US’s Self Sufficiency for Generic Drugs: A Supply Dilemma and Potential Solutions

The following are reviewed. 

 

1.     US Pharmaceutical supply vulnerability and an Antidote

2.     Thoughtless US government spending in the name of US’s self-sufficiency/ manufacturing technology

3.     US’s Pharma Supply Security

 

Landscape, perspective and potential solution presented are my own. They are a place to start. If US does not do anything, lack of supplies will come to haunt its population. There is no financial relationship with any entity. 

 

US Pharmaceutical (Generic Drug) Supply Vulnerability: 

 

Generic drugs make about 89% of the prescription drugs dispensed in USA ⁽¹⁾. Most of them are imported. US due to their continued supply may not consider them as its vulnerability. We need to recognize that US does not have the capability and capacity to produce many of the active pharmaceutical ingredients (API) and their formulations for the most generic  drugs. Lack of their continued supply can be used as a weapon to paralyze the country. Thus, a vulnerability exists.

 

The United States may be able to supply some drugs from its strategic stockpile ⁽²⁾ but as said earlier it does not be ability to sustain the long term needs. Unless US can produce its own generic/brand drugs, challenges will remain on an ongoing basis. This could be argued but we have recognize that the strategic stockpile ⁽²⁾ has limited supplies. This situation presents an opportunity to bring manufacturing home and lower the generic drug prices. 

 

Not much attention has been paid to this vulnerability. An old report about Homeland Risks ⁽³⁾ maybe still valid and very meaningful. An update is needed. Various plans, explanations and Executive orders have been proposed and nothing meaningful has resulted ^(4-10). Unless US takes bold steps to ward off the current situation, it will pay a heavy price for the healthcare of its population. 

 

We have to recognize that the current situation developed due to Hatch-Waxman law ⁽¹¹⁾ and lax environmental laws of other countries ⁽¹²⁾. US’s vulnerability can only be alleviated if it can manufacture its own drugs. Success in indigenous manufacturing as explained later could also lower generic drug prices. Effort will be necessary. However, the following will come in the way of bringing manufacturing home.

 

Industry has relied on manufacturing technologies that are more than 70+ years old. If the industry does not change its methodologies, generics produced in US will be the more expensive than the imports and US healthcare will suffer. For indigenous manufacturing, pharma will have to consider alternates business models/methods ⁽¹³⁾. 

 

US does not have many FDA approved API manufacturing plants that have the approved equipment to produce the needed/selected generic drugs. Unless planned, the processes will be fitted in the existing equipment. For formulations the existing plants will require product qualification and regulations will come in the way. Thoughtless fitting of the processes in the existing plants will result in high emissions per kilo of the product ⁽¹⁴⁾. Even if we had laboratory proven processes and the necessary commercial equipment, most likely the needed raw materials will have to be imported. This will be another challenge as US does not produce the needed fine/specialty chemicals that are the building blocks of the generic drugs. 

 

Since each process and product will have to have FDA approval, timely commercialization like “yesterday” due to any emergency will not happen. FDA’s track record in approval of generic drugs at best is dismal. They take about 36-48 ⁽¹⁵⁾ months for approval and would not admit this time per product. COVID-19 approval was an unsustainable exception. FDA will have to change its methods ^{(16, 17)}. Even if all of “t’s” are crossed and “i’s” are dotted by the companies and meet FDA’s requirements, its approval will be still needed. This means commercial availability of products will take time.

If through stroke of luck we had the approved product/process, equipment and raw materials and were able to produce the generic drug in the United States, their generic drug prices will go up by multiples of the current prices. This will be due to higher manufacturing costs and PBMs (pharmacy benefit managers) and supply chain participants insisting on keeping their profit margins. All this will make the drugs unaffordable. There are known ways to contain costs but will require different business model and operating strategies ⁽¹³⁾. They are discussed later. 

Antidote: 

Regulators ^(3-10) have been presenting plans for the last few years but the wheels have not resulted in anything meaningful.Legislators have had hearings but have no idea of how to solve the issue. They recognize the issue but have to depend on the industry (pharma companies, PBMs) and the regulators who due to profits and vested interests respectively have balked to address the issue/s. 

 

To assure continuous supply of the generic drugs and counter any strategic threat to US population, combination of methodologies outlined herein or something similar would have to be considered/adopted to assure US is not caught short-footed. Totally out-of-box thinking and execution would be needed ^{(13, 15)}. 

 

Four State Model (Puerto Rico Model):

 

A model similar to the one used in Puerto Rico ⁽¹⁸⁾ to attract pharma manufacturing could be used. US could create FOUR “pharma manufacturing zones” on the main land at the junction of four states each to produce generic drugs. This way SIXTEEN US states will benefit and support the pharmaceutical manufacturing ventures. 

 

For the “FOUR STATE MODEL” to succeed FDA’s rules and philosophies for generic approval and drug distribution will have to be modified ^{(19, 20)}. With generic factories being in sixteen states they could sell directly to patients at factory costs plus their reasonable margins. This would change the pricing landscape. Compliance with FDA regulations will not end. Spot checking of product quality will assure consistent quality. Any deviation would result in the factory not able to sell the products in the US market. An example of pricing is illustrated in Table 1 ⁽¹⁹⁾ . 

 

Drug	Metformin HCl	Ciprofloxacin	Levothyroxine	Atorvastatin
API cost $/kg (2)	4.00	25.00	4400.00	310.00
Inert excipients $/kg (@40%API cost)	1.60	10.00	1760.00	124.00
Conversion cost, $/kg(@40%API cost)	1.60	10.00	1760.00	124.00
Profit (@ 40% above)	2.88	18.00	3168.00	223.20
Total. $/kg	10.08	63.00	11088.00	781.20
Average Dose	500 mg	500 mg	0.112 microgram	20 mg
Formulator Sale price per tablet, $	0.005	0.032	0.001	0.008
Four State Model Factory Direct Sale price, $ per dose
Price, $ per tablet	0.03	0.10	0.10	0.10
Current Patient purchase price, $/tablet
Walmart	0.07	1.04	0.11	0.30
Rite-Aid With insurance	0.07	0.2	0.17	0.31
Rite-Aid Without insurance	0.7	4.77	0.82	3.97

 

Table 1: Factory sell prices vs. current sell prices ⁽¹⁹⁾

Many vested interests and that could include the legislators and the regulators will negate such plans on sight. PBMs and the supply chain will fight the above suggested plans “tooth and nail” as their profits would be drastically lowered. 

 

Focus on generic drugs would lead to manufacturing technology innovation which has been illusive to pharma as it has lived with its old “mortar and pestle” ways. We have all the knowledge and wherewithal to make the change ^{(13, 14, 15, 16, 17, 21, 22, 23)} if we incorporate principles of chemical engineering and chemistry from the onset of product/process development. Manufacturing technology innovation has been and is US HALLMARK but pharma has deliberately decided not incorporate it as their profits are assured. This is extremely ironic that pharmaceuticals, a subset of fine/specialty, has mostly ignored application of fundamentals of engineering and science ^{(13, 21, 22)}. As I have indicated naysayers will linger on and block any innovation. Unless bold steps are taken US could succumb to drug shortages and may not be able to take care of its masses. If we fail we will have no one but us to blame. With time learnings of generic success could be extended to brand drugs also.   

                                                            

Thoughtless US Government Spending:

 

As indicted earlier there is recognition of drug supply issues. US Government in its efforts to mitigate drug shortages and dependence has doled out monies that have no return. Funded enterprises have convinced US Government to spend close to billion dollars on pharma manufacturing technology innovation and bring manufacturing home. Some the technologies and methods to be developed in these programs are routinely taught at our universities and have been in existence for the last 70+ years. Since the companies are not using them commercially, there have to be rational reasons. Funding recipients and funders will disagree. Funding also begs a question “do the funders really understand what the funded organizations would do and deliver and their ROI?” For continued funding a periodic external audit of deliverables and their commercial viability is necessary. 

 

In 2020 BARDA, Biomedical Advanced Research and Development Authority of U.S. Department of Health and Human Services (HHS) granted PHLOW Corporation about $812 million in the pretense of bringing pharma manufacturing back to US when the company has no plant, no approved product or a process ⁽²⁴⁾. In the name of innovation and COVID-19, this company is outsourcing manufacturing at US based subsidiaries of foreign companies. This should not be considered as independence. Since the products or their processes that would be produced at this company’s facilities are not know or FDA approved, it is difficult to speculate their selling prices. If they are based on pharma’s current traditions, they will be higher priced than comparable imported drugs.  

 

Similarly Department of Defense (DOD) granted Continuus Pharmaceuticals $69.3 million to develop continuous manufacturing capabilities ⁽²⁵⁾ for critical drugs. Irony is that the company, with no commercial products, or DOD do not know which critical drugs they will test or are they FDA approved products/processes. Since this is research company, FDA does not know if the equipment is suitable to produce these drugs. Actually DOD or most of the companies including US FDA have created their own definition for a “continuous process” that is quite contrary to the established definition for continuous processes ⁽²⁶⁾ that have been practiced for the last 70+ years for the manufacture of fine/specialty chemicals but not API, a subset of fine/specialty chemicals. FDA would not detail on paper its definition.

 

To make a mockery of our engineering education and our universities’ intelligence US Congress through HR 4369 (National Centers of Excellence in Advanced and Continuous Pharmaceutical Manufacturing Act of 2021⁽²⁷⁾ and through S-2589 (Securing America’s Medicine Cabinet Act of 2021) ⁽²⁸⁾ are asking for funding for producing drugs using continuous processes which have been practiced for over 70+ years. HR 3851 Continuous Manufacturing Research Act Of 2021 ⁽²⁹⁾ fits the same frivolous spending category. 

Funding for Continuus Pharmaceuticals ⁽²⁵⁾,  HR 4369 ⁽²⁷⁾, S-2589 ⁽²⁸⁾ and HR 3851⁽²⁹⁾ are supported by FDA whose personnel have no hands-on experience in process development, scale up and commercialization of any  continuous processes per established definition ⁽²⁶⁾ practiced by chemical engineers for more than 70+ years. 

RAPID Institute (American Institute of Chemical Engineers, AIChE), New York, New York ⁽³⁰⁾ funding suggests that our universities have failed to teach chemical engineers and chemist how to practice chemical engineering and source raw materials. It is ironic that AIChE is the trade organization of chemical engineers where sourcing of raw materials is part of CHE101 classes.  

 

Universities teach the fundamentals that are creatively and imaginatively applied to commercialize excellent processes. However, pharma companies, as said earlier due to their “mortar and pestle” ways, have ignored the fundamentals when it comes to their manufacturing practices. Lack of application of the best practices of the fine/specialty chemical industry in pharma, a subset of this group, has been pharma’s way of life. This has resulted in it being the highest pollutant emitter per kilo ⁽¹⁴⁾ in the chemical segment. We have to remember that drugs are fine/specialty chemicals that have disease curing value. Thus, the best technologies that are being used elsewhere can be applied here also. 

 

US’s Pharma Supply Security:

 

US has been satisfied and content with its pharma supply chain as “half full” glass. However, the current global political turmoil, starting with oil and gas, very well could lead to global economic and business transformation. It could lead to “deglobalization”. Thus to assure the supply of essentials and that includes food and drugs, US needs to look at its “half full glass” differently as “half empty” and needs to assure it is full. Existing methods and technologies that have been applied successfully in the fine/specialty chemicals and overlooked in pharma could be applied differently to assure its continued supply. This will result in alternate business models. 

 

Pharma can be the easiest and quickest candidate for “deglobalization” as the relevant technologies needed for transformation are being practiced but inefficiently to furnish the current needs of US population ^{(14-17, 21, 22, 23)}. Outliers will be needed. They will result in a better landscape and alleviate the current drug dependence from other countries. Success will change healthcare practices of The United States. Even with the application of these newer methods development of new drug development will not be hampered. 

 

With respect to pharmaceuticals, we need to think rationally rather than act on the basis of useless euphoria. Till US does that we will go nowhere especially when it comes to addressing the “strategic needs”. We have the knowledge base ^{(14-17, 21, 22, 23)} and need to apply it. Piecemeal projects ^{(24, 25, 27-30)} are shear waste of monies, effort and time that United States of America cannot afford especially under the current global political environment. A project team ⁽¹⁵⁾ similar to Manhattan Project ⁽³¹⁾ has to be assembled for the task of bring pharmaceutical manufacturing home. 

 

FDA, PBMs, members of supply chain and even the legislators in the interest of wellbeing of the nation will have to shed their vested interests. Public welfare and needs have to come first. If US can send the human to the moon and bring him back safely, bringing pharmaceutical manufacturing home should be a cake walk. 

 

Girish Malhotra, PE

EPCOT International

 

1.     2017 Generic Drug Access & Savings in the U.S. https://accessiblemeds.org/sites/default/files/2017-07/2017-AAM-Access-Savings-Report-2017-web2.pdf  Accessed March 14, 2022 

2.     Sustaining the Stockpile:  https://www.phe.gov/about/sns/Pages/sustaining.aspx Accessed March 14, 2022

3.     Reliance on Foreign Sourcing in the Healthcare and Public Health (HPH) Sector: https://www.hida.org/App_Themes/Member/docs/GA/Industry-Issues/Emergency-Pandemic/Dept-Commerce-Study_Healthcare-Foreign-Sourcing.pdf  December 11, 2011 Accessed  March 20, 2022

4.     Executive Order 13944 of August 6, 2020, Accessed August 13, 2020 

5.     Executive Order 13588 -- Reducing Prescription Drug Shortages October 31, 2011, Accessed August 31, 2020

6.     Agency Drug Shortages Task Force, https://www.fda.gov/drugs/drug-shortages/agency-drug-shortages-task-force , Accessed September 1, 2020

7.     Woodcock, Dr. Janet: To Help Reduce Drug Shortages, We Need Manufacturers to Sell Quality — Not Just Medicine, October 24, 2019 Accessed November 6, 2019

8.     FDA Report | Drug Shortages: Root Causes and Potential Solutions October 29, 2019, Accessed November 6, 2019

9.     FDA is Advancing New Efforts to Address Drug Shortages, https://www.fda.gov/news-events/fda-voices/fda-advancing-new-efforts-address-drug-shortages  November 11, 2018 Accessed 

10.  Strategic Plan for Preventing and Mitigating Drug Shortages FDA October 2013 Accessed March 1, 2022

11.  Hatch-Waxman Law https://www.govinfo.gov/content/pkg/STATUTE-98/pdf/STATUTE-98-Pg1585.pdf September 24, 1984 Accessed March 10, 2022

12.  Malhotra, Girish: Why Have the Fine and Specialty Chemical Sectors Been Moving from the Developed Countries? Profitability through Simplicity February 9, 2009 Accessed March 10, 2022

13.  Malhotra, Girish: Active Pharmaceutical Ingredient Manufacturing: Nondestructive Creation Accessed February 28, 2022.

14.  Malhotra, Girish: Active Pharmaceutical Ingredient Manufacturing (API) and Formulation Drive to NET ZERO (Carbon Neutral)? Profitability through Simplicity April 29, 2021 Accessed February 28, 2022

15.  Malhotra, Girish: A road map for driving pharmaceutical manufacturing back to the USA by 2025 Profitability through Simplicity October 8, 2020 Accessed March 10, 2022

16.  Malhotra, Girish: Strategies to Increase Generic Drug Competition and Bring Manufacturing to The United States of America, Profitability through Simplicity March 16, 2020 Accessed March 11, 2022 

17.  Malhotra, Girish: ONE PAGE Road Map to Reduce Drug Shortages, Assure Quality and Improve Affordability, Profitability through Simplicity December 6, 2019 Accessed March 20, 2022

18.  MacEwan, Arthur: The Effect of 936 May 2016 Accessed March 15, 2022

19.  Malhotra, Girish: Systematic Demystification of Drug Price Mystique and the Needed Creative Destruction, Profitability through Simplicity October 2, 2019 accessed March 8, 2022

20.  Malhotra, Girish: ANDA (Abbreviated New Drug Application) / NDA (New Drug Applications) Filing Simplification: Road Maps are a Must Profitability through Simplicity May 17, 2017 Accessed March 10, 2022

21.  Perry, J. H. et.al. Chemical Engineer’s Handbook Fourth Edition: McGraw-Hill Chemical Engineering Series, 1963   

22.  Malhotra, Girish: Quick Review of Chemicals Related Process Development, Design and Scale up Considerations, Profitability through Simplicity November 7, 2018

23.  Malhotra, Girish: Chemical Process Simplification: Improving Productivity and Sustainability John Wiley & Sons, February 2011

24.  US government to grant up to $812M to newcomer Phlow Corporation for Covid-19 manufacturing: Bringing pharma home or ‘profiteering off pandemic’? Pharmaceutical Technology July 16, 2020 Accessed March 7, 2022

25.  DOD Awards $69.3 Million Contract to CONTINUUS Pharmaceuticals to Develop US-based Continuous Manufacturing Capability for Critical Medicines  https://www.defense.gov/News/Releases/Release/Article/2474092/dod-awards-693-million-contract-to-continuus-pharmaceuticals-to-develop-us-base/ January 15, 2021 Accessed March 8, 2022

26.  Continuous production https://bit.ly/2qAyc9f

27.  HR 4369 (National Centers of Excellence in Advanced and Continuous Pharmaceutical Manufacturing Act of 2021 https://www.congress.gov/bill/117th-congress/house-bill/4369/related-bills July 6, 2021 Accessed March 10, 2022

28.  S. 2589 - Securing America’s Medicine Cabinet Act of 2021 https://www.congress.gov/bill/117th-congress/senate-bill/2589?s=1&r=54 August 3, 2021 Accessed March 1, 2022

29.  H.R. 3851 Continuous Manufacturing Research Act Of 2021,  https://www.congress.gov/bill/117th-congress/house-bill/3851?r=6&s=1 June 11, 2021 Accessed February 27, 2022

30.  Commerce Department Awards $54 Million in American Rescue Act Grants to Increase Access to Advanced Manufacturing Opportunities https://www.nist.gov/news-events/news/2022/02/commerce-department-awards-54-million-american-rescue-act-grants-increase February 28, 2022 Accessed March 2, 2022 

31.  Manhattan Project  https://en.wikipedia.org/wiki/Manhattan_Project Accessed  March 15, 2022

 

Impact of Regulations, Manufacturing and Pharmaceutical Supply Chain (PBMs) on Drug Shortages and Affordability Part 2:

Part 2 is an overview of impact of manufacturing, causes of shortages and PBM’s role in drug prices and shortages. In Part 1 ⁽¹⁾ of the blog I have suggested that there are opportunities if regulators facilitate the processes. In this part, I am enumerating opportunities that are worth considering and can be exploited. Observations and views are mine and no reflection of any entity or their performance. There is no financial relationship with any company.

Manufacturing and Technologies:

All involved in pharmaceuticals understand the current landscape but still it is good to refresh. Pharmaceutical manufacturing has two distinct components: API manufacturing and their formulations (FDF: finished drug forms). At times I have seen in press, academia and even the regulators calling just the formulation to be pharmaceutical manufacturing. Without an API, there is no pharmaceutical/drug and the product is just a placebo of no value. Two make the whole. 

Manufacturing Landscape:

Table 1⁽²⁾ is a snapshot of the pharma’s current manufacturing landscape for some APIs and their formulations. It is worth understanding it. Since many sites are producing the same actives and formulating them, my conjecture is that most processes are fitted in the existing equipment ^{(3, 4)}, a feature of batch processing. This generally results in the processes not being the most economic compared to equipment designed for a specific product. Companies are also not able to take advantage of economies of scale. 

Since patients need pharmaceuticals to extend life they will pay the highest price. Pharmaceutical industry capitalizes on this sentiment in profit making rather than competition. No one wants to acknowledge this but the fact remains. Simply said, inefficiency sells in pharma, my perspective. Reverse calculations tell us how a drug is priced ^{(5, 6)}and one can see profits at different levels. This further explained later. 

Drug	Number of API Sites	Number of FDF Sites
Ciprofloxacin	22	536
Atorvastatin Calcium	44	865
Omeprazole	87	768
Modafinil	29	70
Metformin HCl	77	752
Metoprolol	41	338

Table 1

High concentration of ANDA’s with limited companies ⁽⁷⁾ also adds to the current manufacturing complexity.Since the same equipment is used for multiple products, any investment that will lower costs and improve profitability through process improvements or equipment enhancement for selected processes are difficult to justify. In addition, use of same equipment to produce different actives and formulate them necessitates stricter compliance with cGMP requirements. Asset utilization is not the best. As explained later, combination of all can be a leading cause of shortages and data integrity.Landscape is ripe for simplification and much higher profitability.

A methodical review of APIs and their formulations tells us that opportunities exist to improve profits and reduce shortages. “Nondisruptive creation” ⁽⁸⁾ and “creative destruction” ⁽⁹⁾ are two potential ways to make drugs affordable, reduce shortages and for the companies to make significantly more monies than the current levels. However, this requires out of the box thinking and a different business model. Both would be considered disruption to the current business model. In each case plants will use optimum and competitive manufacturing technologies. Such plants will be able to react to shortages quickly, make drugs affordable and satisfy the growing pharmaceutical needs of 80% of the global population ⁽¹⁰⁾. 

In “nondisruptive creation” ⁽⁸⁾ and “creative destruction” ⁽⁹⁾ models, number of plants producing APIs and formulating them will be considerably reduced through consolidation. Plants will be based on economies of scale, most economic processes, and can react to any market changes. As explained in Part 1 of this post, FDA’s quick approval path might encourage companies to compete using either of these models. In either of the models, companies can select APIs and their formulations that interest them and commercialize the best manufacturing technologies to fulfill global demand ⁽¹⁰⁾. 

Modafinil, Ciprofloxacin, Atorvastatin and Omeprazole, Metoprolol ^{(11, 12, 13, 14, 15)} are just few APIs that can be produced in their dedicated single plants using continuous process to meet the global API demands. Metformin and omeprazole most likely would need multiple continuous plants. API processes will be most economic and highly profitable. Multiple FDF facilities would be also needed for these products. Technologies for continuous API and FDF plants have existed for over 60+ years. 

In Table 2, number of sites from Table 1 are used as an illustration for Omeprazole. API volume is an assumption. Most likely each plant does not have the most economic process. If omeprazole demand is quadrupled, it definitely becomes a continuous process candidate. Batch finished dose plants still would be uneconomic. Since the current processes meet each company’s profitability goals, economic processes are generally not the consideration. 

API, Kg. /yr.	# of patients	# of 20 mg. tablets per yr.	Tablets/ FDF plant	API, Kg./plant
1,400,000	191,780,822	70,000,000,000	91,145,833	16,092

Table 2

Omeprazole and esomeprazole can be manufactured at a single properly designed continuous plant. FDF doses can be finished in less than 20 properly designed continuous plants. Manufacturing cost of drugs could drop as much as 40%. It is an opportunity. Fundamentals of engineering, science and economics will guide to the most optimum model and process. Companies will have to make sure that they do not succumb to regulatory, academic or equipment vendor pressures in selection of their processes. 

Since companies will have to file and get regulatory approval, my conjecture is that the likelihood of moving from the current model to the alternate models ^{(8, 9)} for the existing drugs are very slim. This is difficult due to FDA current approval process and companies would need to think out of the box, not an easy thing when they are profitable. 

For the landscape to change FDA and other regulators, as stated in Part 1 of the blog, will have to facilitate and create competitive environment for the companies. My hope is given an opportunity companies will do that ⁽¹⁶⁾.Going forward companies will have to decide their best options. Significant upside of consolidation will be a much smaller but extremely robust portfolio of the companies. They will meet any and every demand upturn or downturn with much higher profits. Methodology can be used for any drug.

Continuous Improvement:

Continuous improvement, a mini version of “nondestructive creation” can also be used to reduce shortages and improve profitability and affordability. Such programs are necessary. However, as stated earlier due to regulatory obligations, such programs can be a challenge. 

Every process improvement in API and Formulation has to be tested on commercial scale to make sure product quality has not changed. It is well accepted that improvements tested in the lab and/or pilot plant will have to be confirmed on commercial equipment. Process improvement for each product at each site has to be justified. Testing of improvements is necessary as companies have an obligatory duty to meet regulatory requirements. Testing on commercial scale takes time, effort and money and can interfere with regular production schedule. Just for these reasons they, at times, are procrastinated and/or avoided. 

Shortages:

In the business world, it is well known that shortages can result from any one or combination of the following. 

1. Lack of profitability for the product
2. Raw materials 
3. Product and production planning
4. Process equipment availability, breakdown/malfunction or poor preventive maintenance

If companies are forced to lower their profits from their desired levels and cannot justify improvements, it is very possible that they may not produce selected products and this can result in shortages. Companies with a large ANDA portfolio ⁽⁷⁾most likely will shy away from equipment modifications as they may lose their operating flexibility, unless they adopt an alternate model. Another factor that has measurable impact and cannot be overlooked is savings vs. investment. If equipment has to be added or modified for a single product and interferes with other products, it is very likely that the modifications cannot be justified or will be procrastinated and eventually can be the cause of shortages. 

 

Last three of the above are related to company’s manufacturing and management practices. 

Shortages due to the second and third items above can happen only if the manufacturing company is not on top of its game in anticipating market needs and production planning. Even seasoned players can overlook the needs or a surprise is popped by raw material suppliers or customers. Effective communication with suppliers can be ward off supply surprises. However, customer surprise can be anyone’s calling and an opportunity. Company’s desire not to produce the product due to its profitability below a certain level is its own choice. 

Manufacturing is affected by equipment availability, production scheduling, technology and equipment related issues. Companies must know their equipment and their capabilities. Missteps lower equipment utilization and can also result in shortages. As stated earlier “nondestructive creation” ⁽⁸⁾can reduce shortages. If manufacturing is on top of its game, demand ups and downs can be absorbed. 

Equipment availability/utilization, capabilities and that includes production schedule and preventive maintenance needs must be continuously reviewed. cGMP needs can influence equipment availability and scheduling complexity. If a company must repeatedly contend with same issues, it needs to review its operations, that includes staffing, equipment and process design. My conjecture is that ten companies producing ~69% ⁽⁶⁾of ANDAs must make sure no balls are dropped. I am sure that could happen even in optimally designed plants. My conjecture is that just to ward off such mis-steps pharma has excess capacity. 

Excess production capacity also tells us that most of the processes are inefficient along with poor asset utilization and there are opportunities to improve profits. However, compared to other industries pharma companies do not avail the opportunity as they are able to make good profits and don’t need to optimize their production. As stated earlier, even with overcapacity careful production planning is critical. We have to recognize that inelasticity of batch operations and cGMP practices at times prevent ability to cope up with sudden demand changes. 

Since batch operations operate periodically in a year, manpower and appropriate equipment availability can also throw production planning off schedule and can result in product shortages. Production volume and run length have significant influence. Longer production runs can be used to alleviate shortages, as practiced in other industries. In the manufacturing world, products with comparatively lower profitability and production volume generally get the least scheduling priority and can also fall off the schedule resulting in shortages. cGMP needs can push more drugs in this domain. As emphasized earlier process improvements even to reduce shortages must be approved by the regulators, companies hesitate to change and ignore shortages. 

My expectation is that raw material suppliers are also looking at the items discussed above as they must manufacture products for their customers. They would like to streamline their operations and improve their profits by bringing certainty. If their customers are supplying to the largest market, the US, I believe each will pay more attention to the needs of customers on the US ANDA list. These are assumptions that will have to be proven. 

Shortages can be reduced if companies have a good marriage of their products, technology and equipment. Companies have to be a “nondestructive creator” for their selected APIs and formulations. They need to re-evaluate their portfolio. Generally, batch product companies don’t look at the crystal ball but it needs to be looked at. My conjecture is that companies have all of the pieces parts that need to be assembled differently. Effort can be very effective in reducing shortages and improving profits. 

PBMs (Pharmacy Benefit Managers) and Insurance Companies: 

Growing up I was always warned “be careful of the middleman”. In the United States Pharmacy Benefit Managers (PBMs) are the middlemen between manufacturers and patients. They are the BLACK BOX. No one really knows the workings of this box but attempts are made ⁽¹⁸⁾. Insurance companies are also part of this BLACK BOX. Insurers love to take money but hesitate the payback. This is well known. 

It is fascinating that no one knows real prices in the US. They can be reverse calculated by anyone who is knowledgeable in chemistry, manufacturing and costing. Reverse calculations ^{(5, 6)} give us significant clues. Table 3 is an illustration of prices of some drugs that would be ex-factory after their margins. Second last column is tablet selling prices to PBMs that include every margin, FDF conversion cost, profits at every level. Ten times the API selling price should cover more than any cost oversights at pharma factory level. Last column are the selling prices in US with or without health coverage. It is easy to understand the price differentials and would make even the most naïve cringe. Selling prices for some drugs in India are documented ⁽⁶⁾. 

Drug	API $/kg	Mg./ tablet	Tablets /kg	API $/tablet	$ per Tablet 10 X API	Price per tablet in US, $
						With health coverage	With no coverage
Ciprofloxacin	24	500	2,000	0.012	0.12	0.20	3.58
Atorvastatin Calcium	302	10	100,000	0.00302	0.0302	0.02	3.50
Omeprazole	2	20	5,000	0.00004	0.0004	0.05	0.30
Metformin HCl	4	500	2,000	0.002	0.02	0.07	0.70

Table 3

Occupants of the supply chain black box have made sure it is not disturbed. Generally, such situations are an indication that there is a whole lot hiding which not many should understand. Listening to Drug CEO testimony ⁽¹⁷⁾, an interesting comment was made how drug prices are set. Higher list price results in higher rebates for the PBMs etal. companies and is the driver to be on the formulary listing. No one really knows the truth as there are many vested interests. Fact remains that the drugs are priced on the sentiment “patient will pay the highest price to extend life”. 

With ever increasing and higher drug prices fingers get pointed and the poor patient, who is trying to figure out how to buy medicines either mortgages her/is assets or at times must decide between their food and drugs dies as s/he cannot afford drugs ⁽¹⁹⁾. There is latent irreverence for the patient in the pharma hemisphere. General thinking “Oh well s/he was going to die sooner or later” but the shareholders should have high return on their investment. Mission accomplished. Irony is the patients put food on the table of all involved and gets no respect. 

On an anecdotal note in the hearing ⁽¹⁷⁾ companies claimed that they have their drug list prices are available on their websites. Good luck in trying to figure out prices of any drug! Fancy webpage designs but no prices. 

Under the current system bottom-line is that getting on the formulary, which gives preference to drug company and PBMs profits, is more important than the patient’s life and drug affordability. Question we need to ask FDA and others is why a generic drug that has been approved but has its availability controlled through formularies and not readily available at the local pharmacy. If US Congress has to tackle the juggernaut, so be it. My conjecture is that lobbyists will make sure that such simplicity does not happen. 

Meetings ⁽²⁰⁾ are held but nothing meaningful results. Each participant that includes brand and generic pharma companies, regulators and the supply chain participants have shared responsibility for the current woes of high/increasing drug prices and shortages. There is blame game. 

Lately drug companies have not introduced exceptionally better drugs than the current drugs at affordable prices ⁽⁹⁾. This is especially true for mass need diseases. To assure revenue growth, the easiest answer to revenue increase is to raise prices. It has become a habit. Once the existing blockbuster patents expire, I am not sure how pharma will continue their revenue growth. Over the long-term orphan drugs will not carry them over the finish line. 

There is a “creative destruction” solution ⁽²¹⁾ but everyone involved will make sure it never comes to fruition. In the simplest terms if a drug (brand or generic) has been approved by FDA, it should be readily available through a legitimate prescription at the local pharmacy or a web portal. Same drug e.g. ciprofloxacin could be manufactured by multiple FDA approved companies and be available at competitive prices through convenient outlets. There would be no preference between manufacturer “a” vs. “b” and there will be price competition. FDA’s approved drug list should be the formulary. There will be resistance.

What Does the Future Hold?

All said and done drug prices are going up and shortages are increasing. Every participant has contributed to high drug prices and shortages and no one wants to put on the yoke to make drugs affordable and eliminate shortages. It is not too late to fix the current landscape without government intervention which generally is brutal e.g. price fixing/controls.

To the pharmaceutical industry, issues and potential solutions are irrelevant because they are capitalizing on constant needs of patients who want to extend their life. They have tremendous opportunities to improve their profits and customer base ⁽¹⁰⁾. Instead of a revolution we have complacency. In the business world, “process of continuous improvement” is important but it seems like this philosophy has by-passed pharma as it is using its patients as pawns rather than competition to be profitable. 

Again, pharma and associates have to be proactive to reduce shortages and make drugs affordable while increasing their profits through “nondestructive creation”. It has to adopt better manufacturing technologies on its own volitions rather than being swayed by external influences. PBMs and associates need to adopt “nondestructive creation” and if they don’t “destructive creation” being considered ^{(22 )}could change the landscape. 

Pharmaceutical industry would not want government edicts to control shortages and control unscrupulous price increases. PBMs will also have to be reined in. Drug prices like Veteran’s Administration may have to be negotiated. US Legislators also have to wean off political influences to further their careers and serve the needs of the electorate. All this is a tall order and needs to be addressed rather than ignored. 

Girish Malhotra, PE

EPCOT International 

1. Malhotra, Girish: Impact of Regulations, Drug Manufacturing and Pharma Supply Chain (PBMs and allies) in Drug Shortages and Affordability 
2. PharmaCompasshttps://www.pharmacompass.com
3. Malhotra, Girish: Square Plug In A Round Hole: Does This Scenario Exist in Pharmaceuticals? Profitability through Simplicity, August 17, 2010
4. 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 
5. Malhotra, Girish: A Blueprint for Improved Pharma Competitiveness, Contract Pharma, Vol. 16, 7, Pg. 46-49, September 2014
6. Malhotra, Girish: Comparison of Drugs Prices: US vs. India; Their Manufacturing Costs & Opportunities to Improve Affordability, Profitability through Simplicity, January 18, 2018
7. Berndt, Ernest R., Conti, Rena M. and Murphy, Stephen J: The Generic User Fee Amendments: An Economic Perspective, NBER Working Paper 23642, August 2017
8. Kim, Chan W., Mauborgne: Nondisruptive Creation: Rethinking Innovation and Growth, MITSloan Review, February 21, 2019
9. Schumpeter, Joseph:Capitalism, Socialism and Democracy, 1942, Accessed November 29, 2018
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11. Malhotra, Girish: The Path Towards Continuous Processing, Pharmaceutical Processing, August 2010, pgs 16-20
12. Malhotra, Girish: Strategies for Improving Batch or Creating Continuous Active Pharmaceutical Ingredient (API) Manufacturing Processes, Profitability through Simplicity, March 20, 2017
13. Malhotra, Girish: Alphabet Shuffle: Moving From QbA to QbD - An Example of Continuous Processing, Pharmaceutical Processing, February 2009 pg 12-13
14. Malhotra, Girish:  Chemical Process Simplification: Improving Productivity and Sustainability John Wiley & Sons, February 2011
15. Malhotra, Girish: Batch, Continuous or "Fake/False" Continuous Processes, Profitability through Simplicity, July 20, 2017, American Pharmaceutical Review, Vol. 20 Issue 6 September/October 2017 pgs. 86-91, Contract Pharma, Nov./Dec. 2017 pgs 56-58, Chemistry Today, November/December 2017, Vol. 35(6) pgs 62-65
16. Field of Dreams
17. Senate Finance Hearing on Drug Pricing, C-SPAN, February 26, 2019 
18. Langreth, Robert, Ingold, David, Gu, Jackie: The Secret Drug Pricing System Middlemen Use to Rake in Millions, Bloomberg News, September 11, 2018
19. Malhotra, Girish: Drug Prices: Food vs. Medicine - A Difficult Choice for Some, Profitability Through Simplicity, June 17, 2011
20. Malhotra, Girish: Identifying the Root Causes of Drug Shortages and Finding An Enduring Solution, Profitability through Simplicity, December 7, 2018
21. Malhotra, Girish: Improving Drug Affordability for the United States Populous through Alternate  Business Models, Profitability through Simplicity, May 4, 2018
22. Malhotra, Girish: Could Amazon (A), Berkshire Hathaway (B) and J.P. Morgan Chase (M) be the Anti-Ballistic Missile (ABM) needed to Control/Curb Rising Healthcare Costs? Profitability through Simplicity,February 9, 2018