS has reviewed in the past 10 years.
In March (March 2020), Senator Rubio introduced another piece of bipartisan legislation, the Strengthening America’s Supply Chain and National Security Act, (S.3538). Specifically, the bill directs the Department of Defense to determine the extent of its dependency on foreign entities for drugs, active pharmaceutical ingredients (APIs), and pharmaceutical components. Additionally, under the bill, the Department of Defense would be required to determine whether this creates a national-security issue and to make recommendations to eliminate US dependency on foreign sources. The bill also requires drug makers to provide the FDA with information to determine the volume of APIs used in pharmaceuticals. This reporting would be included in drug makers’ annual post-market reports, which they now are required to submit to the FDA, in order to allow the FDA and the Department of Defense to ascertain the extent of US dependence on foreign sources for APIs and provide the FDA the resources needed to pinpoint “hot spots” more vulnerable to drug shortages. The bill also calls for a restoration of the process by which the Department of Defense and the Department of Veterans Affairs make purchases made under the Buy American Act, which requires federal agencies to procure domestic materials and products. The bill seeks to address a ruling made in February (February 2020) by the US Court of Federal Claims that determined, in a case involving a generic drug manufacturer that sourced APIs and other components from other countries but manufactured the final product in the US, that the country of origin would be the US and would not be based on where the API is from. The bill aims to revert back to the process that was in place before the ruling.
Senators Warren, Kevin Cramer (R-ND), Chris Murphy (D-CT), and Tim Kaine (D-VA) joined Rubio in introducing the bill in the Senate, and US Representative Michael Waltz (R-FL) is leading companion legislation in the US House of Representatives.
Earlier this year (March 2020), US Senators Robert Menendez (D-NJ) and Marsha Blackburn (R-TN) introduced bipartisan legislation, The Securing America’s Medicine Cabinet Act (S. 3432), to increase US-based manufacturing of APIs by encouraging and providing incentives for pharmaceutical manufacturing innovation and advanced pharmaceutical manufacturing. The proposed legislation authorizes $100 million to develop centers of excellence in advanced pharmaceutical manufacturing for developing innovation as well as for workforce training. These centers would be partnerships between institutes of learning and the private sector. The funding is intended to further encourage drug manufacturers to spur innovations similar to those in other industries, such as automotive, aerospace and semiconductors, and bring drug manufacturing back to the US. The bill also calls for the creation of an Advanced Manufacturing Technologies Unit within the FDA to prioritize issues related to national security and critical drug shortages as well as create additional pharmaceutical manufacturing jobs in the US.
Also in March (March 2020), Senator Tom Cotton (R-AR) introduced Protecting Our Pharmaceutical Supply Chain from China Act of 2020 (S. 3537) to require that the Secretary of Health and Human Services maintain a list of the country of origin of all drugs marketed in the US and to ban the use of federal funds for the purchase of drugs manufactured in China.
Another bill introduced in the US House of Representatives would require drug manufacturers of essential drugs and manufacturers of medical devices to disclose source of origin for their products and other manufacturing reporting information. Rep. Mike Gallagher (R-WI) and Rep. Mark Pocan (D-WI) introduced the Medical Supply Chain Security Act (H.R. 6049). This bill would provide the FDA authority to analyze sourcing locations of medical products. Companion legislation (S. 3343) in the Senate was introduced earlier this year (February 2020) by Senator Josh Hawley (R-MO). The bill would provide new authority to the FDA to request information from manufacturers of essential drugs or devices regarding all aspects of their manufacturing capacity, including sourcing of component parts, sourcing of APIs, use of any scarce raw materials, and any other details the FDA deems relevant to assess the security of the US medical product supply chain.
Last year (October 2019), Reps. John Garamendi (D-CA) and Vicky Hartzler (R-MO) introduced the Pharmaceutical Independent Long-Term Readiness Reform Act (H.R. 4710) that would require the US Department of Defense to identify the vulnerabilities faced by the country’s medical supply chains and to only purchase US-made raw materials, medicines, and vaccines for the military. The bill would further require that not later than one year after the date of the enactment of the legislation, the US Secretary of Defense, in consultation with the heads of other appropriate federal departments and agencies, submit to Congress a report on vulnerabilities to the US medicine supply chain.