While trade groups hail the executive order as a national health security opportunity, analysts warn that production costs could go up in the near term.
Pharma industry trade groups have responded positively to President Donald Trump’s plans to make the supply chain more resilient. However, the upbeat response was offset by concerns about the near-term impact on the cost of drug production and a call for further actions to fully secure Americans’ access to medicines.
Trump’s executive order instructs the Administration for Strategic Preparedness and Response (ASPR) to create a list of around 26 drugs that are vital to national health and security within 30 days. Once the list is in place, U.S. authorities will prepare the existing Strategic API Reserve (SAPIR) to receive enough active pharmaceutical ingredient (API) to support a six-month supply of the vital drugs. Domestic API sources will be preferred for filling SAPIR.
In the second phase of the initiative, ASPR will update an existing list of 86 essential medicines and propose a plan to obtain and store a six-month API supply for the products. Trump has also tasked ASPR with developing a proposal for opening a second SAPIR.
The practicalities and implications of this plan remain murky, Truist Securities analyst Les Sulewski and associate Jeevan Larson wrote in an Aug. 14 note to investors.
“The intent of the administration is to incentivize onshoring of API manufacturing and integrate the drug manufacturing process in the U.S. for critical drugs. We think API suppliers and marketers of these ‘to be selected’ medicines will be mandated to act accordingly,” the Truist team wrote. “However, it is unclear at this time which drugs will be selected and what steps will be needed, if at all, to on-shore production.”
Industry Backs Trump’s Plan
The lack of information on what drugs are covered by the order is a key uncertainty at this stage, John Murphy, president and CEO of the Association for Accessible Medicines (AAM), told BioSpace. Yet, while Murphy has some unanswered questions, the generic drug trade group leader sees the potential benefits of the executive order for this class of medicines.
“We view this as a promising step in the direction of creating a more resilient supply chain for generic drugs in the United States,” Murphy said. “We’ve long said that the government could play a role in stabilizing the market for generic drugs by serving as a direct purchaser and providing certain long-term commitments to help facilitate the investment environment.”
Representatives of the API industry also responded positively to the president’s moves on this front. A spokesperson for the Bulk Pharmaceutical Task Force (BPTF) told BioSpace via email that the API trade group “supports the initiative defined” in the executive order, adding that it “fully supports this Administration’s efforts to leverage domestic API capacity, where possible.”
A spokesperson for API Innovation Center (APIIC), a nonprofit focused on U.S.-based supply of APIs, told BioSpace via email that the order “is an important opportunity for U.S. national health security.”
Historically, Murphy argued, purchasers in the U.S. have focused on price at the expense of supply chain security, ultimately resulting in generics that are cheaper than in other countries. But the prices are only profitable when APIs and drugs are made in low-cost locations, the argument goes, driving production away from the U.S. If production is to return to the U.S., prices may need to increase to the point that U.S.-based production is profitable.
“Many of the insurers and many of the group purchasing organizations literally look at nothing but cost and they go for the lowest cost possible. That’s led to that shift away from U.S. domestic manufacturing,” he said. “The only way to get a piece of that back is to prioritize government and insurance company purchases of those products that are available in and made in the United States.”
The BPTF spokesperson agreed that a shift away from price is warranted and specifically recommended that purchasing decisions consider the domestic API industry’s sustainability, quality, patient health and safety.
While welcoming the executive order, Murphy also called for reform of pay systems to help support patient access to drugs. “I don’t think it is going to be the only thing that is necessary to fully change our supply chain behavior.”
Analysts Flag ‘Prohibitive Costs’
Sulewski and Larson outlined potential downsides to Trump’s executive order. While agreeing that the move “could potentially mitigate U.S. supply chain vulnerabilities long-term,” the Truist analysts warned that generic and API companies could face implementation challenges and higher costs in the near term.
“Vertical integration and on-shoring of precursor chemicals, API and finished dosing manufacturing is cost prohibitive to the majority of suppliers and disruptive to the global supply chain, specifically U.S. manufacturing of API and input material sourcing,” Truist wrote.
The analysts predicted that if forced to act, “API suppliers will selectively on-shore products under mandate but demand economically feasible contracts and longevity.” Limiting their analysis to companies they cover, Sulewski and Larson said ANI Pharma, Amneal Pharmaceuticals, Bausch Health and Teva Pharmaceuticals could face “some potential disruption.” The analysts wrote that the impact “should be manageable.”
Teva has “by far the largest API and generics exposure” among the companies Truist covers, they continued.. However, the company could reduce its exposure if the proposed divestiture of its API business goes ahead.
