Mining the reshoring rush: Sustaining efforts once infrastructure investments dry up
Read Part 1: Targeting government spending
All that glitters
When it comes to building domestic manufacturing infrastructure, Uncle Sam has dug deep, trying to mitigate the supply disruptions caused by the pandemic while also investing in future capacity. But as with any government-backed model, there are concerns about long-term sustainability once the initial funding is drained.
Among those worries is the concern that if the government stands up facilities and then thrusts them into the open market, the companies will eventually fall victim to the same systemic economic issues that drove them offshore to begin with. In short, are we pouring money into a broken system?
“The mistake is thinking that if we build a new manufacturing plant, it’s going to solve everything. It won’t. Those companies that the government has funded or put money into, they risk falling into the same trap that everyone else has fallen,” says Webb.
No one knows this better than the companies that are living this reality.
“Having the government step in and finance the build-out of advanced manufacturing facilities in the U.S. is an essential part of reshoring. But it’s not everything,” says Salvatore Mascia, founder and CEO of CONTINUUS Pharmaceuticals. “Once you build a facility, unless you have a take-off contract providing financial incentives to make these generic medications, then it’s not going to be enough to resolve these problems.”
In January 2021, the Department of Defense awarded CONTINUUS a $69.3 million contract to develop domestic production capabilities for critical APIs and final dosage generics using the company’s proprietary integrated continuous manufacturing (ICM) technology. CONTINUUS, which was spun out of the Novartis-MIT Center for Continuous Manufacturing in 2012, had earmarked a portion of the money to build a first-of-its-kind GMP facility for critical generic sterile injectables — but things didn’t go as planned.
The company ran into permitting issues linked to FEMA regulations, which triggered a 12-month delay and the decision to change the location of the expansion to a more expensive site. As the project budget increased, CONTINUUS struggled to attract interest from outside investors, eventually running out of money to build the plant, voiding a portion of the contract.
While all was not lost — CONTINUUS was able to use its ICM technology and develop the key synthetic manufacturing routes of some pandemic drugs that were in shortage in its lab and deliver these synthetic routes to the U.S. government, providing proof of concept for the company’s platform — the situation highlights that federal infrastructure investments alone may not be enough to create a thriving domestic manufacturing sector.
Mascia says the economic realities of producing low-revenue generic drugs make for a difficult pitch to outside investors. The company has since pivoted away from generic drugs and is instead working with large pharma/innovators on new products.
“When we were working with U.S. government, our goal was to be a generic company — we wanted to build a GMP facility and commercialize generic products,” says Mascia. “What we are focusing on right now involves working with pharma companies on new molecular entities that are not facing all this financial constraint.”
Phlow, which represents both the greatest reshoring success story and the government’s largest individual investment, has a government contract can be extended for up to a total of $812 million over 10 years to help maintain the company’s system and supplies. However, the company’s objective is to establish a sustainable commercial business.
To that end, in early 2022, Phlow launched a CDMO business to serve government entities as well as commercial pharma customers. With the U.S. government already a committed customer, Phlow has generated some commercial interest, delivering CDMO services in its lab and supporting customers with programs for both generic and innovator products.
But despite Phlow’s laudable achievements, Edwards acknowledges the need for ongoing government support and says that certain incentives “would be huge” as the company continues to navigate the market.
“Government subsidies for us are just a starting point to help catalyze reshoring efforts for the essential medicines industrial base. But the government also must provide incentives to domestic manufacturers who are focused on going back to high quality manufacturing,” says Edwards.
Those incentives could include things like tax breaks or loans to companies willing to repatriate the manufacturing of FDA approved medications. They also don’t necessarily have to be in the form of cash. In its “Blueprint for Enhancing the Security of the U.S. Pharmaceutical Supply Chain,” the Association for Accessible Medicines suggests that the FDA could create regulatory efficiencies by forming an internal, intra-agency working group focused on helping to expedite reviews and approvals to onshore pharma manufacturing. Another option would be for the FDA to create regulatory vehicles that help reward domestic-made drugs. Creating a ‘first generic that uses U.S. components’ designation that comes with an exclusivity period could go a long way for companies in the highly competitive generics market.
Restoring luster to AMTs
Success in the reshoring movement hinges on the industry’s ability to not only build back its capabilities when it comes to the generic drug supply chain, but also (to borrow the phrase) build back better.
“When you look at why companies moved overseas in the first place — lower labor rates, lax environmental regulations and heavy government subsidies — we can’t compete against that, nor should we,” says Webb. “In order to bring that back to the U.S., we need better technology and improved efficiencies. We have to be cost competitive.”
To that end, no discussion of reshoring is complete without the mention of advanced manufacturing technologies, with the most popular tool being continuous manufacturing. Much like reshoring, continuous manufacturing is commonly offered up as a fix for pharma supply chain issues. The FDA in particular, through its Emerging Technologies Program as well as its newly created Advanced Manufacturing Technologies Designation Program, has supported the idea that continuous manufacturing, over time, could help prevent drug shortages caused by product quality and manufacturing problems.
“Thinking about onshoring the old way doesn’t make sense. You still have all the process segmented and the underlying problems of batch manufacturing,” says Mascia. “If you are going to onshore, you need to onshore in a new way.”
But the idea of replacing outdated batch processing methods has existed in the pharma industry with marginal uptake for over two decades. While there have been a handful of innovator drugs approved using continuous methods, the generics industry has been a tougher sell.
On the innovator side, the robust ROI on branded drugs has enabled capex investments into different advanced development and manufacturing approaches. Yet for the highly competitive, low-margin generics industry, continuous might seem like an economic mismatch. “The generics industry, they don’t touch that. There’s been no incentives to invest in advanced technologies, so they’ve remained antiquated,” says Edwards.
Last year, the Brookings Institute convened a group of experts from academia, industry, government and nonprofits to explore technology options for improving the resilience of generic drug manufacturing. During the workshop, generic drug leaders voiced concerns that the cost efficiencies captured by continuous manufacturing still fall short when compared with current models for generic drug production, including sourcing from foreign producers.
But continuous manufacturing proponents, Chatterjee among them, insist that with technology costs coming down and regulatory uncertainty surrounding those technologies lessened, there is a role for continuous to play in generic drug manufacturing.
“There’s more than a wealth of generic drugs out there that could benefit from continuous, but it’s just that activation energy to get management to realize that the upside far outweighs the downside,” says Chatterjee. “The government is trying to incentivize folks to push in that direction to overcome their fears.”
It’s here that the reshoring movement has given continuous manufacturing new luster.
The infusion of government funds associated with reshoring has enabled companies like Phlow to de-risk that leap for generics. Phlow’s goal, according to Edwards, is to take the best of what’s happening with innovator drugs and apply it to generics, where the chemistry hasn’t been looked at for decades.
And the results have been encouraging. Using continuous-flow processes and other green chemistry approaches, Phlow has been able to cut costs and waste, improve quality and yield, and offer a more environmentally friendly alternative to batch manufacturing for several different generic compounds.
“New chemistry, new process, new catalysts, new solvents and putting it into a manufacturing environment that requires less manual steps to take out some of that expensive labor. Now you’re starting to become more cost competitive,” says Edwards.
CONTINUUS has developed its own form of advanced manufacturing that the company calls integrated continuous manufacturing (ICM). Rather than just making the finished drug using a continuous process, ICM offers a single continuous end-to-end chain — from KSM to API to final dosage. The process is designed to increase quality and efficiency while reducing manufacturing costs and the exposure of supply chain components to geopoltical risks.
Those efficiencies alone, however, have not been enough to attract investment from the generics space. According to Mascia, CONTINUUS was able to develop a full end-to-end process for metformin, a key generic drug, through which the company demonstrated numerous operational benefits, including better speed and quality. But the client wasn’t willing to invest in building a facility for continuous production of metformin, given the low profitability of the drug.
“That’s where the hang-up is — capex activation energy,” says Mascia. “And that’s why it’s important to have the government invest in this, because unless the government steps in and makes that investment, private investors will not do it for a low-profitability product.”
Buying in
While the recent pitch for domestic manufacturing has hooked a diverse group of players — equipment suppliers, government, academic institutions, nonprofits, specialty manufacturers — global pharma companies have conspicuously kept their distance.
When the FDA solicited public commentary from stakeholders regarding the essential medicines list the agency had been directed to create through President Trump’s ‘Buy American’ order, the industry wasted no time making it clear that forcing a domestic supply chain (in a pandemic no less) would likely just worsen problems.
“Use of overly broad and blunt instruments, such as the executive order, to encourage domestic manufacturing does not account for the realities, challenges, and nuances of pharmaceutical supply chains, or the actual risks of supply shortages. Such actions may actually result in market disruptions and product shortages,” said Sarah Lieber, Sanofi’s North America head of global regulatory affairs, in a written commentary.
While timing a domestic manufacturing mandate with a global pandemic that wreaked havoc on supply chains certainly didn’t encourage the pharma industry to embrace the reshoring movement, the pandemic did provide a unique opportunity to reintroduce the idea of repatriating the drug supply. According to Chatterjee, the pandemic also allowed the U.S. government to demonstrate that it could catalyze the pharma industry if the government was a customer.
“Now that the subsidies are gone for vaccines, for example, the attractiveness around that sector is definitely far less. So there’s going to have to be some component of government support that’s going to drive the industry to get real traction,” says Chatterjee.
At Phlow, Edwards is quick to point out that building a domestic supply chain is “not a call towards removing diversity in our supply chain” and to clarify what ‘buy in’ from the pharma industry might look like.
“The role large global pharma companies can play in this movement is to come alongside Phlow and help the U.S. government understand the problems and contributors to these supply chain challenges and align on the right incentives that need to be in place to secure a resilient supply of these critical essential medicines,” says Edwards.
Even without a ringing endorsement from big pharma, APIIC’s Webb feels that the government’s efforts over the past four years to identify stakeholders and “hardwire a domestic network” was money well spent towards navigating future supply chain shocks.
“Are we doing this better than we were a couple years ago? Yes — because now people are asking the right questions.”
