Drug Shortages: Not Going Away Anytime Soon

Albert Wertheimer, PhD, MBA, Professor of Pharmaceutical Economics at Temple University and a member of Pharm Exec's Editorial Advisory Board, shows how the simple matter of a drug shortage is not a simple matter at all.

The FDA and the ASHP maintain a list of pharmaceutical products that are considered in shortage situations where for many possible reasons, the supply cannot catch up with  demand.

It would be fair to say that there have always been a few drugs in this list at any given time, but the list was most often comprised of special situations where a drug was on the list for a brief period until the shortage problem was resolved. However, today the list is approaching nearly 300 items and does not show any indication of improvement.

Let us try to look at the various stakeholders impacted upon to gain an idea about the importance and pervasiveness of the situation. It sneaks on us almost without notice and then it is too late to do anything about it. Impacted are community and hospital pharmacies, clinics, hospitals and physician offices, wholesales, manufacturers, distributors, the FDA and compounding pharmacies, among others.

Ten years ago, a manufacturer would purchase active ingredients (API) from one of several suppliers and purchase the bottles, cotton, labels, and other needed components either locally or from national suppliers. All of that has changed with the use of the worldwide web. Today, sourcing is global. Every seller of a product locates the lowest cost supplier of each product component.

For example, it is possible that everyone buys the API from a manufacturer in Slovenia. The result of this situation is that the other higher-priced sellers go out of business or cease production of a product when they cannot make a profit producing it. Now there is only one supplier of the active ingredient. If that one supplier were to have a fire, explosion, labor stoppage, failed FDA inspection or if their transport firm were to have a labor problem, we can envision the foundation for a possibility of a shortage for an unknown duration of time. That would be the same result if there was a blockage at the supplier of bottles or any of the other components of the medication. Such a problem would not have been particularly serious a decade ago when all levels of the production chain held ample supplies to take care of such delivery problems.

However, today every manufacturer has adopted the Japanese-pioneered, just-in-time delivery strategy so that no manufacturer holds more than a week's supply of components or ingredients needed for their work. Previously, factories held two-to-three months of inventory in their warehouses so minor disruptions could be ignored. But today, no such cushion exists and a delivery delay anywhere in the system can tie up the whole works. So we have far fewer suppliers to turn to if a shortage situation develops since previous alternative suppliers have long ago switched their production to other more profitable products.

The market behavior to the cheapest supplier is quite understandable and we would do the same thing if we were in that situation. Products sometimes can't flow if the FDA or other regulatory agency finds sufficient concerns when inspecting a production facility and elects to embargo shipments from that plant until satisfactory corrections have been completed. We will likely see more of this as regulations become more stringent on a monthly basis.

The vulnerabilities are enormous. The label manufacturer could face a shortage or delivery disruption of paper, ink or adhesives. Caps for bottles could be back-ordered, as would be the case for cartons or larger correlated shipping cartons. Any one of these problems can hold up the entire works.

For the manufacturer able to supply during shortage periods, there opens an opportunity for additional profits from the increase in prices due to the shortage. Leaving the manufacturer, we can correctly assume that wholesalers and distributors that have the product in inventory will take advantage of the situation and increase prices. They will likely be forced to ration the product among their clients ordering the product so that no one will receive their full order quantity. Here is where customer relationships and loyalties can pay off. It is only logical to recognize that better customers will be helped as opposed to infrequent clients who only place smaller orders during their infrequent order occurrences.

Shortage events open the door to two opportunistic possibilities. There are grey market distributors who seek to purchase excess inventory from any sources holding them at the new market price and selling the product where there is a serious need at an even higher price. And the 2013 FDA regulations permit compounding pharmacies to manufacture and sell products listed in the FDA Shortage listing. These products are often made in facilities not inspected by the FDA and the products are not manufactured by an NDA or an ANDA holder and rarely would there by any stability or bioavailability testing. Moreover, these compounding pharmacies are supposed to cease production and marketing when the product is no longer listed by the FDA as being in a shortage situation. Whether that is promptly done or not is sometimes the subject of debate.

Another opportunity develops for either counterfeiters or illegal importers to sell their products in the country. This opportunity develops because a drug product shortage is rarely worldwide but is exacerbated by the fact that there may be ample supplies in India, for example, but that Indian product was never submitted to the US FDA for market approval evaluation for US sales.

But the US FDA has been working on a system of reciprocal registration recognition with the European Union's drug regulatory agency, the European Medicines Agency (EMA) since the level of scrutiny and thoroughness of regulatory evaluation for marketing are very similar. We recently saw this in action when a meningitis vaccine was needed for an outbreak among students at Princeton University last year. Temporary approval was granted for a vaccine already marketed in Europe but not yet approved in the USA. That was a successful instance of the mutual recognition procedure. As prices increase because of scarcity, buyers are often willing to accept products with short expiration dates, or even recently expired expiration dates. This affects patients, who may receive drugs with less than 90% of the labeled active ingredients.  Naturally, that could be quite serious for patients whose drug therapy is calculated by body weight as they may end up with a subclinical dosage.

As the price of a product increases, it is not overlooked by counterfeiters.  They would, obviously, prefer to sell fake tablets that have a market price of $5,000 per bottle to a bottle of tablets having a legitimate product price of $200.  So now we have the customs and FBI as well as the postal service involved in hunting down counterfeits, nearly all of which is smuggled into the USA from abroad.  Then we have further, indirect involvement of biopharma companies again.  When counterfeits are uncovered, the legitimate product manufacturers need to employ damage control public relations activities before the brand and product reputations are blemished.  They need to assist the police and other agencies, including the FDA to get the counterfeits out of circulation as soon as possible to preserve the reputation of the product and to ensure that patients will receive the legitimate, approved product.

And this is a golden opportunity for compounding pharmacies to sell all they can produce of their production of versions of the shortage-listed drugs.  They try to sell to wholesalers and other distributors and clients as much inventory as they can get into the distribution channels, so that their product can be sold for as long as possible.

Some say that Medicare or Medicaid price caps make production of some products unprofitable, which leads to shortages.  There is quite of bit of discussion and speculation about this opinion, but it has not been proven yet that there is a causal relationship.

In these few paragraphs I have attempted to show how a simple matter such as a drug shortage is anything but a simple matter.