Prescription Drug Shortages Could Plague The 2020s

Richard Howells

In the U.S., impeachment hearings are taking over the headlines alongside the ongoing trade war with China.

In the UK, Brexit has been delayed – yet again. This time to January 31, 2020, as Boris Johnson tries to hammer out a deal with the EU that eluded all those who came before him.

Meanwhile, unprecedented drug shortages are taking place in both countries, exacerbated by political disruptions affecting the drug supply chain.

According to a study published in The Lancet Diabetes and Endocrinology Journal, 40 million people with diabetes around the world will be left without insulin by 2030.

The U.S. will have the third-highest rate of diabetes, with 32 million people predicted to be living with it in 2030. But living in a developed country does not mean you will have easier access to insulin. Prices for the drug in the U.S. have already risen sharply, prompting a call for a federal investigation into the cause of the price hikes in 2017.

On October 29, 2019, the U.S. Federal Drug Administration (FDA) published a report on the cause of drug shortages, and it found exactly what the World Health Organization and the United Nations found years before: our medicines do not follow typical supply-and-demand economics.

How the West outsourced medicine production

Like many things in recent times, drug production has moved from local manufacturing to third-party locations where lower production costs mean higher profits for drug companies.

Those outsourced manufacturers are based primarily in China, UAE, and Switzerland, where drugs are produced en masse before they are labeled and sent to the CVS or Walgreens in your neighborhood. Maybe you are a stickler for the named brand versus the generic version of products. Regardless of your consumer preferences, those two medicines were likely produced in the exact same factory, under the exact same conditions, with the exact same ingredients. They’re just packaged differently.

After all, if a contract manufacturer can make one product repetitively, they can produce higher volumes at a much lower cost compared to shorter production runs, more changeovers, and less production time. This is exactly how pharmaceutical companies have optimized their manufacturing facilities to be in continuous production of a few products that they can then package, ship, and sell 24/7.

We have outsourced drug production so much and to only a few production facilities, that most of our drugs worldwide, from over-the-counter ones like ibuprofen to life-saving prescriptions like penicillin and heparin, are all produced in only a small number of factories around the globe.

What has happened now is a predictable result of too few suppliers and the growing demand of an aging baby boomer generation.

The drug monopoly created by cost/benefit production

We have put too much power into the hands of only a few, and now we are at a point where those few can manipulate the supply and demand market to charge whatever they want for a product.

We see this already in specialty pharmaceuticals where companies can raise the price of a certain product just because they have control of the market. Imagine if that were to happen with penicillin. It’d be a crazy situation, and we aren’t far from it becoming reality.

So, how do we solve this? The FDA’s report recommended the following:

  • Creating a shared understanding of the impact of drug shortages on patients and the contracting practices that may contribute to shortages;
  • Developing a rating system to incentivize drug manufacturers to invest in quality management maturity for their facilities; and
  • Promoting sustainable private sector contracts (e.g., with payers, purchasers, and group purchasing organizations) to make sure there is a reliable supply of medically important drugs.

The World Health Organization called for policy action, citing laissez-faire as unsuitable to solve the issue:

“A longer-term solution may lie in careful policy-making that avoids winner-takes-all procurement decisions, that promotes the development of a sustainable local and global pharmaceutical manufacturing capacity, and that identifies and protects particularly fragile markets. While there have been predictable libertarian calls for lifting price controls to promote investment, governments have a responsibility not only to ensure the quality of medicines and access to essential medicines, but also to create the necessary conditions for a sustainable, productive, and responsible pharmaceutical industry. In this case, laissez-faire will not suffice.”

These longer-term solutions will require major policy shifts and rethinking in the U.S. and the UK, where both countries are already feeling drug shortages and expenses due to China’s tariffs, Brexit’s looming reality, and millions of baby boomers needing more drugs for their later years.

Long-term solutions are only that. They cannot solve for the next two years, which is what it would take to pass new policy and enact it, assuming nothing gets in the way. It would also take two years to find financing and build the quality, local production facilities needed to offset the shortage.

Short-term solutions require policies for the future

The best solution to this growing problem includes both long-term and short-term options, including better visibility across the supply chain and having alternate sourcing strategies, as outlined by both the FDA and WHO. And there also have to be incentives put in place with policy to enable companies to correct the issues with the drug supply chain.

None of the above will solve for immediate or short-term shortages. What we need is internal policy at pharmaceutical companies to take hold, for these companies to want to do the right thing and use it as a marketing opportunity to win the consumer wallet.

For example, a pharmaceutical company could promote the fact that they are working to solve the diabetes drug shortage in the U.S. And maybe they do that by offering their insulin at a loss to make it more affordable. Meanwhile, the marketing campaign’s goal is to win over consumer sentiment and encourage more to buy its over-the-counter drugs.

Tariff pressures from China and Brexit may cause the U.S. and the UK to speed up policy changes that enable more socialist-like drug affordability in the short-term while offering incentives to companies that invest in local manufacturing facilities for the long-term. Both countries risk massive drug shortages of even our most basic life-saving medicines over the next decade without such policies.

Or, we could leave it up to the market and hope that at least one pharmaceutical company steps up to the challenge and inspires us all to become loyal drug consumers.

Either way, the shortages are already happening. We’ve already waited too long. There isn’t very much time left to act.

To learn more about how to improve visibility, traceability, and sustainability of a global supply chain, download the latest whitepaper from IDC.

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About Richard Howells

Richard Howells is a Vice President at SAP responsible for the positioning, messaging, AR , PR and go-to market activities for the SAP Supply Chain solutions.