The Journal. - The Quest to Save American-Made Antibiotics

Episode Date: July 25, 2024

USAntibiotics's plant in Tennessee is one of the last plants in the United States that makes amoxicillin, the crucial antibiotic that has been in shortage in some forms since 2022. But the plant isn��t breaking even, financially. WSJ’s Liz Essley Whyte reports on why it is so hard for American-made generic drugs manufacturers to survive. Further Listening: - Will Florida’s Plan to Get Cheap Drugs From Canada Work?  - Trillion Dollar Shot  Further Reading: - Drug Shortages in America Reach a Record High  - Drug Shortages Trigger FTC Probe  Learn more about your ad choices. Visit megaphone.fm/adchoices

You may know the antibiotic amoxicillin. It's used to treat everything from ear infections to pneumonia. The commonly used kid-friendly version is often bright pink and flavored as bubblegum. And certain versions have been facing a shortage since 2022. There is an amoxicillin shortage hitting pharmacies across the country. We're learning some parents in our area are actually having to check with several pharmacies in order to get a prescription filled. Three of the top four makers of the antibiotic amoxicillin are reporting supply constraints here in the U.S.

One of the reasons it's experiencing a shortage is because making a profit on a generic drug like amoxicillin is difficult here. So many of these generic drugs are now manufactured overseas. In fact, there's few factories left in the U.S. that make amoxicillin. One of them is in Bristol, Tennessee, and it's been struggling to stay open. The plant was shut down, you know, couldn't afford hardly electricity and so forth like that. I was shocked that I didn't know about it. But I'll also tell you, I don't know of anyone in healthcare that knew about it.

That's Rick Jackson. He's the CEO of a healthcare staffing company. But in 2021, he went out on a limb and bought the approximately 360,000 square foot Bristol factory after its previous owner declared bankruptcy. I was thinking, and I told my son later, I don't think I could live with myself knowing I can do something about it to save it. I don't think I could live with myself knowing how critical that was.

So I decided right then that we were going to bid on it and try to save it so that we can have this, you know, critical capability in the United States. Since then, Rick has led a three-year long effort to save this plant. And his struggle shows just how hard it's become to revitalize American drug manufacturing. Welcome to The Journal,

our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, July 25th. Coming up on the show, Americans need this antibiotic. Why is it so difficult to make it here? Whether you're practicing your morning breath work, waiting for your favorite artist to come on stage, or running errands at the perfect pace, Liquid IV Powder helps you turn ordinary water into extraordinary hydration, so you can live a more extraordinary life.

Live more with Liquid IV Hydration Multiplier, available in refreshing lemon, lime, passion fruit and strawberry flavors. Buy a stick in store at Costco, Walmart, Amazon, and other Canadian retailers. Amoxicillin is one of many drugs currently in shortage. These include big brand-name drugs like Ozempic and Adderall. But some of the hardest- hit medications are generic drugs. In April, it was announced that shortages hit an all-time high. Over 320 medications were in low supply. Big picture, why is this happening?

That's a great question. That's our colleague Liz Esley-White. The most consensus that I've heard is that it's just really hard to manufacture generic drugs right now, especially in the United States. And so we end up having these really spread out supply chains. A lot of our active ingredients come from other countries. And if one thing goes bad in one factory, it's not like you can just snap your fingers come from other countries. safety issue, like a health issue, as in if you have to delay your chemotherapy because the drug isn't available, like that impacts your health, you know. And it's also a national security issue,

I think. There's a number of lawmakers who are talking about this in terms of national security and who want to start to think of solutions. Some of those issues were on Rick Jackson's mind when he decided to buy the amoxicillin plant in Bristol, Tennessee. He was especially concerned by the fact that the critical ingredients for the antibiotic now come mainly from China. I felt like it that I needed to do this.

If the plant closed, if it was permanently closed, which was definitely one of the options, just sell off the pieces and so forth, it would take three to $400 million to replace it. And I'm sitting here saying, if I let this go, we have no capability in the United States to do this, and we're 100% reliant on importing goods from other people. So I felt the responsibility to do that.

It's an internal responsibility and we have that capability, so that's why we pursued it. For decades, the Bristol plant was the main manufacturer of amoxicillin in the U.S. It was originally owned by the British drug company, Beecham. Later, through a series of mergers, Beecham became part of the pharmaceutical giant GlaxoSmithKline. And the plant continued to thrive.

For a long time it was a major employer in the region. This plant was making hundreds of millions of doses a year. At one point in the 2000s, it was supplying nearly every dose of amoxicillin used in the US. But the fortunes of the plant started to change in 2002, when amoxicillin's patent expired, which means other companies could also make the drug. And that's when things really shifted.

They started to face a lot of competition from generic drug makers, and so they had to lower their price. And that just ended up really hurting their business. They whittled staff down to 48 when they had had about 400 people working there previously. GlaxoSmithKline eventually sold the factory, and by 2018 it was in the hands of Neo Pharma, a company out of the United Arab Emirates.

And so, okay, they're dealing with the generics competition, they're dealing with manufacturing overseas that's undercutting their business model, and how do they stay afloat? hey, they're dealing with the generics competition, they're dealing with manufacturing overseas that's undercutting their business model, and how do they stay afloat? Well, it's kind of a sad continuation of a series of layoffs until finally in 2020, the plant owner at the time, NeoFarma, decides it just needs to go into bankruptcy.

It's in danger of having the electricity shut off and it's missed payroll twice. And so it goes into bankruptcy and it still has the plant electricity turned on, which means it's kind of in this dormant state. So it's not totally shut down, but it's not making anything. Neopharma didn't respond to requests for comment. That could have been the beginning of the end for the plant, but a few former employees stepped in to keep the plant on life support, even though they weren't paid anything.

They were lab workers who came in and tested the supplies that were there from the batches that had already been sold. And this was very important work because if they hadn't done this, all these pharmacies that had amoxicillin from this plant would have had to throw it out and it would have made the shortage worse. It was at that point around 2021 that Rick Jackson heard about the plant for the first time. It was from a trustee that I had dealt with in some bankruptcy, other bankruptcy projects. And he called me and said, I've got a situation.

The judge has just pointed me to sell off an asset. And he said, I think you ought to take a look at it. He said, but the problem is, and this was on a Wednesday, he said the bid is due next Wednesday. So the timeframe and the sense of urgency was unreal. Okay, so let me see if I get this straight. It was March of 2021 on a Wednesday. You got a call that there was an investment opportunity in this plant and you had one week to decide

whether you wanted to put money in it. And then it hit home for you that antibiotics in the US are made primarily overseas. And so you were like, I think this is a sign that I should invest in this factory. I don't know what it was, but it certainly changed it. And so I went to go see the people and the plant on that Sunday. It was a day trip. And to investigate and ask. Rick was moved to buy the plant and he decided to give it a patriotic name.

How did you decide on the name U.S. Antibiotics? I like names that tell you what you do. And so, you know, like the best name ever back in the dot coms was drugstore.com. We needed to position that this is USA or American made. So we named it USA because we felt like it was a patriotic issue. So we just felt like it was a name that told people what we do and that it was a US manufacturer. But naming the plant was the easiest part of Rick's rescue operation.

The bigger challenges he faced, that's after the break. Your teen requested a ride, but this time, not from you. It's through their Uber Teen account. It's an Uber account that allows your teen to request a ride under your supervision with live trip tracking and highly rated drivers. Add your teen to your Uber account today. Rick Jackson bought the Bristol plant for over $8 million. Then he got to work. How much did you expect to spend on this venture?

Like, what was your budget for this rescue operation? I didn't have a budget per se, but I represented that. I thought it would be at least $25 million before we would turn the corner. That number now is at 50. And so, you know, I looked at this project, what I call as, this is a bad business deal. I knew it up front. There was no surprise about that. Making generic drugs in the United States is, you can't be competitive with China and India.

We don't have the labor situation and the cost and so forth is totally different. So I knew that this was going to be a tall hill. But Rick was up for the challenge. He brought on a former drug executive to evaluate the factory. He also rehired a bunch of old staff. And so we started out, we hired each person that we needed, almost everybody that was on the payroll,

the previous August, I think. And then just started a plan of just turning things back on, getting equipment right, cleaning the equipment, all this kind of stuff, to get it turned back on. But we were prepared to do whatever it took. The plant is now churning out a million doses of amoxicillin a day, and it's bringing in more money than it did under its previous two owners.

But three years in, US antibiotics still hasn't made a profit. And it's partly because of the math. Amoxicillin is cheap. US antibiotics sells it at about $5 a unit to compete with overseas generics. But it costs the company about $4 to manufacture That $1 margin just isn't enough for the company to pay for its overhead and make a profit Why is it so hard to make a profit off of something so many people need? And because our price is not as competitive as India and China And we're not going to sell something at a loss.

We're just not going to do it. We're not going to be buying market share and so forth like that. So it's a cost of goods and then manufacturing costs with our labor and so forth, which has gone up in the last few years, as you know. But we can't operate on a good margin. We just have to have more sales. We're making a lot of progress on that front on the commercial side, though, but it needs to be accelerated.

And one of the big ways sales could be accelerated? Here's Liz again. Rick has said that USA Antibiotics needs to either double its commercial sales or line up the US government as a customer to really make it work. needs to either double its commercial sales or line up the U.S. government as a customer to really make it work. How would the U.S. government be involved? Well, there's several things that they could do. There's some different grant programs and other things that could be helpful probably to the plant. But they could also just say, you know, hey, we want to buy a certain amount from you.

And that would give USN Ambiotics kind of just like this cushion of sales that it knows that it has and would be super helpful for making the numbers work. Is that something the government typically does? So we buy drugs and put them in the strategic national stockpile. The Biden administration has also said that it would like to use the Defense Protection Act to tackle the issue of drug shortages by encouraging more domestic manufacturing of essential medicines. Last week, the Department of Health and Human Services announced that it was going to award

$17 million in contracts to start making more pharmaceutical ingredients in the U.S. None of that money is going to the Bristol plant. Have you ever second-guessed the decision to buy the plant? No. I've not second-guessed the decision. I knew that it would be a loser, but I kind of consider this as venture philanthropy, to be honest. It was necessary for the United States, I thought, being in health care, giving back

to health care. So I just felt like it was important that we saved it. Now, you know, we're not doing this to subsidize it forever or to lose money. We don't do that. So I don't do that. But so I don't I don't regret it. Am I frustrated by, you know, some not getting any traction and so forth with the, you know, the government paying for it? Yes. What is your threshold when it comes to trying to keep this plant going? Where does it end?

You know, I haven't drawn a line. But if I determine, for instance, in the next year, year and a half, that there is no way that the government will ever buy, I'm going to shut it down. I mean, let's say you are able to turn this plant around and it's running the way it's supposed to. It is still just one plant. How big of an impact can it really make? So we are the backup for this critical drug

and we need to maintain that capability here in the United States. I mean, we go one year, one year without antibiotics, this antibiotic, we go one year without it and the deaths would make COVID look like a sneeze because it is absolutely necessary, especially our children. I mean, anybody that has children knows how much they use Amoxicillin. It is so critical that we need to keep it here. The FDA says it does all it can to try to help alleviate drug shortages. But it can't force new people to enter the market or force companies to make drugs.

In the end, the FDA said it comes down to an economic problem. What would it mean if this plant closes? It would mean that we lose another American manufacturer of antibiotics of a pretty key one. It would exacerbate the shortage that we have for amoxicillin for children. It just means that we're more reliant on other nations for these critical drugs. I think it's really surprising to find out

that we get so many of our drugs that we depend on, that our healthcare system depends on, from overseas and that our supply chains are so vulnerable to the breakdowns that are leading to these drug shortages. And I think it's also just, you know, this plant is kind of exemplifying the hard times in manufacturing that have happened across the country over the last decades and how, you know, it's been really hard to make it work, especially in the generic drug industry.

["The Last Supper"] That's all for today, Thursday, July 25th. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.