In 2016, this chemical factory in Shandong, China exploded.
You probably didn't hear about it.
Unlike the Tianjin explosion a year earlier,
which killed 173 people and made international headlines,
the Shandong explosion barely made national news.
No one died.
But its ramifications were felt everywhere.
This factory was the single producer of the ingredients
that make up a key drug called piperacillin, one type of penicillin antibiotic.
After this explosion, there was a global shortage of the drug.
Global drug shortages happen all the time, for lots of reasons.
A big part of it is how much the world's pharmaceutical industry has come to rely on China.
China is the largest producer of APIs: active pharmaceutical ingredients,
which are the main ingredients in drugs.
When supply from China is disrupted,
whether that's from factory explosions (there have been others),
environmental policy changes,
and even the 2008 Beijing Olympics,
the impact is felt around the world.
And probably the worst disruption the world has seen just happened.
Covid-19 challenges an already-vulnerable global drug supply chain
at a time when the world needs it the most.
And the implications of that could change how our drugs are made.
- If you're putting all your eggs in one basket, relying on drug supply from one country,
and that one country fails, immediately we're in all sorts of trouble.
We're traveling around the world to see
how China's growing superpower is changing our everyday lives.
I'm Isabelle Niu for Quartz.
You're watching Because China.
- Where are our drugs made?
The answer to that question is surprisingly complicated.
Take this bottle, the company on the label is American,
but that doesn't mean the drugs are actually made here.
The pills themselves could have been made in any number of countries,
like India, Israel, or Ireland,
with the active ingredients and chemicals usually coming from China.
- The supply chains that I've been working in for the last 25 years have been truly globalized.
This is Damien Holly,
head of supply chain at Novartis, one of the largest drug companies in the world.
- We've got people based in all the major countries all over the world.
A globalized system for drug manufacturing makes a lot of sense.
It's economical, more efficient, and in theory, it's less risky.
If multiple regions produce the same chemicals for drugs,
we're covered if something happens in one of them.
So how did we get here, where just one country,
China, has become such a critical link in global pharmaceutical manufacturing?
- For China, the process began in 2000.
This is Yanzhong Huang.
He's an expert on global health policy.
He says China produces most of the world's APIs
for the same reason it manufactures a lot of our stuff: it's cheaper.
- China has cheap labor. And this labor, actually skilled labor, the material is also cheaper.
But it's not just about costs.
There are looser environmental laws and regulations for factories and government incentives.
Factories that meet US and European standards are rewarded with subsidies.
All of this quickly propelled China to become the world's largest producer of APIs.
Huang said in recent years, Chinese pharmaceutical factories
have supplied the active ingredients for more than 90% of US antibiotics
and the majority of acetaminophen.
- But it's not that everyone was okay with this.
Politicians, health experts, and even pharmaceutical companies
have been ringing the alarm bells.
But China's dominance in the API market remains unchallenged.
And then in January of 2020, as a novel coronavirus first emerged in Hubei,
which is China's third-largest province for API manufacturing,
concerns turned to panic.
According to one Chinese news source,
44 facilities that are certified to supply API to the US and Europe are located in Hubei.
Most of them were shut down as China tried to contain the epidemic.
And as the virus spread, China suspended business operations nationwide,
affecting almost all drug manufacturers in the country.
This is a US senate roundtable where the topic came up.
- What we've identified through this episode, is a critical choke point
in the supply chain for pharmaceuticals and some critical pharmaceuticals.
And so it calls into question whether or not we have the right policies.
India, another major manufacturer of generic drugs
that relies on China for the starting chemicals,
decided to temporarily restrict export of 26 APIs and drug formulations,
including critical antibiotics.
- I don't ever remember seeing anything like that before in my career.
Many Chinese factories reopened by mid-April, but disruptions had happened.
In the early days of the outbreak in China,
the production of APIs dropped by as much as 20%.
And as Chinese factories are resuming production,
shipping APIs still a problem as much of the world deals with the pandemic.
- There we go. That's perfect. Great.
This is Andrew Hill, a senior research fellow at Liverpool University.
- It's made people really find alternative supplies if in this nightmare scenario,
you just run out of drugs from your normal supplier.
- But finding alternative sources, is actually not that easy.
For one, we don't actually know how much China's response to Covid-19 affected the global drug supply.
And that's because companies consider their API manufacturers to be proprietary information.
Even regulators don't have the full picture of where drugs' ingredients are coming from.
In February, the FDA announced that at least one drug
was in short supply because of Covid-19 in China.
But it didn't say which drug, because naming it reveals supply chain trade secrets.
- We're concerned about supplies of antibiotics because we need them to treat infections.
Particularly concerning right now, are drugs that are used to treat severely-ill Covid-19 patients.
And again, we don't know where a lot of those drugs are made.
This is Michael Ganio.
He's the senior director of a pharmacist association that tracks ongoing shortages.
He says the murkiness of the drug supply chain makes it hard to prevent shortages before they happen.
And pharmacists have learned to cope over the years
by providing patients with the safest alternative drugs.
- Pharmacists, unfortunately, have become very good at managing drug shortages.
It's kind of become part of our way of life.
- Transparency is part of the problem.
Another has to do with cost.
The drugs that are most at risk of supply disruptions are generic drugs.
And generic drugs are cheap.
- You know, we've got antibiotic tablets that are cheaper than chewing gum,
and we've got antibiotic injectables that are cheaper than a cappuccino.
Because profit margins are so low on generic drugs,
companies often don't spend extra money to build redundancy into their manufacturing process.
- Companies come together, and eventually you end up with one supplier.
That's not really where we want to be.
Covid-19 has prompted some efforts to reduce the industry's reliance on China.
In March, US lawmakers introduced a bill to invest $100 million
to incentivize companies to make APIs in America.
- We need something to bring those operations back.
Sanofi, a Paris-based drug maker, is banding together
several manufacturing sites across Europe to increase their own API production.
- Experts we talked to said the answer is not to reverse globalization.
Is it possible to go back to a less-globalized pharmaceutical supply chain?
- Well, it's difficult...
- Unrealistic...
- Unimaginable...
- It's more about correcting a trend that has gone too far in developed countries.
API production is one of the most polluting industries in the world.
So developed nations moved a lot of their manufacturing overseas,
first to Eastern Europe, then India and China.
A pandemic has put this trade-off in a new light.
In the worst-case scenario, even the wealthiest countries in the world
might not be able to buy life-saving medications.
And most of them don't currently have the capacity to make the drugs themselves.
- It's unrealistic to have every country making every drug for their own patients.
But there has to be a happy medium here, where you rely on particular other countries,
but you have a fallback position where you have manufacturing capacity in your country
in case things really start to fail.
It's something that just needs to be discussed in a very cooperative way between countries
because we're all... we're all in this together.