Puerto Rico is known as the Medicine Cabinet of the United States for good reason: the territory exports far more pharmaceuticals than any state, has dozens of FDA-approved pharmaceutical manufacturers, and is growing into a major bioscience hub with academic-industry connections. This undoubted capacity faces some obstacles, but pharmaceuticals in the United States will be facing more serious obstacles to continuing reliance on foreign producers. This difficult situation may offer an important opportunity for Puerto Rico.
What’s going on with U.S. pharmaceuticals?
New 15% tariffs on medications from the EU are causing alarm among medical professionals, pharmacies, insurance companies, and patients across the United States. These tariffs could be combined with other tariffs, including the punitive tax on imported pharmaceuticals the administration has been threatening for months. The likely consequences include higher prices, lower access, and supply chain disruption in every state.
Not only do European manufacturers produce many of the most popular drugs in the U.S., including weight loss drugs like Ozempic, cancer treatments, and Botox, they also produce 18% of the basic materials for generic drugs, which account for 90% of drugs prescribed nationally. India is the largest supplier of generic drugs for the U.S. at 20%, but the EU is very close behind. 70% of India’s raw materials for their generic drugs come from China, as do a significant proportion of those used by the EU. Very few generic drugs are finished in the states, and almost none of the basic components are American-made.
When drug companies have to consider whether to raise prices in response to tariffs, as all manufacturers are having to do, they may be willing to cover the costs for the highest priced imported drugs. The profit margins for drugs like Ultomiris and Hemgenix are high enough to provide a buffer during the trade war. Generic antibiotics don’t have that luxury.
U.S. pharmaceutical companies insist that generic drugs cannot be made profitably in the United States. Shortages of generic drugs can be expected to lead to reliance on more expensive brand-name drugs. This in turn may increase health insurance premiums or lead to patients’ being unable to access medications at all, since out-of-pocket costs may be prohibitive.
Why can’t the U.S. make drugs at home?
Labor costs, regulatory costs, and upfront costs for building FDA-approved manufacturing facilities are all obstacles to domestic production. Tariffs are intended to force manufacturers to produce goods in the U.S. and to force U.S. consumers to buy American-made goods. However, the number of pharmaceuticals currently made in the United States is fairly small — particularly when it comes to generic drugs.
There would be quite a lot of time involved in building factories to meet the stringent standards of the Food and Drug Administration, finding and training workers to meet the equally stringent standards for workers in the field, and perfecting the supply chain for pharmaceuticals, which also has to meet stringent standards. Even those Pharma producers who are investing more in U.S. production are predicting that it will take three to five years to ramp up production to meet current needs. That is too long for reshoring to be a real solution to the immediate problem.
What’s more, the cost of producing these drugs in the U.S. is likely to make the drugs more expensive — possibly just as expensive as overseas drugs affected by tariffs. Since the tariffs are probably a self-limiting condition, it may just not be worth a significant investment.
But then there’s Puerto Rico
Puerto Rico is the source for 11 of the top 20 drugs in the world, including Humira, the most popular brand-name drug in the United States. Puerto Rico already has many FDA-approved manufacturing facilities (though estimates of the number range from 20 to 80) and many highly experienced workers. Logistics and infrastructure present challenges, but most manufacturing plants have generators in case of blackouts and Puerto Rico does have a history of innovative responses to logistical problems.
Puerto Rico also has both an unusual number of students and professors in STEM fields and high unemployment compared with the states. This may seem like a mismatch, but many graduates from Puerto Rico’s universities currently tend to leave the Island when they graduate. Reshoring could tempt them to stay. Steady, well-paid jobs could also provide opportunities for the current residents.
If the infrastructure and logistics issues can be solved, reshoring to Puerto Rico could make American-made drugs a realistic option while also helping Puerto Rico to develop the economy and stem the tide of people leaving the Island. Decreased reliance on foreign countries — including adversarial nations — for essential medications would be good for national security. A boost to the Island’s pharmaceutical industry could be a win-win solution.
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