Subject matter, if presented in a forum, would be challenged, difficult to accept and comprehend. Acceptance will be emphatically “NO”. It just cannot happen. However, if one reviews the recent National Academy of Science, Engineering and Medicine (NAS) (1)report “Building Resilience into the Nation's Medical Product Supply Chains (2022)” (2), most readers would be astounded by the recommendations of the committee for “offshore outsourcing” (3) medical supplies and drugs, especially with the current political upheaval in Europe. It suggests establishing “international treatise” for assured medical supplies and drugs.
It is ironic that NAS (2) suggestion of cementing overseas relationships do not make sense and make USA vulnerable. Is this to protect profits of companies PBMs (pharmacy benefit managers) and GPOs (group purchasing organization (4, 5) and the supply chain? One could say the two (PBMs and GGPOs) are different but to the lay person they are the middlemen. It seems their profits more important than the health of US population or the task too tough and political to tackle. PBMs make top 10 of the Fortune 500 list (6) and they do not seem to be hurting for profits.
With the current global political situation, NAS (1) recommendations raise serious questions about the basis of committee’s rationale, business expertise, manufacturing experience for guarantee of continued supplies to meet US’s pharmaceutical needs. Would the overseas supply companies hold their business relationships vs. their own national/business interests? Does NAS committee have any “hands on” experience of such situations? Does it have experience in pharmaceutical or related businesses? The current FDA commissioner (7) was member of this NAS committee and resigned on his nomination. It still raises questions about his influence on the final report.
It seems that NAS, FDA and other government bodies have overlooked the fundamental reason for product shortages. It is the seller who would not produce or sell its products unless they can make their desired return. This relationship leads to shortages. In healthcare drug seller (manufacturer) and buyer PBMs and GPO are the buyer and the seller. Patient has no say in this PBM/GPO and manufacturer relationship. They will pay the demanded price to extend life. They will make a choice between food and drug (8) if they want to extend life.
Devices are not part of the discussion. Discussion is about generic drugs as they serve the largest population base and have the highest impact on US population. Brand drugs are not part of the discussion as their producers due to their profitability will make sure they are available. Their objective is to get the quality product to the market and sell it at the highest price. They are not concerned about the manufacturing technologies or process efficiencies or anything FDA suggests.
There are ways and methods that can bring generic manufacturing home and introduce competition in drug distribution but it will require effort and reconfiguration. Significant hurdles will be there. They are reviewed. There is no financial relationship with any organization.
Review of NAS Recommendations:
NAS (2) through its recommendations really questions overall prowess of The United States of America. They are quite perplexing, if followed. They can adversely impact US healthcare system because the foreign suppliers of generic drugs can use them as a weapon. I do not believe NAS or US legislators or the regulators understand the reality of what it will take to solve the issues at hand. If politics, regulatory control, profitability of pharmacy benefit managers (PBMs), insurance companies and supply chain participants or other influences are preventing US from on-shoring of drugs and other supplies, we need to re-visit the issues and consider alternates that assure high degree of self-sufficiency. Brand drugs, as explained earlier, are not part of the discussion.
NAS report (2) suggests that US should not be “onshoring” its pharmaceutical needs and emphasizes strengthening its requirements from off-shore. NAS has shrugged away from making any “real and hard” recommendations. Explanation given for not “onshoring” are higher domestic costs and lack of availability of the needed raw materials. As explained later costs of manufactured drugs are a low percentage of the selling price and as explained later they can be lowered.
Mere suggestion of NAS Committee that US cannot economically produce its generic drugs or other related healthcare product manufacturing is unthinkable. I believe that the committee did not turn and/or examine every stone for onshoring of generic drugs, devices and supplies. If NAS committee considered alternates for domestic sourcing of pharmaceutical drug products, there is no mention. If different business model/s were considered they are not elaborated. Just a blanket statement of “off-shoring” is not good enough.
It seems that NAS (1) forgot US creativity, imagination and competence. US has done what at times has been thought to be impossible. It is time to configure and consider alternates for its pharmaceutical needs. US has the technology, man and brain power and business prowess to do the impossible e.g. Manhattan project (9), send the man to moon on a return trip (10) and even recycle space rockets (11).
NAS’s(2) blanket statement about non-availability of raw materials for pharmaceuticals and devices without proof is a stretch. Similar possibilities could also apply across every product US produces. Does that mean US should outsource most raw materials?
Other reasons suggested for “off-shore” relationships are occurrence of natural disasters, power cuts, manpower shortages etc. that might interfere US production. If that is the case then every chemical, petrochemical, automobile and/or food processing plant could be subject to such calamities and not be expanded or built in USA. Does NAS committee provide guarantees that offshore sources will not hold US hostage in any and every circumstance? They do not know.
NAS relies on FDA’s shortage analysis (12) that is totally meaningless. It does not give any viable solution. A question gets raised “do the two entities (NAS and FDA ) really understand the real cause of the shortages?” Price difference between manufacturer’s sell price and patient’s purchase price illustrated later is the reason for shortages. In addition as explained later an alternate business model costs can be used to reduce shortages.
If NAS recommendations are adopted drug supply issues will not be solved, but accentuated. US population will be further exposed to drug and device shortages and could even be held hostage of drug supply countries. It is interesting that PBMs and the supply chain members, who play a significant role in the drug and device pricing and distribution are not part of the NAS or FDA or US legislative discussion. Their exclusion, when they are an integral part of the total healthcare supply chain, eliminates them from every responsibility. They are not held accountable for any shortages or quality issues. Is NAS like FDA by exclusion of PBMs and GPOs trying to protect their profits?
Actually PBM/GPO’s current business model assures their profits and will result in continued higher drug prices and increased unaffordability. We forget that the current situation had worsened with time and will continue to do so. As said earlier US patients will have to make choice between food and their medicines (8). I am not sure that every option and its consequence have been considered and evaluated.
NAS using FDA’s Script:
NAS seems to be using FDA’s script as some of the topics discussed/recommended are the same. It is very interesting that NAS report (2) discusses “advanced manufacturing technologies and continuous manufacturing”. NAS committee has no experience in these two areas. These have chimed in from FDA’s various reports. FDA does not elaborate what is “continuous manufacturing” when there is an established definition (13). This manufacturing methodology has been commercial in the API and formulation’s older cousin, fine/specialty chemicals, for over 70+ years. This methodology, when used by the industry, has to meet established definition for its application in a commercial operation and has to be financially justified.
FDA except for 3D (14) printing does not elaborate what are the “advanced manufacturing technologies”. It is ironic that there is only ONE drug (14) that has been produced using such method. Why FDA and NAS are hanging their hats on something that is very product specific to be used across the board. If “advanced manufacturing technologies” are just application of unit operations and unit processes (15) to API manufacturing and their formulations, then they are not “advanced manufacturing technologies” as they are used every day in the design of chemical process for the last 80+ years.
If the pharmaceutical companies have and are not incorporating optimized unit operations and unit processes (15), it suggests that they are not using properly trained chemists and chemical engineers in the development, design and commercialization of API and their formulations or they are still practicing mortar and pestle way of process development and manufacturing. It is well known that the unoptimized processes are the highest emitters of pollutants (16, 17). Methods to reduce emissions are discussed later.
NAS (2) like FDA also suggests use of US Tax Payer fund further development of these. Why would and should US Tax Payer fund any technology development that will not be used in The United States and not result in “onshoring”? Once they are in public domain, they could be used by companies in the foreign countries. Companies can easily tweak unit operations and unit processes to create excellent processes.
Executive Orders (18, 19, 20):
Surprisingly NAS report (2) does not pay any attention or emphasizes requirements of Executive Order (EO) 13588 (18) or Executive Order 13944 (19). EO 13588 (18) Section 3 clearly states that FDA needs to take steps to expedite regulatory reviews to avoid and mitigate drug shortages. This would definitely apply to generic drugs. NAS has totally ignored/overlooked EO 13588 (18) and is it not even mentioned in its report.
Report (2) also suggests FDA’s bureaucracy be expanded requiring companies to do all kinds of reporting. Such reporting would be totally against an Executive Order 13588 (18). Its Section 3 clearly states that FDA processes need to be simplified. Nothing has been done. Status of EO 13944 (19) is unknown. NAS Report (2) refers to Executive order 14017 (20). It is difficult to determine its value for drug shortages.
Report (2) also suggests Office of the Assistant Secretary for Preparedness and response (ASPR) (21) and FDA should be involved in long term device and drug preparedness. Along with Strategic National Stockpile (22) they are already involved. How is data collection going to assure sustained drug supplies? Much of the suggested information is collected and/or may be available at FDA. Current drug stockpile cannot sustain US needs.
However, it will take time to determine how to use the information and react to drug shortages. It may be possible that they have the data but no one has figured out how to rationalize and simplify the information and put it to productive use. In addition, this information would be “after the fact” information rather than could predict shortages. For that predictive algorithm may have to be developed.
US FDA acknowledges drug shortages (23, 24,25) are an important issue. Its policies (review and approval of brand and generic drugs) have significant influence drug supplies and shortages. Executive Order 13588 (18) section 3 clearly directs FDA to expedite its regulatory reviews. Question needs to be asked to FDA “What improvements and changes have they made to their current filing and approval processes for the brand drug [new drug application NDA] and the generic drug [abbreviated new drug application ANDA] to reduce or curtail shortages”. If US FDA had any influence to curtail shortages, it would have tooted its horn. With that not being the case, it is obvious that nothing has changed.
Path Going Forward for Eliminating Shortages, US Self-Sufficiency & Onshoring of Generic Drugs:
Review of NAS report (2) suggests that the committee lacks business and manufacturing experience. If it’s (2) recommendations are used to draw a road map to reduce/eliminate drug shortages, one would be utterly lost. Banking on overseas relationships is a “BAD” idea. Implementation of its suggestions is not going to assure US drug and device supplies. Actually with time they will get worse. NAS report does not discuss why the shortages occur (26). It could be the committee does not understand the root causes. NAS has totally ignored distributor’s (PBMs, GPOs and associates) role in shortages. Report has also excluded FDA’s role and what it can do to bring drug manufacturing home. Role of each is reviewed.
Drug Distribution (PBMs and GPO)(5) :
Each drug manufacturer has to meet its target profit goal for its products. If they are not able to meet that goal on an ongoing basis, unless forced, they will not produce the drug even if patient life depends on it. A recent 60 Minutes presentation (27) is an excellent presentation of GPO (5) operating styles. PBM’s most likely have similar operating style,
Review of NAS report (2) suggests that its committee lacks business and manufacturing experience, my conjecture. Does it really understand the relationship between manufacturing cost of the API, their formulated sell price and the selling price of the respective drugs? It is best to demystify the costs and the selling prices. Few drugs are selected. Similar analysis can be used to gauge the prices along the supply chain. Table 1 (28, 29, 30, 31) illustrates costs and selling prices for selected drugs from API to patient. Every cost can be reverse calculated. Chemical engineers are taught this as part of the chemical engineering curriculum.
API cost $/kg
Inert excipients $/kg (@40%API cost)
Conversion cost, $/kg(@40%API cost)
Profit (@ 40% above)
Formulator Sale price per tablet, $
US Patient purchase price, $/tablet
Mark Cuban prices
Tablet Selling price % of finished dose with insurance
Selling price % if the API costs were doubled.
Selling price % if the Mfg. sell price were doubled.
Table 1: Formulator Drug Selling Price $/kg and Patient Purchase Price (28, 29, 30, 31)
Price differentials between formulators to patients (Table 1) suggest that profit margins of intermediaries, PBMs et.al., are overwhelming. As part of their negotiations, they will pressure the formulators (manufacturers) to lower their selling prices i.e. the margins. However, due to manufacturer’s profits goals, if a higher profit margin product can be made in the same equipment, companies will not produce lower margin products. This can result in shortages. To manufacturers profits are more important than the drug shortages.
To assure supplies, manufacturer to patient distribution chain needs to be addressed. Without having another supply method/chain (32) the current PBMs or GPO does take advantage of the patient’s vulnerability to extend life. Current distribution system’s pricing transparencies (27) are not clear. They can be improved and can be done by having another parallel supply chain (32). It will create competition and beacuse manufacturers can supply directly to patients at much lower prices, it will be a double win (patient and manufacturer). It will improve customer service, product availability and lowers drug pricing. Competition always does.
Manufacturers selling to directly to patients, a parallel system, would be vigorously objected by the current distribution channels. Since the same manufacturers who are supplying through the existing channels would be the suppliers, FDA and others should not have any objections. FDA will still have jurisdiction on drug quality.
However they should not, as it would be a parallel distribution system, no different from the current system. Moreover, one has to wonder how much control FDA has on the current drug distribution channels as it does not regulate drug distribution process. PBMs are not held accountable for distribution of less than quality drugs. They should be held accountable (33).
FDA would have to tighten up its quality compliance requirements. Currently FDA issues 483 (34) citations. It could issue them but first non-compliance after one 483 would bar the team that includes purchasing, quality evaluation, distribution for FOUR years producing and distributing any product in USA (33). Such penalty could be considered harsh but patient’s life cannot be expendable. It is interesting to note that PhRMA (35) in its recently asked Federal Trade Commission (FTC) to look into trading practices of PBMs.
FDA and its ANDA Approval Process:
US’s dependence on foreign sourced drugs (23, 24, 25) and the resulting shortages are recognized. It still has to act on Section 3 of Executive Order 13588 (18). With no proposal to curtail and/or eliminate shortages one is proposed. Quick approval from FDA would be needed. No one is going to wait 36-48 months for an approval. Unless changes are made to the current ANDA filing and approval system, discussion/debate about drug shortages will continue. Since US government has no proposals on the table to eliminate drug shortages. One is proposed. To reduce /eliminate drug shortages and bring pharma manufacturing home, FDA’s ANDA drug approval system will have to change (36, 37).
FDA’s recommendations (12) have no value as its recommendation will take long implementation time and still will not eliminate shortages. To eliminate shortages FDA’s current ANDA approval system and its approval time needs to change (34, 38, 39) as no investor will wait for years to earn their return on investment and as suggested earlier allowed to market their products directly to patients (32).
Companies willing to locate manufacturing plants in USA should also be given ANDA approval preference (37). Unless shorter approval times becomes a reality, companies will not invest in US to manufacture generic drug products. This along with their capability to sell directly to patients, as discussed earlier, to gain market share would be the right incentive. Manufacturers profits better than the current levels and shorter ANDA approval times will promote competition and will bring manufacturing technology innovation that has been lacking for the last 60+ years.
FDA will have to create teams for “fast-track” approvals. They will have to be the master of chemistry, chemical engineering, analytical chemistry, manufacturing and every other traits that are needed for review and approval. They will have to develop, design and do filing and approval test runs to make sure that they will meet the time tables laid out. It is not going to be easy. If it was easy anyone would have been done. My concern at FDA two reasons:
· it does not have trained personnel to implement such a change
· it would perceive such a change equal to losing its clout.
In reality, FDA will not lose its clout but will gain a place in history for bringing pharmaceutical manufacturing back home. On the other hand PBM/GPO and others will make every effort to quash such progressive idea. If the US legislators believe that by doing nothing or following NAS recommendations shortage or ever increasing drug prices will go away then the future when US could be left holding an empty bag is not far away. Suggestions proposed have to be explored and implemented for “onshoring”. There is no alternate choice. “Hakuna matata” (40) cannot go on forever.
If the proposed distribution and short ANDA approval times and sale of drug from manufacturer to patient (32) becomes a reality, it is very likely that companies could line up to set manufacturing in the US. That would bring jobs home. US would ward off reduce/shortages possibilities and any potential foreign strategic extortion.
Drug Manufacturing in US:
If companies decide to set up manufacturing plants in US they will have to have incentive of higher profits and getting a return on their investment. Combination of quick ANDA approvals and ability to market directly as discussed earlier give them the opportunity to set up plants in USA. This will also give companies an opportunity to excel in process manufacturing technologies that will lower pharma’s emission factor (29, 30, 41). Penalties for non-compliance have to be equally harsh. No one will invest monies in USA if FDA approval will continue to take 36-48 months to commercialize a product.
Companies need to move away from the process designs of the last 70+ years where they have fitted processes in existing equipment. Depending on the product volumes some of the processes with right sized and designed equipment can be continuous processes. Such opportunities exist. Generally the yearly API volume can be a challenge.
Companies producing generic drugs in US will have to re-invent their processes by using the talent “VILLAGE” (29, 42) (chemists, chemical engineers, manufacturing and others) they have to develop and commercialize the needed products. By capitalizing on the physical and chemical properties of raw materials and intermediates and right sized equipment (29, 30, 41) can be used to have an economic and environmentally friendly processes.
Properly thought through and designed modular plants (29, 30, 41) can be used. Properly designed plants can lower their emissions by better then 50% (16, 17, 29, 30, 42, 43). Due to long process runs (i.e. “real” continuous processes) environmental emissions can be significantly lower than the current batch processes. Companies will have to forgo the habit of fitting processes in the existing equipment (44, 45).
US can embark on setting uniform global emission standards (43) from the chemical/pharmaceutical plants. This goal might be difficult to achieve but can level the playing field. All said and done onus is on US to identify the root cause of drug shortages and find an enduring solution (46). If we don’t, we will be discussing this in the next few years as a routine ritual.
Girish Malhotra, PE
1. National Academy of Sciences https://www.nationalacademies.org/about Accessed May 1, 2022
2. Building Resilience into the Nation's Medical Product Supply Chains (2022) https://nap.nationalacademies.org/catalog/26420/building-resilience-into-the-nations-medical-product-supply-chainsAccessed April 22, 2022
3. Offshore- Outsourcing https://www.ttec.com/glossary/offshore-outsourcing Accessed May 17, 2022
4. Pharmacy Benefit Managers and Their Role in Drug Spending, https://www.commonwealthfund.org/publications/explainer/2019/apr/pharmacy-benefit-managers-and-their-role-drug-spending April 22, 2019 Accesses May 29, 2022
5. Key Differences Between Healthcare Group Purchasing Organizations (GPOs) & Pharmacy Benefit Managers (PBMs) https://www.supplychainassociation.org/wp-content/uploads/2019/01/HSCA-GPO-and-PBM-Comparison.pdf Accessed May 23, 2022
6. Fortune https://fortune.com/fortune500/2022/?utm_source=Iterable&utm_medium=email&utm_campaign=Fortune500_2022Accessed May 23, 2022
7. FDA commissioner https://www.fda.gov/about-fda/fda-organization/robert-califf February 2, 2022 Accessed May 1, 2022
8. Manhattan Project https://en.wikipedia.org/wiki/Manhattan_Project Accessed March 15, 2022,
9. Moon Missions https://moon.nasa.gov/exploration/moon-missions/ Accessed May 20, 2022
10. SpaceX https://www.spacex.com Accessed May 3, 2022
11. Malhotra, Girish: Drug Prices: Food vs. Medicine - A Difficult Choice for Some, Profitability through Simplicity June 16, 2011 Accessed May 1, 2022
12. Report | Drug Shortages: Root Causes and Potential Solutions fda.gov October 29, 2019 Accessed May 1, 2022
13. Continuous Production Wikipedia Accessed January 2, 2020 Accessed May 2, 2022
14. 3D printing of drugs Medical Device Network Feb 4, 2021 Accessed May 31, 2022
15. Unit operations and unit processes https://chemicalengineeringworld.com/unit-operation-and-unit-process/ Accessed May 2, 2022
16. Malhotra, Girish: Active Pharmaceutical Ingredient Manufacturing (API) and Formulation Drive to NET ZERO (Carbon Neutral)? Profitability through Simplicity April 29, 2021 Accessed May 4, 2022
17. Malhotra, Girish: Climate Change and Greening of Pharmaceutical Manufacturing, Profitability through Simplicity January 24, 2022 Accessed May 15, 2022
18. Executive Order 13588 Reducing Prescription Drug Shortages, October 31, 2011, Accessed August 31, 2020
19. Executive Order 13944 https://www.govinfo.gov/content/pkg/FR-2020-08-14/pdf/2020-18012.pdf Accessed April 26, 2022
20. Executive Order on America’s Supply Chains (https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/executive-order-on-americas-supply-chains/ Feb. 21, 2021 Accessed May 30, 2022
21. Office of Assistant Secretary for Preparedness and Response https://aspr.hhs.gov/Pages/Home.aspx, Accessed May 3 2022
22. Strategic National Stockpile https://remm.hhs.gov/sns.htm Accessed May 3 2022
23. Testimony Dr. Janet Woodcock: Safeguarding Pharmaceutical Supply Chains in a Global Economy FDA.gov October 19, 2019 Accessed May 1, 2022
24. Strategic Plan for Preventing and Mitigating Drug Shortages https://www.fda.gov/media/86907/download Accessed March 1, 2022
25. Drug Shortages: Root Causes and Potential Solutions October, 2019 https://www.fda.gov/media/131130/download Accessed November 6, 2019
26. Malhotra, Girish: Health and National Security Issues for the USA and Is The United States of America Prepared, Profitability through Simplicity Friday, May 8, 2020 Accessed April 25, 2022
27. 60 Minutes - Medical Middlemen: Broken system making it harder for hospitals and patients to get some life-saving drugshttps://www.cbsnews.com/news/generic-drugs-pharmaceutical-companies-60-minutes-2022-05-22/ May 22, 2022 Accessed May 30, 2022
28. Malhotra, Girish: Systematic Demystification of Drug Price Mystique and the Needed Creative Destruction, Profitability through Simplicity, October 2, 2019 Accessed May 10, 2022
29. Malhotra, Girish: Active Pharmaceutical Ingredient Manufacturing: Nondestructive Creation DE Gruyter April 2022
30. Malhotra, Girish: Chemical Process Simplification: Improving Productivity and Sustainability John Wiley & Sons, February 2011
31. Malhotra, Girish: US’s Self Sufficiency for Generic Drugs: A Supply Dilemma and Potential Solutions, Profitability through Simplicity, March 31, 2022 Accessed April 24, 2022
32. Malhotra, Girish: Improving Drug Affordability for the United States Populous through Alternate Business Models, Profitability through Simplicity May 4, 2018 Accessed May 25, 2022)
33. Malhotra, Girish: ONE PAGE Road Map to Reduce Drug Shortages, Assure Quality and Improve Affordability, Profitability through Simplicity, December 6, 2019 Accessed April 23, 2022
34. Malhotra, Girish: Are US FDA 483 Citations a "Medal of Honor" or “Rite of Passage” to Disgrace for the Pharma companies? Profitability through Simplicity, October 16, 2019 Accessed May 1, 2022
35. Solicitation for Public Comments on the Impact of Pharmacy Benefit Managers’ Business Practices and Their Impact on Independent Pharmacies and Consumers, May 25, 2022 Accessed June 5, 2022
36. Malhotra, Girish: Bring Pharmaceutical Manufacturing Back to USA: Additional Thoughts and Recap Profitability through Simplicity May 29, 2020 Accessed May 15, 2022
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38. Malhotra, Girish: Health and National Security Issues for the USA and Is The United States of America Prepared Profitability through Simplicity May 10, 2020 Accessed May 1, 2022
39. Malhotra, Girish: Euphoria to Bring Pharma Manufacturing Home to United States its Reality and Challenges, Profitability through Simplicity, May 23, 2020 Accessed May 20, 2022
40. Hakuna Matata Accessed May 15, 2022
41. Schmitt, Siegfried: Quality by Design: Chapter Four Simplified Process Development and Commercialization, Parenteral Drug Association 2011
42. Malhotra, Girish: A road map for driving pharmaceutical manufacturing back to the USA by 2025, Profitability through Simplicity, Thursday, October 8, 2020 Accessed April 30, 2022
43. Malhotra, Girish: Can Uniform Safety, Health and Effluent and Manufacturing Standards Create Process Technology Innovation and Competition in Pharmaceuticals? Profitability through Simplicity January 10, 2017 Accessed May 1, 2022
44. Malhotra, Girish: Square Plug in A Round Hole: Does This Scenario Exist in Pharmaceuticals?, Profitability through Simplicity, August 17, 2010 Accessed May 3, 2022
45. Malhotra, Girish: Why Fitting a Square Plug in a Round hole is Profitable for Pharma and Most Likely Will Stay? Profitability through Simplicity August 1, 2014 Accessed May 3, 2022
46. Malhotra, Girish: Identifying the Root Causes of Drug Shortages and Finding An Enduring Solution, Profitability through Simplicity December 7, 2018 Accessed May 3, 2022