In their Wall Street Journal op-ed on the risks of over-reliance on international pharmaceutical manufacturers, Scott W. Atlas and H.R. McMaster conclude:
A secure drug supply chain couldn’t have made up for the Chinese Communist Party’s decision to conceal the threat of Covid-19. But it is essential for mobilizing resources to mitigate the crisis. And the stakes are high, even in normal times. More than 15 million American seniors, or 1 in 3, take five or more medications daily. As the U.S. population ages, society will become even more dependent on drugs indispensable to treating the biggest killers—heart disease, cancer and stroke. Preventing an interruption of the supply of vital medications that save lives and treat diseases, whether during pandemics or in routine care, is a matter of national security.
If you’re not aware of the mechanics of 21st century pharmaceutical production, they provide a reasonable primer:
While U.S. pharmaceutical companies may preserve redundancy in their sources for patented drugs, the generic drug business, which accounts for more than 90% of all U.S. prescriptions, prioritizes low cost over supply-chain resiliency. Most generics, including antibiotics, are imported from India—and India imports some 70% of its active ingredients from China. America needs to understand and diversify sources of supply, as well as maintain a strategic reserve of antibiotics and the key drugs for the most prevalent serious diseases.
Beyond scale and complexity, details on drug manufacturing are opaque and complex. The Food and Drug Administration requires country-of-origin markings, but the U.S. Court of Appeals for the Federal Circuit ruled in February that processing ingredients into tablets in the U.S. is enough to constitute “manufacturing.†A drug made into tablets in the U.S. with active ingredients from India may list only the U.S. as “principal place of business†for FDA purposes. Labeling should be straightforward, but not at the sacrifice of security.
There is no robust system of international civil law. If you’re injured by a prescription drug, you can sue the company under whose brand it was made. Or, if you’re killed by an adulterated drug, your heirs can sue. If the drug was manufactured in India using Chinese ingredients, that company has no or next to no legal recourse.
The use of ingredients manufactured overseas isn’t limited to generics, BTW, and is isn’t limited to pharmaceuticals. Just about every food additive to change a food’s color, texture, or nutritional content is made in China. Consider that the next time you eat a Twinkie (or any other processed food).
Well, no Twinkies here. But at least you offered a reason for offshoring drugs: the commoditization of generics. And the case for for not offshoring drugs: you can’t sue for tort liabilities in their shithole factories.
It is a glaring omission to not note the margins on patented vs generic drugs. Even worse, to not point out what I have so many times over the years at this blog: the vast majority of people will buy on price. No matter what they tell you. So if price and production cost don’t converge……………drug makers ain’t makin’ it, and consumers ain’t buying it.
Its a vexing issue.
Now that China has bofoed us, will people still buy Chinese? We shall see. Its so much easier to slackjawed blame the current Administration……………
Some of my earliest posts dealt with our byzantine system of R&D, patents, and FDA approval. I sort of assume that everybody knows at this point.
It’s actually more complicated than that. In drugs, health care generally, there is a discrepancy between the marketing universe and the end customer. The end customer doesn’t actually make the purchasing decision—the prescribing physician does. Which explains neatly why the pharmaceutical companies market so heavily to physicians.
“Which explains neatly why the pharmaceutical companies market so heavily to physicians.”
They dont market the cheap injectables at all. Those are the drugs with the tightest margins and constantly run into shortages. You never see ads for them and you never see drug reps using those drugs. They do market new drugs like crazy. We rarely see drug reps anymore but when we do they are pushing a new drug.
Markets cant and wont solve the issue of security. Price rules. What I would hope we do is require that key drugs be made in the US and then let companies compete. Worn happen without government intervention.
Steve
‘Markets can’t and wont solve the issue of security. Price rules. What I would hope we do is require that key drugs be made in the US and then let companies compete. Won’t happen without government intervention.’
As long as government intervention is limited to requiring ‘key’ drugs to be manufactured domestically. Of course there is the pesky problem of what is considered to be a ‘key’ drug, which is where the political gamesmanship and lobbying will come into play. Hopefully because of the margin on generics that will be relatively limited.
I’m sure the system is byzantine. But I, for example, don’t know if a blanket statement about patented vs generics profitability can be made, other than that all price competitive products seek lower cost environments, no matter the buying entity. Steve hit on the implicit point I was making. Its really economics at the end of the day. (or, see below)
That brings up moral issues for both doctors and drug companies. And it raises strategic issues as we see today. Its one of the few issues where I can see that government will be required to avoid this overreliance. But Tars points out the inevitable result. However, we are at war with China, whether we choose to acknowledge it or not. It may be the price we have to pay.
But I wonder how many see that same issues at work is, say, rare earths or the “icky” industries that environmentalists have chased away.
” Of course there is the pesky problem of what is considered to be a ‘key’ drug, which is where the political gamesmanship and lobbying will come into play. Hopefully because of the margin on generics that will be relatively limited.”
Yes, and that fear, among other issues, has kept us from addressing this problem. The margins on generics have been so small I think we likely end up with just one or two companies making any given drug in the US. Tough problem.
Steve
Subsidies for generics like they do farm commodities.