The Dark Side of Pharma Globalization

August 25, 2021 Page 1 of 37
THE DARK SIDE OF PHARMA GLOBALIZATION
U.S. dependency on foreign pharmaceutical production imposes vulnerability to failure
Authors: Veronika Valdova, D.V.M. and Ronald L Sheckler
Affiliation: Arete-Zoe, LLC
ABSTRACT
Pharmaceutical supply chains have become increasingly complex due to the shift of manufacturing and
critical operations to Asia. U.S. pharmaceutical dependency on foreign sole-source production of essential
materials imposes vulnerability affecting the entire industry and national health systems from interruption
by exposure to natural events and man-made threats, both accidental and criminal as well as political. Sector
vulnerabilities stem from complex regulatory landscape, difficulties for enforcement of quality standards
at foreign facilities, single-source supply chain resulting from limited sourcing options, increasing shipping
distance exposure to both natural events and complicated by maritime chokepoints. Periodic and chronic
shortages of many essential products across therapeutic categories have been significant for more than a
decade. The Covid-19 crisis aggravated some of these long-standing issues and made the systemic
vulnerabilities publicly evident. The combination of limited capacity to exercise control over essential
commodities, the long-term trend of outsourcing, with the politicization of business relationships causes
the entire pharmaceutical industrial sector to be internationally dependent, creating numerous potentials for
systemic failure.
INTRODUCTION
U.S. pharmaceutical dependency on foreign sole-source production of essential materials imposes
vulnerability affecting the entire industry and national health systems from interruption by
exposure to natural events and man-made threats, both accidental and criminal as well as political.
About 40% of finished drugs and 80% of active pharmaceutical ingredients (APIs) are
manufactured overseas. The U.S. Food and Drug Administration (FDA) has the mandate to
conduct inspections of foreign facilities that supply the U.S. market, issue warning letters, and halt
imports where necessary. In 2018, more than 60 percent of manufacturing facilities for the U.S.
market were located overseas.1
The constant hunt for a cheaper product and better profit margins in the absence of adequate
standardization and oversight remains one of the most pressing pharmaceutical manufacturing
problems. Regulatory bodies encounter significant difficulties in oversight of foreign
manufacturing facilities. Additionally, lack of control over quality systems results in inconsistent
quality of products, cutting corners in synthesis and quality management process, compliance
failures, and eventually denial of market access, decreasing the number of qualified suppliers.
Resulting shortages create the opportunity for introduction of misbranded, falsified, and
counterfeit products in supply chains through criminal and political exploitation.
In the last four decades, the pharmaceutical industry underwent profound changes due to a series
of mergers and acquisitions.2
Consolidation changed the operational environment and prompted
the outsourcing of operations to low-cost locations in Asia. Although pharma revenues worldwide

totaled $1.25 trillion in 2019,3
the U.S. remains the leading market with 44.9% of the global market
share, followed by China (8.5%), Japan (7.1%), Germany (4.2%), France, Italy, Great Britain,
Brazil, Spain, and Canada.4
Sector growth is fueled by aging populations, general population growth, improved purchasing
power and increased access to quality healthcare. Innovations in advanced technologies further
drive investment and growth.5
The global regulatory environment is complex and continuously
evolving. Inconsistency across global regulatory standards and behaviors creates significant
confusion and opportunities for criminal exploitation with increased exposure to natural events
and accidental interruptions.
REGULATORY COMPLEXITY
Decades of consolidation and outsourcing shifted the center of the industry to Asia. The most
significant regulatory challenges from globalization include inconsistency spanning regulatory
standards, response and enforcement, jurisdictional confusion and conflict, and implementation of
track and trace systems for individual packaging. Comprehensive track and trace systems have
been mandated in Europe and the United States; however, their implementation is not yet
complete. While these systems carefully track individual packaging of approved medicinal
products, monitoring source materials is more ambiguous.
Only a few manufacturers of APIs typically exist, from whom all other producers must source
materials to formulate their finished dosage forms. The next company in line repackages the
finished dosage forms they receive in bulk and distributes the consumer-level packaging to
wholesalers. From these, the products are shipped to individual pharmacies and hospitals. The
DailyMed database shows the last entity in the supply chain, the packager.6
The packager’s
location does not indicate where the finished dosage forms were produced or where the APIs and
precursor materials were sourced. The increasing number of entities increases both complexity of
the supply chain and vulnerabilities.
For U.S. market access, part 211 of the Title 21 of the Code of Federal Regulations details
requirements on pharmaceutical manufacturing and packaging facilities.7
Current regulations are
the United States Pharmacopoeia (USP) Guidelines and Supply Chain Security and the Title II of
the Drug Quality and Security Act (DQSA) of 2013, the Drug Supply Chain Security Act
(DSCSA). 8,9
The United States dominates pharmaceutical manufacturing in terms of domicile for
the largest firms, which include Pfizer, Johnson & Johnson, Merck & Co., and AbbVie, with
overall spending on medicines of $511 billion in 2019.10,11
However, the location of headquarters
does not correspond with the geographical location of pharmaceutical production facilities for
active ingredients or finished dosage forms.
European legislation evolved through efforts to facilitate the establishment of a common market.
The leading European companies are Novartis, Roche, GlaxoSmithKline, and Sanofi.12
The key
piece of legislation is the Directive 2001/83/EC, amended by the Falsified Medicines Directive
(FMD) of 2011, complemented by the Good Distribution Practice Guidelines of 2013.13,14
The
Product Safety Features Delegated Act 2016/161 describes safety features on drug packaging.15
Finally, the European Medicines Verification System (EMVS), which should track end-to-end

safety features, has been launched.16
However, its implementation and enforcement has been
hampered by inconsistent action by member states.
Japan has a unique role in pharmaceutical production. Three of the top 25 global brand
manufacturers come from Japan: Takeda, Daiichi Sankyo, and Astellas Pharma.17
The critical
piece of legislation is the Pharmaceuticals and Medical Devices Act (PMDA), or the Act on
Securing Quality, Efficacy, and Safety of Pharmaceuticals, Medical Devices, Regenerative, and
Cellular Therapy Products, Gene Therapy Products, and Cosmetics.18
As a Founding Regulatory
Member to the International Conference on Harmonization (ICH), Japan adopts its standards
directly as approved by the Tripartite.19
In India, the Drugs & Cosmetics Act of 1940 regulates the import, manufacture, distribution, and
sale of drugs. Indian government controls drug prices through the Drugs (Price Control) Order
1995 and other orders enforced by the National Pharmaceutical Pricing Authority (NPPA). The
Drugs & Cosmetics Act specifies the requirements for factory premises and materials and plant
equipment.20
India adopted World Health Organization (WHO) guidelines on Good Distribution
Practices (GDP) with minimum changes.21
Indian manufacturers supply a significant portion of
their production to developed markets, with the largest producers being Sun Pharma, Aurobindo,
Lupin, Cipla, and Dr. Reddy’s Laboratories.22
Indian pharmaceutical market ranks tenth in terms
of value but third in terms of volumes. India supplies about 20% of the global pharmaceutical
demand in terms of volume and dominates the branded generics market.23
Chinese revised guideline on Good Supply Practice for Pharmaceutical Products follows the same
principles as European and U.S. industry standards.24
The biggest pharmaceutical producers in
China by market share include Jiangsu Yangtze River Pharmaceutical Group, Shanghai Fosun
Pharmaceutical (Group) Co., Ltd., Jiangsu Hengrui Medicine Co., Ltd., Bayer Healthcare Co.,
Ltd., Shanghai Roche Pharmaceutical Co., Ltd, Renhe (Group) Development Co. Ltd, and others.25
In August 2019, the Chinese Congress passed amendments to the new Drug Administration Law
that strengthens the oversight of the supply chain in response to a series of incidents concerning
substandard and falsified medicines that occurred in 2005. Newly introduced Drug Electronic
Supervision System designed to ensure the traceability of drugs was suspended because of a
combination of technical and design flaws and industry pushback. The recent legalization of online
sales attracted significant opposition from doctors who rely on prescription drugs for revenue.26
PRODUCT QUALITY ISSUES AND DRUG SHORTAGES
National standards and international guidelines have yet to be transposed into corporate internal
procedures and culture to ensure optimal system effectiveness. The most confident route to
consistent implementation is through audit accountability. The full declaration of sourcing APIs,
excipients, and raw materials and entities involved in the manufacturing process is not part of the
current regulatory requirements. Enforcement of current Good Manufacturing Practice (cGMP)
standards at foreign facilities and intellectual property infringements are significant concerns.
Imposing compliance with national standards in foreign facilities has proven problematic.

FOREIGN DEPENDENCY
In 2010, it was estimated that 80% of raw materials were produced outside the United States,
namely in Europe, India, and China. Disruption in supply can result from armed conflicts, civil
disorder, trade disputes, transport and shipment delays, severe weather, pandemic, or a natural
disaster, either through damage to a manufacturing or transportation facilities and increased
demand due to the health consequence of disaster. Surges in demand are often triggered by new
vaccination mandates, changes in therapeutic guidelines, or new indication approval. However,
business decisions are the most common and typically include multiple factors, from a drop in
price following patent expiry and introduction of generic versions, expenses required to fix
compliance issues, mergers and acquisitions, or displacement of generics by products that offer a
better profit margin. Just-in-time supply chain introduces potential delays from transportation and
stock management issues.27
FDA’s annual report ‘State of Pharmaceutical Quality’ studies the industry’s ability to deliver
quality pharmaceuticals. They assess quality indicators and calculate inspection scores that
measure cGMP compliance.28
The Government Accountability Office (GAO) examined the
FDA’s own data, visited FDA offices in China and India, and interviewed FDA investigators. The
number of inspections of foreign drug manufacturing establishments increased since 2013. In
2018, 43 percent of inspections the FDA conducted took place in India and China, where most
establishments that ship drugs to the United States are located.29
India leads the list of manufacturing sites outside the United States that received a warning letter
in 2019, an increase from 7 in 2013 to 16 in 2019.30
In 2019, European authorities performed 105
cGMP inspections at Indian facilities, resulting in one statement of non-compliance. Concurrently,
inspectors scrutinized 2,235 facilities in Europe and issued 11 statements of non-compliance.31
The number of Chinese facilities subject to FDA warning letters increased from 2 in 2013 to 24 in
2018 and dropped to 15 in 2019.32
In 2019, European authorities conducted 51 cGMP inspections
in China and issued four statements of non-compliance.33
LACK OF CONTROL OVER QUALITY SYSTEMS
The story of nitrosamine contamination of antihypertensives best illustrates the systemic
vulnerabilities posed by lack of control over the globalized supply chain. The underlying reasons
include complexity of current pharmaceutical supply chains and insufficient controls over the
sourcing materials used to produce finished drug products. In July 2018, the FDA announced a
voluntary recall of several medicines containing blood pressure medication valsartan due to
detected contamination with N-nitrosodimethylamine (NDMA).34
What makes this recall
particularly insidious is that patients with high blood pressure tend to respond sensitively to any
change in their medication. Typically, it takes time to stabilize them again on a new formulation.
Initially, the contamination only affected a few batches. The problem traced back to raw material
produced by Chinese manufacturer Zhejiang Huahai Pharmaceuticals (ZHP). Multiple generic
companies used the raw material in their tablets and distributed them globally through multiple
repackagers. Convoluting the case further, some batches from the same repackager tested fine
because some sourced their tablets from more than one manufacturer, and not all of them sourced

their raw materials from ZHP.35
In October, another contaminant was found in the same drug class.
Irbesartan and losartan were contaminated with N-nitrosodiethylamine (NDEA) from the same
source, ZHP.36
An article in Chemical and Engineering News claims the root cause was a change in the solvent
during the synthesis of the tetrazole ring that all sartans share. The likely reason was switching to
cheaper compounds that break under heating.37
Recently, nitrosamine contamination affected the
antidiabetic metformin and gastric ulcer medications ranitidine and nizatidine. As of January 2021,
the nationwide recall of metformin affected 13 manufacturers and numerous repackagers.38,39
Metformin is typically administered for prolonged periods as it is the mainstay of antidiabetic
therapy.40
The number of metformin prescriptions hovers around 80 million a year.41
In May 2019,
the FDA published testing methods suitable for detecting nitrosamine impurities in metformin.42
In September 2020, the agency followed-up with a risk reassessment strategy and guideline on
detecting nitrosamines in both APIs and finished dosage forms.43
Contamination may derive from side reactions in drug syntheses, recycling of solvents, or the
breakdown of unstable compounds and differs from one drug to another. Andrew Teasdale from
AstraZeneca makes a case that the contamination is likely linked to the use of recycled solvents
and wastewater in the synthesis of APIs.44
Another option is that the reactors were not cleaned
properly, and the nitrosating agent was left behind after the previous synthesis.45
Analyses by
industry experts point to cutting corners in the synthesis of APIs.
China has an abysmal record of substandard and adulterated drugs and biologics. Switching to
Indian produced medications does not solve the dependence on Chinese raw materials, because
Indian manufacturers use them too. Cost-effectiveness is one of the crucial drivers of shifting this
production to China rather than India.46
SHORTAGES OF LIFE-SAVING MEDICATIONS
Drug shortages in the United States have been getting worse for more than two decades. The
American Society of Health-System Pharmacists (ASHP) and the FDA both publish lists as their
definitions differ. The Drug Information Service at the University of Utah Health Care tracked 211
drug shortages in 2010, the same number as for the entire period from 1996 to 2002. Premier
Healthcare Alliance identified 240 drugs in short supply and more than 400 generics with delayed
fulfillment of orders.47
In 2018, the FDA established the Drug Shortages Taskforce that examined the ongoing shortages
and published its analysis in the report “Drug Shortages: Root Causes and Potential Solutions.”48
The report identified three root causes of drug shortages: The lack of incentives to produce less
profitable drugs, lack of recognition of and reward for mature quality systems in manufacturing,
and logistical and regulatory challenges hindering recovery from disruption. The report stressed
the need for shared understanding of impacts of drug shortages on patients. It recommended the
development of a rating system that would incentivize investments in quality management
maturity. The Taskforce emphasized sustainable private sector contracts as essential components
in a reliable supply of medically necessary drugs. The report also details legislative proposals and
FDA’s initiatives to improve data sharing, risk management practices, lengthened expiration dates
for drugs, and harmonizing pharmaceutical quality systems’ guidelines.

In 2014, Mayer-Amirshahi et al. published a review of drug shortages in emergency medicine,
citing increasing duration and severity of shortages. Emergency medicine has been badly affected
as most emergency medicine drugs are generics and sterile injectables. Although the causes were
multifactorial in most instances, the most common root causes they identified were consolidation
of drug manufacturers and lack of financial incentives to continue producing generics with low
profit margins. Drug shortages in critical care has led to suboptimal outcomes, medication errors,
treatment delays, and increased costs.49
In 2010, injectable oncological drugs topped the list: Leucovorin/levoleucovorin, bleomycin,
cisplatin, carmustine, cytarabine, doxorubicin, etoposide, mechlorethamine, chlormethine,
vinblastine, busulfan, and vincristine.50
These drugs are irreplaceable components of widely used
chemotherapy protocols even today. For example, in 2011, some centers stopped offering therapy
for acute myeloid leukemia because of unavailability of cytarabine.51
The shortage of
mechlorethamine used to treat pediatric Hodgkin’s lymphoma led to a switch to an alternative
regimen with cyclophosphamide, decreasing survival.52
In 2019, Alpert and Jacobson published their analysis of the impact of oncology drug shortages on
cancer care in Medicare beneficiaries with common cancers. Although the number of patients
receiving treatment during shortages declined slightly, dosages of chemotherapy drugs were
mostly unaffected. Hospitals were generally able to obtain the needed drugs and minimize waste,
although at high additional costs in terms of effort and time.53
Some of the impacts were mitigated
by importing foreign versions of the drugs not approved in the United States.54
Although manufacturers are required to notify the FDA about an intent to stop producing certain
drugs, most failed to inform the authorities with sufficient notice. Manufacturing problems and
supply/demand issues were the most common categories listed as the cause of the disruption. More
than half of manufacturers stated reasons as unknown. Possible manufacturing problems may
include outdated equipment, redistribution of company resources, loss of personnel, production
capacity, or change in formulation. Shortages of raw materials have also been reported as a
common cause of disruptions.55
ROOT CAUSES AND IMPLICATIONS
FOREIGN INSPECTIONS, COMPLIANCE FAILURES
The 2019 GAO report identified the number of qualified inspectors as one of the limiting problems.
The FDA has 190 investigators who conduct foreign inspections and another 58 vacancies that are
currently unfulfilled. It is anticipated that new staff will require 2-3 years of experience to conduct
foreign inspections. FDA foreign offices are understaffed, raising concerns for quality of foreign
inspections. Linguistic limitations require translators to provide additional questions about the
accuracy of information obtained in situ. Most facility inspections in India and China are
announced up to 12 weeks in advance, giving a significant advantage to prepare, compared to
domestic inspections that are almost always unannounced.56

Testimony in front of the Subcommittee on Oversight and Investigations, Committee on Energy
and Commerce U.S. House of Representatives, Dr. Janet Woodcock provided an overview of
foreign inspections conducted by the FDA, which evolved in response to globalization and changes
in regulations. Recommendations emphasized the imbalance in the thoroughness of inspections
between domestic vs. foreign facilities, need to encourage investment in quality management
maturity, and advanced technologies that are more cost-effective and environmentally friendly,
which may also enable the United States to play a larger role in pharmaceutical manufacturing.57,58
Investigative journalist Katherine Eban, the author of bestseller Bottle of Lies: The Inside Story of
the Generic Drug Boom, testified before the U.S.-China Economic and Security Review
Commission, where she detailed conditions she experienced in Chinese manufacturing plants.59
Primarily, she emphasized widespread deception and falsification of records aimed at maximizing
profits and minimizing costs. FDA investigator Peter Baker reported experience that a high-quality
joint venture site Hisun-Pfizer Pharmaceuticals ran an alternate hidden laboratory operation,
pretesting the drug samples and partially turning off audit trails. Baker’s experience with
inspections in China sheds light on widespread data integrity issues, including manipulated tests,
unreported results, and loose batch records. Blinded by the language barrier, inspectors cannot
read road signs and are easily diverted to show plants far away from actual production facilities.
Half of the FDA warning letters cited data integrity issues. In some instances, restrictions imposed
on these plants have been lifted to satisfy domestic demand and resolve drug shortages.60
China
itself has recognized the problem and considers 80 percent of clinical trial data originating in China
to be fabricated.61
In 2015, the European Medicines Agency (EMA) confirmed French Agency’s recommendations
to suspend about 700 market authorizations for approved medicines based on flawed
bioequivalence studies.62
The questioned clinical trials were primarily conducted by GVK
Biosciences in Hyderabad, India. The Agence nationale de sécurité du médicament et des produits
de santé (ANSM) inspectors revealed systemic data manipulations that seemed to have taken place
over five years. They raised serious concerns about the reliability of these clinical studies and
recommended to suspend these medicines.63
A DECLINE IN THE NUMBER OF SUPPLIERS
The 2016 GAO report traced the origin of shortages of sterile injectables to manufacturing
disruptions due to slowed or halted production in response to FDA inspections.64
The report
investigated data on shortages and compared the findings with FDA records. It turned out that
seven establishments responsible for the most severe shortages had a long record of non-
compliance with manufacturing standards. The most critical root causes of drug shortages were a
decline in the number of suppliers and failure to comply with quality standards. In addition, low-
profit margins for generic drugs disincentivize production and investment in quality management
systems.
A multi-agency task force found that drug shortages have been a persistent problem despite
mitigation efforts. Most were sterile injectables (63%) and generics (67%) sold at meager prices.65
The task force concluded that economic forces are the root causes of drug shortages. Prices tend
to rise after a supply disruption, providing an incentive for increased production until the supply-

demand equilibrium is achieved. The industry has no incentives to produce less profitable yet
medically necessary drugs and invest in quality manufacturing and redundant capacity in
production.
The market does not recognize and reward manufacturers for mature quality management systems,
as purchasers are unable to link specific products to production facilities and cannot incorporate
quality attributes in their purchasing decisions. Logistical and regulatory challenges make it
difficult for the market to recover from a disruption. The complex regulatory environment and the
limited number of approved producers of raw materials make production increasingly lengthy and
tedious.66
In 2019, GAO included drug shortages on the list of high-risk issues and stated that they threaten
the FDA’s ability to protect public health. About 40 percent of finished drug forms and 50 percent
of medical devices are produced overseas, making it difficult for the FDA to exercise control over
its quality standards. The number of foreign inspections has been steadily rising since 2008.67
According to GAO, the FDA needs to increase the monitoring of medicinal products manufactured
overseas and improve planning for drug shortages.68
The Department of Veterans Affairs (VA)
Acquisition Management was added to the GAO High-Risk list due to outdated acquisition
regulations and policies, lack of an effective medical supplies procurement strategy, and
inadequate acquisition training.69
VULNERABILITY TO DISRUPTION: GLOBAL LOGISTICS
The complexity of global logistics for pharmaceutical products increases due to variation in
national and international regulations intending to improve general safety and security of
commerce post 9/11. Pharmaceutical cargo is also sensitive to damage from environmental
conditions and is financially attractive to criminal threats. Bulk chemical components risk
contamination from non-scrutinized multi-use containers across all methods of transportation. In
addition to regulatory requirements, environmental controls, and tracking, long-distance shipping
introduces yet another challenge. Pharmaceutical cargo needs to pass maritime chokepoints such
as the Suez Canal and Malacca Straits, which are politically unstable.70
The South China Sea carries about a third of global shipping. About $5.3 trillion worth of goods
to India, Africa, and Europe transit the Straits of Malacca and South China Sea yearly. China has
been exploring alternative routes for shipping should the Malacca Straits become blocked for
commercial traffic. A conflict in the area would increase insurance premiums and force shippers
to consider alternative routes such as the Sunda Strait, the Lombok Strait, or even detour around
Australia. Past examples from the Gulf of Aden show that the piracy risk resulted in an insurance
surge from $20,000 to $150,000 per voyage due to war risk premiums. The impact of a
hypothetical closure of the Straits of Malacca on supply chains is comparable to the 2011 floods
in Thailand that crippled Thailand’s hard-drive manufacturing industry and caused a significant
price spike.71
The militarization of the South China Sea already has a significant effect on
commercial shipping. Recent Chinese military exercises in the region temporarily halted all
maritime traffic. Commercial ships avoid Chinese outposts and artificial islands, specifically the
Spratly Islands and the Paracels. The high concentration of traffic in these narrow passages

increases vulnerability to disruption. U.S. Navy support to freedom of the seas has significance for
global access to essential pharmaceutical products.
In addition to efforts to control and police the South China Sea’s waterways, China is also asserting
dominance through control of ports. Seven of the ten largest commercial ports are in China. China
has been extensively investing in ports worldwide, such as Hambantota in Sri Lanka or Gwadar in
Pakistan72
. In Europe, only projects at the E.U. level are subject to E.U. oversight.73
Despite that,
China Ocean Shipping Company, Limited (COSCO) owns controlling stakes in container
terminals in Greek port Piraeus, Spanish ports Valencia and Bilbao, and Belgian Zeebrugge.74,75
The most recent purchase by COSCO includes a Long Beach container terminal in California,
although it was later sold to Macquarie Infrastructure Partners.76,77
Chinese investments in
infrastructure have become a topic for the Committee on Foreign Investment in the United States
(CFIUS).78
Significant Chinese dominance in the shipping sector, from the control of ports to
critical waterways, introduces significant vulnerability to pharmaceutical cargo’s global logistics.
Global shipping of pharmaceutical component chemicals and products is vulnerable to both
accidental and intentional disruption due to long distances cargo needs to travel on the high seas.
However, human errors remain the leading cause of maritime accidents due to poor judgment and
negligence. Grave documented errors of judgment result from fatigue, lack of experience,
inadequate training, strained personal relationships, and reckless behavior, including drug and
alcohol abuse. These factors and their combinations have resulted in explosions and fires,
navigation failures, collisions with other vessels, or running aground, and improperly secured
cargo falling off the ship. Additional hazards include severe weather and piracy. Tensions in the
South China Sea affect shipping traffic by diverting it to narrower passages that avoid conflict
zones, thus increasing the risk of mishap. Chinese control of ports raises concerns over endemic
corruption and the evidenced risk from accidents and failures.
NATURAL DISASTERS, ACCIDENTS, CORRUPTION
A limited number of producers of APIs makes the system susceptible to disruption. In 2018,
hurricanes Irma and Maria destroyed the pharmaceutical production facility in Puerto Rico,
causing a shortage of drugs like Lipitor (a cholesterol-lowering drug) or Xarelto (blood thinner),
Nucynta ER (painkiller), intravenous saline bags, and other products, mainly sterile injectables.
The Puerto Rican plant manufactured about 40 drugs, 13 of them exclusively.79,80
The 2018
hurricanes were not the first to affect the Puerto Rican plant. In 1998, the facility in suffered
damage by hurricane George.81
Endemic corruption occasionally results in catastrophic collateral events. In 2015, a massive
explosion rocked the port in Tianjin, China. The Ruihai Logistics warehouse explosion, caused by
nitrocellulose, ammonium nitrate, killed 173 people and generated $1 billion in economic loss.
Ruhai Logistics was found guilty of bribing port officials who turned a blind eye to ignoring safety
regulations. Consulting company Swiss Re estimated the insurance loss to be around $2.5 to 3.5
billion. Ruihai Logistic illegally stored ammonium nitrate at the harbor, stored excessive volumes
of hazardous chemicals that should have never been stored together, engaged in illegal handling
of these chemicals, and failed to register them as required.82
Behaviors and practices separate from
pharma-specific regulations impose significant risk across the extended international supply chain.

The latest example of a potentially high-impact disruption is an explosion and fire on December
20, 2020, at the SCI Pharmtech factory in Taoyuan City, Taiwan.83
The cause of the explosion is
still under investigation. The Company’s main products include APIs, API intermediates, and
special and precision chemicals. The expected time needed to rebuild the plant is at least six
months. Among other substances, SCI Pharmtech produces APIs for antimalarial
hydroxychloroquine, a medication used for Covid-19.84
SCI Pharmtech INC was one of the biggest
suppliers of hydroxychloroquine API.85
Finland is keeping its supply for domestic use.86
At the
beginning of the pandemic, India briefly imposed restrictions on the export of hydroxychloroquine
but lifted them on April 7, 2020, after a threat of retaliation.87
CRIMINAL AND POLITICAL EXPLOITATION
Chronic drug shortages provide opportunity to introduce counterfeit products into the supply chain.
Most healthcare practitioners don’t receive warnings of upcoming shortages, and 70 to 80 percent
found it difficult, costly, or even impossible to obtain an alternative. Over 1,000 adverse drug
events and near misses were attributed to drug shortages in the 2008 survey, attributable to
substitution with less familiar medications. Stockpiling by dominant distributors and price hikes
reaching 10 to 1,000 times the usual price often follow shortage announcements.88
These drugs are
often delivered without pedigree, posing a risk they may have been counterfeit or compounded.89
Significant differences exist in understanding the definition of counterfeit, falsified, misbranded,
adulterated, and substandard products.90
The varying definitions that change over time create a
significant opportunity for confusion when drafting intelligence collection plans and compiling
reports based on disparate data of ambiguous accuracy.
Drug counterfeiting is a high-profit, low-risk business compared to trafficking narcotics.
According to the WHO, about 1 in 10 drugs on the market in developing countries are counterfeit.91
Traditional counterfeit products such as lifestyle drugs expanded into therapeutic medicines such
as antibiotics, painkillers, antimalarials, antidiabetics, heart disease treatments, and nutritional
supplements.92,93
Pharmaceutical production from China and India accounts for the vast majority
of counterfeit, substandard, and falsified medicines. Counterfeit pharmaceuticals from China,
Hong Kong, India, and Vietnam accounted for the highest share in terms of value seized at the
U.S. border in 2018.94
The scale of the problem is especially worrisome when combined with
China’s current dominance in global pharmaceutical manufacturing.
An in-depth study of political and economic factors that enable the introduction of counterfeit,
substandard, and falsified drugs into health systems in China, Indonesia, Turkey, and Romania
revealed that efforts to lower reimbursement prices below profitable thresholds result in
pharmaceutical companies cutting costs and later by withdrawing from less profitable markets.
Meanwhile, health providers upsell medicines to patients not covered by insurance, thus securing
profit for themselves. Cost-cutting in larger, less profitable markets results in degradation of
quality assurance functions and a drop in product quality. A cycle of shortages, unmet demand, a
surge in demand due to hoarding, and increased prices typically follow, creating an opportunity
for falsifiers. Poor-quality medicines were most prevalent in countries with universal health
coverage and under-resourced systems.95
The market with counterfeit medicines thrives most in
countries with poor governance and endemic corruption.

Previous incidents of counterfeit medicines in the U.S. supply chain concerned lifestyle drugs. In
2011, Canada Drugs supplied two counterfeit batches of Avastin (bevacizumab) to U.S. doctors.
The price for a 400 mg vial of Avastin from Canada Drugs was $1,995, while the usual market
price was at that time about $2,400.96
In February 2019, counterfeit versions of cancer drug Iclusig
(ponatinib) have been detected in Switzerland, Turkey, and Argentina.97
The situation persists
because of perverse financial incentives, chronic shortages of oncology products, and demand for
life-saving drugs among uninsured and underinsured patients.
FOR PROFIT ADULTERATION
In addition to accidents, sloppy manufacturing, and quality assurance practices, deliberate acts
have also occurred. In 2007, the FDA recalled several pet food brands imported from China
following a cluster of lethal poisonings caused by the adulteration of pet food with melamine.98
In
2008, reports emerged in China that 14 infants developed kidney stones after drinking infant milk
formula. Investigation revealed that 22 manufacturers have been adding industrial chemical
melamine to increase protein content in dairy products to increase profits.99
Sanlu Group executive
was sentenced to life in prison for failing to act on the reports the company received and stop
producing and distributing the adulterated product, several others received lengthy jail terms, and
two were executed. The final toll reached 294,000 illnesses and six fatalities. The melamine
scandal represents one of the largest incidents of deliberate adulteration of food.100,101
In 2008, counterfeit heparin from China resulted in hundreds of hypersensitive reactions, including
81 deaths, mainly in dialysis patients. The affected batches of heparin came from the Changzhou
S.P.L. plant in China, the leading supplier to Baxter International. Crude heparin came from small,
unregulated family workshops that manually process pig intestines.102
The President of Baxter,
Robert Parkinson, stated in front of the House Subcommittee on Oversight and Investigations that
the incident seemed to have been a “deliberate scheme to adulterate a life-saving medication.”
However, the claim was not considered proven by the FDA.103
In March 2015, New Zealand was rocked by threats sent to Fonterra and Federated Farmers’
company executives. The letter demanded the immediate cessation of the use of rat poison 1080
and threatened to contaminate baby formula with 1080 if the demands are not met and release the
tainted milk formula into the Chinese market. Rat poison 1080 is allowed in New Zealand to
control non-native populations of pests. The practice has been subject to significant controversy,
so the ecological activists who criticized its use were aggressively investigated. In October 2015,
businessman Jeremy Karr was arrested and sentenced to 8.5 years in jail.104,105
Kerr, who owned
the competitor pesticide Ferratox, attempted to gain greater market share for his product by
banning 1080.106
Small exporters of infant formula suffered the consequences of their customers
in China losing confidence in their products.107
ENVIRONMENTAL DAMAGE
Outsourcing of pharmaceutical manufacturing also diverts the industry’s environmental impact to
foreign jurisdictions, where industrial sharks will inevitably exploit the lack of regulatory
oversight. The December 1984 Bhopal India industrial accident is still relevant. Thirty tons of
toxic methyl isocyanate gas leaked from Union Carbide-owned pesticide plant. The accident

claimed 15,000 fatalities and additional victims born with physical and mental disabilities.108
United Carbide attempted to avoid responsibility for the gas leak, arguing that the plant was fully
built and operated by the Indian subsidiary, and even invented a theory on Sikh extremism that
was later disproved. The 1985 Bhopal Gas Leak Disaster Act made the government the sole
representatives of the victims. Union Carbide finally agreed to pay $470 million to the Indian
government. The plant was built in India not to evade U.S. environmental standards but to take
advantage of the growing Indian market with pesticides. The way the project was executed
suggests exploitation of the lack of regulatory oversight and enforcement.109
Pharmaceutical pollution may not be as immediately evident or catastrophic as the Bhopal disaster,
but its overall impact on the environment is still profound. India’s water pollution crisis results
from large quantities of untreated sewage water along with industrial wastewater dumped in rivers
without any attempt to remove toxic waste. The industry globalization brought in the growth of an
entire sector that thrives due to a low-cost, highly skilled workforce and lax environmental
standards. Financial risks to business due to environmental degradation are practically non-existent
in India. The most pressing problem is the surge of antibiotic resistance due to antibiotics released
in surface water by pharmaceutical producers. Pharmaceutical pollution is also known to function
as an endocrine disruptor in the environment. The most affected regions include Hyderabad and
coastal state Andra Pradesh.110
Hyderabad is the center of pharmaceutical manufacturing in India. The 2016 Nordea report
confirmed previous findings that pharmaceutical plants in Hyderabad continue to discharge
untreated wastewater into the environment and that national authorities failed to get the situation
under control.111,112
A draft bill introduced limits on 121 common antibiotics found in wastewater.
The Indian pharmaceutical industry immediately attempted to weaken the new law by suggesting
the limits would instead become targets, and numerous factories would be exempt. The industry
also argued that the coronavirus pandemic poses a unique opportunity to capture markets currently
dominated by China.113
Superbugs resistant to antibiotics are a recognized threat to public health. About 60,000 Indian
infants die every year from superbug infections because of the spread of antibiotic resistance in
the community.114
Bacteria survive in tainted water and multiply as consumed by livestock and
spread in communities. Multi-resistant bacteria accompany people wherever they travel: To food
markets, hospitals, or to conferences abroad. Pharmaceutical manufacturers slowly realize how
local problems in India can affect their global portfolios. Some take steps toward better control
over the releases of antibiotics in the environment. Voluntary initiatives are lovely but not
sufficient to contain the spread of antibiotic resistance in India and China.115
POTENTIAL WEAPONIZATION OF MEDICAL SUPPLY CHAIN
In July 2019, the U.S. – China Economic and Security Review Commission held a hearing on the
growing reliance on Chinese pharmaceutical supplies. The Department of Commerce conducted a
study to map the risks of the trade war with China. The findings were dire: About 97% of all
antibiotics consumed in the United States come from China. Gibson, in her testimony, pointed out
that “whether by mistake or by design, centralization of the entire pharmaceutical supply chain in
a single country makes it vulnerable to interruption” and emphasized that “China could use the
medical supply chain as a weapon against the United States.” 116

The concerns over the disruption of supplies are so significant that the U.S. Trade Representative’s
tariffs exclude pharmaceuticals, specific pharmaceutical inputs, and select medical goods. The
potential for interrupted supply is only one component of the problem. The Chinese purchase
finished drug products from the United States to treat cancer, cardiovascular diseases, and diabetes.
In 2019, Chinese authorities imposed punitive tariffs on numerous U.S. drugs that it can produce
itself. The only medications left out were cancer drugs and some patented medicines. The article
by Yanzhong Huang, as published in the Council on Foreign Relations, recommends continuing
dialog between the United States and China and strengthening of inspections.117
That was six
months before Covid-19 struck.
Indian dependency on Chinese raw materials became a significant vulnerability that materialized
during the pandemic lockdown in China. India issued a policy in which it identified 53 raw
materials and APIs subject to priority production and export restrictions to ensure sufficient
domestic supplies. The impact of border clashes between India and China on the supply chain of
APIs and raw materials is subject to debate in the Indian press since the beginning of the Covid-
19 pandemic. Multiple sources argue that the overdependence of India on Chinese raw materials
is becoming a problem since the Indian pharmaceutical industry sources about 70% of its APIs
from China and is vulnerable to retaliation.118, 119
In June 2020, the Secretary-General, Indian Drug Manufacturers Association, Daara B. Patel, in
an interview for BOOM, stated that Indian pharmaceutical companies need to decrease dependence
on China in the supply of starting materials and switch to other producers. Due to rumors that
consignments from China contained raw materials tainted with narcotics, the customs held the
shipments at Indian ports to allow physical inspection of each shipment. Although sourcing raw
materials helps to bring the costs down, India should decrease the dependency on China to 20-25%
within the next 2 to 3 years.120
ECONOMIC EXPLOITATION OF THE COVID-19 CRISIS
The coronavirus pandemic caught health system administrators around the world off-guard.
Suddenly, the all-needed personal protective equipment became in short supply, and the only
available products were streaming in from China at huge mark-ups. Desperate buyers are paying
exorbitant sums for medical supplies that are often substandard, fraudulent, and equipped with
fake certificates. Since the beginning of the pandemic, the U.S. Customs and Border Protection
confiscated nearly 13 million counterfeit face masks, 180,000 prohibited COVID-19 test kits, and
38,000 chloroquine and hydroxychloroquine tablets barred by the FDA.121
The problem is not finding manufacturers and vendors but rather the exact specification of the
products and quality certificates. Chinese manufacturers are the dominant supplier of surgical
scrubs, face masks, and gloves to U.S. and European markets. Unable to keep up with the global
surge in demand, manufacturers also struggled with cities and factories under lockdown and
months-long backlogs. China is building additional leverage to exercise control over critical
commodities by systematically collecting information on U.S. drug shortages. The politicization
of information about the pandemic makes many countries unwilling to share information to avoid
criticism and adversarial treatment by others.

In response to the pandemic, Chinese representatives sought to cultivate relationships with local
and state leaders through informal agreements and social and cultural ties. For example, California
purchased $1 billion worth of N95 masks from China, bypassing federal regulations. In January
2021, government watchdog Judicial Watch uncovered a $990 million deal between California
Office of Emergency Services and BYD, aka Global Healthcare Product Solutions, LLC, a
company linked to Chinese Communist Party. In an email from April 7, 2020, Assistant Chief
Counsel from the Office of Emergency Services, Jennifer Bollinger admitted to Oscar Su, Senior
Director of BYD America, that the bureau's "normal procurement process has been deviated from
given the exigency of the situation.” Due to history of providing faulty goods, BYD has already
been barred from some federal contracts. To make things worse, no warranty was provided by
BYD should any of the 300 million N95 masks be faulty. At the time of signature, the N95 masks
were not yet certified by the National Institute for Occupational Safety and Health (NIOSH), and
part of the 50% $495 million down payment had to be refunded by BYD due to delay in obtaining
certification.122
The Covid-19 health crisis is seen as an opportunity to create a dependency, luring prominent
individuals to trips to China, promising lucrative projects and business deals. Access to
medications and personal protective equipment sourced abroad remains a significant vulnerability
due to sustained demand, efforts of other governments to secure supplies for themselves, and
difficulties with building these capabilities elsewhere.123
The pandemic created an opportunity to sell substandard and unapproved personal protective
equipment to desperate consumers. Substandard and counterfeit products pose a threat to public
health and undermine legitimate business. Chinese manufacturers shipped large amounts of
counterfeit products to the United States, leading to the seizure of a million Covid-19 test kits and
750,000 fake face masks.124
Chinese con artists continued to offer goods they could not deliver, making a myriad of false
claims, from non-existent connections to legitimate manufacturers to almost authentic-looking
certificates. For example, Zhang Shijun, a seller who claimed to represent China Shanghai
Qianyang Intelligent Equipment, offered 1,000 ventilators for 370,000 yuan ($52,000). The
catalog he sent only listed models made by Beijing Aerospace Changfeng. EC Declaration of
Conformity was expired. The product certification seemed genuine, yet none bore the name of
Shanghai Qianyang, and there seemed to be no relationship with the manufacturer. An invoice
provided by Zhang as evidence of past business made with Australian firm Novelis turned out to
be fake. Most buyers cited high payments upfront, high prices, and inability to provide valid
documentation.125
According to the British notified body British Standards Institution (BSI), some of the fake
certificates have been used in China to support sales of products that never passed BSI scrutiny.126
Polish institute ICR Polska withdrew some of its certificates due to widespread forgery and asked
clients to verify each certificate’s veracity with them directly.127
The European Safety Federation
(ESF) has warned that supplies from China were often accompanied by fake certificates and
published a long list of forgeries. Some documents were issued by institutes that are not part of the
certification process as they are not competent to review personal protective equipment. Other

certificates have been falsified as they used the name, logo, and document layout of a notified body
that does examine personal protective equipment. Still, the documents were fraudulently issued
and had nothing to do with the notified body in question. Dozens of certificates were issued by
Chinese institutes that have no right to issue a certificate for placing products on the European
market. Some of the Chinese certificates that accompanied goods delivered to Europe were fake,
merely citing the name and logo of a genuine institution but not issued by them. Simultaneously,
not all health authorities, including some ministries, are aware of the legislation that applies to
personal protective equipment (PPE) and fail to recognize fakes and forgeries.128
In response to the ongoing crisis, the European Commission published a recommendation on
conformity assessment and market surveillance within the context of the Covid-19 threat. Member
States can authorize personal protective equipment with incomplete conformity assessment for
facemasks and other personal protective equipment destined for the healthcare sector but not for
the general population.129
In the Netherlands, local authorities had to recall 600,000 facemasks
from China because they failed to meet quality standards. Half of the shipment of 1.3 million N95
masks had already been distributed to doctors and nurses.130
The number of border seizures of
substandard and falsified medical products increased since March 2020. Online attacks and scams
aimed at critical infrastructure and health procurement are likely to continue. Most circulated
counterfeit products include face masks, hand sanitizer, coronavirus test kits, surgical gowns,
thermometers, medical equipment such as ventilators, and medical oxygen.131
The U.S. situation is similar – about 1,300 Chinese suppliers used bogus data to register their
products.132
The Financial Crimes Enforcement Network (FinCEN) warned of scams relating to
the Covid-19 pandemic as well. Shortages of personal protective equipment, surgical gowns,
diagnostic tests, and other materials launched a global market with counterfeit, substandard, and
falsified items often sold at exorbitant prices. Many governments paid millions of dollars for
equipment that is substandard and too dangerous to use. The location of these suppliers in Asia,
namely China, Vietnam, Malaysia, Hong Kong, and Taiwan, complicates any surveillance and
enforcement efforts. Multiple U.S. agencies have been involved in getting the chaotic situation
under control. FinCEN has been monitoring reports of fraudulent cures, vaccines, tests and
services, non-delivery scams, price gouging, and hoarding of medical equipment.133
Executive
Order 13910 prohibits the hoarding of designated items.134
Operation Stolen Promise investigates
fraud and illicit activities relating to the pandemic. Since the beginning of the operation, the
Homeland Security Investigations made 161 criminal arrests, analyzed nearly 68,000 Covid-19
related domains, and seized $12.5 million illicit proceeds.135, 136
The United Nations Office on Drugs and Crime (UNODC) also predicts a shift from trafficking
personal protective equipment to distributing a fake COVID-19 vaccine. According to Forbes,
Covid-19 vaccines are already being stolen and diverted to the black market. The vaccine is likely
to become some of the most diverted medications in the history of mankind. Implementing drug
diversion programs in healthcare facilities should help prevent, detect, and report instances of
diversion. To detect counterfeit products, the vaccine vials bear identifiers readable under black
light.137
IBM Security X-Force threat intelligence task force discovered a global phishing attack
that targets the Covid-19 vaccine supply chain. Spear-phishing emails were sent to various
government and corporate targets and global organizations from a spoofed email that impersonates

a business executive from the Chinese company Haier Biomedical, a qualified supplier for the
Covid-19 vaccine distribution program.138
POLITICAL EXPLOITATION OF THE COVID-19 CRISIS
The Covid-19 pandemic brought international travel to near standstill, halted international trade,
and deeply affected global interactions. For the second time since March, the epicenter of the
pandemic moved to Europe. China has been offering medical supplies and aid to European
countries. In March 2020, airplanes with tons of brotherly Chinese aid landed in the Czech
Republic, Serbia, Italy, Spain, Belgium, and France.
China’s power projection in Europe has been described as “mask diplomacy.” Mask diplomacy
combines soft approaches such as symbolic and cultural influence and a sharp approach, consisting
of medical delegations and scientific teams. Financial aid from the Chinese soft hand does not
come cheap, however. Dubbed “debt-trap diplomacy,” Chinese loans and infrastructure projects
seem lucrative in the short term but eventually entrap the countries in persistent dependency and
loan arrangements that constrict the debtor’s sovereignty. By offering emergency relief, China
gains access to critical infrastructure and the opportunity to foster relationships and groom rising
local bureaucrats.139
China’s willingness to come to the rescue amidst the pandemic has repeatedly been praised in the
media. Blame-shifting has created a spin in the overall narrative as the primary culprit of the crisis.
The failure of the EU and individual EU member states to aid Italy during their time of crisis
created an opportunity for China to showcase its goodwill. China provided 30 tons of medical
supplies to Italy. Huawei offered its cloud computing platform to Italian hospitals, connecting
them with Wuhan’s to study the new coronavirus.
The impact of Chinese mask diplomacy has been mixed at best. The Stanford Freeman Spogli
Institute examined Beijing’s narratives about its donations of personal protective equipment. The
dataset included 3,144 tweets from 11 Chinese media outlets intended for western audiences. The
analysis showed that the state media highlight shipments from China to other countries and
downplay shipments from other countries to China. Moreover, outward shipments are presented
in the context of foreign policy goals in the respective country. After March 2020, the coverage of
Chinese donations soured, so Chinese state media coverage significantly decreased. Chinese
narrative aimed to shake off the image as a culprit of the crisis but tried to picture itself as a
responsible global leader in crisis times. While successful in countries like Serbia or Hungary,
others only became even more suspicious about their strategic intentions.140
According to Asia Europe Journal, China is attempting to save face after the botched response to
the Covid-19 outbreak before it became a pandemic. It also indicates apprehension that it might
be held accountable for the infections and deaths and the worst economic meltdown since the Great
Depression. Deep anxiety about the survival of the communist regime result from domestic and
global financial collapse. Chinese medical assistance to other countries was designed to portray
China as a reliable, responsible partner in crisis. Despite reports of substandard quality of the
personal protective equipment and test kits, most European countries expressed appreciation and

gratitude. Chinese corporations weighed in, blurring the line between state and corporate
sponsorship.141
Humanitarian aid from Russia turned out to be a political gesture rather than actual assistance. In
May 2020, Russian Federation donated 45 ventilators to New Jersey and the New York State to
help tackle the pandemic. The shipment included a new model Aventa-M. The ventilators were
not deployed to U.S. hospitals and were never used because of electrical compatibility issues.
Russian equipment is designed for 220V, while U.S. power outlets only have 110V. This
incompatibility turned out to be a stroke of luck as the same model caused a hospital fire in St.
Petersburg and Moscow, Russia, killing six people.142
An investigation by Russian authorities
revealed the fires were started by a short-circuit in the ventilators. Aventa-M is an excellent
example of a medical device that would not pass the rigorous regulatory standards in the United
States. The device was not counterfeit or substandard according to Russian norms.143
IMPLICATIONS
The combination of limited capacity to exercise control over essential commodities, the long-term
trend of outsourcing, with the politicization of business relationships causes the entire
pharmaceutical industrial sector to be internationally dependent, creating numerous potentials for
systemic failure. The pharmaceutical sector’s complex regulation provides a false sense of security
and an overall impression of a flawless oversight process covering every possible issue to the
utmost detail. However, every law is only as good as the enduring fidelity of its implementation
in real-life situations.
Experiences with inspecting foreign, especially Chinese facilities, widespread data integrity issues,
and document fraud should raise concerns over the reliability of suppliers. The reliance on Chinese
producers of APIs creates an enormous vulnerability for customers who are having difficulty
keeping up with the variable quality of starting materials and APIs. This problem is compounded
by the limited number of suppliers of each specific material. The contamination of multiple
medications with nitrosamine and the subsequent recall of multiple drugs illustrates the extent of
the problem. Chinese dominance in the shipping sector, investments in ports worldwide, the
militarization of the South China Sea, and the concentration of sea traffic in narrow passages that
avoid all conflict areas, combined with endemic corruption, increase the probability of accidents.
The experiences with the exploitation of the Covid-19 pandemic leave no doubt that the
dependence on Chinese medical supplies represents significant vulnerability and severe risk,
necessitating substantial change.
Shortages of necessary medications show signs not of improvement but worsening. The
predictable cycle of deteriorating quality, cGMP violations, FDA inspections, and warning letters,
and eventual discontinuation deepens the crisis with every drug that disappears from the market,
only to emerge once again at an outrageously gouged price. In the meantime, shortages of life-
saving medications leave doctors scrambling for alternatives at enormous cost to their time and
hospital resources. The opportunity to introduce counterfeit and substandard medicines in the
supply chains is rarely missed, although not always discovered in time. The emergence of for-
profit adulteration makes the issue even more disturbing.

PATH FORWARD
A full-scale, all-source investigative approach should be employed to ascertain the full extent of
U.S. dependency on China and other foreign-sourced essentials. It is also necessary to identify,
schematically map, and monitor potential points of failure or vulnerabilities within the
pharmaceutical supply chain. An accurate description of the situation means locating all facilities
that produce source chemicals, APIs, and finished dosage forms, their capabilities, capacity, and
current state of operability or compliance with various international standards. Mapping the origin
of every shipment of raw materials requires a substantial collection effort and access to non-public
data sources. Indirect indicators such as records of purchases of equipment or precursor chemicals
can be used to monitor supply and demand and predict production capability and evaluate facilities
before they can be subject to inspection and grade them on a scale State-of-the-Art to obsolete. A
persistent multidiscipline surveillance environment would decrease U.S. vulnerability to all
disruptions. Mapping relationships and monitoring the status of all relevant production facilities
within a supply chain will provide essential decision support for prioritizing the transition of
critical component manufacturing onshore.
The U.S. population’s medical needs create high demand for a steady and reliable supply of quality
pharmaceutical products and well-designed, well-tested medical devices. Population growth and
aging necessitate confident access to advanced healthcare. The WHO list of essential medicines is
commonly used to describe the needs of health systems.144
This list generally works well in the
developing world, where the standard of care is lower. It represents most of the population’s needs
in those areas, emphasizing the most serious public health concerns such as malaria, Human
Immunodeficiency Virus and Acquired Immunodeficiency Syndrome (HIV/AIDS), leishmaniosis,
and common ailments typical for the population. In the U.S., the needs are most undoubtedly
different due to differences in lifestyle and broader access to advanced medical care. A blended
approach needs to be used to estimate the population’s current needs and make future projections.
The analysis needs to account for the burden of disease, clinical practice guidelines used to treat
these conditions, and insurance records.
U.S. Environmental Protection Agency (EPA) scrutiny and restrictions have rightfully affected
pharmaceutical production. The environmental impact of pharmaceutical manufacturing in the
third world is an outrageous example of lax regulations, corrupt bureaucrats, and contempt of
industry representatives for the local populations’ legitimate interests. There is little commitment
on the industry’s side to improve the status quo and reduce the environmental footprint. However,
it does not need to be this way. A return to U.S. production should be given special emphasis.
Automaker Subaru of Indiana Automotive exemplifies how a major plant that used to produce a
tremendous amount of waste can be redesigned to minimize its environmental impact. The factory
achieved a zero-waste status due to a combination of basic principles of environmental
sustainability: reduce, reuse, and recycle. The plant produces 375,000 cars a year and gives well-
paid jobs to 5,500 people.145
Outsourcing of pharmaceutical manufacturing contributes significantly to the trade deficit and loss
of skilled jobs in the United States. Return of pharmaceutical manufacturing would improve self-

sufficiency in a critically important sector and eliminate current vulnerabilities relating to
outsourcing and offshoring. Returning the manufacturing of APIs and finished dosage forms to the
United States can potentially solve a series of complex problems pertaining to a reliable supply of
quality pharmaceutical products. The WHO’s deference to China when handling the pandemic is
a prime example of undesirable compromise forced by Chinese investments in major infrastructure
projects and reliance on pharmaceutical supplies to the third world. Self-reliance in pharmaceutical
manufacturing would significantly improve U.S. position furthering commercial and political
independence.
Pharmaceutical manufacturing requires a skilled workforce that does not currently exist in the
United States. Talent identification, development, and import, where appropriate, needs to be an
integral part of every solution that strives to relocate an entire industry sector onshore. The vast
majority of life science and organic chemistry graduates can be found in Asia. People are
encouraged to study these disciplines by the industry that often sponsors these universities. The
job market for them is thriving due to domestic incentives and decades of outsourcing industry to
Asia. Acquisition of technical expertise takes time, money, and effort. It is only possible when
there are reasonable expectations that such investment will pay off in terms of a stable, well-paying
career in a thriving industry that is locally present.
Expensive college degrees in the United States and lack of skilled jobs in the industry create a
disincentive to pursue technical degrees. The continued trend of outsourcing entire production
lines to Asia creates a shortage of skills and a lack of interest in pursuing such a career. Fast track
training of a professional workforce will be required, partly supported by importing essential
functions to make the entire industry sector’s transfer feasible. Critically important skills, for
example design of quality management systems, can also be acquired through partnerships with
State-of-the-Art facilities in Germany and Switzerland. Attracting experts from other industries is
an appropriate way of boosting innovation and overspecialization.
The transfer of pharmaceutical manufacturing and production of source materials to the United
States and its allies in Europe would dramatically improve control over quality management
systems that should comprehensibly cover the entire sourcing operations, the production of APIs,
and the manufacturing of finished dosage forms. The pharmaceutical industry can be an
environmentally friendly undertaking, and there is no longer necessary to rely on offshoring to
bypass environmental standards. Pharmaceutical manufacturing requires a technically competent
workforce, which adds to a socially stronger and more resilient middle class. Transfer of
pharmaceutical manufacturing back onshore is not only possible; it is highly desirable.
CONCLUSION
The globalization of pharmaceutical supply chains motivated by profitability brought short-term
economy but imposed consequences from numerous challenges affecting America’s ability to
confidently secure medicines for its population. Outsourcing of critically important manufacturing
capability to India and China poses a significant risk from disruption. Systemic vulnerabilities
affecting citizens and interests result from a lack of control over the quality management systems,
complex regulatory landscape, jurisdictional issues, and difficulty enforcing industry standards at
foreign facilities.

The most serious shortcomings of Chinese pharmaceutical imports include the potential for
contamination of raw materials that significantly impact the supply chain and are often difficult to
detect. Additional concerns result from data integrity violations, including data fabrication.
Consolidation of the industry, limited sourcing options, and lack of incentives to produce
medically necessary products with low profit margins are the leading causes of chronic and
periodic drug shortages.
Although the United States remains the domicile of most pharmaceutical companies, the
manufacturing base moved to Asia and will take a serious and concerted effort to displace. Indian
manufacturers, although dependent on Chinese supplies of APIs, are already contemplating how
to reduce this dependency. China, the globally dominant and often exclusive manufacturer of APIs
and raw materials, struggles with endemic corruption that makes any attempts to oversee the
industry toothless and ineffective. Shortages of medically necessary drugs have been a worsening
problem for decades.
The root causes lie in the lack of incentives for mature quality management systems, halted
production in response to severe violations of cGMP, and lack of incentives to produce generic
drugs that often have low profit margins. Shortages are usually followed by hoarding of remaining
supplies, price hikes, and the opportunity for counterfeit drugs to be introduced into the supply
chain.
The commercial value of the pharmaceutical industry is nationally significant, as is the risk from
foreign dependency because self-sufficiency is lacking. Political and commercial competition with
China enables weaponization of production materials and supply chain elements because
pharmaceutical dependency is a strategic vulnerability made more apparent during the ongoing
Covid-19 pandemic. Decoupling from China should emphasize the transfer of pharmaceutical
production onshore. Although a significant undertaking, it is not only desirable and possible but a
strategic imperative.

AUTHORS’ BIO
Veronika Valdova, D.V.M.
Veronika Valdova earned a degree in Veterinary Medicine from the University of Veterinary and
Pharmaceutical Sciences in the Czech Republic. She transitioned to the pharmaceutical industry, where she
worked in various technical and scientific roles, responsible for processing safety information on drugs and
devices and compiling summary reports for submission to regulatory authorities. She is the co-founder and
general manager of Arete-Zoe, LLC, a boutique medical sector, risk consultancy. Notable recent projects
include a series on the availability of essential medicines in the Czech Republic and Hungary and related
works on Equitable and Economic Access to Effective Therapies (E3T). She authored and co-authored
numerous technical documents within her subject matter domain. She is also the co-founder of Veracuity,
LLC, a startup company in bio-pharmaceutical safety informatics and analytics, where she works on
automation of pharmacovigilance case processing and on a toolset that organizes drug information for
patients and physicians.
Ronald L Sheckler
Ronald Sheckler has been involved in intelligence, security operations, and investigations for over 45 years.
He served for 31 years in U.S. Army Special Forces where he was responsible for operations and planning
for countering terrorism, insurgency, and espionage. His advisement to U.S. Governmental
Agencies/Activities and Foreign Governments included six years in Latin America, six years in Western
and Eastern Europe, and fifteen years between Northeast and Southeast Asia orienting on holistic political,
economic, and security stability with specific emphasis on threat, vulnerability, and risk
assessment/mitigation. He has a diverse portfolio of international projects, including ports, utility
infrastructure, high net-worth persons, foreign diplomatic missions, with both military and constabulary
development. He has performed as a speaker/lecturer on matters of operational security and preparedness
for public and private sector interest in Maritime Safety and Security, Critical Infrastructure, and
Community Preparedness for natural and man-made events.

ENDNOTES
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10
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11
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13
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