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The nation’s pharmaceutical supply chain may be in need of some reshoring, onshoring and/or near-shoring of key manufacturing activities in the near future. According to a new report from the Center for Analytics and Business Insights (CABI) at Washington University’s Olin Business School, more than 80% of active pharmaceutical ingredients (APIs) for essential medicines across key therapeutic areas lack a U.S. manufacturing source.
The report found that less than 5% of large-scale API sites are located in the U.S., and that the nation relies heavily on countries like India and China, both of which are home to most of the world’s large-scale manufacturing sites. These realities could pose a problem both in terms of navigating current supply chain interruptions and for pharmaceutical companies that are planning for the future.
What are APIs?
In its US Active Pharmaceutical Ingredient Infrastructure: The current state and considerations to increase US Healthcare Security report, CABI describes APIs as the essential components of a medicine that provide the therapy needed for the patient. These chemical and biological compounds are formulated and manufactured into finished dosage forms (i.e., tablets, solutions, creams, etc.) for administration.
CABI’s new analysis shows that:
- More than 80% of APIs for essential medicines and across key therapeutic areas have no U.S. manufacturing source.
- Less than 5% of large-scale API sites, globally, are located in the U.S.
- The majority of large-scale manufacturing sites are in India and China.
- U.S. weakness in API manufacturing is being caused by a “race to the bottom” on pricing against global players, with structural advantages for ex-U.S. manufacturers in greater government subsidies, lower input costs and lesser regulatory burdens.
- Solutions to protect U.S. healthcare security must address the risk to that security by creating 1) a critical mass of domestic manufacturing infrastructure to protect domestic interests; 2) a level playing field for global competition; and 3) sustainable domestic markets for American manufacturers.
Getting to the Root of the Problem
As the active component of any medicine, APIs play a crucial role in pharmaceutical supply chains. According to the FDA, the root cause of any API shortages can usually be traced back to low profitability, low value for quality and complex, global supply chains. “All three causes are prevalent in commoditized essential medicine production,” CABI reports. “Notably, the drugs most likely to be in shortage were 35 years on-market, meaning those with the greatest exposure to competition were also those at greatest risk.”
Due to intense competitive pressure, CABI says many of these medicines were manufactured overseas, where costs are lower. For example, in an assessment of 52 COVID-related medicines, the Center says 75% had no U.S. source of API. Another review of the top 100 generic medicines consumed in the U.S. revealed that 83% had no U.S. source of API.
Other key findings in CABI’s report:
- Of the 103 sites worldwide that manufacture and sell over 30 API products, only four are in the U.S.
- Only 15 sites in the U.S. make more than 10 API products versus nearly 350 outside the US.
- By comparison, India has 60-plus API sites with 30 APIs and China has 10-plus such sites.
Unfortunately, there is no “silver bullet” fix to the problem. CABI says that rebuilding U.S. manufacturing of APIs to drive healthcare security will take time. “In the meantime, our reliance on foreign manufacturers will continue and a rapid shift is neither possible nor advisable,” it adds. “Instead, a deliberate plan is required that aligns public and private enterprise with direct infrastructure investment and supportive policies favoring U.S. sources of essential APIs.”
