Testimony of Rosemary Gibson — The Coronavirus and America's Small Business Supply Chain, March 12, 2020

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Written testimony of Rosemary Gibson, Senior Advisor at the Hastings Center, before the Senate Committee on Small Business and Entrepreneurship for a hearing titled The Coronavirus and America's Small Business Supply Chain, dated March 12, 2020. The testimony states that the $8.3 billion emergency supplemental package does not fund manufacturing of generic drugs that are in shortage or rationed. It describes U.S. dependence on China for chemical ingredients in generic medicines and names antibiotics on the FDA drug shortage list, including azithromycin and ciprofloxacin. It proposes federal capital investment in small businesses using advanced continuous manufacturing, citing the BARDA flu vaccine contracts as precedent, and describes Civica Rx procurement. The document is organized in 11 numbered points followed by concluding remarks.

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                                 Testimony of Rosemary Gibson
           Author, China Rx: Exposing the Risks of America’s Dependence on China for Medicine
              Before the Senate Committee on Small Business and Entrepreneurship
                  The Coronavirus and America’s Small Business Supply Chain
                                        March 12, 2020

Thank you, Chairman Rubio, Senator Cardin, and Committee Members for the opportunity to testify
today. I am Rosemary Gibson, Senior Advisor at the Hastings Center and author of China Rx: Exposing
the Risks of America’s Dependence on China for Medicine. I am not paid by any industry or government
entity for this work. It is conducted solely in the public interest.
My remarks today emphasize that small businesses are ready to begin immediate production of essential
generic medicines for people hospitalized with coronavirus that are in shortage or altogether unavailable.
The $8.3 billion emergency supplemental package to respond to coronavirus does not address this critical
vulnerability in the nation’s medicine supply.
1. Small businesses want to help our nation respond to the coronavirus. Small businesses are
prepared to start manufacturing within weeks in the United States critical medicines that are
unavailable or are being rationed.
The coronavirus outbreak has magnified vulnerability in the nation’s supply chain for medical supplies
such as masks and other protective gear for health care workers. The $8.3 billion emergency supplemental
package to respond to the coronavirus outbreak passed by Congress and signed by the President is a
critical step forward to assure the nation’s health security.
The supplemental aid package contains more than $3 billion for:

        research, development and testing of vaccines to prevent people from getting coronavirus; and
        research for drug treatments to cure coronavirus.
The package does not include:

        funding to manufacture generic drugs that are being rationed or unavailable and needed to
         care for seriously-ill people hospitalized with coronavirus, as well as other seriously ill people
         without coronavirus, to enable them to receive effective treatments and return home healthy.
Members of Congress, the White House, members of the military, veterans, seniors, and hard-working
families – will all depend on these essential generic medicines if affected by a severe coronavirus
infection.
2. The United States faces an existential threat posed by China’s control over the global supply of
the ingredients in thousands of essential generic medicines.
China’s official news outlet threatened in March 2020, “If China retaliates against the US at this time, in
addition to announcing a travel ban on the United States, it will also announce strategic control over
medical products and ban exports to the United States. If China announces that its drugs are for domestic
use and bans exports, the United States will fall into the hell of a new coronavirus epidemic.”
The unleashing of this threat will cause unprecedent deaths and social disorder on a scale never seen
before on our country. The civilian and military health care systems will collapse. China can wreak other
havoc. Medicines in the hands of an adversary can be weaponized. Medicines can be made with lethal

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contaminants or sold without any real medicine in them, rendering them ineffective. These products can
be distributed to specific targets. Detection is time-consuming at best, and virtually impossible at worst.
Dependence on China is a risk to the U.S. military, combat readiness, and force protection. The thousands
of men and women on U.S. aircraft carriers in the South China Sea are dependent on the adversary for
many of their essential medicines. Combat readiness and force protection are at risk with the military
vulnerable to disruptions in supply and contaminated and toxic medicines. In 2018, more than 31,000
active duty military personnel, veterans, and their family members were notified they may have been
given blood pressure medicines containing a cancer-causing ingredient.
3. Coronavirus has brought to the fore U.S. dependence on a single country for its generic medicine
supply, and exposed the risks to the nation’s health when the dominant global supplier country
shuts down production.
The U.S. medicine supply chain is being severely disrupted as production in China has been shut down
and transportation and logistics greatly constrained. China has withheld exports of masks and other
protective gear. It would be prudent for China to withhold exports of medicines to assure it has enough
for its people.
Here is how dependent the United States is on China:

       90 percent of the medicines used in the United States in hospital intensive care units,
        emergency rooms, and ambulances, and sold in big box stores and corner drug stores are
        generic. Thousands of them are made with chemical compounds and ingredients from China.

       China makes 9 percent of our generic drugs. This market share is likely to rapidly increase.
        The Financial Times reported that China is gaining steam in the US generic drug market. China’s
        stated aim is to become the pharmacy to the world, and it is on track to do that.

       India makes 25 percent of our generic drugs but depends on China for the chemical
        compounds to make them. India has recently banned the export of 26 medicinal products
        because of supply blockages owing to the coronavirus in China, the world’s hub of the
        pharmaceutical chemical industry. China Rx predicts that China will eventually overtake India in
        generic drug production. This is consistent with China’s industrial plan which includes the
        pharmaceutical industry as a target to achieve global dominance.

       90 percent of the chemical ingredients for generics in the U.S. to care for people with serious
        coronavirus infections and are hospitalized are sourced from China. Sedatives, antibiotics,
        anti-inflammatories, and medicines to raise blood pressure are among the medicines used to care
        for people with severe coronavirus. China produces 90 percent of the chemical ingredients for
        these essential medicines.
4. Essential generic drugs to treat severe cases of coronavirus infection are in shortage, being
rationed, or unavailable.
While many generic antibiotics and other medicines have been on the FDA drug shortage list and are
being rationed, the coronavirus outbreak has exacerbated the situation.
Here are examples of generic antibiotics in shortage and being rationed that are needed to treat
secondary bacterial infections in coronavirus patients.

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       Azithromycin is a generic antibiotic to treat severe coronavirus infection in hospitalized patients.
        Its chemical components are sourced from Hubei Province whose capital, Wuhan, has been the
        epicenter of the coronavirus outbreak in China. This antibiotic is listed on the FDA shortage list.

       Ciprofloxacin is a generic antibiotic whose chemical precursor (2,4-Dichloro-5-fluorobenzoic
        acid) is sourced only in China. It is an essential medicine for severe coronavirus infections. This
        antibiotic was prescribed for anthrax exposure after the 2001 anthrax attacks on Capitol Hill

       Piperacillin/tazobactam is an essential antibiotic medicine for severe coronavirus infection. It is a
        treatment for sepsis, a life-threatening blood stream infection that kills 27,000 Americans every
        year. A single factory in China exploded several years ago, causing a global shortage of this
        antibiotic. The factory was rebuilt and FDA approved product is made there. Three months later,
        the EU regulator, the European Medicines Agency, found the plant did not meet US/western
        standards but allowed the product to be sold to avert a shortage.
5. Generic drugs are being rationed in the United States because the manufacturing base in the U.S.
and other Western countries is collapsing as China’s generic industry is growing rapidly
Many medicines on the FDA drug shortage list are generic medicines once made by the three largest
western generic drug makers: Mylan, Sandoz and Teva.

       Mylan, a U.S.-headquartered generic company, merged with Pfizer. Pfizer announced last year
        the opening of its global generic headquarters in China.

       Sandoz and Teva announced in early 2019 that they will discontinue production of many
        medicines. This has occurred as evidenced by many of their generic drugs appearing on the FDA
        drug shortage list.

       Western companies cannot compete because there is no free market in generic drug
        manufacturing and in the production of chemical ingredients.
6. There is no free market to solve the problem. Chinese cartels and Chinese government subsidies
to its domestic manufacturers are driving U.S. and other western generic companies out of the
business of generic manufacturing.
A common view is that because China has lower labor costs and weaker regulations governing worker
safety and environmental protection, China is a cheaper place to outsource. That is not the full story.
China’s cartels fueled by government subsidies are undercutting U.S. and other competitors and driving
them out of business. U.S. and other generic drug companies and ingredient makers are competing against
the Chinese government, a battle they will not win unless and until the U.S. government develops in
concert with industry a smart strategy and executes it successfully on behalf of the American people.
7. Small businesses with expertise in chemistry and pharmaceutical engineering are ready to
produce the most critically needed medicines and their ingredients all in the United States using
advanced manufacturing technology that lowers the cost of generic drugs.
Small businesses can play a pivotal role to help assure that the nation’s hospitals have the essential
generic medicines they need during the coronavirus and any other serious infectious disease outbreak, as


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well as in normal medical care situations. By using continuous processes in advanced manufacturing, all
the ingredients for many drugs can be made fully in the United States.
Innovator pharmaceutical companies have been very slow to use advanced manufacturing technology for
new branded pharmaceutical products.
Generic companies have no incentive to invest in this manufacturing technology. Their margins are too
thin and risk is too high to move from older, more established batch manufacturing technology. As noted
earlier, U.S. and western generic drug makers are stopping production of many generic drugs altogether
because of severe pricing pressure from China.
8. Small businesses can help assure the country’s ability to meet current needs and be prepared to
mitigate the impact of future threats on the nation’s health security.
Small businesses can work with the Department of Health and Human Services to identify priority
generic drugs, their active pharmaceutical ingredients, and chemical precursors. For example, APIs fully
made in the United States without dependence on other countries can be manufactured for current use
and stockpiled for future use. They have longer periods before expiration than finished drugs. Ready-to-
go manufacturing plant capacity can use stockpiled APIs to manufacture finished drugs within weeks.
This will assure emergency preparedness and avoid the severe drug shortages that we are facing now.
9. There is precedent for federal investment in manufacturing of medicinal products.
A number of years ago Congress provided funds for flu vaccine manufacturing in the United States.
Implementation of congressional intent is performed by the Department of Health and Human Services,
Biomedical Advanced Research and Development Authority (BARDA), which executes contracts in a
public-private partnership with companies to produce a designated volume of flu vaccines each year.
For domestic production of essential generic drugs and their core components, federal investment for
small businesses should be for capital investments to refurbish vacant plants and buy equipment.
The number of finished drugs produced will depend on the complexity of the products selected (which
will be determined by the federal government and national health security requirements) and the volume
required. One of them could be, for example, enough ciprofloxacin, an essential antibiotic noted above,
for the Strategic National Stockpile, the Department of Defense, and the VA.
Once the initial capital investment is made, the cost to actually make the finished drug product can be up
to 40% less than current production practices because of much greater efficiency of advanced continuous
manufacturing processes as well as direct distribution to government partners.
The sale price of products should include full cost price transparency to the government and be based on
manufacturing cost plus a fair rate of return on investment. If products are priced too high, the private
market will not purchase the product and the federal investment will have failed to serve the public.
Any federal investment in assuring essential generic drugs should be considered a national security asset
that cannot be sold to companies whose governments are strategic competitors to the United States.
This investment will help reinvigorate the U.S. generic manufacturing base and the capacity for the
United States to eventually achieve a minimum level of self-sufficiency in the making of essential
medicines vital to the nation’s health security.




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10. Federal investment in small businesses for advanced manufacturing of critical generic drugs is
highly likely to attract private investment.
US hospitals are using their procurement dollars to buy essential medicines in shortage made with active
ingredients not from China. Civica Rx is a non-profit formed by the Mayo Clinic and 1300 other hospitals
representing one-third of licensed hospital beds in the U.S.
Civica Rx pays manufacturers a fair, sustainable, and transparent price, not a race-to-the-bottom price.
The country-of-origin and manufacturer are transparent to the purchasers. Long-term contracts with
manufacturers enable them to invest in their facilities and assure an uninterrupted supply of quality
medicines. Civica Rx is procuring life-saving generic antibiotics that will be manufactured in finished
dose form and other places.
Civica Rx wants to assure all ingredients are sourced in trustworthy countries. Federal investment can
spur private investment to expand production capabilities and continue to reduce US dependence on
China.
11. Thousands of children with rare diseases in the United States have died in recent years because
the generic medicines they need are no longer available. There is no “business case” because the
“market” is too small. Small businesses want to fill this vacuum and save these children.
There is an untold tragedy happening in hospitals in the United States. Thousands of children with rare
diseases have died in recent years because no one wants to make the “old” generic drugs that would help
them live. Small businesses that have approached me want to make these medicines on a non-profit basis
so children can live. Using advanced manufacturing, these generic drugs can be made quickly and fully
produced in the United States.
Concluding Remarks
The American people are deeply concerned and outraged about U.S. dependence on China for medicines.
Investing in small businesses is one part of the solution to eliminate U.S. dependence on China for critical
medicines. Federal policy to support entrepreneurship and capital investment to restart industries using
innovation in manufacturing will yield high-paying American manufacturing jobs and restore common
sense in our medicine supply.




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