Findings: Although private sector innovation and robust federal investment allowed the U.S. to rapidly develop and enable COVID-19 product and vaccine supply chains, biopharmaceutical supply chains, in aggregate, are highly fragmented and critically dependent on imports for a range of key starting materials (KSM) and API, namely from India and China. This dependance, purely based on the fundamental economics, cost, and margin advantages of manufacturing in these geographic regions, potentially exposes biopharmaceutical supply chains to increased vulnerabilities and supply chain risk. Moreover, the findings from the review of Pharmaceuticals and Active Pharmaceutical Ingredients by HHS stated that ensuring more resilient supply chains with greater transparency, higher emergency surge capacity, and requirements for future reliance on domestic production is essential for national security, economic stability, and the health of patients in the U.S.

Suggestions from the 100-Day Review for Building Supply Chain Resilience for Pharmaceuticals and APIs

The 100-Day Review findings for Pharmaceuticals and APIs suggest steps that could have far-reaching impacts. These findings and recommendations intend to help biopharmaceutical companies build robust supply chain resilience and risk mitigation strategies. Furthermore, the findings could also serve as precursor to future U.S. policy development. Key Pharmaceutical and API findings from the Review include:

• Identifying financial incentives and investments that drive biopharmaceutical manufacturers to build U.S.-based production capabilities, capacity, and redundancy. These could also support diversifying a supply base and boosting domestic production. Conducting these measures in conjunction with U.S. allies is also recommended based on the findings.
• Assembling a consortium to review the Essential Medicines list and recommend the most critical 50-100 drugs for U.S. patients. The group could also identify potential volumes required in case of demand surges.
• HHS initial commitment of approximately $60M from the Defense Production Act appropriation in the American Rescue Plan for development of new pharmaceutical manufacturing and platform technologies. These platforms could have the potential to reduce costs, increase capacity and processing, and enhance pharmaceutical manufacturing sector agility (e.g. advanced manufacturing platforms).
• Building emergency capacity and stockpile strategies for critical KSM and API necessary to produce Essential Medicines.
• Establishing a Quality rating system for API and Drug Product production to build overall Quality maturity.
  • Per a 2019 FDA report on drug shortages, approximately 62% of new product shortages between 2013 and 2017 were due to Quality issues. Root causes included a lack of incentive and appreciation for maintaining mature Quality Management Systems, and an inability to invest in expensive Quality technology.
• Developing initiatives to collect additional supply chain data that improves surveillance and oversight.
  • Examples include volume reporting, registrations and listing requirements, distribution data, and/or API and finished goods labeling to include original manufacturers. These would allow biopharmaceutical companies to better understand their supply chain risk vulnerability.
• Combating unfair foreign trade practices by establishing a task force to propose enforcement actions against practices eroding critical supply chains.

Key Considerations for the Biopharmaceutical Industry

Although the findings from the 100-Day Review do not outline any immediate policy changes, they could potentially impact the biopharmaceutical industry and associated supply chains to create additional resilience measures and drug shortage mitigations.  Given that HHS led the development of the 100-Day Review, it may be concluded that any future policy efforts will be customized specifically to the biopharmaceutical industry to enable supply chain risk mitigations.

Given the global and increasingly complex nature of biopharmaceutical supply chains, we can assume that even fractional policy changes to build supply chain resilience and mitigate supply chain risks could have vast implications on individual biopharmaceutical supply chain strategies. We can also assume that increased U.S. government scrutiny of biopharmaceutical supply chains and associated risks will continue in the near future.

Macro Considerations We are Monitoring Based on Review Findings

Practicality of Increased Onshore Pharmaceutical Manufacturing in the U.S.

To avoid overdependence on foreign nations for Essential Medicines, Congress issued an EO on August 6, 2020. This EO accelerated the development of cost-effective and efficient domestic production capabilities and resilient domestic supply chains. It also maximized procurement of domestic drug production by federal agencies. Consequently, companies that produce the identified critical drugs and rely heavily on foreign supply chains for all or part of their products, could have to identify domestic alternatives for raw materials, API, or other medical components. Use of these alternatives may significantly impact the product cost.

The EO, coupled with the 100-Day Review findings, outlines the potential for continued legislative focus of onshoring biopharmaceutical manufacturing. However, this onshoring strategy presents its own challenges. The global design of the biopharmaceutical industry and associated supply chains over the past 30 years has yielded a complicated structure that is difficult and costly to uproot. Compounding this complexity, geographically dispersed KSM and API manufacturers have driven costs down to the point where production in countries like the U.S. is not competitive. The 100-Day Review provides limited quantifiable indications on how to compete on a cost basis and does not state the impact domestic production could have on overall healthcare costs.

Furthermore, the U.S. government needs to consider and detail specific tax implications for onshoring biopharmaceutical production, specifically in relation to any Substantial Contribution and Subpart F requirements. These are stark financial realities.

Finally, the logistics of onshoring alternative domestic suppliers or building internal manufacturing capabilities requires significant qualification and validation. This will introduce increased challenges and timing considerations. Driving domestic biopharmaceutical production to mitigate supply chain risk could be a costly and lengthy proposition. Therefore, recommendations related to onshoring biopharmaceutical production require detailed considerations around proper implementation prior to policy development.

Investments in Advanced Manufacturing Capabilities

While HHS investing $60 million from the Defense Production Act appropriation to develop novel platform manufacturing technologies is a positive initial step, the reality is that this figure is relatively minimal with respect to the required investment for implementation of these novel biopharmaceutical manufacturing technologies on a commercial scale (think billions as opposed to millions).

However, this initial investment could be part of larger plans for public and private investment in manufacturing technologies capable of reducing end-to-end processing times and expanding capacity capabilities. This will be important for not only managing current biopharmaceutical supply chain risks and scale up required for future pandemics, but also emerging biopharmaceutical platforms such as cell and gene therapies, which need technological manufacturing advancements and workforce development. We are already seeing this trend with the emergence of companies such as Resilience, who seem to be on the future of advanced biopharmaceutical manufacturing ecosystems – a space we will watch diligently in the coming years.

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