With a stroke of the president’s Executive Order pen, the Trump administration awarded a $354 million, four-year contract to a new company called Phlow located inside the Beltway in late May. Its charge is to manufacture pharmaceutical ingredients and generic medicines used in treating patients hospitalized for Covid-19, ingredients that for years have been produced overseas supply chains, mainly in China and India.

On its surface, the move seems to make sense: secure domestic production capabilities for these medications to prevent shortages or disruptions in the supply chain, which may be subject to geopolitical shifts in the wind.

The problem is that it won’t work and will only exacerbate America’s bigger underlying problem — access to affordable prescription drugs today.

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The administration and some legislators on both sides of the aisle are talking about making it illegal for U.S. drug makers to source important ingredients from China, and mandating that government agencies purchase only American-made pharmaceuticals. Such moves may sound clever to some, but they would require overhauling the supply chain at enormous time and expense — and decrease competition along the way.

The contract awarded to Phlow Corp. by the Biomedical Advanced Research and Development Authority could be extended by six years for a total of $812 million, making it one of the largest awards in BARDA’s history. The ingredients Phlow is tabbed to produce comprise a tiny subset of global manufacturing — and that alone could take the full 10 years and $812 million.

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As Thomas Cosgrove, a former senior FDA official who spent a decade enforcing quality regulations in overseas facilities that serve U.S. markets, told STAT, “What would it take the supply chain to come all the way back to the U.S.? It’s simple: It will take decades and billions.”

We don’t have decades.

Keep in mind that drug prices in America have trended steadily upward even as drug makers cut their costs dramatically by moving ingredient manufacturing offshore. We can guess which direction prices would go with even incremental shifts back to domestic production.

There is no doubt the current economic and political uncertainties wrought by Covid-19 will change the pharmaceutical landscape in some way. However, if this pandemic has taught us anything, it’s that affordability is just as important as availability.

The risk of becoming severely ill or dying if infected with SARS-CoV-2 is much higher for America’s uninsured or underinsured individuals, mainly due to their underlying health conditions like hypertension and diabetes having been poorly treated or not treated at all. There are plenty of effective treatments readily available; too many people can’t afford them. And now there may be 27 million more Americans who will struggle to do so.

Much as three years of hollow rhetoric and public scolding of big pharmaceutical companies have done nothing to reduce drug prices in America, talk of shifting production of active pharmaceutical ingredients and finished drugs back to a U.S.-based supply chain will do nothing to make medications more affordable or available. Only a pure, fully functioning market driven by informed consumers can do that.

Take flatscreen televisions as an example. As consumers, we have abundant options at every price point and no shortage of information with which to guide our decisions. Each of us chooses how much value we place on picture size, resolution, sound quality, and brand reputation. Whether we opt for a $100, $500, or $5,000 model, it’s our choice. Every option will show us the Super Bowl.

Compare this to prescription drugs in America. All too often, people are prescribed a $5,000 option when a $500 or $100 product can effectively treat their condition. For a number of reasons, patients simply have no way of knowing what their options are — there’s no transparency into clinical alternatives and costs. To compound matters, the same medicine can cost one person $5,000, another person $500, and another $100. The price any individual pays depends largely on a complex system with multiple players negotiating a share of a list price that can be raised at will.

If global stock or commodities markets operated in this fashion, there would be widespread dysfunction, complete mistrust, and utter inefficiency. Market forces work when they are allowed to work and when consumers (or traders or payers) have a free flow of information on which to base their buying decisions. Shifting — or disrupting — America’s pharmaceutical market toward free-market principles is the only way to ensure availability and affordability. We need to make drug pricing information transparent and public and let consumers and payers determine a product’s real value.

The U.S. isn’t checking out of the global economy anytime soon. There will always be regions that can produce certain things faster, better, and cheaper than we can. The pharmaceutical supply chain does not have a production problem. Global market forces keep it functioning at a high level, largely independent of political whims, because business follows the money.

Stroke-of-a-pen solutions may sound appealing or comforting, especially in a crisis. But complex systems with trillions of dollars at stake typically don’t respond well to rash and irrational decisions. The result is always higher costs for everyone. Americans certainly can’t afford higher prescription costs, no matter what the post-pandemic world looks like.

Instead of wasting an enormous amount of time and money moving our pharmaceutical supply chain entirely onto America’s shores, let’s empower Americans to drive a free market that truly works for them today.

Michael Rea is the founder and CEO of Rx Savings Solutions, a Kansas City-based company that helps employer groups, health plans, and their 7 million members navigate the pharmacy system for the best therapies at the lowest costs.

  • Michael, I suggest that you peruse the blog posts over at DrugChannels.net. Drug prices may have been going up in the past, but not recently (net price basis). What is going up is patient out-of-pocket payments based on list price; those payments are policies dictated by the employer groups, health plans, and PBMs setting up the pharmacy benefit (and pocketing that difference, but not letting patients in on it). I’m sure you’re all for transparency, so Rx Savings Solutions wouldn’t be doing anything like this, would it?

  • So can Phlow import cheap remedesivir from non-US generic firms when it is launched by Gilead in the US with most likely high price?

  • You have to be kidding. High drug prices in the US are a function of capture-a failure to use negotiating power on behalf of Americans and enforce anti-trust laws. We need all pharma production to be domestically based from an economic and national security basis.

    Healthcare is the most inefficient sector in our economy. We can cut costs by 6+% of GDP with proper regulation and enforcement of existing laws and have universal care.

  • Comparing life-saving medicines to flat screen TVs! I guess free marketers don’t mind rocket fuel compounds in the blood pressure medicines they take. BTW, the Worst perpetrator was API manufacturer in China whose pills had 200x acceptable limit per pill.

    Looks like free market proponents also like getting generic medicines from unregulated facilities. That’s in effect what’s happening right now b/c FDA has not been inspecting plants in China and elsewhere because of covid.

    More than 70 countries banned exports of medicines and supplies including U.K. and half of the EU during co is. So where will we get medicines in a global pandemic? Serious question.

    BTW, the amount paid to manufacturers of generic drugs is a tiny fraction of the price paid by patients, consumers, employees. Where does the rest of the $$ go?

  • America’s high drug prices are not the result of manufacturing costs, but of the R&D costs of developing and certifying a new drug. The fix is to breakup the unholy alliance between the US government and pharmaceutical companies that have US consumers paying for the R&D while much of the rest of the world gets the same drugs at half or less of the US price.

  • This stroke of the Presidents’ pen (a thick, huge, “must be seen by near-blind” felt-pen = NO class) is for yet another corrupt favor. Phlow’s CEO Eric Edwards while prior at Kaleo jacked up Ezvio overdose antidote 600% , then donated millions of doses …. that were near-expiry date. Other Phlow managers are former executives from Amgen, Teva, Pfizer – these names do not invoke thoughts of affordability, only of fat lobbyists. This is just another “throw money at it (via friends) and it will go away” move from a president in denial / oblivion. America is getting closer to an enormous Black Hole that will suck in the whole nation.

  • Michael, you do not address the quality problems raised by many and most compellingly Katherine Eban in Bottle of Lies. Other countries make generic drugs faster and cheaper, but they are unreliable and potentially dangerous. We should not be paying less for unreliable generics, as we are now. We should be paying as little as possible for reliable generics, but if that means paying more to make them in the US or reliable partner countries like Ireland, so be it. We get what we pay for… that’s a free market principal, too.

  • It’s implausible on its face that “[s]hifting — or disrupting — America’s pharmaceutical market toward free-market principles” is the only thing that can make medications more available or affordable. The flourishing of the free market in prescription drugs is exactly what has generated opacity, consolidation, PBMs, and gigantic lobbying budgets that drive stasis.

    You want affordable drugs and transparency? Empowering CMS to negotiate drug prices. Introduce universal healthcare. Pass sunshine laws. Lobbying and other “free market” outgrowths have prevented all of these things. Compare the US to ANY peer nation and you’ll see that regulation, not its absence, produces affordability.

    Mr. Rea’s work reducing drug prices is laudable, but his company’s niche depends on there being a complex, opaque political economy of prescription drugs. It’s 2020 – we’re not biting this “free market is the answer” sales pitch any more.

    • This article doesn’t mention the need to inspect the manufacturing facilities or how you can’t have surprise or even really good inspections when they are in another country. It doesn’t mention that other countries especially poorer ones don’t get the same quality of drugs. Mind you the ones that we get now are being recalled on a regular basis for containing cancer causing ingredients? What does that say for quality, inspections and ingredients? Nor does it address shortages caused by only having a few manufacturers. How did the cancer causing ingredients get introduced? This is one of the few countries that allow pharmaceutical companies endless profit for lifesaving drugs. How about we negotiate prices for Medicare, the VA and Medicaid and allow everyone else access? How about not allowing companies to profit off of government research?

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