Once a perennial global leader in drug discovery and development, the United States is no longer at the forefront of drug manufacturing. Over the past few decades, active pharmaceutical ingredients (APIs) manufacturing — the drugs formulated into tablets, capsules and injections — has steadily shifted away from the U.S.

As recently as 2019, a mere 28% of API manufacturers for the U.S. market were domestically located, while the remaining 72% were overseas, including 13% in China. This trend exposes the pharmaceutical industry to significant risks, including potential supply chain disruptions and sizable financial losses. As the industry continues its post-pandemic rebound, geopolitical factors and legal and regulatory changes — plus the rapid adoption of AI technologies and evolving business — indicate a growing need to bring biotech manufacturing onshore.

Perfectly Puerto Rico

The prevailing sentiment among D.C. policymakers is that the U.S. must seek to manufacture its most critical products domestically to prevent significant disruptions. Puerto Rico is one example of an already-established pharma manufacturing hub within U.S. jurisdiction. Nicknamed “the Medicine Cabinet of the U.S.A.,” Puerto Rico offers a favorable business climate. The island is an ideal destination for the bioscience industry because of its highly-skilled workforce proficient in Spanish and English and attractive tax incentives. Many high-profile companies have already made the move — including AbbVie, AstraZeneca and Bristol-Myers Squibb — and as of 2020, more than half of the world’s 20 top-grossing pharma companies have set up operations in Puerto Rico.

Additionally, its status as a U.S. territory means operations are under the U.S. legal framework and regulated by the federal government. With the same FDA coverage protection as their mainland counterparts, biotech companies are also at a competitive advantage with Puerto Rico’s strategic location, government support and deep-rooted infrastructure.

U.S. Government Response  

As part of President Biden’s National Biotechnology and Biomanufacturing Initiative, the federal government seeks to leverage the biotech industry to strengthen supply chains. The Department of Health and Human Services plans to invest $40 million in the expansion of biomanufacturing for APIs, antibiotics and other crucial materials necessary for creating essential medications and addressing pandemics. Meanwhile, the Department of Defense is launching the Tri-Service Biotechnology for a Resilient Supply Chain program, which will invest over $270 million in five years to accelerate research into bio-based materials for defense supply chains. By investing in biotechnology, these initiatives aim to bring down costs for American families, especially during times of global supply chain disruption.

While the bipartisan Prepare Act of 2021 outlined efforts to strengthen production capabilities in response to possible supply chain issues and shortages by establishing a national stockpile of APIs and generic medicines, the bill ultimately failed in Congress. However, another element of the current administration’s biotech agenda goes beyond a strategic national stockpile by emphasizing future development to ensure ample supply to sustain robust manufacturing capabilities. As part of the biomanufacturing executive order, the Department of Defense has pledged to invest $1 billion over five years to support domestic bio-industrial manufacturing infrastructure while offering incentives for private sector partners to expand manufacturing capacity for vital products to both commercial and defense supply chains.

How Pharma Can Respond  

To bring pharmaceutical manufacturing back to the U.S., biotech companies must consider external factors, and balance risk management with cost control. Most factories today are designed to produce large quantities of low-complexity drugs, but many newer therapies require specialized materials, which are often in limited supply. To meet the demands of these more intricate therapies, a more specialized workforce is needed to develop and manufacture these scarce materials at scale.

One example is the emergence of RNA printing, a manufacturing process for producing personalized and cost-efficient point-of-care mRNA therapies for specific treatments. This highly automated yet individualized approach increases market efficiency by avoiding surplus production costs and minimizing waste. Companies can reduce their overhead by building smaller, more efficient manufacturing facilities for these specialized therapeutics. Pharmaceutical companies also frequently rely on a single region to source critical materials, leaving them vulnerable to natural disasters or during local conflicts and increasing the risk of potential shortages. Therefore, diversifying suppliers is integral to mitigating this danger.  

Since rapid response times are virtually impossible from several time zones away, unforeseen developments at offshore manufacturing sites are much more difficult to manage than those at onshore factories. While the pharma industry was spared from major issues when supply chain shocks occurred during the COVID-19 pandemic, it is still slated to lose an average of 24% of one year’s earnings every ten years due to the threat of cyberattacks and trade disputes, which pose the greatest risk of pharmaceutical supply chain disruption. As such, companies must prioritize product visibility and transparency throughout the value chain. Achieving this will require AI-powered tools and platforms which trace products, predict inventory and identify potential disruptions due to geopolitical or financial risk. Companies can alleviate risk by mapping their suppliers by tier for an end-to-end look at the supply chain to spot vulnerabilities, and by embedding supply-chain resilience into existing forums.  

The shift in drug manufacturing to overseas locations exposes the pharmaceutical industry to significant risks, including supply chain disruption and financial losses. Policymakers must therefore continue incentivizing biotech companies to bring manufacturing back to U.S. soil, with Puerto Rico being an attractive option. While the federal government is investing heavily in biotech through various initiatives to strengthen supply chains and reduce costs, life sciences companies must be committed to balancing risk management with cost control, prioritizing product visibility and transparency throughout the value chain to help the industry become more patient-centric and better insulated from potential disruptions due to geopolitical or financial risk.  

George Litos is managing principal, life sciences consulting; Aaron Attermann is senior manager, business consulting, and Ankur Rathi is senior manager, business consulting, all at EPAM Systems, Inc.