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China's lock on drugs

An employee in protective clothing uses a pair of tweezers as glass vials move along a conveyor on the production line at Guangzhou Pharmaceutical Holdings Ltd.'s Baiyunshan plant in Guangzhou, China.
Qilai Shen | Bloomberg | Getty Images
An employee in protective clothing uses a pair of tweezers as glass vials move along a conveyor on the production line at Guangzhou Pharmaceutical Holdings Ltd.'s Baiyunshan plant in Guangzhou, China.

Two pillars of Trump administration policy – combating the soaring prices for prescription drugs and equalizing the U.S. trade imbalance with China – appear to be on a collision course, drug and foreign policy experts say.

That's because the key ingredients for so many essential drugs, from antibiotics and birth control pills to treatments for cancer, depression, high cholesterol and HIV/AIDS, are purchased from China, says Rosemary Gibson, co-author with Janardan Prasad Singh of a new book called "ChinaRx: Exposing the Risks of America's Dependence on China for Medicine."

China has exclusive manufacturing agreements for drugs for anesthesia, cancer and HIV/AIDS, along with other medicines that "we use every day, not only in hospitals but in our own medicine chests," Gibson says, adding that China is now the world's only source of antibiotics, including the main ingredient in vancomycin, a treatment of last resort that is used by patients who are suffering from infections that are resistant to other treatment.

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"It's a huge dramatic shift and nobody knows about it," Gibson says. "And they're just ramping up. It's all part of a plan that China laid out in its 2025 initiative to become the pharmacy to the world."

President Donald Trump had planned to deliver a long-anticipated speech on prescription drug prices as early as Tuesday, but news reports now suggest the administration will delay the address. It could not be determined whether the delay was prompted by the administration's discussions with Beijing over trade policy.

The United States' trade deficit with China hit a record $375 billion last year, the Commerce Department reported. The U.S. has called for China to reduce the surplus by $200 billion and end state support for President Xi Jinping's Made in China 2025 industrial policy.

If the Trump administration's import policies provoke a trade war with China, Beijing could retaliate by raising prices on or reducing supplies of components needed to make necessary drugs. Pressuring drug companies to find their supplies outside of China could also lead to higher prices, experts say.

"Imagine our being totally dependent on China, which could become our adversary, for all of our medicine including medicine for our military. It's lunacy," says Daniel Slane, a former member of the U.S.-China Economic and Security Review Commission, created by Congress two decades ago to report on the national security implications on the U.S. relationship to China.

The White House, the Food and Drug Administration and Pharma, the trade association that represents drug manufacturers, did not respond to U.S. News & World Report requests for comment.

Multinational drug companies, many of them headquartered in the United States, began buying ingredients for critical drugs in China after the U.S.-China Fair Trade Agreement passed nearly two decades ago. State-owned Chinese companies, buoyed by heavy government subsidies, set their prices so low that they were able to undercut established manufacturers in the U.S. and elsewhere, prompting them to shut down their plants and move their operations to China, the authors say.

"China offers (drug companies) incentives for transferring their production from here to there, and they're doing it," says Pat Mulloy, a trade lawyer and former assistant secretary of the Department of Commerce.

Gibson's and Singh's book offers examples of "companies pivoting east":

• Johnson & Johnson, based in New Brunswick, New Jersey, announced 4,800 job cuts in 2007 and 8,000 more in the U.S. and abroad two years later, the authors say, as it was preparing to open a new Shanghai-based research and development center in 2009. "We see this as a way to move from bringing great products to China to actually discovering and developing things in China," the company's CEO, Alex Gorsky, told the Wall Street Journal in 2015.

Pfizer laid off more than 2,000 researchers, more than half of whom were at the firm's research laboratory in Groton, Connecticut. "One of the casualties of the 2011 layoffs was Groton's antibiotic research program, which was reportedly moving to Shanghai," the authors write in "China Rx," citing local news reports that described it as "the first wholesale move of a major U.S. pharmaceutical research unit to China."

Shifting production to China has made millions for the companies and their shareholders but hasn't trickled down to U.S. consumers, who are still paying more than consumers anywhere else in the world for their drugs. "The drug companies don't care about the United States," Slane says. "They only care about profits."

The safety of the U.S. drug supply is another concern, because the Food and Drug Administration lacks the funding and personnel to inspect Chinese factories, which may be forewarned of the inspectors' arrival. The most terrifying example involved a contaminated blood thinner, called Heparin, distributed by Baxter laboratories in 2008, which killed 81 people and sickened nearly 800 more.

The FDA identified Changzhou SPL, a Chinese subsidiary of Scientific Protein Laboratories, as the source of the contaminated drug.

Slane called the U.S. dependence on Chinese drugs a national security concern, noting that recent Chinese militarization doesn't inspire confidence.

"They're rapidly getting on parity with us in fighter jets, submarines and missiles," Slane said. "They have satellites that can take out our GPS systems. They have taken over islands in the East and South China seas that belong to Vietnam, the Philippines and Japan. They are militarizing the islands with missiles. Their intent is to push us out of the eastern Pacific."

"You don't have to be a military expert to see where all this is going," he says. "In light of all that, now we're dependent on (the Chinese) for our drugs?