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
Post 1: Leapfrogging Infrastructure — What Pharma Can Learn from Telecom
When India wanted to become a service economy, it didn’t build more telephone poles. It leapfrogged into wireless and satellite telecom. In Africa, banking didn’t wait for ATMs or physical branches. It went straight to mobile money. These regions skipped over legacy infrastructure and embraced smarter, faster models.
Why can’t pharma do the same?
America doesn’t need to rebuild 1970s-style mega manufacturing plants. We can leap ahead with modular, distributed, digitally enabled facilities. Plants that are agile, scalable, and closer to where patients actually are. The same way wireless reimagined communication, we can reimagine pharmaceutical production.
It’s not about catching up to the past. It’s about building for what’s next.
Post 2: Tariffs Alone Aren’t Enough — Where Are the Subsidies?
Tariffs are just one side of the equation. Around the world, they’re often used in tandem with subsidies to nurture new industries. Protection paired with investment gives emerging sectors the runway to grow.
In the U.S., we’ve heard a lot about tariffs on Chinese APIs and intermediates. What we haven’t seen is the follow-through: dedicated federal funding, demand guarantees, or tax incentives to make domestic production viable.
If we want to regrow our pharmaceutical base, we need more than penalties. We need purpose-built policy to support manufacturers who are trying to do the right thing.
Post 3: Why We Can’t Just Build Plants Anymore
The U.S. didn’t just off-shore manufacturing. We off-shored the capability to build the infrastructure that supports it.
Tooling. Stainless steel reactors. Custom machining. Control systems. Much of the equipment required to build modern pharma plants now comes from overseas. Tim Cook has noted that Apple manufactures iPhones in China because the U.S. lacks the precision tooling ecosystem.
This is the same challenge we face in pharma. It’s not just about APIs and Drug Product. It’s about rebuilding the full industrial base that supports pharmaceutical manufacturing—or risk remaining permanently dependent.
Post 4: Generic Drugs Deserve Better Policy
Generic drugs make up 90% of prescriptions but only 18% of drug spending. They are essential, yet underfunded, over-regulated, and often misunderstood by the public.
Margins are razor-thin. Facilities are aging. And in some cases, FDA oversight, while critical to safety, hasn’t adapted to support sustainable production.
We need a policy reset. One that recognizes generics not as low-cost commodities, but as national infrastructure.
This isn’t a second-tier sector. It’s the front line of health access.
Post 5: Distributed Doesn’t Mean Disconnected
We talk a lot about distributed manufacturing. But distribution without coordination is just fragmentation.
Programs like the API Innovation Centers NSF program “Reshoring KSM and API Manufacturing Through Innovation” point to a smarter future. Imagine a national network of agile manufacturing nodes, supported by a reserve of critical inputs and a digital coordination layer that balances capacity, quality, and need across the country.
This isn’t science fiction. It’s supply chain modernization. And it’s how we get ahead of the next shortage before it happens.
The future of manufacturing isn’t centralized. But it is connected.