Can the U.S. pharmaceutical supply chain come home — or, at least, get closer to it?

The COVID-19 pandemic was just the latest in a series of health crises that are awakening the pharma industry to the dangers of relying too heavily on suppliers located thousands of miles from patients. But whether they can successfully make the shift to domestic sourcing remains open to question. 

American pharma companies have demonstrated a marked preference for offshore production for at least the past 20 years, notes Lindsay Dymowski, chief executive officer with Centennial Pharmacy Services. “Most of the Baby Boomers and older have grown up in a world where the majority of drugs are being imported into the U.S.,” she says. And, since the mid-2010s, the industry has seen a continuing steady drop in the value of its product that is domestically sourced and produced, according to Recon Strategy. The result is a system that’s becoming increasingly vulnerable to interruptions in supply, for reasons ranging from disease outbreaks to rising geopolitical tensions between trading partners.

Producers are eager to reverse that trend, in favor of domestic sourcing or the tapping of suppliers in neighboring countries like Mexico. To encourage the former, the Biden Administration took a series of actions to fund domestic pharmaceutical production. And the industry is itself beginning to invest more heavily in sourcing closer to home.

“Companies are realizing that investing stateside can provide more control and resilience to the drug supply chain,” says Dymowski. She cites political tensions, import and export disruptions, and rising overseas production costs as factors driving the trend.

“There’s a decent marketing angle to it as well,” Dymowski says, citing the attractiveness to some consumers of a “Made in USA” label.

For the moment, she says, the majority of relocations back to the U.S. are occurring among startups and smaller pharma companies, while larger producers continue to rely more heavily on offshore manufacturing in China, India and even Ireland. Production of generic drugs, which subsist on relatively thin profit margins, tends to favor cost-saving offshore locations.

“Unsurprisingly, we see a disproportionate share of generics and biosimilars manufactured in Asia where comparable human capital is cheaper (especially in China and India), not to mention the different capital cost structure for production facilities build,” states the report by Recon Strategy.

Dymowski expects even the larger entities to cast a fresh eye on production in North America, if not the U.S. For them to fully embrace a domestic supply chain, however, they would need to see changes in the nation’s tax structure, as well as an overall more suitable climate for investing in expensive facilities stateside.

As with any global manufacturing supply chain, a shift in sourcing carries with it a lot of complexities. In the case of pharma, Dymowski says, companies are likely to continue relying on foreign sourcing for many of the key raw materials that go into drug production. They’re constricted by the geographical realities of raising the animals and growing the plants on which so many drugs rely.

There’s also the matter of staffing an American production facility with labor that’s significantly more expensive than in locations outside the U.S., as well as meeting strict regulations by the Food and Drug Administration on plant construction, operation and maintenance. Even with offshore production costs rising, “having those facilities outside the U.S. is absolutely more profitable,” Dymowski says.

In the coming months and years, U.S. pharma manufacturers must weigh considerations of cost, quality, regulation, infrastructure and geopolitical realities as they consider a reshoring or nearshoring strategy. Domestic manufacturing, even with high-tech production techniques, is likely to raise drug prices, making U.S. producers less competitive globally, Dymowski says. At the same time, rising tariffs and worries about supply continuity in the next pandemic are some of the factors that favor a move away from offshoring.

“I would personally love to see the reshoring of drug manufacturing,” Dymowski says. “I would love to be able to sway patients and providers that the medications they’re taking were made in the USA. But I believe there are going to be significant hurdles to be overcome.”