The primary cause of drug shortages is, to paraphrase the old joke, that the portions are small and the market is terrible. It’s hard to make a buck churning out old medicines when the cost of production and distribution increase faster than prices. It makes more sense to invest fixed assets in more profitable products. As FDA Commissioner Scott Gottlieb and Janet Woodcock, the Director of FDA’s Center for Drug Evaluation and Research point out: “There may be critical drugs that may sometimes be priced too low relative to the full cost of reliably producing a predictable and high-quality pharmaceutical product. These critical drugs are typically older generic medicines that must be in a sterile, injectable form.” (It’s amazing how markets and pricing signals determine supply and demand.)
Indeed, solving the drug shortage requires creating a robust market for the products that are, or will be, in short supply. The FDA has done a remarkable job in reducing the number of product shortages by preventing them before they occur, instead of having to scramble after they emerge. The agency prevented 132 shortages in 2017. That’s one reason that shortages declined from a peak of 251 in 2011 to 35 in 2017.
Specifically, FDA’s drug shortage czar, Keagan Lenihan, (FDA’s Associate Commissioner for Strategic Initiatives of the Agency Drug Shortages Task Force) has increased the amount of collaboration required to identify and avert potential shortages. The agency is not staffed with mind readers, so it needs more advance information from manufacturers, providers, pharmacists, and consumers, which surprisingly is also in short supply.
The dearth of predictive information hurts in two ways: First, it forces the FDA to react, rather than head off, shortages. As Dr. Gottlieb and Woodcock note: “If an additional production facility or supplier is needed to help mitigate or prevent a shortage of certain important drugs, we can expedite inspection of a new facility so that it can become operational as soon as possible. We can also expedite review of a new or generic drug application that, if approved, may help mitigate or prevent such a shortage. We prioritize these inspections and reviews.”
But these tools are most effective when they are used to prevent a shortage. While an early warning system would help resolve some shortages (and Congress is considering legislation to create such a program), it can be really valuable in creating a risk index to support a commodities market for the raw materials and finished products. In fact, in 2011, IMS (now IQVIA) recommended an early warning system that would include data for “risk identification, demand forecasting, a volatility index, and predictive modeling.”
Drug shortages have all the hallmarks of a manufacturing sector that could benefit from trading futures. Like many agricultural products and raw materials for finished goods, generic injectables face volatility due to (1) global sourcing, (2) number of qualified suppliers, (3) market constraint, (4) price increase, and (5) geopolitical climate. Depending on the supply risk of the commodity, food, and agribusiness companies are able to decide whether it is necessary to take actions for securing their supply. More insight into the risks of key input commodities helps companies in their decision-making and risk management. And a robust futures market creates liquidity (cash) that companies can use to invest in manufacturing.
But creating a market for drug shortages also requires an upgrade in manufacturing and a reliable source of demand. After Pfizer bought Hospira, it realized that the manufacturing arm of the company (which is virtually a sole supplier of many injectables with persistent shortages) needed to be overhauled. An article in Fortune describes the daunting task facing Pfizer in just one facility:
The Rocky Mount facility, for example, makes up to a half-billion sterile injectables each year, enough to fill 20 semi-trailers every day. Workers there make 500 different products, fitted into syringes, vials, and ampoules. They span a human life, from the vitamin K used to promote blood clotting in new babies to the morphine used to ease the pain of terminal illness.
The plant, though, has only 26 manufacturing lines, meaning that any given line is likely to be running something different every day. Each line, moreover, has to be FDA-qualified for the drugs made on it, a costly and lengthy vetting process. Schedules are typically planned weeks in advance and can be scuttled for any number of unforeseen events, from a snow day to a worker’s illness to components that don’t arrive at the factory on time.
Because of the testing and paperwork involved, it takes batches three to six weeks to leave the factory. And each batch generates a 200- to a 400-page stack of paper that documents the process. These, of course, are merely logistical wrinkles. Achieving a sterile environment—essential for medicines that are shot directly into the bloodstream—is the true challenge.
The long-term solution is to replace the current manufacturing platform for medicines and injectables, which are based on 19th-century production principles and technology with continuous manufacturing. The FDA is encouraging “the adoption of new production technologies, such as 3D printing and continuous manufacturing. Over time, these methods could lower drug production costs, enable more rapid scale up of manufacturing, and help prevent drug shortages caused by product quality and manufacturing problems.” But such a shift needs incentives as well.
And that is where public policy could help. Overhaul of the pharmaceutical manufacturing platform may require a public-private partnership (like the Semiconductor Manufacturing Technology or Sematech program) that would focus on continuous manufacturing, 3-D printing, and other advanced production and supply chain technologies. Such a partnership – a pharmaceutical advanced manufacturing technology consortium (PharmaTech?) would require funding but also a commitment on the part of private companies to involve their best and brightest in the enterprise. This is not a fully fleshed out proposal. But it is a model that works. “Sematech has become a model for how industry and government can work together to restore manufacturing industries—or help jump-start new ones. “ It’s time to approach the drug shortage issue with the same spirit of urgency and inventive opportunity.
Indeed, solving the drug shortage requires creating a robust market for the products that are, or will be, in short supply. The FDA has done a remarkable job in reducing the number of product shortages by preventing them before they occur, instead of having to scramble after they emerge. The agency prevented 132 shortages in 2017. That’s one reason that shortages declined from a peak of 251 in 2011 to 35 in 2017.
Specifically, FDA’s drug shortage czar, Keagan Lenihan, (FDA’s Associate Commissioner for Strategic Initiatives of the Agency Drug Shortages Task Force) has increased the amount of collaboration required to identify and avert potential shortages. The agency is not staffed with mind readers, so it needs more advance information from manufacturers, providers, pharmacists, and consumers, which surprisingly is also in short supply.
The dearth of predictive information hurts in two ways: First, it forces the FDA to react, rather than head off, shortages. As Dr. Gottlieb and Woodcock note: “If an additional production facility or supplier is needed to help mitigate or prevent a shortage of certain important drugs, we can expedite inspection of a new facility so that it can become operational as soon as possible. We can also expedite review of a new or generic drug application that, if approved, may help mitigate or prevent such a shortage. We prioritize these inspections and reviews.”
But these tools are most effective when they are used to prevent a shortage. While an early warning system would help resolve some shortages (and Congress is considering legislation to create such a program), it can be really valuable in creating a risk index to support a commodities market for the raw materials and finished products. In fact, in 2011, IMS (now IQVIA) recommended an early warning system that would include data for “risk identification, demand forecasting, a volatility index, and predictive modeling.”
Drug shortages have all the hallmarks of a manufacturing sector that could benefit from trading futures. Like many agricultural products and raw materials for finished goods, generic injectables face volatility due to (1) global sourcing, (2) number of qualified suppliers, (3) market constraint, (4) price increase, and (5) geopolitical climate. Depending on the supply risk of the commodity, food, and agribusiness companies are able to decide whether it is necessary to take actions for securing their supply. More insight into the risks of key input commodities helps companies in their decision-making and risk management. And a robust futures market creates liquidity (cash) that companies can use to invest in manufacturing.
But creating a market for drug shortages also requires an upgrade in manufacturing and a reliable source of demand. After Pfizer bought Hospira, it realized that the manufacturing arm of the company (which is virtually a sole supplier of many injectables with persistent shortages) needed to be overhauled. An article in Fortune describes the daunting task facing Pfizer in just one facility:
The Rocky Mount facility, for example, makes up to a half-billion sterile injectables each year, enough to fill 20 semi-trailers every day. Workers there make 500 different products, fitted into syringes, vials, and ampoules. They span a human life, from the vitamin K used to promote blood clotting in new babies to the morphine used to ease the pain of terminal illness.
The plant, though, has only 26 manufacturing lines, meaning that any given line is likely to be running something different every day. Each line, moreover, has to be FDA-qualified for the drugs made on it, a costly and lengthy vetting process. Schedules are typically planned weeks in advance and can be scuttled for any number of unforeseen events, from a snow day to a worker’s illness to components that don’t arrive at the factory on time.
Because of the testing and paperwork involved, it takes batches three to six weeks to leave the factory. And each batch generates a 200- to a 400-page stack of paper that documents the process. These, of course, are merely logistical wrinkles. Achieving a sterile environment—essential for medicines that are shot directly into the bloodstream—is the true challenge.
The long-term solution is to replace the current manufacturing platform for medicines and injectables, which are based on 19th-century production principles and technology with continuous manufacturing. The FDA is encouraging “the adoption of new production technologies, such as 3D printing and continuous manufacturing. Over time, these methods could lower drug production costs, enable more rapid scale up of manufacturing, and help prevent drug shortages caused by product quality and manufacturing problems.” But such a shift needs incentives as well.
And that is where public policy could help. Overhaul of the pharmaceutical manufacturing platform may require a public-private partnership (like the Semiconductor Manufacturing Technology or Sematech program) that would focus on continuous manufacturing, 3-D printing, and other advanced production and supply chain technologies. Such a partnership – a pharmaceutical advanced manufacturing technology consortium (PharmaTech?) would require funding but also a commitment on the part of private companies to involve their best and brightest in the enterprise. This is not a fully fleshed out proposal. But it is a model that works. “Sematech has become a model for how industry and government can work together to restore manufacturing industries—or help jump-start new ones. “ It’s time to approach the drug shortage issue with the same spirit of urgency and inventive opportunity.
