When medicine becomes a strategic industry

The medicines that sustain modern healthcare are often manufactured thousands of kilometers from the patients who depend on them. In the United States, 69% of generic drug products are manufactured overseas, according to the Food and Drug Administration (FDA), while only 9% of manufacturers of active pharmaceutical ingredients (APIs) are based domestically. India accounts for 44% of these manufacturers and China for another 22%.

Such dependencies have acquired geopolitical significance as trade restrictions, conflicts and manufacturing disruptions threaten supplies of essential medicines. Governments worldwide are investing in domestic manufacturing capacity, offering financial incentives and reconsidering procurement policies to reduce their exposure to foreign suppliers.

Yet pharmaceutical self-sufficiency carries economic risks of its own. Manufacturing medicines domestically can require substantial investment, while higher production costs could undermine the affordability of treatments already vulnerable to shortages. As governments pursue greater control over pharmaceutical supply chains, they face a difficult calculation between securing essential medicines, maintaining competitive prices, and preserving access for countries unable to finance comparable industrial policies.

The geography of pharmaceutical dependence

Modern pharmaceutical manufacturing operates through an international division of labor. A medicine assembled and packaged in one country may contain active ingredients produced elsewhere, using chemical intermediates sourced from several additional markets. Expanding domestic production of finished medicines therefore does not necessarily eliminate exposure to disruptions abroad.

The Organization for Economic Cooperation and Development's (OECD) September 2026 report, Strengthening the EU's Medical Supply Chains, examined suppliers of injectable corticosteroid ingredients.. Among 20 identified companies certified to supply relevant APIs to the European Union in 2024, nine were located in China, six in the EU, two each in India and the United States, and one in Malaysia. 

Concentration also exists within domestic markets. Despite 84 companies selling injectable corticosteroids across the EU, individual national markets typically depended on just one or two suppliers per molecule.

The return of industrial policy

Pharmaceutical manufacturing has become a priority for governments seeking greater control over industries considered essential to national security. In Europe, the proposed Critical Medicines Act would support strategic manufacturing projects through financial incentives, accelerated permitting and procurement reforms intended to strengthen regional supply.

India's Production Linked Incentive scheme similarly encourages domestic manufacturing of previously imported pharmaceutical ingredients.

By March 2026, the Indian government reported cumulative investment of ₹5,070 crore (approximately $546 million) across 48 approved projects, exceeding initial investment commitments. Manufacturing capacity had been established for 28 targeted pharmaceutical ingredients and intermediates, although only 18 had entered commercial production.

Similar ambitions are emerging in the Middle East. In January 2026, Saudi Arabia inaugurated a pharmaceutical manufacturing facility in Jeddah with planned investment of 650 million riyals ($173 million) and an annual production capacity of up to 450 million units. The project supports pharmaceutical localization and industrial diversification under Vision 2030.

Government incentives can encourage investment, but new facilities do not guarantee sustained production, competitive prices or independence from imported inputs.

The economics of security

Domestic pharmaceutical production can reduce geopolitical risks but requires specialized equipment, regulatory approvals, skilled workers and reliable chemical inputs, while competing against established international manufacturers.

Such expenditures are particularly difficult to justify for older generic medicines, where low prices and narrow profit margins can discourage manufacturers from maintaining additional capacity.

Moreover, domestic manufacturing does not eliminate the commercial and regulatory problems responsible for many shortages. The European Court of Auditors' 2025 report, Critical Shortages of Medicines, recorded 136 critical shortages across the EU between 2022 and 2024. Its investigation identified manufacturing difficulties, unexpected demand, commercial decisions and regulatory fragmentation alongside dependence on overseas suppliers.

These findings complicate the assumption that bringing factories home necessarily guarantees reliable access. Supplier diversification, strategic reserves and coordinated procurement may strengthen supply security without requiring governments to replicate entire pharmaceutical industries domestically.

The global cost of self-sufficiency

The implications of pharmaceutical localization are particularly significant for developing economies, where access to affordable medicines often depends on internationally competitive generic manufacturers.

International pharmaceutical trade remains substantial even as governments seek greater domestic control. According to Eurostat's April 2026 figures, EU pharmaceutical exports reached €366.2 billion ($429 billion) in 2025, up 16%, while imports rose 21% to €145.7 billion. International production networks have enabled countries to obtain medicines and ingredients without independently developing every stage of pharmaceutical manufacturing.

Efforts by wealthy governments to prioritize domestic supply could complicate these arrangements. Under the European Parliament's January 2026 position on the Critical Medicines Act, manufacturers receiving public financial support would be expected to prioritize European supply, with proposed provisions allowing restrictions on certain exports during shortages. Such measures could protect domestic supplies while restricting access elsewhere, depending on implementation, alternative suppliers and whether new investments expand global production.

For developing countries, regional manufacturing partnerships may offer a more economically viable route toward greater independence than attempting to reproduce entire pharmaceutical supply chains nationally.

Ultimately, pharmaceutical security requires more than relocating factories. Governments must determine which medicines warrant domestic production, where international cooperation offers greater resilience and how the costs of additional capacity should be distributed. A more geographically concentrated domestic industry may offer political reassurance without necessarily delivering more reliable or affordable medicines.