Recent tariff policies have brought long-overdue attention to America’s deep dependence on foreign pharmaceutical ingredients. For companies like On Demand Pharmaceuticals (ODP), they mark a potential turning point – one that could ultimately support domestic manufacturing. But in the short term, they also pose real challenges, especially for startups and smaller firms working to build the U.S. supply chain from the ground up.
Today, most raw materials used in chemical synthesis are manufactured in China. These commodity chemicals are transformed into specialty building blocks, often shipped to India where they’re further processed into active pharmaceutical ingredients (APIs) – the components of the medicines that provide therapeutic benefits. From there, the APIs are distributed to formulation facilities around the world, some of which are in the U.S. This system has been built over decades to maximize efficiency and minimize cost – not resilience.
Over 80% of the top 100 generic medicines consumed in the U.S. have no domestic source for their APIs. Meanwhile, roughly 72% of FDA-approved API manufacturing facilities are located outside the U.S., concentrated in China (13%), India (19%), and the E.U. (25%).1,2 Domestically, the chemical building blocks required for API production are in short supply, and what is produced is typically tied to oil and gas byproducts or agriculture. The U.S. currently lacks the infrastructure for large-scale API manufacturing or sterile drug formulation of generics at meaningful scale. And even if it existed, factors like higher labor costs, rigorous safety regulations, and strict environmental compliance make it nearly impossible, to compete with countries that have optimized their economies for chemical production.1
China has mastered loss-leader tactics. In some cases, it’s cheaper to buy an intermediate chemical from China than to make it yourself from raw materials, even if you already have the labor and equipment. That kind of pricing power is designed to undercut, not to cooperate.3
The challenge is even more urgent for sterile injectables. Most U.S. drug shortages aren’t caused by missing APIs – they’re happening because the finished drug, often a generic IV medication, is no longer being produced.4 Aging facilities, razor-thin margins, and voluntary market exits all contribute to a fragile system that often leaves hospitals scrambling. In Q1 2024, the U.S. experienced a record-high 323 active drug shortages, most involving generic, low-cost, sterile injectable medications, including critical chemotherapy agents.5
Hospitals are under immense pressure. One study found that U.S. hospitals spend over $360 million annually in labor costs alone just managing drug shortages.6 Drug shortages and supply chain disruptions contribute significantly to escalating costs, inefficiencies, reduced access, and compromised patient care.
We believe there’s a better way forward – but not by replicating the past. Rebuilding the generic drug supply chain will require new tools, new partnerships, and a fundamentally different approach to manufacturing. Rather than large-scale centralized plants, we envision a distributed network of small, modular, regionally based facilities. These agile sites would be reconfigurable, and able to produce multiple medicines with fewer people. Not fully automated, but smarter and more responsive. The goal isn’t to recreate the old global supply chain on U.S. soil. It’s about creating something better that suits today’s needs: scalable, adaptable, and resilient.
Public-private partnerships will be essential. Federal, state and local incentives can help attract manufacturing nodes to underserved areas. The FDA, widely regarded as the global gold standard, has a crucial role to play beyond regulation. Programs like its Emerging Technology Program7 are promising, but we need more. We believe the agency should be brought to the table more directly as a partner, tasked with helping identify and streamline regulatory pathways that make this kind of domestic production feasible, not just compliant. The Commerce Dept and Department of Defense can also play a massive role by investing in R&D to improve API production – reducing waste and cost, in infrastructure to create a nationwide production network, and finally, purchasing medicines that have more stringent country of origin production requirements.
Some may argue that reshoring isn’t economically viable. That may be true – if we keep trying to manufacture generics the same way we have for decades. We believe new companies, unburdened by legacy systems, are better positioned to innovate. Big Pharma still has a role to play in this transition, especially when it comes to technology transfer. As their products go off-patent, they could partner with distributed manufacturers to rapidly onboard generics into domestic production, shortening timelines and sharing valuable process knowledge. The government could also apply tax incentives to compel the transfer of processes to U.S. centric producers.
Recently announced potential tariffs not only target APIs and intermediates, but now also include finished pharmaceutical products, marking a significant shift in U.S. trade policy. While tariffs on upstream materials have long been a challenge, this expansion changes the landscape entirely, adding new pressure across the supply chain, from raw materials to the final dosage form. 8 The potential tariff burden remains uncertain but rising costs are starting to emerge. Over-the-counter medications like pain relievers and antibiotics are expected to become significantly more expensive due to tariffs on Chinese imports.8 Experts warn this could lead to access issues and stockouts if alternative suppliers aren’t quickly identified. These ripple effects could worsen the very shortages we’re trying to solve.
If we want to be serious about domestic production, tariffs aren’t enough.9 We need a comprehensive strategy that includes:
- Strategic reserves of essential generics, such as the Strategic Active Pharmaceutical Reserve (SABIR)10,
- Demand guarantees through offtake agreements,
- Equipment reshoring incentives, and
- Reimbursement models that reward hospitals for sourcing resiliently.
The Strategic National Stockpile, for instance, was a key component of the nation’s COVID-19 response. While it faced complex challenges and received criticism, it underscored the scale and adaptability required to prepare for future health emergencies.
What does success look like five years from now?
ODP’s decentralized network with multiple API manufacturing nodes across the U.S. capable of producing APIs at the kilo scale, supported by a network of flexible formulation facilities ready to make the finished drugs. A transparent, responsive supply chain directly connected to health systems and the FDA. A model where excess capacity in one region can flex to meet surges in demand. A network that doesn’t just serve the largest buyers, but also reaches VA hospitals, rural clinics, and low-income communities that often suffer the most during shortages.
America has the ingenuity. It has the talent. And it has the need. Now it’s time to invest in and build the right kind of infrastructure – not to protect the past, but to power the future of medicine.
References:
- https://apicenter.org/wp-content/uploads/2025/03/APIIC-White-Paper-2025-Building-a-Resilient-Domestic-Drug-Supply-Chain.pdf
- FDA testimony to Congress, 2020. https://www.fda.gov/news-events/congressional-testimony/safeguarding-pharmaceutical-supply-chains-global-economy-10302020
- USTR 2023 National Trade Estimate Report.https://ustr.gov/sites/default/files/2023_NTE.pdf
- https://aspe.hhs.gov/reports/economic-analysis-causes-drug-shortages-0, https://www.fda.gov/media/131130/download?attachment
- ASHP Drug Shortages Report, Q1 2024. https://www.ashp.org/drug-shortages/current-shortages
- Vizient Drug Shortages Report, 2019. https://newsroom.vizientinc.com/news/vizient-study-hospitals-drug-shortages-labor-costs.htm
- FDA ETP Program Overview. https://www.fda.gov/about-fda/center-drug-evaluation-and-research-cder/emerging-technology-program
- Verywell Health, 2024 Analysis. https://www.verywellhealth.com/tariffs-and-otc-drugs-8785988
- https://www.gao.gov/products/gao-25-107110
- HHS and Phlow Public-Private Partnership Announcement. https://www.hhs.gov/about/news/2021/11/15/aspr-renews-public-private-partnership-with-phlow-advance-domestic-manufacturing-essential-medicines.html