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The decision: Last week, the U.S. announced it was removing the priority ratings issued under the Defense Production Act for vaccines made by Sanofi, AstraZeneca and Novavax. Orders for other vaccines remain prioritized.

The Defense Production Act, or DPA, allows the president to place priority ratings on government orders, which compels companies to accept and prioritize those orders.  Companies with rated orders can also compel suppliers to prioritize their orders, so the effect trickles down the supply chain.

Some vaccine makers have complained that using the DPA has disrupted the vaccine supply chain outside of the U.S.

Theoretically, removing the priority ratings should add flexibility to the supply chain, but it’s not clear whether that will actually happen. The shortage of supplies is likely the real issue. 

“You can take away the DPA priority rating and there’s still massive demand that’s chasing very few pieces of this equipment in limited supply,” Chad Bown, a senior fellow at the Peterson Institute for International Economics who researches international trade, told FreightWaves.

The background: By December 2020, the U.S. had placed priority ratings on 18 contracts for COVID-19 vaccines, according to a Government Accountability Office report.

However, vaccine manufacturers told the GAO they were still having trouble obtaining chemicals needed to produce vaccines, sometimes waiting weeks for critical ingredients.

Through Operation Warp Speed, the U.S. invested more than $18 billion to help develop and purchase doses of COVID-19 vaccines. Another $1.5 billion went to expanding contract manufacturing facilities that are producing the vaccine.

But the project didn’t spend as much to scale up the equipment and supplies needed to make vaccines.

Operation Warp Speed spent $340 million to scale up production of glass vials. In October 2020, Cytiva won a $31 million contract for supplies used to make vaccines. In April 2021, Meissner Filtration Products was awarded a $13.4 million contract to expand domestic capacity for components used for vaccine manufacturing.  

Given the massive demand, suppliers to vaccine manufacturers have scaled up production, but mostly on their own dime.

MilliporeSigma, which produces equipment for vaccine manufacturing, has invested about $70 million to double production capacity by the end of 2021, according to a company spokesperson.

The complaints: The lack of equipment and materials needed to make vaccines turned out to be a major problem, slowing down production.

In December 2020, Pfizer cut its production targets largely because of shortages of raw materials, according to The Wall Street Journal.

According to The New York Times, Pfizer asked the U.S. government for a DPA priority rating in the fall of 2020 but didn’t receive it. Officials were reportedly worried Pfizer’s orders would compete with other vaccine manufacturers.

Novavax CEO Stanley Erck has said several times that shortages of raw materials and equipment are slowing down vaccine production for his company.

“There’s some scrambling to get enough raw materials to make all the plants work at full speed, but I think we’re getting there,” Erck said on a conference call in March.

In May, Erck told Yahoo Finance that shortages of single-use components, such as the large plastic bags needed for vaccine production, had slowed down manufacturing.

Adar Poonawalla, CEO of the Serum Institute of India, which is producing both the AstraZeneca and Novavax COVID-19 vaccines, has specifically blamed the DPA for shortages of equipment and supplies. 

“We’re talking about having free global access to vaccines, but if we can’t get the raw materials out of the U.S. … that’s going to be a serious limiting factor,” Poonawalla said during a World Bank event in March.

A few weeks later, Poonawalla followed up on Twitter with a direct appeal asking the U.S. to “lift the embargo of raw material exports out of the U.S. so that vaccine production can ramp up.”  

The real problem: In a recent blog for the Peterson Institute, Bown argued that it wasn’t fair to characterize the DPA as an export ban. Instead, he pointed to the total shortage of equipment as the real problem.

“We don’t know what got deprioritized. Everybody thinks that it was them. If there’s a shortage, they think that it’s because of [the DPA],” he said. “But the real problem is the shortage.”

Along with S&P Global Market Intelligence analyst Chris Rogers, Bown found that shipments of vaccine supplies from U.S. companies to the Serum Institute of India have been increasing over the last several months, despite use of the DPA. 

The effect: While Pfizer requested a priority rating from the federal government, a Novavax spokesperson said the company welcomes the recent removal of DPA priority ratings.   

In a statement, Novavax said “lifting of certain restrictions could help us to better manage our global supply chain. We also appreciate that this action may provide our partners around the world with greater access to much-needed supplies.”

In some ways, a priority rating under the DPA is a dream come true. Companies can obligate suppliers to quickly fulfill their needs. However, Bown said it’s possible to imagine a scenario where DPA priority ratings cause a net negative impact on a company’s supply chain.

“Maybe Novavax right now has everything kitted out in their U.S. facilities … so they like the idea of getting rid of these priority rated orders so that it frees up all of the plants that are making Novavax .. elsewhere around the world,” Bown said. “It may not be that they were worried about the priority rating on Novavax. But they’re worried about the priority rating on AstraZeneca. Maybe it was competing with them.”

Novavax has also separated its supply chain into two parts. Doses for U.S. patients are manufactured domestically, while doses for other countries are made elsewhere. 

The U.S. orders would be subject to DPA priority ratings, potentially speeding up orders for essential equipment. But international orders wouldn’t have a DPA rating, meaning orders for equipment serving those sites could get deprioritized. 

ABEC, a Pennsylvania company producing equipment needed to make COVID-19 vaccines, downplayed the importance of DPA priority ratings. ABEC is supplying the Serum Institute of India with large bioreactors to make the Novavax vaccines.

“ABEC has robust supply chains in place to support our customers and the DPA in general has had little to no impact on our business,” a company spokesperson wrote in an email. 

An AstraZeneca spokesperson said the company is working closely with the U.S. government to deliver vaccines, but did not respond to questions about the change in DPA ratings. Sanofi did not respond to any questions. 

The opacity of vaccine supply chains makes it hard to say for certain how the decision to remove priority ratings for some orders will affect the supply chain.

The bottom line: It’s possible that the decision could shuffle how supplies are allocated and where they go, but Bown said it doesn’t change the most important fact: There aren’t enough supplies. 

“There’s not enough to go around,” he said. “If you want to fix the underlying problem, it’s not as easy as snapping your fingers and saying, ‘Let’s get rid of DPA.’ … We actually need to create a lot more of these inputs and raw materials.”