We have yet another update to our Supply Chain Matters ongoing commentaries as to why are pharmaceutical and drug supply chains failing to deliver reliable and life-saving supplies to doctors, hospitals and patients. The specific problem concerns generic, injected drugs which are utilized in chemotherapy and other life-saving treatments. Readers are welcomed to scan our previous initial commentary, and Commentary Two to gain a perspective on the depth and severity of this ongoing problem.

The Economist magazine printed an article in the September 3rd, 2011 edition, titled Coming up short.  It noted that in 2004, the U.S. had a shortage of 58 drugs. In 2010, there were 211 severe drug shortages, and thus far, 198 have been recoded.  The problem has spread and so has the panic. Once more, hospitals are now forced to consider navigating across ‘grey markets’ to secure some supply of life-saving drugs.

The Economist article notes that the causes of these drug shortages remain tangled and points to three potential causes. The first is manufacturing problems as firms trim costs and import cheaper active ingredients of variable quality. The second relates to ongoing mergers among generic drug makers, causing the supply of a given drug to be left to just one or two companies.  The third cause points to pricing, in that after a patented drug becomes open to generic alternatives, the price plunges as manufacturers fight for remaining market-share.  In all cases, market dysfunction then occurs opening the door to ‘grey market’ operators, hoarders and other such behaviors. While the FDA and firms are feverishly searching for root-cause solutions, U.S. Congressional leaders seen unable or unwilling to come-up with increased regulatory actions, especially in light of the current dysfunctional political environment.

Last week, we ran across a UPS press release announcing the release of the UPS 2011 Pain in the Supply Chain Survey specifically concerning healthcare manufacturers.  This survey outlined the top business and supply chain concerns of senior-level decision makers at nearly 250 pharmaceutical, biotech and medical device companies across the U.S., Europe and Asia. Surely, we would find some other pointers to this ongoing problem.

According to this survey, there are three key areas which these companies are focused:

  1. Investment (in technology and global expansion)
  2. Protection (in areas of intellectual property and product security)
  3. Acceleration (in levels of concern around issues and changes in the supply chain)

If you review the findings, you will note that the first area is about concerns relative to ongoing healthcare reform along with changing and increasing customs laws for raw materials. Concerns for protection center on the usual areas of increased regulation, reform legislation and patent expiration. In terms of the area of acceleration, not much at all is stated.  Doesn’t that seem odd?

What was noted was that managing costs ranked as the second largest supply chain issue, cited by 64 percent of decision makers, and one of the top issues many companies reported being unsuccessful in achieving. In fact, in the complete series of these UPS surveys, managing costs was the number one supply chain issue for four consecutive years now.  This is in an industry with generally healthy product margins, with the possible exception of generics.

Scanning the list of other compelling concerns, there was no citing of increased quality and compliance initiatives, broader global supply chain visibility or collaboration. While a whopping 93 percent of U.S., 85 percent of European, and 82 percent of Asia based companies all plan to invest in new technologies in the next 3-5 years, one has to openly question whether priorities are being correctly assessed. More importantly, what is the strategy of the supply chain?  Is it not to deliver products on-time, with quality, consistency and reliability?

Supply Chain Matters urges all drug companies, especially those producing generic injectable or intravenous drugs to take a close look in the mirror. If your one concern is increased regulation and managing costs, and your supply chain is failing miserably to deliver on-time supply, are you not in a self-fulfilling loop of denial?

Increased regulation comes when patients place pressure on government to reign-in unacceptable practices from drug providers, such as drug shortages causing unnecessary delays in critical treatment or even causing patients to die. The recent American Hospital Association survey noted that more than 90 percent of hospitals reported shortages of surgery, anesthesia or emergency care drugs, while two-thirds reported shortages of chemotherapy drugs. Managing costs can lead to cutting corners with supply, production and oversight, which are further symptomatic of the current problem and of a failed supply chain.

This situation continues to gain visibility and yet, the industry remains silent.  This is not a healthy situation for any party.

Bob Ferrari