Nurse Laura Bailey draws the Moderna vaccine from the first batch of Moderna’s vaccine at Hartford hospital in Hartford, Connecticut on December 21, 2020.
Joseph Prezioso | AFP | Getty Images
When Covid-19 patients started filling up intensive care units at East Coast hospitals last spring, shortages of protective masks, gloves and gowns for front-line workers garnered headlines. Less heralded was the paucity of drugs needed to treat the stricken – in particular opiates, sedatives and paralytics.
“We literally were down to a handful of days’ supplies,” said Ross Thompson, chief pharmacy officer at Tufts Medical Center in downtown Boston. “We were begging and tweeting with the vendor community to make sure we would never completely run out.”
Thankfully, Tufts avoided such a worst-case scenario as drug manufacturers, wholesalers and group purchasing organizations answered the call, and doctors and pharmacists found alternative medications to treat patients.
Still, the pandemic has revealed a health-care dilemma that’s plagued U.S. hospitals for at least the past two decades: recurring shortages of dozens of essential drugs, especially injectable generics, required to treat a range of acute conditions and chronic diseases — from infections to cancers. The problem is the result of Big Pharma offshoring about 80% of the production of generic drugs and ingredients, principally to India and China, in search of lower costs. It’s a supply chain issue that now has national security implications.
The trickle-down effect on Americans with chronic health conditions has medical professionals concerned.“I have patients right now who have acute lymphocytic leukemia for whom I cannot get one of the essential drugs that is known to increase the rate of cure, because it is not available in the U.S.,” said Dr. David Duggan, an oncologist at SUNY Upstate University Hospital in Syracuse.
Registered nurse Trina Owens tends to Andre Johnson, a coronavirus disease (COVID-19) positive patient, in his isolation room on the acute care unit at Roseland Community Hospital on the South Side of Chicago, Illinois, December 8, 2020.
Shannon Stapleton | Reuters
It has also been a factor in the problematic rollout of Covid-19 vaccines from Pfizer-BioNTech and Moderna. It has exposed potential shortages of essential raw materials used in manufacturing. In November, the U.S. Government Accountability Office (GAO) reported that vaccine manufacturing supply chains may be strained by disruptions caused by the pandemic. Officials at one vaccine manufacturing facility told GAO investigators that they had experienced challenges obtaining materials, including disposable reactor bags, reagents and certain chemicals.
The new administration recognizes this alarming issue. During his first week in office, President Joe Biden released an executive summary of his Covid-19 plan, which includes directing federal agencies to increase availability of materials needed for vaccine manufacturing. A few days later Biden invoked the Defense Production Act. On Jan. 26, the president said the government was nearing a deal with Pfizer and Moderna to increase its order of vaccine doses to 600 million from 400 million by the end of summer. “It’s past time to fix America’s Covid-response supply shortage problems for good,” the plan stated.
It’s an issue that needs to be immediately addressed to ensure the nation has the arsenal it needs to fight the pandemic. Over the last two months it has hampered Pfizer’s ability to scale up vaccine production, according to media reports. In December, a Pfizer spokesperson told Reuters that a scale-up of its raw material supply chain took longer than expected. At the same time, an unnamed source told the Wall Street Journal that the development of some early batches of raw materials had failed to meet standards, causing production delays.
In late January, Pfizer told CNBC, “Because of the urgent need to vaccinate more people, we’re making process improvements, expanding our manufacturing facilities and adding more suppliers and contract manufacturers to our supply chain.” As a result, the company said it has boosted its expected worldwide delivery of vaccine doses to 2 billion from 1.3 billion by the end of this year, with 200 million doses to be shipped within the U.S. by July 31. Pfizer declined to address any shortages of raw materials or their country of origin.
Both the Pfizer-BioNTech and Moderna vaccines use very common ingredients, except for lipids, a drug industry supply chain expert told CNBC. Moderna is expanding its capacity to produce more lipids, he said, while Pfizer has apparently asked the White House to implement the Defense Production Act to increase lipid production. “This would allow them to take advantage of manufacturing capacity at companies that aren’t currently part of their supply chain,” the source said.
Moderna did not respond to multiple requests for comments on its raw materials supply chain.
“Some raw materials, like lipid nanoparticles and some nucleotides, may be in short supply, especially given that they’re trying to manufacture vaccines for close to a billion people,” said Norman Baylor, PhD., president and CEO of Alexandria, Virginia-based Biologics Consulting and a former vaccine regulatory expert at the Food and Drug Administration. “This has never been done before.”
A crisis plaguing the U.S. health-care industry
Drug shortages not only disrupt patient care but also strain hospital operations, costing them nearly $360 million annually on labor alone, according to the American Hospital Association (AHA). Tufts, like many hospitals across the country, has established a drug task force of about a dozen people. “We spend 60-to-90 minutes a week talking about shortages and how to manage them,” Thompson said.
Hospital administrators, along with pharmaceutical manufacturers, drug wholesalers, the FDA, politicians and industry experts have long grappled with this problem, but it persists. An innovative solution is Civica Rx, a nonprofit consortium launched in 2018 to procure, distribute and manufacture essential generic drugs. “To date we offer more than 41 different medicines, 11 to treat Covid patients,” said CEO Martin VanTrieste, a former chief quality officer at pharmaceutical giant Amgen, “including neuromuscular blockers used to intubate patients, sedation agents for those who go on a ventilator, antibiotics, pain medications and blood thinners.”
Drug shortages are the side effect of longstanding weaknesses in the pharmaceutical industry’s supply chain, driven partly by the relentless pursuit of ever-lower costs. For instance, Big Pharma companies such as Pfizer, Novartis, Merck and Johnson & Johnson have stopped making certain drugs that no longer generate enough revenue or outsource generic forms of their brand-name medicines coming off patents to foreign producers, predominantly in India and China.
“The challenge is that the U.S. is the only major civilization to run health care as a business, not as a public good,” Duggan said. “And that’s why it costs so much. We don’t do more than other countries, we just pay more for it.”
Last June, VanTrieste testified before the U.S. Senate Committee on Finance regarding the supply of generics. “The desire for low-cost drugs — the race to the bottom in manufacturer pricing in order to get market share — is understandable, but it creates unintended consequences,” he said. Facing low margins and uncertain sales, VanTrieste added, companies are discouraged from investing in quality and incentivized to move production out of the U.S. to economies with lower labor costs, lower regulatory compliance costs and where they may receive direct or indirect support from foreign governments to build new facilities.
The risks of manufacturing offshore
Generics account for $102.3 billion of the overall $511.4 billion pharmaceutical market in the U.S., according to Statista. India produces 25% of finished generic drugs, compared to 9% made in China. What’s more, China and India produce 80% of the world’s active pharmaceutical ingredients, known as APIs. As of August 2019, only 28% of the facilities that manufacture APIs for the U.S. market were based onshore, according to a recent article in Pharma Manufacturing. The remaining 72% were located outside the U.S., with China and India alone producing 31% of the APIs supplied to the U.S. market.
When APIs are not available because of a disruption in the supply chain, finished products can’t be made, resulting in shortages. That was the case recently with heparin, a widely used blood thinner derived from pig intestines, after an outbreak of swine flu in China, which supplies 60% to 80% of the API in heparin. After Hurricane Maria devastated Puerto Rico in 2017, wiping out its drug manufacturing and distribution operations run by Pfizer, Amgen and Bristol-Myers Squibb, critical shortages of intravenous bags that contain saline solution resulted.
The outsize reliance on China for finished drugs, APIs and other raw materials is the subject of China Rx: Exposing the Risks of America’s Dependence on China for Medicine, co-authored by Rosemary Gibson, a senior advisor at the Hastings Center, a bioethics think tank in Garrison, N.Y. “These practices by Western companies help China achieve its global aim to become the pharmacy to the world,” she said during a phone interview with CNBC.com.
Gibson testified before the Senate Committee on Small Business and Entrepreneurship last March, insisting that the U.S. dependence on China for essential drugs and ingredients poses a national security threat. “China’s cartels fueled by government subsidies are undercutting U.S. and other competitors and driving them out of business,” she told the committee. “U.S. and other generic drug companies and ingredient makers are competing against the Chinese government, a battle they will not win unless and until the U.S. government develops in concert with industry a smart strategy and executes it successfully on behalf of the American people.”
Gibson is among industry experts who urge reshoring drug manufacturing in the U.S. “It’s about diversifying the manufacturing base and the supply chain,” she told CNBC.com. “It’s remarkable how centralized we have allowed that supply chain to get. You wouldn’t do that for any other essential products.
U.S. and other generic drug companies and ingredient makers are competing against the Chinese government, a battle they will not win unless and until the U.S. government develops in concert with industry a smart strategy and executes it successfully on behalf of the American people.
senior advisor at the Hastings Center
“I was told by someone at a major pharmaceutical company that it gave away generic products in exchange for access to the Chinese to market higher-value, patented products,” Gibson said, though she declined to reveal the source or the company.
A national security threat
In a 2019 hearing, Christopher Priest, deputy assistant director at the Defense Department’s Defense Health Agency, told the United States–China Economic and Security Review Commission, “The national security risks of increased Chinese dominance of the global API market cannot be overstated.”
Civica Rx’s business model is designed to alleviate manufacturing and supply chain problems, and in the process curtail generic drug shortages. The Salt Lake City-based company was established by a group of seven hospital systems, including Intermountain Healthcare, the Mayo Clinic, HCA Healthcare and SSM Health, and several philanthropies. It has since grown to serve more than 50 health systems, representing more than 1,350 hospitals and nearly 30% of the nearly 919,600 hospital beds in the U.S.
Civica Rx sources finished products for its member hospitals, at or close to cost, from FDA-approved generic drug makers and contract manufacturers. Among the latter is Phlow Corp., a private company launched in Richmond, Virgina, in 2020. Last May, in collaboration with Civica Rx, Medicines for All Institute at Virginia Commonwealth University and AMPAC Fine Chemicals, Phlow was awarded $354 million in federal funding to make generics and APIs in the U.S., including Covid-19 medicines, using advanced manufacturing processes.
Toward that effort, on Jan. 21, Civica Rx announced plans to build a 120,000-square-foot, $124.5-million factory in Petersburg, Virginia. “We decided to build the facility so we can have control over our own destiny,” VanTrieste said, “and as part of our model to have redundant manufacturing — making one product in multiple locations.”
Addressing drug shortages during the pandemic
Drug shortages related to Covid-19 are not as dire today as they were in March and April, when New York City was seeing increases up to 600% in demand for propofol, fentanyl and other drugs, said Michael Ganio, PharmD, senior director of pharmacy practice and quality for the American Society of Health-System Pharmacists (ASHP) in Bethesda, Maryland. “Wholesalers put everyone on protective allocation, so a hospital in Kansas couldn’t stock up on a drug after seeing what was happening in New York and reduce supply in the [national] market,” he said. Since then, “manufacturers have scaled up production to meet increasing demand.”
ASHP and the FDA maintain separate drug shortage websites — relying on reports from manufacturers, wholesalers, hospitals and pharmacists nationwide— which are updated as shortages are resolved. Shortages can lead to changes or delays in medical procedures, limit treatment options and increase costs. Most recently, ASHP had 200 drugs on its list, the FDA 150.
“Most shortages are in acute care settings, such as the ICU and operating rooms,” said Mo Kharbat, vice president of pharmacy services and health research at SSM Health Wisconsin. “A big challenge is working with physicians to come up with alternatives, which are often far more expensive.”
If pharmacists find an alternative source of a medication, most times there is no impact on patient care. “More concerning are medical errors that occur with substitutions,” Thompson said. He cited cases in 2010, when a shortage of morphine led to substituting hydromorphone. “Dosing calculations were not done correctly and a couple of patients died.”
Last summer, representatives from clinician groups, supply chain entities, federal agencies, hospitals, academia and other health-care stakeholders convened a virtual summit to address problems affecting the U.S. supply of pharmaceutical products, including drug shortages. Among recommendations were to streamline federal regulations to incentivize advanced manufacturing and to enact legislation requiring a risk assessment of foreign-sourced APIs.
“[ASHP’s] concern is with the consolidation of any drug manufactured in just one country or region, because you run into problems when there is less diversity in the supply chain,” Ganio said. “Manufacturing in the U.S. would be one solution, but also producing in Europe, Canada and Asia makes the supply chain more resilient. A diverse supply chain with high-quality pharmaceuticals is the end goal.”