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Trump backed a start-up to make drug ingredients on U.S. soil. Its new products rely on foreign supplies.

Phlow Corp. won White House backing to revitalize domestic manufacturing of active pharmaceutical ingredients

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A Virginia start-up that won up to $812 million in federal money, under an early pandemic push by President Donald Trump’s White House to solve drug shortages and create emergency stockpiles by bolstering manufacturing on American soil, is rolling out its first products.

The wrinkle: Some if not all of the drugs contain active ingredients made overseas, a dependency that highlights the real-world difficulties of Phlow’s promise to restore domestic production by building manufacturing capacity.

Phlow was founded in January 2020 and awarded its federal contract four months later. Its stated mission is to produce the “active pharmaceutical ingredients” (APIs) that go into finished generic drugs.

Most active ingredients are made in India and the European Union as generic companies chase lower operating costs and fewer environmental regulations abroad. That has created supply chain vulnerabilities that were revealed during the pandemic, as wholesalers were forced to ration shipments of such drugs as antibiotics, antivirals and sedatives for patients on ventilators. Shortages of antibiotics, morphine and many other commonly used hospital drugs are a constant source of strain for hospitals.

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The Trump administration held up the Phlow deal in May 2020 as part of its pandemic response to the dependency on foreign supplies. But the timetable for Phlow’s production of active pharmaceutical ingredients was within four years, according to the terms of its contract. Phlow is participating in a $25 million expansion of a partner chemical plant in Petersburg, Va., and construction continues.

In the meantime, Phlow entered a deal in 2021 to sell injectable generic drugs subject to shortages to a consortium of children’s hospitals. Those first four essential drugs — diuretics, steroids, blood thinners and muscle relaxers — are being made on Phlow’s behalf by Fresenius Kabi, a multinational health-care company headquartered in Germany with production facilities in the United States and around the world.

Fresenius Kabi and Phlow would not reveal the specific sources of active ingredients for the drugs, which is typical for global pharmaceutical supply chains. But Eric Edwards, Phlow’s chief executive, acknowledged in an interview that at least some of the active ingredients must come from overseas.

He called the partnership with Fresenius Kabi a “bridging strategy” while Phlow builds its own factory space and equipment to meet its longer-term goal of making bulk drug ingredients domestically.

“Because of our overdependence on foreign sources, the initial programs to support children’s hospitals can’t possibly have 100 percent, U.S.-based sourced API,” Edwards said. “However, there is light at the end of the tunnel because Phlow is moving rapidly from foreign toward domestic APIs.”

Phlow’s first drugs are being finished and filled in vials at two Fresenius Kabi plants, in Melrose Park, Ill., and Grand Island, N.Y., Fresenius Kabi spokesman Matthew R. Kuhn said in an email.

The four generic “sterile injectables” are furosemide, a diuretic; dexamethasone, a commonly used steroid that has been used to treat covid patients; heparin sodium, a blood thinner; and rocuronium bromide, a muscle relaxer. The first three are listed by the Food and Drug Administration as being in shortage in the United States. Rocuronium was last listed as in shortage in 2018.

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“We needed a partner that could help us walk before we run, so to speak, to get finished essential medicines,” Edwards said of Phlow’s relationship with Fresenius Kabi.

Using federal emergency dollars, the Trump administration awarded Phlow an initial $354 million, four-year contract in May 2020, with an option for $458 million more and an increase to 10 years. In addition to building capacity to produce the ingredients, it is supposed to establish a strategic stockpile of bulk APIs for the government. In December, it received an additional $87 million contract from the Biden administration to upgrade systems including improvements to defend against cyberattacks, the company said.

Manufacturing of the chemicals needed to make generic drugs began moving overseas decades ago. The vast majority of finished generic drugs also are made abroad.

The FDA said in a 2019 report to Congress that 88 percent of the manufacturing sites making the active pharmaceutical ingredients in U.S. drugs were overseas.

Factories producing 10 or more active drug ingredients
European Union
United States
Source: U.S. Pharmacopeia Medicine Supply Map

The pandemic highlighted the potential trouble with that reliance. China shuttered chemical factories that make key starter ingredients as part of its attempts to curtail coronavirus infections and stopped sending those chemicals for drug manufacturing to India. India temporarily shut off medical exports in a bid to keep supplies of key drugs and other medical products for its own use.

“The pandemic revealed that we are very over-reliant on foreign manufacturing of medicines that U.S. citizens consume every day,” said Anthony Sardella, a senior research adviser at the Olin School of Business at Washington University in St. Louis who wrote a report last year detailing the severe lack of domestic capacity.

U.S. hospitals inundated with covid patients were sent into frantic hunts for key drugs including antibiotics and muscle relaxers required to intubate patients in intensive care units. Children’s hospitals, which typically do not use large volumes of certain drugs, were hit especially hard when wholesalers based supply restrictions on past use, a process called “allocation.”

“On that allocation amount, we usually get the short end of the stick,” said Eric Balmir, chief pharmacy officer at Children’s National Hospital in Washington, one of the hospitals banding together to buy supplies from Phlow. During the pandemic, the hospital ran as low as a 10-day reserve of dexamethasone, when the typical stockroom supply should be no less than 30 days, Balmir said. Getting more required many phone calls and emails to distributors, he said.

Sometimes, the hospital could get the drug only in a higher concentration meant for adults, he said, which meant the hospital’s pharmacists had to dilute it to the right strength for children.

Civica Rx, a nonprofit corporation formed by large hospital systems to manufacture its own drug supply, is using a network of contract manufacturers. It plans to open its own factory next door to Phlow’s facilities by 2024. Premier Inc., a large group-purchasing organization for hospitals, has also commissioned production of its own drugs for its thousands of member hospitals, including a pediatric cancer drug, vincristine, that was in short supply in 2020, after one of the two producers stopped making it.

These efforts are responding to the same problem: Some generic drugs sell for so little that producers stop making them because they’re not sufficiently profitable. In other cases, only one generic drugmaker is left producing, which limits supply and leads to price spikes.

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Some experts say the lack of API capacity creates security problems for the United States.

Sardella said that Phlow’s efforts were only a small step and that they will take years to pay off. He added that investments and government incentives for existing, unused manufacturing capacity at U.S. plants would be a better solution than financing a brand-new facility, built from the ground up and run by a new company.

“Why wouldn’t they provide the funding to existing manufacturers who have the experience with these things?” Sardella said.

Phlow set itself up as a “public benefit corporation,” which means its mission of easing domestic drug shortages is written into its charter. U.S. House members reviewing Trump’s pandemic response released emails last year highlighting an aggressive push by White House trade adviser Peter Navarro to award the contract to Phlow.

“My head is going to explode if this contract does not get immediately approved,” Navarro wrote in an email to Department of Health and Human Services officials on March 20, 2020. Six days later, he wrote, “Phlow needs to be greenlit as soon as humanly possible. … Please move this puppy in Trump time.”

In an interview Tuesday, Navarro said he was in a tiny minority in government that championed Phlow’s mission.

“The Phlow agreement was really the pinnacle of success of the Trump administration on that front,” Navarro said, “but there has been precious little follow-through.”