“Identifying the Root Causes of Drug Shortages and Finding Enduring Solutions” is the latest in a series of “Profitability Through Simplicity” blogs by Girish Malhotra, President of Pepper Pike, Ohio-based Epcot International. Below is from Malhotra’s December 7 blog. The original version, along with a full list of his previous blogs, may be accessed by clicking here.
Most people get excited about drug shortages when they happen and start a discussion about how they can be prevented. The problem has been there and it is getting to worrisome levels. Shortages can also be used as a weapon against the U.S. population.
Regulators have proposed strategies1 to alleviate these shortages but they have not worked. Actually shortages are getting worse. Had the 2013 strategy1 been effective, the current discussion2 would not be taking place. Each participant (manufacturers, supply chain members, and regulators) in the drug supply chain has to participate and alleviate the problem. One of the difficulties of the current pharmaceutical system is lack of clarity and understanding of the drug distribution system3,4,5. The current distribution system has been blamed for the shortages5. The supply chain system has made every effort to make sure no one is able to penetrate their fortress and understand how things happen.
I also believe that the current regulatory system may be latently aiding the current shortages and needs to be reviewed and simplified. Each participant has to participate to a different degree to alleviate the problem. Many might not agree with this conjecture but if all was good we would not have the drug shortages. Fundamental change is needed in pharma’s business model and it would have to be disruptive. As discussed later, there will be tremendous resistance to any change.
I have my own over-simplified description for three players on the drug landscape.
1. Drug producers: These companies discover therapies and commercialize the approved drugs using the best manufacturing technologies to maximize their profits. When drugs go off patent, generics step in.
2. Supply chain intermediaries: Their mission is to facilitate drug distribution, manage healthcare programs, and be extremely profitable. Reference No. 4 (at bottom) is worth the read as it tries to explain the workings of PBMs and it is educational4. I am sure there might be other descriptions of the process.
3. Regulators: Their mission is to assure the safety of drugs, and that requires companies to follow strict regulatory guidelines.
Problems of future drug shortages have their latent start when drugs are commercialized. We may not want to acknowledge this but have to recognize that each participant plays its part in the drug shortage at some point in the life of each drug. Some more than others. A common hypothesis is that the other party has created the problem and will address the issues. No one does and this keeps growing till it becomes acute. Every participant has to do its part thoughtfully to eliminate/reduce shortages.
Solution for Drug Shortages
Like in any business if the buyer keeps squeezing the seller on price, sooner or later if the seller cannot make their desired profit to stay in business, they will stop producing, and if shortages ensue, it is not their problem. This holds very true on the pharma landscape5 also. As explained later I believe that regulations are also part of the problem.
Following is my overview of the landscape and potential solution. This will need to be fine tuned.
Competition6 is healthy for every business. Pharma, especially the generics, need to have the environment to compete. They don’t have the desired environment. FDA’s current ANDA approval methods and practices come in the way of creating competition. It just takes too long and multiple iterations to get the application completed and approved. This process is expensive. FDA will have to play the role of creative destructionist7 and change its ANDA approval process to 90 days8 or less. With 90-day approval some of the generic producers could become proactive and may want to compete and supply to the market as soon as they see drug shortages. With shorter approval time, companies would have the opportunity to use the best manufacturing technologies and stay profitable.
Breaking the current3, 4 drug-delivery supply chain consortia is the key to eliminating shortages. Pharma’s current drug distribution business model (everything that lies between the manufacturer and the patient) has to be disrupted7. The supply chain consortia has resisted and will resist its breakup and do everything politically possible to scuttlebutt the wholesaler-healthcare-facility drug seller linkage. It is a juggernaut3,4 that needs to be cracked. However, with the current political influence of consortia on our elected legislators, it is going to be difficult to crack. For the short term, a presidential executive order might be the only answer. If that happens there will be a brouhaha of government intervention in the free market economy. However, when patients die due to lack of drug availability, we need to ask ourselves the question, “What is important, profits or life?” Most will opt for life.
The drug distribution consortia can be disrupted in other ways. Legislative support would be needed for the disruption. This consortium has and will use drug safety as an argument against anyone else who will encroach on their turf as they have done in the past, e.g. patients trying to get drugs that are lower priced from Canada or elsewhere. It is fascinating that the members of the consortia tell the legislators (who are being funded by the pharma industry for their re-election) that the drugs from these countries will not be of quality, but turn around and buy from the same producers’ products to sell in the United States.
Disruption of the supply chain consortia can be easily done if FDA allows direct import of the drugs on the shortage list by major hospitals (Cleveland Clinic, Mayo Clinic, or other large buyers) and similar buying entities—e.g. Veteran’s Administration, Amazon (PillPack)—and bypass the supply chain consortium members. PBMs will do everything to stop anyone looking9 at their inner sanctum by offering to participate in any alternate drug distribution as they supposedly have done for Amazon, Berkshire, and JP Morgan alliance.
The supply chain consortia, as stated above, in the name of facilitating drug distribution and drug safety, is also responsible for the current prices. Prices should be significantly lower10, 11. Additional examples of prices of randomly selected drugs are illustrated in Table 211 and Table 112 in the referenced items below. Actually, if the generic manufacturers from the developing countries can be the direct suppliers to the developing countries there is an opportunity not only to reduce/eliminate drug shortages but also to significantly lower the generic drug prices in the developed countries.
Companies that can supply drugs in shortage will have to be from FDA’s ANDA approved companies list; a 90-day approval window will encourage and facilitate many producers to participate. PillPack, Amazon, and others can distribute the needed drugs.
I want to reiterate that if the above suggested proposal or anything similar is considered, wholesalers, PBMs, and everyone in the middle of the supply chain will resist and lobby against the thinning of their “cash cow.” Lobbyists of every kind will make sure that their current landscape, which they have nurtured for a long time, is not disrupted. There is too much at stake for the consortia.
If the FDA can create a 90-day ANDA approval environment, it is very possible that manufacturers in the United States might re-start their mothballed units or invest in new facilities that will have the best technologies to supply the U.S. market. The potential threat of drugs that could be used as a weapon could be averted. We may see a resurgence of pharma manufacturing in the United States. Going forward we need to consider this aspect seriously.
Another major win, if the consortia can be disrupted, would be lower generic drug prices, possibly improved affordability, that will come from the companies considering and using the most innovative manufacturing technologies like continuous manufacturing13 for sterile and other products. Manufacturing technology innovation that has eluded pharmaceuticals will finally become a competitive tool, if the pharmaceutical industry is willing to partake.
Companies in a competitive environment, a worldwide phenomenon, use the best and most innovate technologies to produce products. Quality will be built in rather than tested in. FDA will not have to suggest to companies the ‘how and what’ of quality product and manufacturing technologies. Regulators will not have to be the purveyors of technologies as they have been doing without much success. FDA has set the product quality standards companies have to meet. Pharma companies will justify their own investment and should be able to ramp up their production to meet spikes in demand. At times I see many trying to test FDA suggested technologies and I wonder why they are trying to appease the regulators when the investment in technology cannot be financially justified. As I said earlier, companies need to decide what technologies suit their business model to stay profitable rather than have regulators suggest what would help.
FDA and other regulators will have to be most vigilant and more critical in their inspections and ensuing actions. Companies that do not adhere to cGMP practices and regulatory protocol will have to be shutdown. The FDA will have to employ experienced personnel who are well versed in process development and design and are knowledgeable about different manufacturing technologies. Experienced personnel will spot deviations from cGMP practices as well as data re-jigging.
Through a combination of current relationships between manufacturers, the supply chain, and regulators an environment of drug shortages has been created. If we have any desire to change the current mold it will need to be broken. There is an opportunity to revamp the pharmaceutical landscape, but as I said earlier there will be resistance. If a pilot program to eliminate/reduce drug shortages through direct distribution can be started and assured, we will have two benefits: Shortages will be reduced and competition will be a big win for the patients through lower prices.
Success could also result in a resurgence of pharma manufacturing in the United States and other developed countries.
1 Strategic Plan for Preventing and Mitigating Drug Shortages, FDA, October 2013, Accessed November 21, 2018
2 FDA is Advancing New Efforts to Address Drug Shortages, FDA, November 2018, Accessed November 19, 2018
3 Follow the Pill: Understanding the U. S. Commercial Pharmaceutical Supply Chain, The Kaiser Family Foundation, March 2005 Accessed November 25, 2018
4 Eickelberg, Henry C.: The Prescription Drug Supply Chain “Black Box” How it Works and Why You Should Care, American Health Policy Institute, 2015 November 26, 2018
5 Koons, Cynthia: Why We May Lose Generic Drugs, Bloomberg Businessweek, April 11, 2018
6 Gardner, Eric: Competition creates innovation: Creative Destruction & America’s problem, ericgarder.net August 10, 2016, Accessed November 18, 2018
7 Schumpeter, Joseph: Capitalism, Socialism and Democracy, 1942, Accessed November 29, 2018
8 Malhotra, Girish: Simplified Roadmap for ANDA/NDA Submission and Approval will change Pharma Landscape, Profitability through Simplicity, November 25, 2018
9 Triple Threat: Amazon, Berkshire, JPMorgan Rattle Health-Care Firms, The Wall Street Journal, January 30, 2018, Accessed January 31, 2018
10 Sood, N; Shih, T; Van Nuys, K; Goldman, D; The Flow of Money Through the Pharmaceutical Distribution System, June 6, 2017, Accessed March 1, 2018
11 Malhotra, Girish: Comparison of Drugs Prices: US vs. India; Their Manufacturing Costs & Opportunities to Improve Affordability, Profitability through Simplicity, January 18, 2018
12 Malhotra, Girish: Opportunities to Lower Drug Prices and Improve Affordability: From Creation (Manufacturing) to Consumption (Patient), Profitability though Simplicity, March 8, 2018
13 Malhotra, Girish: Batch, Continuous or “Fake/False” Continuous Processes in Pharmaceutical Manufacturing, Profitability through Simplicity, July 20, 2017