USA’s Annual Ritual of Drug Sourcing/pricing and Shortages

In fourth quarter of every year in USA, there is a euphoria of finding the right prescription drug sourcing ⁽¹⁾ plan. With number of players offering their plans one has to be careful to pick the right plan for their needs. It is interesting to note that we are given a filled price for the drug. Generally there is no breakdown of the components that make the payment to be made. 
 
It is generally accepted that the drugs will be available or shipped from the selected pharmacy and all will be good. It is worth noting that about 90% of the drugs dispensed are generic drugs ^{(1, 2)} and sourced through various suppliers under Medicare healthcare plans. According to US Census Bureau about 92.1 % of the US population has healthcare coverage ⁽³⁾. The numbers suggest that majority of the US population has access to generic drugs. However, issues of shortages and unaffordability prevails. Brand drug prices are not part of the discussion. Due to lack of any immediate competition they set their own sale prices. 
 
Pathway of the generic drug to the patient and pricing needs some explaining. PBMs (pharmacy benefit managers and their partners) purchase the drugs from manufacturers and distribute them. Their mission is maximize profits. 
 
Prescribers generally do not know the breakdown of the monies they pay i.e. cost of the drug, handling and shipping etc. Patient pays the price their drug provider charges. Table 1 reviews the price breakdown for two drugs. 
 
One of the age old trading practices is to pressure the manufacturer to lower their selling price. If the manufacturer does not make their desired profit, they will not sell the drug to PBMs and this will result in shortages. Patients will experience these. For PBMs drug becomes an “ITEM” of trade rather than a person’s life depends on it. To them profits are more important than the life of the patient/customer. 
 
Generally a cost breakdown of any drug is not in public domain. Their discussion is healthy as many ambiguities can be cleared. A cost breakdown and comparison with and without insurance ⁽⁴⁾ gives us the landscape. CostPlusdrugs.com ⁽⁵⁾ drug price breakdown is reviewed here. Prices of GoodRx.com ⁽⁶⁾ can be used for comparison. A review clears any misconception one could have. Perspective here reviews the cost of the generic drugs from the factory floor to the patient. Similar but different scale of numbers apply for the brand drugs. I am not influenced by any for or non-profit entity. Observations presented are my own. 
 
With such a large population being covered by various healthcare drug programs it is my belief that number of patients going outside their healthcare system to purchase drugs is going to be minimal. For patient going out of the network would be an anomaly. It would be same as an impulse purchase. It is  well known fact that such purchases are high priced ⁽⁴⁾. Thus listing of “retail prices” on respective sites ^(5,6) seems more like a scare tactic than a reality as very limited number will purchase drugs at retail prices.  

Lately drug shortages are increasing in the news. Has anyone analyzed why? Most likely no. They have a simple explanation. It is the profit at manufacturer level. Table 1 in the referred post ⁽⁴⁾ and this post clearly show the drug price component of each drug sell price. 
 
Even if manufacturing companies make a concerted effort to lower their manufacturing costs by using better processing technologies that can significantly lower their current environmental emission impact and are able to improve profits at their level, landscape will not change much. US will continue to see generic drug shortages ⁽⁷⁾ as PBMs will continue to pressure manufacturers to lower their selling prices. 
 
An analysis of adventure by Amazon, Berkshire Hathaway and J.P. Morgan ⁽⁸⁾ was bound to fail from the onset as they had no comprehensive and rational plan. Out of the box thinking” was needed but not considered ^{(9, 10)}. Only viable alternate is that drug manufacturers take over the distribution and compete ⁽⁷⁾. Competition will be lower overall drug prices and will be an overall win for the country. Generally it is.  
 
Table 1 is a comparison of factory drug prices and what a customer would pay if they bought the drugs from Costplus Drug Company ⁽⁵⁾and /or Amazon. Amazon does provide medications at discounted prices but details are not available unless one signs up ⁽¹¹⁾.

It is interesting to note that the drug component even after manufacturer making 200% profit are a small percentage of the drug selling price after including handling and shipping. These charges can be as much as 700+% above the drug manufacturer’s selling price. My conjecture is that such markups apply across the generic drug sale landscape. Better API and formulation manufacturing technologies ⁽¹²⁾ and shipping and handling technology combination present an opportunity to improve profits and lower prices of drug manufacturers and their distributors.  
 
There are two notable features of Costplus Drug and GoodRx companies.  Unlike other drug plans patients do not have to become their subscriber. 

Table 1: Price comparisons

 

US healthcare system has serious issues. My conjecture is that US Legislators and policymakers have no real knowledge and/or grasp of the landscape. If they have any knowledge, it has been ignored. Drastic re-think is need. However, due to political and vested influence of many, an “ALL HANDS” re-think effort to handle the drug pricing, shortages and bring manufacturing home ⁽⁷⁾ would be needed. Patient to have the best pricing has to have knowledge of all offerings to make the best decision for themselves. This is not an easy task. Question is “Do we have what it takes to address the issues and simplify drug purchases?” or policy makers, bureaucrats will just talk about it and succumb to political pressures and do nothing?  
 
Girish Malhotra, PE
President
 
EPCOT International

 

1.   Editorial Board Bloomberg: Are Generics Too Cheap for Their Own Good? November 16, 2023
2.   https://www.fda.gov/drugs/generic-drugs/office-generic-drugs-2021-annual-report
3.   https://www.census.gov/library/publications/2023/demo/p60-281.html
4.   Malhotra, Girish: Systematic Demystification of Drug Price Mystique and the Needed Creative Destruction, Profitability through Simplicity, October 2, 2019 
5.   Costplus Drug Company https://costplusdrugs.com
6.   GoodRx https://www.goodrx.com
7.   Malhotra, Girish: Roadmap to Reduce Drug Shortages and Bring Pharma Manufacturing Home (US), Profitability through Simplicity, October 30, 2023
8.   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
9.   Malhotra, Girish: Opportunities to Lower Drug Prices and Improve Affordability: From Creation (Manufacturing) to Consumption (Patient), Profitability through Simplicity, March 9, 2018 
10. Malhotra, Girish: Improving Drug Affordability for the United States Populous through Alternate Business Models, Profitability through Simplicity, May 4, 2018
11. Amazon: Courtesy Dr. Albinus D’Sa Senior Advisor November 19, 2023
12. Malhotra, Girish: Active Pharmaceutical Ingredient Manufacturing: Nondestructive Creation De Gruyter April 2022

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