The pharmaceutical and medical technology sectors face a critical challenge: a significant reliance on overseas production for key ingredients and chemical starting materials with insufficient capacity and economic incentive for domestic production. As of March 2021, 73 percent of FDA-registered active pharmaceutical ingredient (API) manufacturing facilities were located outside the United States, predominantly in China and India.[1]
Reliance on foreign production is driven by cost pressures from lengthy product lifecycles, environmental regulations, and foreign state investment, leading to uneven, risky, and hard-to-regulate medicine supplies.[2] Dependency creates a material risk that even a single global event could slow international commerce and create dramatic consequences on the healthcare security within the United States. For example, the FDA recently allowed the emergency import of cancer drugs from China and common antibiotics currently in short supply in the U.S.[3]
Offshore manufacturing also results in periodic, even frequent, medicine shortages while leading to high domestic drug prices, exacerbating racial and ethnic health disparities. For example, Black Medicare beneficiaries are approximately 1.5 times more likely to have trouble affording medications than their White counterparts and about twice as likely not to fill prescriptions due to cost.[4] In addition, women, people with lower incomes, and beneficiaries diagnosed with chronic conditions such as diabetes have higher rates of affordability problems with prescriptions than other groups.[5]
The solution requires a dual approach: first, sustaining a strategic ecosystem to incubating new pharmaceutical companies focused on advanced manufacturing technologies, exemplified by Activation Capital, a leading biohealth tech innovation catalyzer based in Richmond, Virginia; and second, driving rapid growth with the support of a strategic legal partner such as Clock Speed G.C., a fractional in-house counsel firm representing companies in Virginia. This combined strategy ensures both innovation acceleration and robust legal guidance for emerging enterprises.
Ecosystem as a Solution: Activation Capital’s Strategic Approach to Building a Resilient Framework
To address these challenges, there is a pressing need to foster a supportive ecosystem for specialized technology companies within the pharmaceutical research supply chain. Unlike typical investors who seek rapid returns, investments in healthcare technologies require longer horizons and a comprehensive, multi-stakeholder perspective. This means deeply understanding the identity, relationship, and dependencies of the stakeholders. Additionally, sustainability and an active base of technological discovery, invention, and innovation are crucial for a robust and resilient supply chain.
Activation Capital is leading the way with an ecosystem approach that bolsters innovation among technology companies, focusing on strengthening pharmaceutical supply chain security. This includes accelerating the development of an advanced pharmaceutical manufacturing cluster in Central Virginia and offering entrepreneurship programs and lab space for regional startups to launch, thrive, and succeed. This approach recognizes the complexity and interdependence of various elements within the supply chain, focusing on creating a supportive environment where companies can innovate and grow.
1) Start-up Support: Activation Capital provides a robust support system for startups and innovators in the biotech and life sciences research fields. This includes:
- Incubation and Acceleration Programs: Offering resources, mentorship, and guidance to early-stage companies to help them develop their technologies and bring them to market.
- Capital Attraction: Facilitating attraction of capital through partnerships with venture capitalists, angel investors, and public funding sources, as well as events to showcase regional expertise and technologies. Such engagements are crucial for the long-term development cycles typical of healthcare innovations.
2) Workforce Development and Talent Recruitment: A key component of Activation Capital’s ecosystem approach is workforce development. By collaborating with local educational institutions with new and relevant pharmaceutical technology degree programs such as Virginia Commonwealth University (VCU), Virginia State University (VSU), and community colleges like Reynolds and Brightpoint to execute large-scale ecosystem development plans, Activation Capital helps ensure a steady pipeline of skilled professionals. These institutions provide specialized training programs to equip students with the skills needed to support advanced manufacturing and research in the medical supply chain.
3) Strategic Collaborations and Regional Recognition: Activation Capital fosters strategic collaborations between academic institutions, government agencies, and private sector partners. This collective effort promotes regional recognition and attracts further investment, thereby strengthening the ecosystem. Examples of such collaborations include:
- The Alliance for Building Better Medicine: A consortium of stakeholders in the region driven by an immediate and urgent need to create a reliable supply of safe, high-quality, and affordable medicines for all.
- Pharma Cluster Development: Initiatives aimed at creating a hub of pharmaceutical research and manufacturing, enhancing the region’s capacity to produce critical medical supplies.
Importantly, Activation Capital is a non-profit ecosystem developer, meaning that it takes no equity from founders and entrepreneurs and provides regional services and support via Federal and State grant funding. Committed to the success of the Richmond region, Activation Capital focuses on empowering the local technology sector, particularly in biotech and advanced manufacturing, by offering a supportive environment that nurtures growth and strengthens the regional economy.
Fractional Legal and Other Support to Empower the Ecosystem Approach
In an ecosystem approach, companies with strategic fractional services, like legal and other operational support, are most likely to succeed by striking the right balance between cost and essential operational expertise. Fractional support is a trending offering where companies can onboard experienced professionals they need, such as lawyers, accountants, and human resource representatives, on an ongoing but part-time basis as support to the company.
The fractional legal model that Clock Speed G.C. uses addresses the challenges early tech companies face with the traditional, usually hourly, model. First, it allows a company to integrate strategic counsel to understand the product lifecycle and scale support as the company grows with predictable cost. When challenges arise, the attorney is ready to address the issue proactively with full context of the company’s mission and historical challenges. Second, the fractional in-house counsel can also monitor and course correct internal processes to position the company for more rapid investment or acquisition when the time comes. Fractional legal services can be structured as fixed fee, hourly, or project-specific, depending on the provider. Compare this with the traditional model of ad-hoc hourly service where the professional may not be as intentionally integrated into the early-stage company’s workflow. Bringing the professional up to speed often is costly and increases friction in the scaling process.
With respect to start-ups in the biomedical research and pharmaceutical supply chain space, companies face significant legal and back-office challenges. This includes intellectual property (IP) sensitivity, compliance with complex regulations, and privacy/information security. A fractional legal partner in the ecosystem with deep experience in these areas reduces friction in running a start-up in such a nuanced space, enabling operation at the speed of innovation through close integration at the scale of the company. Startups should hire knowledgeable counsel like Clock Speed G.C., which offers an innovative fractional in-house counsel model in budget-predictable ways for tech companies. This approach seamlessly integrates with company leadership to address critical challenges effectively in anticipation of challenges, rather than in response to them. Key areas that companies should address include the following:
- IP Protection and Training: Developing frameworks to protect innovative ideas and technologies from being compromised or misused. Additionally, company teams should be prepared on the guardrails to protect IP to ensure maximum collaboration in joint research environments without disclosing sensitive trade secret information.
- Governance and Operations: Establish clear roles and responsibilities from the board through staff, empowering individuals to leverage their expertise and take accountability for success.
- Contracts: Negotiate agreements that adapt to the evolving needs of the company and reduce uncertainty, rather than relying on one-size-fits-all templates that may not align with business demands.
- Compliance: Setting up the company to anticipate regulatory and other compliance issues, such as data/consumer privacy and security, so team members are ready when the time comes.
Additional fractional services are available for finance, accounting, human resources, staffing, and IT support. These shared services extend beyond legal assistance, empowering startups to access specialized expertise tailored to their growth stage. This model allows companies to scale efficiently by tapping into the exact support they need, at the right pace and size, without the overhead of full-time staff. By integrating fractional support across various operational areas, startups can better align their resources with their evolving business needs.
Conclusion
Addressing supply chain security challenges in the medical research ecosystem requires a multi-faceted approach that integrates investment, innovation, regional collaboration, and strong legal and operational support. By leveraging the strengths of local ecosystems, including key players like Activation Capital, Richmond and the broader Virginia area can enhance the U.S.’s position as a global leader in healthcare innovation and resilience. Strong and agile fractional counsel like Clock Speed G.C. further positions startups to take advantage of the strategic ecosystem resources that Activation Capital makes available.
About the authors:
Activation Capital is a leading innovation ecosystem development organization that provides social, knowledge, and financial capital to clusters, entrepreneur support organizations, and entrepreneurs, accelerating their progress through development and maturation. Activation Capital, an independent nonprofit corporation of the Commonwealth of Virginia, operating on behalf of the Virginia Research Biotechnology Partnership Authority, is on a mission to grow life sciences and other advanced technology innovation by promoting scientific research, commercialization, and ecosystem development that attracts and creates 21st-century jobs and companies. It operates the 34-acre Virginia Bio+Tech Park – the hub of life science and technology innovations in Central Virginia. It oversees the Cluster Accelerator for Advanced Pharmaceutical R&D and Manufacturing and supports developing and expanding the region’s startup ecosystem. For more information, please visit www.activation.capital.
Clock Speed G.C. is an innovative fractional in-house counsel law firm representing Virginia tech companies to outpace their competition. Clock Speed G.C. innovates legal services in two ways:
- Creating an integrated legal partnership with a fundamental understanding of a company’s technology, investments, and markets; and
- Staying in lockstep with each company so that each decision receives the benefit of high-quality legal advice everywhere you need it, continuously. For more information, please visit www.clockspeedgc.com.
[1] The White House. (2021). Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth. White House Report, 213. (https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf)
[2] Gibson, Rosemary & Singh, Janardan Prasad. China Rx: Exposing the Risks of America’s Dependence on China for Medicine. New York: Prometheus Books (2018). Singleton, Marilyn, M.D., J.D. “China Rx: Exposing the Risks of America’s Dependence on China for Medicine.” Association of American Physicians and Surgeons (June 8, 2019). (https://aapsonline.org/book-review-china-rx-exposing-the-risks-of-americas-dependence-on-china-for-medicine/)
[3] Jaramillo, Eduardo. U.S. drug shortages highlight dependence on China, gray supply chains. Published June 7, 2023. The China Project. (https://thechinaproject.com/2023/06/07/u-s-drug-shortages-highlight-dependence-on-china-gray-supply-chains/)
[4] Tarazi, Wafa, Finegold, Kenneth, Sheingold, Steven, De Lew, Nancy, & Sommers, Benjamin D. (2022) Prescription Drug Affordability among Medicare Beneficiaries, Office of Health Policy Data Point, 1. (https://aspe.hhs.gov/sites/default/files/documents/485edf2a2d4870f88a456df61c8ff471/prescription-drug-affordability.pdf)
[5] Tarazi, Wafa, Finegold, Kenneth, Sheingold, Steven, De Lew, Nancy, & Sommers, Benjamin D. (2022) Prescription Drug Affordability among Medicare Beneficiaries, Office of Health Policy Data Point, 1. (https://aspe.hhs.gov/sites/default/files/documents/485edf2a2d4870f88a456df61c8ff471/prescription-drug-affordability.pdf)
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