By Peter Loftus and Preetika Rana
The U.S. pharmaceutical industry has been under pressure over
high and rising drug prices. Now after criticism from the White
House, it's feeling the heat for where it makes its products,
too.
"I want you to manufacture in the United States," President
Donald Trump told several pharmaceutical CEOs at a White House
meeting Tuesday, where he also attacked "astronomical"
pharmaceutical pricing.
Mr. Trump's latest call to bring drug manufacturing back to the
U.S. echoed comments he made shortly before his inauguration. "We
have to get our drug industry coming back," he said in a press
conference. "They supply our drugs, but they don't make them here,
to a large extent."
A majority, roughly 60%, of finished medicines sold in the U.S.
are made in the country, according to the Food and Drug
Administration. But imports have more than doubled in recent years.
The U.S. is now the world's biggest importer of pharmaceuticals,
according to the Department of Commerce, with imports of $86
billion in 2015, compared with $39 billion in 2005.
In the meeting Tuesday, Mr. Trump offered carrots as well as
sticks. He said he aims to reduce regulations and taxes to
encourage more domestic drug manufacturing.
"We would be able to bring jobs back to the U.S. if there was a
tax change," Pfizer Inc. Chief Executive Ian Read said in an
interview Tuesday. Mr. Read didn't attend the White House meeting
because the company reported earnings Tuesday.
In remarks during the meeting aired on television, Eli Lilly
& Co. CEO David Ricks told President Trump that Lilly's home
state of Indiana is "where we make a lot of our products. We're
hiring for manufacturing jobs as I speak." Merck & Co. CEO Ken
Frazier said: "We have a tremendous number of high-paying, skilled
jobs including manufacturing jobs in the U.S."
Since the 1980s, U.S. drugmakers have built up considerable
manufacturing capacity in countries such as Ireland, India,
Singapore and China to capitalize on tax and labor-cost advantages
-- while closing many domestic plants.
The FDA also has estimated that 80% of active pharmaceutical
ingredients -- the main components used to make drugs -- are now
made outside the country. Antibiotics sold in the U.S. are made
almost entirely from ingredients sourced from China and India, for
example.
It isn't just U.S. pharmaceutical firms that import products;
European and Asian companies supply drugs and ingredients to the
U.S., too.
While offering the inducements of less regulation and lower
taxes, Mr. Trump has also threatened to pursue a "very major"
border tax on companies moving operations overseas. And Republicans
in Congress have proposed legislation that would effectively
increase taxes on imported goods while favoring exports. But any
increased taxation on pharmaceuticals could undermine another of
Mr. Trump's stated objectives: reducing drug prices.
A crackdown on overseas manufacturing of pharmaceuticals would
"cause great disruption to the health-care system in the U.S. and
directly drive up costs," said Jeff Weisel, who has worked in Asia
for drug companies and is now a director at Ernst & Young LLP's
health-care practice in Singapore.
"I think this is something the industry needs to pay attention
to, in light of its potential impact on the cost of manufacturing,"
said John Taylor, a former FDA official and pharmaceutical
executive who now advises the industry on compliance and regulatory
affairs with Greenleaf Health Inc.
The auto industry is already dealing with disruption at the
hands of the new administration. Under withering attacks from Mr.
Trump, car makers are rethinking plans to produce cars abroad,
particularly in Mexico, for sale in the U.S.
Several U.S. drugmakers are in the process of building plants
overseas or have recently done so. Not all of it is for U.S.-bound
products; some of the new manufacturing capacity is meeting rising
demand in other countries.
AbbVie Inc., of North Chicago, Ill., finished work on one plant
in Singapore in September to make certain drug ingredients, and is
building another plant on the same site to make components for
biotechnology drugs including its top seller, arthritis treatment
Humira. The combined cost of the projects is $320 million.
An AbbVie spokeswoman said the plants -- which haven't begun
supplying products to the market -- will meet growing global demand
for products, adding that the company has a "balanced network" of
plants in the U.S. and abroad.
New York-based Pfizer said in June it will spend $350 million to
build a plant in Hangzhou, China, to make copycat versions of
biotech drugs, with construction expected to be completed next
year. The plant's initial focus will be to supply the Chinese
market but Pfizer said it could eventually be a global
supplier.
Pfizer said it has 49 manufacturing plants abroad, but noted
that the majority of its manufacturing workers are in the U.S.,
where it has 14 plants in 11 states. Last year, the company began
building a new one in Andover, Mass. The plant will be used in part
for biotech products, a rapidly emerging segment of the industry
concentrated in the U.S. and Europe.
In 2007, Pfizer said it planned to outsource as much as 30% of
its manufacturing volume, much of it to Asia, by 2010. A Pfizer
spokeswoman said on Tuesday that only "a small portion" of the
company's outsourced manufacturing is in Asia, and that Pfizer has
reduced outsourced manufacturing in the past five years.
American drugmakers have also acquired facilities in Asia, where
manufacturing costs can be 80% lower than in the U.S. For example,
in 2007, generic-drugs maker Mylan NV acquired India's Matrix
Laboratories Ltd., transforming itself into one of the world's
biggest makers of active pharmaceutical ingredients.
Half of Mylan's workforce is now based in India, as are 25 out
of its 40 manufacturing facilities. All the active ingredients
Mylan supplies to drug companies around the world are made in
India.
In an emailed statement, a Mylan spokeswoman didn't offer
comment on overseas manufacturing, rather noting that "on the
finished-dose side we manufacture in the U.S. about 80% of what we
sell in the U.S."
Most major drug companies do continue to operate plants and open
new ones in the U.S. PhRMA estimates there are more than 100
domestic drug-manufacturing plants. Michael Kamarck, a former
industry executive who consults for drugmakers, said skilled
workforces and local tax incentives continue to draw investments in
U.S. plants.
Write to Peter Loftus at peter.loftus@wsj.com and Preetika Rana
at preetika.rana@wsj.com
(END) Dow Jones Newswires
February 01, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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