March 4, 2020 | Simone Gao
Rosemary Gibson: Coronavirus Exposed America’s Heavy Reliance On China For Medicine
Narration: The coronavirus outbreak has caused a shortage of surgical masks in the U.S. because China stopped selling. But is the U.S. exposed to bigger risks?
Simone Gao: If China cuts its supply today in how long the US the American people wouldn’t be able to buy generic drugs from this store?
Rosemary Gibson: I think in a matter of a couple of months we’d be really seeing some problems.
Ms. Gao: What kind of drugs are we relying on? China
Ms. Gibson: Thousands.
Ms. Gao: It wasn’t like this before. According to your book. Um, in the 1990s America, Europe and Japan produces 90% of the global supply of key ingredients as her medicine and vitamins and now the number is 80% of them is made in China and India. How did that change happen?
Narration: Amidst the coronavirus epidemic, I sat down with Rosemary Gibson, author of China RX: exposing the risks of America’s dependence on China for medicine.We discussed how this dependence happened; what danger it would bring to the American public if the coronavirus epidemic continues for an extensive period of time; and if such dominance in medicine could be weaponized by the Chinese government after all?
Host: I am Simone Gao and you are watching Zooming In.
Rosemary Gibson: Coronavirus Exposes America’s Heavy Reliance on China for Medicines
Ms. Gao: After the coronavirus epidemic started, there has been a shortage of surgical masks and I have firsthand experience. I went to the CVS several times last month, every one, every time I went they were out. But this is just one thing I want to get your assessment of whether this epidemic has started to impact the American pharmaceutical industry.
Ms. Gibson: What we’re seeing with regard to the masks is that companies that were producing masks for the U.S. and other countries, those company manufacturers were ordered not to export masks because they were needed in China. And that’s understandable. But this is a consequence of the global supply chain being concentrated in a single country. If there is an outbreak in other countries, where are the masks going to come from? This is why one of the recommendations in China RX is that we diversify our manufacturing base, that we get supplies from multiple countries and in some cases we’re going to have to each develop our own manufacturing capability. Because if there’s an outbreak in Europe, or Canada, or Australia, now we’re in the future. Each country is going to want to keep product for their own people and that’s perfectly understandable, but it leaves everybody else vulnerable. So I hope the Corona virus issue, as terrible as it has been for so many people, I hope it raises awareness about the need to decentralize our manufacturing so that people around the world, the next time something happens or hopefully this doesn’t achieve an outbreak elsewhere, that there’s enough to go around that people have the medicines that they need, the masks, and other protective equipment. Now your question was also about what else are we seeing.
Ms. Gao: It’s relatively small, right?
Ms. Gibson: Right. But there’s the protective gear, the boots, the hats, where does the material come from to make that?
Ms. Gao: It’s from China.
Ms. Gibson: Right. So that presents yet another challenge of centralizing global supply in a single country. When it comes to medicines, what I’m hearing is that hospitals have yet to have problems obtaining medicines. The question is how long will that be the case? What’s happening in China is production is shut down because people are not going to work. Transportation routes are shut down. And the longer this goes on, the longer that there isn’t a production, the existing inventories will dry up. There was a fascinating report in the Indian media saying that India’s generic industry, it depends heavily—this is the generic pharmaceutical industry—it depends heavily on chemicals coming from China for their generic medicines.
They supply, India supplies 25% of the U.S. market and they are very concerned about production in China. Some of that production that India relies on is in Wuhan, for antibiotics for certain vitamins. So the longer that this persists, the risks of a global shortage of really important medicines escalates rapidly and we hope that no other country has an outbreak because then we’ll be really, really in a difficult situation.
Ms. Gao: Can you give us a time estimate, like if China cuts its supply today, in how long the US the American people wouldn’t be able to buy generic drugs from the store?
Ms. Gibson: That’s hard to tell. It might vary and it depends on inventory and we’re not hearing transparency from companies. They may not want to raise concern among the public, but I think in a matter of a couple of months we’d be really seeing some problems if it persists and if demand persists in China. It’ll be a whole other issue if the outbreak gains a foothold here in the United States, which the CDC, the centers for disease control and prevention has suggested could happen. So hopefully for a couple of months, we are already hearing that hospitals and their suppliers are being careful about allocating existing supplies. With rationing basically.
Ms. Gao: Right.
Ms. Gibson: In anticipation.
Ms. Gao: What kind of pharmaceutical products are we reliant on China?
Ms. Gibson: Thousands. Antibiotics. I’ll say penicillin. So many of the antibiotics, let’s take the example of a patient with coronavirus who’s very seriously ill and they need to be hospitalized. If they have trouble breathing, which a small percentage of them do, they might be put on a mechanical ventilator to help them breathe. And these things are done to help people recover. And the good news is many people are recovering. So this is really important care that they’re receiving. So they’ll be given a sedative, it might be propofol or fentanyl. And if they develop a secondary infection that’s bacterial, they might be treated with an antibiotic. If they go into shock, they might be given other medicines like epinephrine or dopamine. So I asked those who make, or actually do the manufacturing of these generic medicines, “Where do the materials come? The chemicals come to make them?” And all of them have said that 90% of those core materials, the raw materials come from China. So this is, and these are standard medicines used in any hospital intensive care unit for all kinds of patients. So that really shows the concentration of our supply chain in a single country.
Ms. Gao: So you are talking about—we are talking about if China cuts its supply in a matter of a couple months, the U.S. hospitals will cease to operate and the American people wouldn’t be able to buy generic drugs from the store.
Ms. Gibson: I think that it may start with certain products, not across the board, but we’ll certainly see shortages of very, very important medicines. Bear in mind that in the United States we already have hundreds of medicines that are currently in shortage, and this is pre-coronavirus, and there’s lots of reasons for that and the Coronavirus outbreak, if it continues, that will put even more pressure. We need a much better system in this country. And I suspect other countries do too to predict. I mean this is predictable.
Ms. Gao: Right?
Ms. Gibson: This is, this could happen, it will happen again at some point in the future. We don’t want it to. But it could happen in New York, Los Angeles, Chicago, and we have to plan, we have to predict, and prepare. So we have some manufacturing capability here in this country and perhaps we can help other countries by exporting medicines to them when they need them. So we really have to diversify our manufacturing base and have some degree of self sufficiency for some group of essential medicines.
Ms. Gao: It wasn’t like this before. According to your book, in the 1990s America, Europe, and Japan produced 90% of the global supply of key ingredients of the medicines and vitamins and now the number is 80% of them are made in China and India. How did that change happen?
Ms. Gibson: It happened and for a couple of reasons. One, the United States had a law allowing generic drugs, which means that drugs that have been off on patent with patent protection, they’re no longer on patent protection to make them cheaper for people. So manufacturers wanted a cheaper way to make them and so they moved East. That began in the 80s, late eighties, early nineties. The other very important event was when the United States opened up free trade with China in 2000, and China joined WTO in 2001. It’s remarkable in China RX, I noticed a pattern that when we opened up free trade with China and they joined the WTO, within a year or two, that’s when we lost the last aspirin plant in the United States. It’s when our last penicillin plant closed. It’s when our last vitamin C plant closed. It’s when a very important blood thinner called heparin, when U.S. companies began to source the raw material from China. So the trade policy who knew its trade policy has such a profound impact and our medicine supply. But it’s not just trade, what we saw, and there’s a chapter in China RX about the penicillin and vitamin C cartels, China was cheating it dumped product, sold it to the United States and other countries at below market prices and drove out the other producers.
Ms. Gao: Right. And after that, what did they do?
Ms. Gibson: Then they raised prices and they have global dominance. This was a consistent pattern, when it was for penicillin, the last us plant shut down in 2004 and that was the year that we’d have data to show in China RX, that’s the year when China began dumping it on the global market. And that even drove out producers in India. So India depends on China for very important antibiotics as well because of these unfair trade practices. And of course China subsidizes its domestic companies making it very difficult for companies and other countries to compete.
Ms. Gao: So haven’t the pharmaceutical companies in the U.S., for example, learn the lesson? They know what China is going to do. Have they benefited? Are they still, are they still benefiting from outsourcing production to China?
Ms. Gibson: The focus in China RX has been on the generic drugs, which are 90% of the medicines people take. And the truth is that they’re competing in an unlevel playing field. If we talk about, you talked about FDA inspections in China, while we have FDA inspections here in the U S and frankly they’re much more rigorous. The FDA can walk into your plant and they may spend a week or 10 days there. In China, they get advanced notice and they may be there just a couple of days. So that’s a lot different in terms of unleveled playing field. And again, how do you compete when China can undercut on price? So it can be very, very challenging. But it’s also true, you’re right, that people want to pay manufacturers very low prices so they can make more money on the margin and sell them higher to the consumer. And so what they’ve been doing is hammering down on the price paid to manufacturers, and that’s what’s driving out Western companies making generic drugs. So now China has 9% of the generic drug sold in the United States. That market share used to have zero in 2007 and it’s ramping up quickly and our manufacturing base in the U S to make our own medicines is collapsing. It’s falling apart. Same in Europe. And so we’re exacerbating, you know, the concentration of the supply of finished drugs, the pills we take. And China’s aim is to become the pharmacy to the world as we see if there’s a global pandemic or natural disaster, that’s not a very smart thing to do to centralize it in any single country.
Ms. Gao: It’s China raising the price for the generic drugs that they produce.
Ms. Gibson: I don’t know the answer to that, but I would be surprised that they would do that now. I suspect they would wait until they have a larger share of the market, and then do that. And at that point, and I’ve warned about this in China RX, that the United States will be the price taker and China will be the price setter. We are approaching that point where that will happen.
Ms. Gao: Don’t you think the pharmaceutical companies also see this and they don’t care?
Ms. Gibson: Well, um, they’re into shareholder value. And the next quarterly earnings report, the question is who’s looking out in the long term for the interests of the public, if there is a public health crisis or natural disaster? And that I’m really delighted to say that China RX has really stimulated that conversation in the executive branch and the legislative branch here in Washington. You know, this strategic national stockpile, which has so many different medicines here in the United States. So much of that depends on China. Is that really a smart thing to do?
Ms. Gao: So, walk me through what happens to an American pharmaceutical company if it outsources a key ingredient of its product to a Chinese company, what happens? And then, the question is, can the FDA in China stay on top of what happens in China?
Ms. Gibson: Companies that purchased ingredients from China, they might be the chemical molecules, the FDA doesn’t inspect those plants and it doesn’t know where they are. That’s why they’re scrambling now to figure out where our vulnerability is. The FDA does inspect these active ingredient plants in China, and they have found some concerns with a number of manufacturing facilities. They go in and they have—it should be a very thorough inspection to meet those standards—And again, that there’s often difficulty in translation, those inspections may not be as long, and of course the Chinese government has to grant a visa to the U.S. Federal employee that’s going to China to conduct an inspection. The other thing I think to think about is picture yourself as, as an inspector in China and you see some problems and you write them up, that could result in a ban on products being exported by that company and they’d be losing a lot of money. It’s just one or two people that stand between that product getting in, leaving that plant or not. The question is with the FDA, with the Chinese company and the Chinese government want that inspector back in China the next time.
Ms. Gao: No.
Ms. Gibson: Do they really want rigorous inspections?
Ms. Gao: So what would they do?
Ms. Gibson: Well that’s a good question.
Ms. Gao: They would deny visas to those inspectors.
Ms. Gibson: Well, we do know that China in the past has not given visas, even though the U S government has requested for more people to be stationed in China to work there. I think the United States and perhaps other countries have to look to a time in the not too distant future where we will not be able to rely on the FDA to do the job on behalf of the American people that we want it to do. I’ll give you an example. Already the FDA and European regulators are having to make trade offs between allowing defective products into the United States and preventing shortages. An example, this is a very important antibiotic to treat a life threatening condition called sepsis. A chemical plant in China exploded and there was a global shortage of this very critical antibiotic. The company built another plant. The FDA went in and the European inspectors, the FDA approved it. The Europeans went in, they also approved it, but they have right on top of the inspection report, and do not meet good manufacturing standards. And they said they did it to avert a shortage. This is the situation we are now where our standards are being lowered because of the concentration in a single country and that’s simply unacceptable.
Ms. Gao: This has cost American people, right? There have been accidents in America, drug poisoning.
Ms. Gibson: Well, certainly with the Hep—there was a blood thinner that was contaminated. It was done for economic reasons in China and that resulted in the loss—of hundreds of deaths here in the United States in 2007 and 2008. It’s very concerning. And plus the blood pressure medicine recalls that happened went on for months and months and months. There’s some people that don’t want to take their medicine because they can’t trust it.
That’s a very, very terrible situation that we’ve gotten ourselves into.
Ms. Gao: Tell me about the presence of the FDA in China. How many branches do they have? How many offices do they have in China? How many personnel are there?
Ms. Gibson: My understanding is that there’s one main headquarters and that’s by the, affiliated with the U S embassy and the number of staff. It’s very hard to get that information as to how many people are actually there. How many are inspecting food versus how many are inspecting medicine plants. It’s pretty much well kept secret. One figure I saw recently—
Ms. Gao: Why is it secret?
Ms. Gibson: That’s a good question.
Ms. Gao: I mean, why do you know it’s a secret? Because you wouldn’t be able to get it?
Ms. Gibson: We should have a lot more transparency about this whole marketplace. You know, if you think about it, the United States and other countries don’t have shortages of anything. That’s because we allow the market to work and if you pay people a fair price, they’ll make product for you, whether it’s food, clothing, whatever. But we have shortages of vital medicine in the United States. I just got an email from a physician who said that, here’s a list of about 30 medicines that are needed to treat newborns and their moms when they’re in the hospital and they’re in shortage. And what’s the real reason, we’re not really being told the real reason that these are in shortage.
Ms. Gao: What’s the real reason?
Ms. Gibson: There’s a number of different reasons. One of which is companies that buy from manufacturers, they pay them a very low price to make more profit. And so the companies can’t do it well. And if one plant shuts down, then we have shortages.
Ms. Gao: We’re talking about plants in China—
Ms. Gibson: China, and they could also be in other countries as well. It’s not just China. Okay, and we also have shortages, just because of this concentration, because China’s aim in becoming the pharmacy to the world is to have a small number of very large companies making medicines for the people at home and for people around the world. And that concentration just doesn’t make sense. You know, we wouldn’t have 80% of the world’s oil sourced from a single country, nor have 80% of the refining capacity in a single country. That’s what we have with our medicine supply globally, every country. We need to change that.
Ms. Gao: Do you think China could weaponize the ability to produce 80% of the world’s drugs and vitamins?
Ms. Gibson: Well, we saw what happened with rare earths where China used that as leverage over Japan a number of years ago. So the control of global supply of antibiotics, the control of medicines that are life-sustaining. When you control that, you control the world.
Ms. Gao: Including America?
Ms. Gibson: Including America, you can call up the head of state, the president, that’s huge leverage. We have to de-leverage it.
Ms. Gao: What does it take to change that? Does it take a lot of the effort? Does it take a long time to change that?
Ms. Gibson: It took us a long time to get here and it’s going to take a while to get us back. We have to make a strategic decision certainly in this country. And that is do we want to continue down this path? And that path is going to be increased dependence and that path will be another coronavirus or something like it in years to come or natural disaster. My term is it will hit the fan someday and it will be devastating. And I, and I hope, I hope it doesn’t happen. I’m talking, you know, another event that could happen five, 10 years from now or sooner. I don’t want that to happen to our country.
Ms. Gao: Right. So if China controls the production of the 80%, 90% of the antibiotics, if there is a outbreak—
Ms. Gibson: Absolutely.
Ms. Gao: In the U.S., China can definitely, absolutely weaponize that. Right?
Ms. Gibson: These are medicines used to treat pneumonia, ear infections in children, last, last resort, antibiotics to treat very, very serious antibiotic resistant bacteria. So, that’s one way. But what do we need to do here? We need to try to bring some of that manufacturing back home and to create jobs, revitalize communities, share product with other countries that may not have that same investment capability or large enough market and other countries ought to be doing the same thing. Australia, Europe, Canada, and Brazil develop their own manufacturing capability. It’s going to take a while because that whole industrial base, a lot of it’s just been wiped out and we have to do this quickly to ensure that we have the people who still have the knowledge and skills to make these medicines are still around to do it for us, and to teach the next generation.
Ms. Gao: Okay, so we are risking not even having the people around?
Ms. Gibson: We need the workforce to be able to make our medicines.
Ms. Gao: Another thing is the Chinese government has the ability and probably the will to weaponize this, but the Chinese people are the victims as well the melamine contamination.
Ms. Gibson: Absolutely.
Ms. Gao: So thousands of Chinese babies were infected and then, and some of them killed. So this practice is not helping the Chinese people as well. I just don’t think this whole system can last. What’s your opinion?
Ms. Gibson: I think you’re right that many Chinese people suffer from substandard medicines and people die. What we’re seeing now is China cracking down. They arrest a lot of people in China after the vaccine scandal. So they’re taking a harder line on it. The strategy, the Chinese government is to sell medicines in the United States and to tell the Chinese people, well, Americans are taking our medicines than it must be good, good enough for the people of China. I do think China is working hard to ramp up the quality of production. There are some, you know, Western standard manufacturing plants in China. To its credit, it’s moved up quickly, but that has to be consistent and across the board, it’s also the case that China is getting rid of some of the, what I’ll call the rogue suppliers, but it still has a long way to go. I think the challenge we’re going to see is that there’s the notion of export quality. In some countries, export quality means you export your best. I’ve heard from two people in the pharmaceutical manufacturing sector in Western countries saying export quality from China means actually lower standards, that they don’t care what they send.
Ms. Gao: Last question. Do you think the Trump administration or Capitol Hill is on top of this problem?
Ms. Gibson: I’ve been very impressed that the first recommendation I have in China RX is that there’d be a whole government review of our vulnerability. And I can say with certainty that that is absolutely underway. Now the challenge is, what are we going to do? Will we bring some manufacturing back home? The market itself won’t do that, so we may need some public investment to help jump start production here in the United States. And I hope that happens. We don’t have to make everything but we need some level of self sufficiency.
Ms. Gao: So you are essentially talking about not replacing China with India, but moving all the manufacturers home.
Ms. Gibson: Well I think, India is going to have a tough time in the future trying to compete with China. About 70% of the core ingredients that India needs for its industry…
Ms. Gao: It’s from China?
Ms. Gibson: Right.
Ms. Gao: So they’ve got a problem.
Ms. Gibson: So even India is dependent on China, and I think because China subsidizes its industry and can undercut, I think India should watch out very carefully. China could overtake India in generic drug production.
Ms. Gao: Just like what happened—
Ms. Gibson: In the ingredient market, exactly right.
Ms. Gao: Okay. All right, thank you so much.
Ms. Gibson: Well, thank you so much for having me, Simone. It was a pleasure to talk with you.
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