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American Pharmaceutical Resilience

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Scott Lincicome

Shortly after the COVID-19 outbreak began last year, numerous politicians and pundits proclaimed that the pandemic revealed massive vulnerabilities in global supply chains for essential medical goods — vulnerabilities that imperiled Americans’ health and national security and therefore necessitated major government interventions (read: subsidies and protectionism) to bolster U.S. supply chain “resiliency.” Pharmaceuticals, in particular, topped the list of medical goods that required government action, and the alleged threat to American pharmaceutical access — supposedly dependent on China and India — was so dire that the Trump administration fast‐​tracked hundreds of millions of dollars in federal support to domestic producers of drugs and raw materials in order to “reduce reliance on other countries for drugs.”

At the time, I and others noted repeatedly that, while there were some gaps in the public data, the information we had on U.S. pharmaceutical production, R&D, and trade did not indicate a forthcoming pharmaceutical crisis. Now, the nonpartisan United States International Trade Commission has provided additional data in a massive new report on “U.S. industries producing COVID-19 related goods and the supply chain challenges and constraints that impacted the availability of such goods,” which for the most part confirms that our skepticism was warranted.

The report overall reveals a far more complicated and benign picture of the medical goods situation in the United States — one characterized by unprecedented supply and demand shocks, as well as substantial domestic resources (especially for pharmaceuticals, medical devices, and N95 masks), quickly‐​adapting domestic and international supply chains, and beneficial global specialization and cooperation. It’s a great resource for those interested in manufacturing issues, and should help to inform the broader debate in Washington about the pandemic, supply chain resiliency, and national security.

The report also should temper specific concerns about the pharmaceutical supply chain, which the USITC finds worked quite well during the once‐​in‐​a‐​generation pandemic due in part to its globalized business model (emphasis mine):

The United States has a large, geographically diverse pharmaceutical industry with established supply chains that proved resilient during the first half of 2020. The flexibility and number of manufacturing sites inherent in the global footprint of the pharmaceutical sector allowed firms to respond relatively quickly to demand and deliver additional medicines to aid in the response to the pandemic… The U.S. industry, which comprises companies ranging from large multinational firms to small and medium‐​sized firms (SMEs), was operating at almost full capacity in the second quarter of 2020 to meet demand. These supplies were delivered via the existing wholesale distribution network.…

The Commission’s report also details the immense size and scope of the U.S. pharmaceutical industry (which has supposedly shriveled due to globalization) — nearly 5,000 establishments spanning numerous states and all stages of production (upstream, downstream, and “fill and finish”); increasing shipments that reached $268.7 billion in 2019; and an expanding workforce that hit 310,000 workers in early 2020. The report further notes that U.S. manufacturers responded to the pandemic by substantially increasing pharmaceutical shipments (even while bringing new COVID-19 products to the market) because they maintained their own “emergency plans” to utilize significant available inventories, different production sites, or contract manufacturers. Finally, the USITC report shows that some of the industry’s resilience has stemmed from its diverse foreign sourcing of raw materials and finished products, while noting that China and India are significant (but not dominant) suppliers — essentially confirming my analysis of the import data earlier this year.

For those (like me) who have been fascinated by the COVID-19 vaccine rollout in the United States, the USITC’s conclusions about the pharmaceutical supply chain’s resilience during the pandemic shouldn’t come as much of a surprise: Pfizer, for example, utilized its existing U.S. manufacturing capacity, as well as other domestic and international resources (not to mention lots of immigrants), to test and produce millions of vaccine doses with unprecedented speed. Moderna, meanwhile, has relied on smaller in‐​house facilities and a partnership with a large Swiss pharmaceutical manufacturer, which has production sites in the United States and Switzerland. As a result of these and other multinational efforts, the vaccine bottlenecks we’re now experiencing have been related to government distribution, not private sector production, of finished doses. (Lessons abound.)

Still, the USITC report has a wealth of new data and is especially welcome given the incoming Biden administration’s plans to “rebuild” American pharmaceutical supply chains through top‐​down mandates like the Defense Production Act. Surely, the pandemic has put real strains on Americans’ access to essential medical goods as demand skyrocketed and supply raced to catch up, and it’d be good for the country to get a better handle on the virus and vaccine distribution. But the pharmaceutical supply chains themselves have fared pretty well so far, and there’s little evidence that government could improve them.



Source: https://www.cato.org/blog/usitc-confirms-american-pharmaceutical-resilience


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