Having seen Congress spend money to onshore semiconductor production, pharma groups are pushing for similar incentives for domestic drug manufacturing.
In an effort to encourage companies to make generic drugs and ingredients in the U.S., President Donald Trump has signed executive orders this year on regulatory relief and supply chain resilience, and the FDA has made moves toward lowering barriers and creating incentives. While industry representatives have welcomed the steps, some are calling for further initiatives to tackle what they see as the core barrier to onshoring: money.
“As our volumes are going up, our economic footprint is actually going down. It’s decreased about $6.5 billion over the past five years,” Kamaal Anas, corporate vice president for regulatory affairs at B. Braun Medical, said at an FDA meeting in September to discuss the agency’s proposed PreCheck program. “We’re serving more people, but we’re getting less return on investment. That limits our ability to innovate and invest.”
Anas’ proposed fix for the problem goes beyond the scope of PreCheck, which is aimed at making it easier for companies to build new facilities in the U.S., or indeed beyond the FDA’s powers. Citing Congress’ push to promote domestic semiconductor production as an example, Anas called for the U.S. to consider targeted subsidies, grants and other economic incentives to drugmakers.
Congress committed to boosting U.S. semiconductor research and production by passing the CHIPS and Science Act in 2022 authorizing $280 billion in new funding. The idea of a CHIPS Act for pharma has been raised in the past, although a member of the U.S.-China Economic and Security Review Commission said last year that it could be hard to accomplish politically even though it may make sense in theory. Producers of generic drugs and APIs want lawmakers to make an effort, though.
The High Cost of Cheap Generics
A spokesperson for the Association for Accessible Medicines (AAM), a trade group that represents companies including B. Braun, told BioSpace that differences between the economics of the branded and generic drug markets justify grants, tax incentives and other inducements aimed at manufacturers of off-patent products.
Notably, unlike with branded drugs, the U.S. pays less on average for unbranded generic drugs than other countries. The Assistant Secretary for Planning and Evaluation said the finding suggests “robust price competition in U.S. unbranded generic markets continues to drive savings for consumers and health care payers.”
Kevin Webb, president and chief operating officer at the API Innovation Center (APIIC), made the case that those low prices have driven companies to relocate production to countries where it is cheaper to make medicines. Making medicines in the U.S. can provide benefits such as supply chain stability and quality assurance, helping companies justify domestic production even if costs are lower overseas. As price pressures reduce profitability, however, companies may have to move production to a country where costs are lower and ship the products to the U.S.
“There’s a really good understanding within the market that there’s a high cost to low-price generic drugs. It’s not a sustainable model because we see the manufacturing base just shuttering and leaving the country,” Webb told BioSpace. “We’re decimating our manufacturing base, and that doesn’t serve anyone’s interest.”
A Push for Contractual Certainty
Andrea Briggs, a colleague of Webb’s at the APIIC, made the case at the FDA PreCheck meeting that the subsidies China and India offer manufacturers mean the U.S. needs to level the playing field. Briggs said the government could help U.S. manufacturers, particularly smaller organizations, by signing longer-term contracts for the supply of medicines for Veterans Affairs, Medicare and Medicaid.
The direct impact of government contracts may be limited for many organizations. Webb said purchases of pharmaceuticals by the U.S. government account for around 5% of the market. Yet there are potential wider effects of government actions that could give the contracts an outsized effect on the sector.
Webb said long-term government contracts are “a powerful signal to the private sector” that encourages private sector purchasers and distributors of generic drugs to make similar long-term commitments. For manufacturers, having multiple long-term deals could provide the certainty to support investments in domestic production capacity.
The AAM spokesperson made a similar point, arguing that fixed contracts with guaranteed purchases give manufacturers predictability with regard to what medicines they need to make and what financial return they will receive. As trade groups work toward that goal, attention is turning to another group with the power to influence where generic drugs and APIs are manufactured—the U.S. government.
Congress has already shown it views semiconductors as a strategic asset that should be made in the U.S. to support national security. Lawmakers have the power to offer similar targeted subsidies, grants and other economic incentives to the pharma industry. The upcoming talks will show whether lawmakers place similar importance on the supply of semiconductors and drugs.
“The machinery of the federal government is kicking in,” Webb said. “The next level of conversation is with the Congress. We need legislation to support policies that the government is putting into place.”
