The Food and Drug Administration's postponement of most overseas inspections will financially drain drug and devicemakers and may compromise products' quality, supply chain experts said.
The FDA halted foreign inspections on March 10 through April, except for "mission-critical" drugs and devices like ones that aim to stem the COVID-19 pandemic. While regulators will oversee foreign manufacturing through alternative methods, drug and device approvals will likely be delayed as will inspections of facilities looking to resolve quality issues.
"The financial impact is not just related to getting a product on the market, it is about the long haul of launching a product," said Bethany Hills, a partner at Morrison & Foerster. "The part people really struggle with is if they keep all their sales staff, keep hiring or hold off. How do you tread water and be ready to go at a moment's notice without knowing when that moment will come?"
More drug and device manufacturing have moved overseas, where it can be produced cheaper. China is a major global supplier of surgical equipment, diagnostic devices and medical supplies, reaffirmed by Cardinal Health's recent recall of more than 9.1 million surgical gowns stemming from an unlicensed Chinese manufacturer.
Exports of Chinese diagnostic equipment reached $1.4 billion in 2016, up 37% from 2011, according to a 2018 analysis by the U.S. International Trade Commission. Orthopedic implants rose 189% to $555 million over that span.
As for pharmaceuticals, only 28% of manufacturing facilities that produce active pharmaceutical ingredients are located in the U.S., according to a 2019 testimony by Janet Woodcock, the FDA Center for Drug Evaluation and Research director. The EU provides 26% of ingredients while India produces 18% and 13% come from China, which manufactures the vast majority of generic drug ingredients. The Indian government held 26 APIs amid COVID-19 concerns.
The FDA conducted 966 foreign inspections for pharmaceutical companies compared to 698 domestic inspections in fiscal year 2019.
But many remain unchecked. The FDA has only inspected about half of the 965 foreign manufacturing facilities that had never been inspected as of July 2016, Woodcock noted in her testimony.
"The number of foreign inspections has increased dramatically, and the increasing reliance on foreign manufacturing has become of greater interest to the FDA," said Michael Heyl, a partner at Hogan Lovells.
The FDA will use workarounds as it halts overseas inspections to keep approvals moving. The agency said it will use the manufacturer's past inspection history, any existing mutual recognition agreements and information from foreign governments in lieu of on-site inspections. It will also inspect goods at the point of import. But remote or "desk" audits are atypical, experts said.
The FDA has a mutual recognition agreement in place with the EU and UK but not one with China or India, said Karen Young, U.S. pharmaceutical and life sciences assurance leader at PricewaterhouseCoopers.
"For new drugs or devices manufactured outside the U.S., there could be a delay in the approval of those interventions if the FDA has not yet conducted its overseas inspections," she said.
Several premarket approvals for Class III devices were likely suspended as a result of this order, Heyl said. Those that go through desk reviews raise compliance issues, although there are other measures regulators can rely on, he said.
"There is concern if the investigator is not on-site and seeing the production facility firsthand," Heyl said. "There's a reason why the FDA wants to go to a facility."
Devices are generally more vulnerable to quality issues, particularly when manufacturers have to change suppliers amid a travel ban, Hills said. They are often comprised of 13 to 25 components.
The FDA said it is aware of 63 manufacturers in China that produce devices that are prone to shortage.
"It's a different world. It's a concern to us because we don't know what is going on there," Hills said. Drug manufacturers have to report potential supply disruptions to the FDA, but that doesn't extend to medical devices, she explained.
If the FDA can't travel to an overseas site and close out warning letters or clear a new drug application, that may delay a company's initial public offering or next fundraising round, Hills said.
"This is really driving business decisions," she said.
As far as the April timeline, that will likely be extended, Hills noted. In the meantime, maintaining documentation, quality controls and other processes will be key, she said.
"When you come out of this months later, you don't want to see a mess and have to start all over," Hills said.