Drug Shortages in the U.S. – An Industry Perspective

A recent Food and Drug Administration (FDA) workshop learned that drug shortages nearly tripled between 2005 and 2010. Of the 178 drug shortages in 2010, 132 were generic sterile injectable drugs, including anesthetics, cancer drugs, and intravenous nutrition drugs. Of all 2010 shortages, more than half had roots in production quality issues, such as product instability and contamination.

There are currently 172 drug shortages, of which 131 are generic injectables.  2011 shortage numbers are on pace to exceed the totals of the year prior, indicating this issue remains a relevant, ongoing problem.

Many companies choose not to make these products because they are not as profitable as other drugs, and manufacturing them is complex. The FDA acknowledged the problem and added that few manufacturers produce the medications to meet the nation’s needs, thus contributing to the increasingly common shortage of drugs.

A partial list of drugs in short supply as reported voluntarily by drug manufacturers is provided here:

http://www.fda.gov/drugs/drugsafety/drugshortages/ucm050792.htm

Possible Causes

The drug shortage situation in the U.S., including possible causes of shortages were discussed at a House Energy and Commerce health subcommittee hearing on Sept. 23.
Some of the possible causes include the following:

  • Deferred maintenance at manufacturing facilities that produce hard-to-make sterile injectable drugs may lead to disrupted production while they resolve contamination issues. Relatively few facilities produce these drugs, so they are under pressure to operate continually without maintenance.
  • Drug manufacturers claim the FDA’s sometimes long approval processes have limited manufacturers’ production abilities (i.e., manufacturers can’t quickly address shortage issues).
  • Generic Pharmaceutical Assn. President and CEO Ralph G. Neas claims such common factors as insufficient supplies of raw materials to meet demand, delayed communications about shortages, and changes in clinical practices have altered production volume.
  • Business and economic factors have lowered profit margins for generic sterile injectable drugs, which has led some businesses to discontinue production of certain drugs.
  • Health care prices, including those for drugs, aren’t determined by patient demand, said W. Charles Penley, MD, a medical oncologist with Tennessee Oncology in Nashville who testified at the hearing. “This is not a free-market environment.”

A summary of the House Energy and Commerce Committee hearing, including comments from industry leaders and medical professionals is provided in the American Medical News article linked here:

http://www.ama-assn.org/amednews/2011/10/03/gvl21003.htm

Situation being investigated by Congress, including the role of gray markets

According to a Premier report entitled, “Buyer beware: Drug shortages and the gray market”, gray market pharmaceutical vendors are offering drugs in short supply at an average markup of 650%.

http://www.premierinc.com/about/news/11-aug/Gray-Market/Gray-Market-Analysis-08152011.pdf

As the drug shortage situation has gathered more attention nationally, Democratic Representative Elijah Cummings, a member of the House Committee on Oversight and Government Reform, has begun an investigation into the role five “grey market” middleman companies play in the shortage and how they may be capitalizing on it. Specifically, the investigation aims to determine how the alleged companies are obtaining the drugs and how much they are making in profits by selling them to hospitals, pharmacies and health providers.

http://www.pharmatimes.com/Article/11-10-10/US_drug_shortages_soar_Congressman_probes_grey_marketeers.aspx

A bill by Rep. Diana DeGette (D, Colo.) would ask drug manufacturers to tell the FDA about drug shortages six months in advance, if possible. The agency would be able to keep such warnings confidential to prevent drug hoarding, but it also could notify health professionals and hospitals when appropriate.

Currently, drugmakers rarely have to notify the FDA of drug manufacturing issues. The exception is when a company plans to discontinue a lifesaving drug for which it is the only manufacturer.

Possible solutions

Prescription drug shortages – especially acute for sterile injectable generic cancer drugs – have multiple causes and require multiple solutions, according to the American Society of Clinical Oncology. Proposed solutions include the following:

  • Expediting Food and Drug Administration approval for drugs vulnerable to shortages without compromising patient safety or drug quality.
  • Updating Medicare’s generic drug pricing methodology frequently, especially for shortage drugs.
  • Enacting bipartisan legislation to give the FDA authority to require a drug manufacturer to notify the agency when the company becomes aware of potential shortages.
  • Providing tax incentives to encourage makers of generic drugs to upgrade their facilities and continue or begin producing shortage drugs.
  • Increasing collaboration between government agencies to create a stockpiling program similar to counterterrorism programs.
  • Encouraging other companies to take over or boost their production of shortage drugs when possible. Although the FDA does not have the authority to require drugmakers to increase production, the agency or other government agencies may consider offering incentives to companies to fill the shortage gap.

Below are links to a summary of the Sept. 23rd drug shortage hearing held by the House Energy and Commerce health subcommittee, and an archived webcast of the hearing:

http://www.hhs.gov/asl/testify/2011/09/t20110923a.html

and

energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=8926

Finally, here is a recent video piece from PBS that explores how drug shortages affect patients and health providers:

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About Bourne Partners

As a healthcare-focused merchant bank, Bourne Partners provides financial advisory, direct investment, alternative assets and management consulting services to our client-partners. We play an active role in helping businesses grow by creating long-term, profitable relationships that extend beyond single transactions. It is our focus on relationships and long-term results that has yielded us an impeccable track record of client satisfaction . Our direct and indirect investments in sector-leading companies – often through our relationships with top-tier Private Equity funds – allow us to learn about the best-of-the-best from the inside and apply that knowledge to the companies we serve. At Bourne Partners, we operate within a specific set of core boundaries: integrity, accountability, teamwork, loyalty and commitment are the driving forces behind everything we do.
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