In recent years, geopolitical and economic trends have been encouraging pharmaceutical drug manufacturers to shift their active pharmaceutical ingredient (API) sourcing and physical manufacturing plants onto domestic soil or near-shore locations. This has been a gradually turning tide that accelerated this year due to the COVID-19 pandemic and, in its wake, a presidential Executive Order requiring all essential medicines to be manufactured within the United States. While the U.S. Food and Drug Administration (FDA) has not yet disclosed the list of essential medications, it has become apparent that having a strategy for the reshoring of pharmaceutical manufacturing is crucial.
There are also intellectual property (IP) protection advantages when reshoring manufacturing, as limitations in international IP laws expose protected proprietary knowledge to infringement. The strength and protections afforded by U.S. IP laws are far more developed, and there is substantial jurisprudence by the U.S. courts in determining whether there is a violation of IP rights. Even remedies of IP infringement tend to be higher in the United States than most other jurisdictions. Lastly, with the increased demand on production, coupled with the fluctuations in the supply chain, manufacturers are likely to experience potential delays.
In the “Now, Next, Later Approach” proposed by Baker Tilly authors Kate Crowley and Jeff Jorge, the authors clearly laid out the long-term supply chain changes that lay ahead. Having dealt with the “Now,” and being firmly placed in the “Next,” it is incumbent upon leaders in the pharmaceutical industry to have a clear map for the road ahead. There is also an inherent lack of resiliency for many companies that arises from the regulatory and fiscal challenges in setting up production facilities. This is compounded by the sheer number of steps in the chain of custody that are required from production to final entry into the U.S. market. The global vulnerabilities in supply chain logistics and the ever-changing landscape of the “new normal” have challenged leaders in the industry to be agile and anticipate what is around the next corner.
There are intellectual property (IP) protection advantages when reshoring manufacturing.
The Final Push for Reshoring
The presidential Executive Order signed on August 06, 2020 aims to “accelerate the development of cost-effective and efficient domestic production of Essential Medicines and Medical Countermeasures.” As part of the order, the regulatory, reporting, and approval processes through the FDA for the manufacturing of these drugs will be streamlined in order to reduce burden and incentivize rapid compliance with the order. While presidential executive orders can sometimes be vulnerable to a changing political landscape, the strengthening of domestic medical and pharma capabilities is an issue that has garnered bipartisan support, indicating that this is likely to be a continued political priority in the years to come.
As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed by Congress with overwhelming, bipartisan support and signed into law by President Trump on March 27, 2020, the Department of Health and Human Services (HHS) was directed to enter into an agreement with the National Academies of Sciences, Engineering, and Medicine to understand the integrity of the U.S. supply chain in regard to:
- “Critical drugs and services” that are currently manufactured or sourced from offshore locations;
- Scrutinizing supply chain vulnerabilities that may cause disruption to U.S. public health, inclusive of emergency planning, incentivizing domestic manufacturing and strengthening supply chain capabilities (White and Case LLP, 2020); and
- Providing significant funding for the planning and reinforcement of the national advancement of medical supplies and healthcare provision.
Core Strategies in Planning
Some considerations such as capital generation, raw materials sourcing, entering production partnerships or contracting to a third party are industry agnostic. However, others are unique to the nature of the drug or API (Active Pharmaceutical Ingredient) manufacturing industry, necessitating a specialized consideration of next steps to ensure adequate planning. As a part of long-term planning, there could be considerable impact of governments globally increasing their stockpile, which drives potential future global shortages in drug availability.
The global vulnerabilities in supply chain logistics have challenged leaders in the industry to be agile.
Secondly, geographic ease of access to natural egress channels and/or strategically located airport/rail/ocean and overland shipping is a key aspect of location selection for the plant. Additionally, preferential geographical location is reinforced by a favorable local political environment, government regulatory collaboration, and economically positive structures. In particular, if supplies are being sourced internationally, the plant should be easily connected to the point of entry of these supplies’ importation, and expedited access to U.S. Customs, FDA, DEA, and USDA agencies should be a significant consideration of location planning.
The proposed facility location needs also to be conducive to expansion, as the organization’s long-term diversification strategy will likely evolve with the rapidly evolving product lifecycle and new innovations. It would be prudent to have the capacity to expand as needed instead of having to seek new facilities for the plant as the volume and potential variety of drugs manufactured increases. In a possible scenario, there is the potential to offer contract manufacturing for other organizations; therefore, the plant selected should not limit any future expansion planning. As part of the Executive Order and the increased push for local medical advancement, economic hot zones have been offering tax incentives and decreased administrative red tape to reinforce the reshoring of drug manufacturing services.
The first consideration is for the local availability of knowledge and talent as it pertains to the industry.
There is significant opportunity to gain a competitive advantage and reduce reliance on third parties, who may, in turn, be strained by a pervasive global increase in demand or imports. Whether your organization was planning to reshore manufacturing or has recently begun considering this, there are best practices that can minimize the likelihood of a false start. The process of bringing manufacturing capabilities within national borders is likely to be a balancing act between myriad stakeholders and requires significant time. With the partnership of a specialized supply chain advisor, the seemingly complex road map to reshoring manufacturing can be navigated with greater confidence and increase the long-term resilience of your organization.