By Kenneth Rapoza, CPA Industry Analyst
A look at how CPA member Nexus Pharmaceuticals defies the drug lobby's claim that medicines made here simply cost too much, so why bother? Nexus has found a way.
Ask a pharmaceutical industry lobbyist why more drugs are not manufactured in the US and they answer with “it’s too expensive”. Are pharmaceutical prices in the US somehow cheap? Are prices in decline even as more pharmaceutical goods are coming in from abroad? No and no.
In fact, most of the active pharmaceutical ingredients (API) that are used in making pills, capsules, and injectables, are made in labs in Europe. Europe is not a low-cost producer, either.
Some 28% of the chemical compounds used to make medication is done in US labs. The remaining 72% of the API manufacturers supplying the US are overseas, with 26% coming from Europe, 18% from India, and 13% in China, the Food and Drug Administration’s director for drug evaluation and research, Janet Woodcock, noted in her October 30, 2019 testimony before the House Committee on Energy and Commerce, Subcommittee on Health.
We know there are companies here that can make drugs in a competitive way, keeping innovation at home, and supplying good-paying jobs for Americans in small cities and towns. Nexus Pharmaceuticals is one of them. They’re as R&D driven as the big players like Pfizer. They’re relatively young, born in 2003, and are family-owned, led by organic chemist and CEO Mariam S. Darsot and analytical chemist and chief scientific officer Shahid Ahmed. They are makers of critical need injectable drugs from start to finish, currently housed in offices in Lincolnshire, Illinois, a town of roughly 8,000 people, 32 miles north of Chicago. They have a small staff of 75, but are adding 77 in a new Pleasant Prairie, Wisconsin facility, another small American town.
They currently have 10 FDA approved injectable products in various therapeutic areas – oncology medication, cardiac, and they can make the generic version of almost anything used in a hospital setting.
They could also benefit from last month’s Executive Order by President Trump that seeks to make essential medicines in the US, a move our Healthcare Committee at CPA has been behind since January. Regardless, their prime target is the private sector.
Nexus Pharmaceuticals’ CFO Usman Ahmed says the EO helps the entire industry because “One way to be able to compete against foreign manufacturers would be to ensure all federal facilities only buy US-made products.”
The idea here is that if foreign firms are getting government help – especially in India and China where the biopharma industry is catching up with Europe – then US firms, who are more heavily regulated, can use all the help they can get. It’s a three-legged race. American companies are often running it in a potato sack. The fact that Nexus is growing, however, serves as a counter to the pharma lobby who often insist that making medication at home is a cost killer. It is also a reminder that, while the government can indeed help with mandating government procurement only buys local with no exceptions, companies are going to rely more on the private sector's demand for locally made drugs. The government can only do so much.
After talking with Ahmed, one of the issues that stood out for them was the Food & Drug Administration. FDA regulations are equally tough in the US and Europe, but the FDA is not as tough in India and China, and this may not be entirely in the FDA's hands. Regulatory hurdles also make it easier to source outside of the US.
“Our corner of the industry has changed over the last 10 years. A lot of the generic injectables have gone overseas, mostly to India – the largest – and now China is getting into it,” Ahmed says. “One of the big issues we are facing is from the FDA. It’s a difference in inspections. We get announced inspections and China and India do not,” he says. “Anything you’re not doing correctly, you then have time to put all those skeletons in the closet. We don’t have that option. They just show up for as long as they want, which is fine. Some of those overseas companies have had run-ins with FDA inspectors and are still exporting to the US even after getting warning letters. They’re still selling. It’s hard to paint with a broad brush, but the quality is different here because the FDA does a better job inspecting us than they do in inspecting India and China labs. We just want an even playing field.”
That “uneven playing field” is mostly on the generics side. Most generic drugs are made overseas with only around 20% made here. The mark-up in pricing is astronomical, often 100-times what the reseller bought it for in India. It’s not just about American labor costs or regulatory burdens, the obstacles are also due to some distributors being addicted to massive profit margins.
Currently, companies with the largest drug portfolios, like Pfizer, Mylan, and Aurobindo all rely on India labs for their injectables. Last year, Aurobindo was part of a list of 13 warning letters sent to Indian companies regarding issues like misbranding, selling unapproved medicine, and violating the FDAs Current Good Management Practices guidelines.
“I think the reason pharmaceutical companies are sourcing from overseas labs or just making it themselves in India and China is because of price, too,” says Ahmed. Nexus gets some of its API from Germany, Switzerland, Italy, followed by the US. Only one product comes from India. “Sourcing from abroad is obviously not just because of the regulatory environment. Hospitals are always looking for the cheaper price. And a lot of the pharma companies go to where the regulatory environment is more lax, and labor costs are lower,” he says.
The government is becoming more aware of the importance of locally sourced medication. The pandemic made it happen. The SARS 2 outbreak made essential drugs a top-of-mind issue in Washington, with five bills on the table currently. There’s still a lot of pushback. It's almost as if reshoring some of this business is something only flat-earthers would propose.
For example, Virginia-based Phlow Corporation was recently on the receiving end of a government contract to produce essential medication for a government stockpile. It made The New York Times sad. They referred to Phlow as “nationalists” and we know the Times believes nationalists are bad news. Phlow's government contract was framed as bad policy.
Still, the contract wasn’t bad policy for Phlow and its employees. In the three-legged race with the Americas stuck in a potato sack, it at least took away the potato sack.
China is gaining on Phlow and on Nexus and on every drug maker.
China has a 10% market share in the US for generic drugs. In 2008 it was zero percent. They went from zero to 10 in 12 years and are ramping up quickly, likely taking market share from Europe first.
Despite all of these obstacles, Nexus Pharmaceuticals is thriving. To keep it that way, Congress must keep its eyes on the ball. Pharmaceuticals remain our biggest import after automobiles. There is no reason we cannot make this here.
“We can definitely compete with India on price,” says Ahmed. Regarding India and China competition, he adds, “We have to be particular about our product portfolio. You have to make drugs that are high in R&D and innovation. We can't make something that’s on the cheaper end.”