Nationalism and the Pharmaceutical Supply Chain

The COVID-19 era has, once again, positioned the pharmaceutical industry center stage before a global audience. On the one hand, the industry’s awe-inspiring vaccine development work positions it to play a heroic role in helping to bring closure to these trying times. On the other hand, all stakeholders — the pharmaceutical industry, patients, the medical community, regulators, and governments — are at a crossroads. The pharmaceutical industry has become extremely globalized over the past three decades, with intricate supply chains winding worldwide. However, there is a growing cry from multiple nations, certainly including the United States, to bring pharmaceutical manufacturing “home.”

For the past 75 years, the post-World War II global order has embraced the idea that interconnected trading relationships help preserve peace. After all, so the philosophy goes, nations are much less likely to attack and attempt to destroy trading partners on which they rely for their own prosperity. 

Although nationalism has been on the rise for a handful of years now, the pandemic added rocket fuel to already simmering fires. The pharmaceutical industry is faced with the possible disruption of the postwar order along with key questions: What has the industry gotten right? Which areas of the pharmaceutical supply chain need to be reexamined and perhaps restructured? 

Given that a full discussion of the global pharmaceutical supply chain is too ambitious for one article, this piece discusses supply chain issues primarily from a U.S. perspective; however, many U.S. supply chain concerns apply to other markets.

The Current Pharmaceutical Supply Chain

While not perfect, there is a reasonable picture of the finished dosage form supply chain. However, take just one step back in the supply chain to active pharmaceutical ingredients (APIs), and the picture gets a lot murkier. Take additional steps back to consider the supply chain of intermediates, key starting materials, specialty chemicals, excipients, packaging materials, drug administration components, and other materials, and the picture is utterly opaque. To begin addressing any problems in the pharmaceutical supply chain, we need a more accurate picture.

For years, many professionals in both the pharmaceutical industry and the press have cited that 80% of APIs come from China. Today, we do not know the exact API volumes coming from specific countries or facilities. However, we do know the number of FDA-approved facilities around the world. Globally, 28% of FDA-approved API manufacturing facilities are in the United States, 26% in the EU, 18% in India, 13% in China, 2% in Canada, and 13% in the rest of the world.1 Although it is possible that 13% of API manufacturing facilities in China are generating large volumes of API, it is almost certainly untrue that these facilities are producing 80% of the total API volume used for U.S. market drugs.

Portions of the CARES Act, passed in March by the U.S. Congress, seek to address this lack of clarity. Under Section 3112(e), drugmakers will be required to report manufacturing volume data to the FDA, including the “amount of each drug ... that was manufactured, prepared, propagated, compounded, or processed ... for commercial distribution.”

When enacted, these data will help the industry and regulators understand in which markets and in what volume API is being manufactured; nonetheless, the question of the U.S. pharmaceutical supply chain’s security will be far from clear, given the assortment of materials required for API production.

“Players within the specialty and fine chemical industry are providing the starting materials, catalysts, and other materials needed for the drug industry to manufacture APIs,” stated John DiLoreto, Executive Director of the Bulk Pharmaceuticals Task Force. “In terms of key starting materials, sometimes you have to source from where the starting materials actually are. On the specialty chemicals side of the equation, while I have not done a thorough analysis, specialty chemical industry suppliers are quite concentrated in China.”

While the availability of API and the products needed to produce them are critical, the pharmaceutical supply chain’s interconnectedness manifests in other, often unexpected ways. “When Hurricane Maria hit Puerto Rico in 2017, both the FDA and I were initially concerned about disruption in manufacturing on the island radiating out and causing widespread supply chain problems,” commented Gil Roth, president of Pharma and Biopharma Outsourcing Association (PBOA). “But I did not anticipate the types of concerns my members actually had. For example, a CDMO manufacturer in the U.S. ships some product to a customer’s warehouse in Puerto Rico for labeling, and then the product is shipped to customers worldwide. After the hurricane, there was no warehouse to ship to.”

Roth continued, “Another manufacturer used bioprocessing components sourced from Puerto Rico, and, as far as it knew, there was no other company importing this product to the U.S. — unavailability of this product would cause the production of its biologic products to cease. Ultimately, the FDA qualified an EU-based site to fill the need, but this was another illustration of how unanticipated problems can arise and how interconnected the supply chain is. It helps to think of it as nodes, rather than links.”

Although progress in pharmaceutical supply chain understanding is being made, given the complexity of products and the highly global nature of the supply chain, a complete picture of the supply chain is not likely and arguably not practically possible.

U.S. Pharmaceutical Supply Chain — How Did We Get Here?

Why is the pharmaceutical supply chain so complex and globally distributed? First, it is important to understand that there are many pharmaceutical manufacturing facilities in the United States; as of 2019, 1,193 plants were producing FDA-approved products in the United States under GMP regulations, including API manufacturing plants.2

As countries worldwide pull inward, how can the U.S. pharmaceutical industry strengthen its extremely interconnected supply chains?

Follow the Money

Here is where things get interesting. The structure of the U.S. market has changed a great deal in a short period. As recently as 2005, 40% of prescriptions were for brand-name drugs, and about 50% were for unbranded generics. In 2019, only 10% of prescriptions were for brand-name drugs, and 86% were for unbranded generics.3

However, in 2019, brand-name drugs accounted for 80% of the total revenue spent on prescribed medicines in the United States — the remaining 20% was for branded and unbranded generics.4

Branded pharmaceuticals under patent protection are, in large part, sheltered from unforeseen pricing volatility. By contrast, generics very much contend with market pressures forcing prices downward. These pricing pressures often lead to pharmaceutical companies seeking lower-cost materials and manufacturing, opening the door to potential quality issues that can too often result in drug shortages.

“For a very large portion of the pharmaceutical industry, the U.S. public demands rock-solid supply chain security and high quality, and, at the same time, lower and lower prices,” Roth shared. “This is not a sustainable approach. Ultimately, there are tradeoffs, and we need to have that conversation as an industry and as a nation.” He noted that CDMOs work to provide their customers with high-quality manufacture of products but are outside the price-setting area. “Drug pricing, as I often tell Congressional staff, is literally above our pay grade,” Roth remarked.

Cost control and pursuit of new opportunities are major factors that shaped the way the drug supply chain has developed over time. In the late 1990s and early 2000s, the industry started building and expanding manufacturing in growing markets. “Market growth in most developed, mature pharmaceutical markets like the United States, Canada, and Europe had flattened, but there was rapidly growing opportunity to serve the therapeutic needs of patients in China, India, and other rapidly growing markets,” noted Sam Ricchezza, president of North American Operations at Bora Pharmaceuticals. “The industry started placing on-market plants to serve emerging market opportunities and to manufacture for established markets at a much lower cost” 

A great deal of pharmaceutical manufacturing has moved to China and India for other reasons. “The industry didn’t necessarily intend for a lot of pharmaceutical manufacturing to end up in these markets, but that’s where the opportunities arose,” shared DiLoreto. “The Chinese were quite effective at creating a business environment to attract pharmaceutical manufacturing. It was a dynamic similar to what state-level or regional economic development groups in the U.S. do.” 

It is nearly certain that the market changes that have evolved over the past 20 years cannot and will not change overnight, despite current political and popular pressures. “Due to regulatory restrictions and variances among different regulatory bodies, it’s not easy to move pharmaceutical manufacturing around like you can for a computer chip or an auto part. Whatever supply sourcing changes take place in the market will take time to gain the necessary regulatory approvals,” commented Ricchezza.

A More Resilient Pharmaceutical Supply Chain

Ultimately, every nation’s pharmaceutical supply chain must be strong and resilient enough to safeguard the health and well-being of its people. So far, despite the challenges of the COVID-19 pandemic, the U.S. pharmaceutical supply chain (along with most advanced nations’ supply chains) has proven to be strong and resilient. Regardless, there is room for improvement.

“In the early months of the pandemic, I regularly canvassed our members to see whether they were experiencing any shortages,” shared Roth. “Most PBOA members operate in the U.S. and receive products from suppliers around the world, but not a single member company reported pharmaceutical ingredient shortages or anything else on the value side of the supply chain. Some were experiencing issues with consumables like PPE, but those shortages were hardly restricted to the CDMO space.”

While the industry’s supply chain has performed fairly well so far, the pandemic and rising nationalism have brought known vulnerabilities to the forefront. Perhaps a worldwide lockdown has encouraged the industry, regulators, and legislatures to consider scenarios previously viewed unlikely more seriously.

Redundancy and Agile Response

While supply chain redundancy is simply good business, the pandemic has spurred a reexamination of the issue. Although redundancy is needed wherever possible, more than anything, the industry and regulators must be better positioned to manage the unforeseen swiftly.

“A colleague received approval for his generic drug in the early months of the pandemic,” said Roth. “However, his API supplier was in India, and it was under lockdown. Fortunately, he had a second API supplier. Unfortunately, it was in Italy — also under lockdown. You can have a well-constructed, multicontinental redundant supply chain plan that still ends up facing problems. And there’s no guarantee that if he would have had a supplier in the U.S., that site would have been operational.”

Regulatory constructs enabling agility could be a large part of the solution. “We have discussed with both Congress and the FDA that CDMOs have the ability to be backup suppliers. CDMOs could be prequalified with a streamlined tech transfer process in the case of a license holder–related shortage,” shared Roth. “From a dosage form perspective, this approach would involve a streamlined way of either getting a product back on the market quickly or completely avoiding a shortage. This could also be part of a reshoring or manufacturing agility concept.”

Global regulatory harmonization could also go a long way toward helping foster agility. “One of the biggest hurdles is there’s not general harmonization in regulatory standards around the world,” stated Ricchezza. “Increased harmonization would alleviate drug quality and safety concerns and would help us move processes around the world more easily. This would help us avoid drug shortages caused by both quality breaches and unforeseen events, like the pandemic.”

Buffer Stocks, Essential Medicines, and the National Stockpile

For decades, manufacturers worked to reduce costs by applying as much “just-in-time” inventory control as possible. However, given the pandemic, just-in-time manufacturing has evolved into “just-in-case” manufacturing, reflecting the reality that highly efficient processes and inventory control are useless if the conditions that the efficient processes are designed for no longer exist.

“Pharmaceutical companies are looking at securing their drug supplies against potential shortages, including increasing their safety stocks,” commented Ricchezza. “In order to mitigate the risks of drug shortages for critical drugs, companies have to develop better supply chain risk management and business continuity strategies by either developing or strengthening supplier relationships to reduce reliance on sole sourcing for their components or products. Many companies have taken proactive steps to either mitigate the potential for drug shortages or to be able to respond to unforeseen future events.”

Moreover, a Trump administration executive order issued on August 6, 2020, mandated that the FDA create a list of essential medicines, then assure domestic production of those medications.

With the stated purpose of building the national stockpile and securing domestic manufacturing of essential medicines, Phlow, a brand-new corporation founded in January 2020, has been awarded as much as $812 million in grants and contracts from the Biomedical Advanced Research and Development Authority (BARDA), which is part of the U.S. Department of Health and Human Services.5 Phlow’s website states that it is “dedicated to manufacturing and securing our nation’s most essential medicines, 100% in the U.S.”

It is unclear exactly how Phlow will manufacture the therapeutics needed to fulfill its contracts. Perhaps it plans to build manufacturing facilities or possibly rely on a network of manufacturing partners for the long term. What is clear is that AMPAC Fine Chemicals, owned by South Korean conglomerate SK Holdings, will play a key role in API manufacturing at its Petersburg, Virginia facility. Additionally, Civica Rx, another Phlow partner, plans to build a finished dose manufacturing facility adjacent to the Petersburg AMPAC plant.6

Public–Private Partnerships and Government-Created Manufacturing Incentives

Plenty of eyebrows have been raised over the generous funding of Phlow, a company new to the pharmaceutical industry, along with the loans granted to Eastman Kodak to manufacture pharmaceutical API for the first time in its history. It is important to note that the government loans to Eastman Kodak were suspended after the deal began experiencing intense scrutiny.7  However, it appears as if the company plans to move forward with their API manufacturing plans with or without government backing.8

Despite these questionable endeavors, the private sector and the federal government clearly will need to work together more closely than ever to ensure the resiliency of the U.S. pharmaceutical supply chain. Mandates are unlikely to be embraced by the pharmaceutical industry or to be effective, but tax credits, long-term contracts, and other incentives to reshore production required for national security and supply chain resilience could be quite effective.

Despite the challenges of the COVID-19 pandemic, the U.S. pharmaceutical supply chain (along with most advanced nations’ supply chains) has proven to be strong and resilient, regardless, there is room for improvement.

Closing Thoughts

The pharmaceutical industry, citizens, and global governments have much to consider. The pandemic has undoubtedly presented challenges and scenarios that most in the industry have never fully considered — at least not seriously.

Nonetheless, if a global pandemic can deliver good news, perhaps it is that the international pharmaceutical community will be forced to work in tandem to improve the security and agility of its supply chains. Virtually every country is pulling inward and determining how it can better secure its own pharmaceutical supply chain, but no country, including the United States, can operate in isolation. In an extremely globalized industry with production and raw materials spread across the planet, it will be simply impossible for any one country to operate alone.

Ricchezza gets the final word with his profound comment: “Any one country will not solve the security of the pharmaceutical supply chain. Improving patient health is a worldwide objective, and we need to solve it together.” 


  1. “Safeguarding Pharmaceutical Supply Chains in a Global Economy.” U.S. Food and Drug Administration. 20 Oct. 2019. Web. 

  2. Hargreaves, Ben. “Report reveals US manufacturing centres outside traditional hubs.” Biopharma Reporter. 13 May 2019. Web. 

  3. Mikulic, Matej. “Proportion of branded versus generic drug prescriptions dispenses in the United States from 2005 to 2019.” Statista. 18 Aug. 2020. Web. 

  4. Mikulic, Matej. “Proportion of branded versus generic drug revenues in the United States from 2005 to 2019.” Statista. 18 Aug. 2020. Web. 

  5. Platania, Mike. “New Richmond-based pharma startup with $350M in funding eyes facility in Petersburg.” Richmond BizSense. 20 May 2020. Web. 

  6. Civica Rx Partners on COVID-19 Response and “End-to-End” U.S. Based Generic Drug Manufacturing. Civica Rx. 19 May 2020. Web.

  7. Weixel, Nathaniel. “Federal government pauses Kodak loan pending probes.” The Hill. 10 Aug. 2020. Web. 

  8. Levy, Rachael. “Kodak to Push Forward on Making Drug Ingredients Despite U.S. Loan Troubles.” Wall Street Journal. 19 Oct. 2020. Web.

Haig Armaghanian

With over 25 years of experience, Haig has accumulated a wealth of knowledge and experience in global business leadership and strategic facilitation and planning. Over the last 15 years, Haig has built Haig Barrett into a leading consulting firm with clients ranging from chemicals, automotive, energy, pharmaceutical and biotech sectors. Prior to founding Haig Barrett, Haig has led divisions for leading global Fortune 50 corporations including Rio Tinto. Haig graduated with a B.Sc. Honors in chemical engineering from Surrey University, England.