Pharma execs have been afraid Trump would jump on their backs

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SINGAPORE — President-elect Donald Trump on Wednesday slammed the pharmaceutical industry for producing drugs overseas.

“We have to get our drug industry coming back,” he said at his first press conference since the election. “They supply our drugs, but they don’t make them here, to a large extent.”

Pharma execs have been afraid Trump would seize on this issue.

Many pharmaceutical ingredients sold in the US are indeed made abroad, in complex supply chains dominated by China and India for generics and by Singapore and South Korea for higher-end biologic drugs. Trump has made it abundantly clear that he’s no fan of outsourcing production in this fashion.

“Our drug industry has been disastrous,” he said Wednesday. “They’re leaving left and right.”

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It’s unclear exactly what levers Trump might pull to pressure the drug industry, but pharmaceutical factories in India and China, in particular, may be tempting targets, given that they’ve repeatedly been called out for safety and quality violations, from lying to inspectors to leaving bird droppings and black mold on the factory floor.

Even before the news conference, biopharma executives and government officials across Asia were worried that Trump could impose heavy taxes on ingredients coming into the US or crack down on overseas manufacturing.

Singapore, South Korea, and Australia all have free-trade agreements with the US that insulate them somewhat from import taxes. But Trump has promised to tear up the Trans-Pacific Partnership trade pact that Japan and 10 other nations painstakingly negotiated in recent years with the Obama administration. That would leave those countries more vulnerable to protectionist policies, such as new tariffs.

Adding to the unease in Asia: Trump’s pick of attorney Robert Lighthizer, a piercing critic of China’s trade practices, as US trade representative.

“Pharma firms will have to decide how to handle what is going to be a rocky few years,” said Deborah K. Elms, executive director of the Singapore-based Asian Trade Center.

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Elms predicted that some companies might shift manufacturing to nations like Singapore and South Korea, where existing free-trade agreements with the US provide “more certainty” about stable trade policy. Others may bring manufacturing back to the US, “although I think firms may wait to see what happens before making this decision, as costs are higher,” she said.

Ending outsourcing won’t be easy: “The cost of manufacturing in Asian countries like India or China is far less, five times less in some cases, than in developed markets,” said Singapore-based supply chain consultant Per Karsten Stolle, who has worked for emerging market access firm Zuellig Pharma.

What’s more, several Asian countries require drug companies to do at least some local manufacturing — or risk losing access to massive markets, like Indonesia’s 258 million people.

Despite those obstacles, manufacturing advocates in the US are already gearing up to start wooing jobs to the States.

Take the Drew Quality Group, a nonprofit based in Massachusetts. It aims to boost production of generic drugs in the United States. It’s pushing to secure tax incentives to set up factories in economically depressed areas, hoping for support from insurers, who might welcome lower-cost medicines.

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“Our target is to manufacture critical drugs listed as in shortage” by the Food and Drug Administration, said Deborah Drew, the president and CEO.

The key, Drew said, is to develop efficiencies that make manufacturing in the US cost-effective.

“We can’t go back to the old style,” she said. “Our aim is to reduce costs, use new technologies, and enforce quality controls.”

The Obama White House has already started to support such initiatives.

Last month, the Commerce Department announced $70 million in grants to support a new National Institute for Innovation in Manufacturing Biopharmaceuticals. The goal: to scale up the production of complex biologic drugs in the US.

Many of those drugs are now being made in Asia, in factories approved and regularly inspected by the FDA.

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Singapore stands out as a top-end manufacturer, with hundreds of millions of dollars of investment in the past five years from AbbVie, Amgen, and Novartis among others to set up plants to produce biologic drugs. US-based Sigma-Aldrich and Thermo Fisher Scientific provide manufacturing support products and services from a hub in Singapore as well.

India has gone all out to attract the sector, too, with Prime Minister Narendra Modi’s “Make in India” campaign.

And South Korea has also seen an explosion in biologic manufacturing with Seoul-based biotech contract manufacturing firm Samsung BioLogics now home to a state-of-the-art manufacturing operation that serves firms from Bristol-Myers Squibb to Roche. The company is also pushing for European and American approvals of biosimilars — unbranded versions of lucrative biologic drugs, from autoimmune therapy Enbrel to breast cancer therapy Herceptin.

Just this week, South Korea’s finance minister Yoo Il-ho said the country will vigorously defend its manufacturing industries against any “irrational demands from the US” on trade.

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Elms said pharma companies that have built overseas supply chains should be especially wary of Trump’s threat to impose an import tax on items manufactured abroad. That, she said, is a “looming problem” for much of the industry.

“This will tax imports and this is likely to hit pharmaceutical products manufactured abroad and imported back into the United States rather more significantly than tariffs,” she said.

To be sure, import taxes aren’t their only woes: Pharma companies also worry that Trump could seize on news of a drug price hike and respond with a tweet storm that would send stocks plummeting. But in the end, a trade war would likely have a much bigger effect on their bottom line.

“The irony, for me, of course is that pharma may really come to regret their opposition to the TPP,” Elms said. “Had they not been so hostile to the agreement earlier, we would have had the deal in place and their manufacturing options would have been improved now.”

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