AstraZeneca’s announcement this week that it is investing $200 million in a new manufacturing site in China, the largest investment by the company in a single manufacturing facility, reflects not only the ongoing trend on pharmaceutical industry investment in emerging markets, but also speaks to the larger issue of ways to stimulate manufacturing investment in the United States. As President Barack Obama looks for support for his jobs bill from Congress and the public, a basic question is whether federal policy is on the right track to stimulate business investment in the US.
Looking at the pharmaceutical industry as a microcosm for economic activity, there are certain fundamentals that cannot be ignored: demand in established markets is weak and demand in emerging markets is strong. In 2010, on a constant dollar basis, the North American pharmaceutical market increased only 1.9% compared with 2009, and Europe’s pharmaceutical market increased only 2.4%, according to data from IMS Health. In contrast, the pharmaceutical markets for Asia/Africa/Australia (excluding Japan) increased 14% and 14.2% in Latin America in 2010, both on a constant dollar basis. Admittedly, the sizes of emerging markets are less than established markets. In 2010, North America’s pharmaceutical market was valued at $335 million, Europe’s at $253 million, Asia/Africa/Australia (excluding Japan) at $130 million, and Latin America at $54 million on a constant dollar basis.
What these numbers show, however, is a basic truth that policymakers cannot ignore: when companies are investing, they are investing where there is market demand, namely, in emerging markets. Although some proposals in the President’s plan, such as payroll tax relief or accelerated deductions for businesses, would be helpful to businesses in the short term, they cannot alter the demand–supply fundamentals that are behind the shifts in capital investment.
Within specific sectors, it is more helpful to examine where federal policy can make a difference. One area in the pharmaceutical industry where there seems to be a disconnect in federal policy is in the manufacture of pharmaceutical ingredients and related supply to the US market. A recent report by the US Government Accounting Office (GAO) points to the ongoing challenges that FDA faces in overseeing the foreign drug-manufacturing supply chain. In 2010, GAO estimated that FDA inspected 11% of foreign drug-manufacturing establishments subject to inspection, and that it would take approximately nine years for the agency to inspect such establishments at that rate. In contrast, in fiscal year 2009, FDA conducted 1015 domestic inspections, representing approximately 40% of facilities, which would allow the agency to inspect domestic facilities at the rate of once every 2.5 years. To address this challenge, in its recent report, Pathway to Global Product Safety and Quality, FDA outlined its efforts to increase foreign inspections, increase staffing overseas for such inspections, and other cooperative measures among national regulatory agencies.
Although such efforts are important and necessary from a product-safety perspective, a more fundamental question arises for federal policymakers: is it really prudent for the US to allocate federal resources to increase inspection staff to support offshore manufacturing for pharmaceutical ingredients and products for the US market? Would it be better policy to align product supply with what can be reasonably overseen by national regulatory agencies through domestic production and in the process not only support but expand domestic pharmaceutical production? Given the regulatory oversight required to ensure quality and safety, a pharmaceutical product is different than other industrial or consumer products, and therefore, the rules of market engagement would seem to differ. There is always much discussion on the value of keeping technology-based and science-based jobs in the US, but in the context of pharmaceutical development and manufacturing, are we really pursuing a cohesive federal policy? That perhaps is the question we should be debating.
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