The quality improvement drive to address drug shortages

Persistent drug shortages are mostly attributable to manufacturing quality problems, but the economics of low-margin generic manufacturing challenge the industry


Reasons for Drug Shortages: 2013
reasons for drug shortages chart
source: FDA

Over the past decade, drug shortages have been on the rise, creating a significant public health issue. The healthcare industry has seen shortages of essential drugs such as chemotherapy agents, anesthesia drugs for patients going into surgery, parenteral nutrition products, and others that are critical to the treatment and prevention of serious diseases and life-threatening conditions. Scarcity among these drugs can delay or even deny critical care for patients, or force the substitution of less effective or more costly therapies, which reduces patient outcomes while driving up overall healthcare costs.


Every year, more than a hundred drugs (and in the peak year of 2011, more than 200) find themselves in short supply in the US. Drug shortages arise as a result of many factors, including supply and demand imbalance, inadequate capacity, production delays or stoppages (due to business drivers, quality problems or regulatory issues), quality issues related to sterility (such as bacterial or fungal contamination, the presence of foreign particles and more), distribution or shipping problems, shortages of active pharmaceutical ingredients (APIs) and other components, and packaging materials, natural disasters, and more.

“A big problem associated with drug shortages for a lot of lower-cost mature products is the big spike in costs they engender—either by the substitution of a higher-priced alternative, or sudden price increases by manufacturers, wholesalers and retailers,” says Dana Evans, MD, director of medical affairs payer support for Genentech, Inc. (Spicewood, TX).

Similarly, healthcare providers and pharmacies may stockpile sought-after drugs in an attempt to ensure availability, further exacerbating the scarcity situation. And, “we have also seen hoarding and predatory pricing by some wholesalers and retailers trying to take advantage of this situation,” adds Burt Zweigenhaft, vice chairman and chief strategy officer of Onco360 Oncology Pharmacy Solutions (formerly OncoMed; New York, NY).

According to data from the University of Utah Drug Information Service, in 2010, there were 211 drug shortages—nearly triple the 74 shortages recorded in 2005. In 2011, that number peaked at 267 drug shortages, and since then—thanks to concerted effort by the pharmaceutical industry and FDA—the number has begun to fall. In 2012 (the year the FDA Safety and Innovation Act of 2012 [FDASIA] went into effect), 204 shortages were recorded, and 2013 saw 140 drug shortages.

Despite gains in terms of reduced numbers of actual shortages and greater effectiveness at averting looming shortages, “We are not out of the woods yet with shortages and we are facing new critical shortages,” said FDA’s Capt. Valerie Jensen, RPh, associate director of FDA’s Drug Shortages Task Force, in remarks published on the FDA website last June.

The International Society for Pharmaceutical Engineering (ISPE, Tampa, FL) has made addressing the drug shortage problem a priority for the past two years, and the effort is continuing into 2015 with new rounds of conferences and reports. A survey of member activities was conducted in 2013 and a report, the ISPE Drug Shortages Prevention Plan, was published last fall. But, rather than taking a hard, quantitative approach—say, something comparable to the Medicare Star program going on among healthcare providers—ISPE’s approach seems to be consultative and enthusiastic, pushing manufacturers to establish a quality culture, supported uniformly from top management to shop floor operators. [1] Establishing “resilience” in supply chains—developing methods to address supply risks before they occur—is another broad theme. But while noting that “a regulatory environment in which manufacturers are encouraged to invest in improving their understanding of legacy products that lack quality robustness is necessary,” the Drug Shortages report authors concede that “pressures from low-margin manufacture may be an issue in terms of this investment.”

ISPE is a “designated partner” with FDA (and numerous other countries’ regulators) in collaborating on solutions. This year, it is holding a Quality Metrics Summit (April 21-22, Baltimore, MD) and a joint ISPE/FDA Quality Conference (June 1-3, Washington, DC).
Supply versus demand

The persistence of drug shortages is especially troubling in light of strong growth in worldwide demand for medications, with global spending projected to rise by 30% from 2013 to 2018 at a compound annual growth rate of 4–7%, to reach $1.3 trillion by 2018, according to IMS Institute for Healthcare Informatics (Parsippany, NJ). Specialty medicines will account for 40% of total global spending growth through 2018. The drug spend in oncology is expected to grow from $65 billion last year to a projected $100 billion in 2018.

Meanwhile, the biopharmaceutical and vaccine production market reached $41 billion in 2014, according to 2014 data from Kalorama Information (New York, NY), which reports that existing firms are already operating near capacity for biologic development. Capacity utilization for integrated biopharmaceutical manufacturers and large contract manufacturing organizations (CMOs) is estimated at 81% for microbial fermentation and 71% for mammalian cell culture—levels that represent near full capacity.

“With tight margins and high manufacturing capacity utilization, whenever quality or supply issues arise, they ripple through the supply chain, creating drug shortages,” says Dinkar Saran, principal in PricewaterhouseCooper’s Health Industries Advisory Practice (Boston, MA).

“Generics play a huge part in the oncology business and they are particularly susceptible to shortages, so one of our strategies to reduce the risk has been to gather data and forecast what we need to ensure that we have a safety stock of inventory projected out to 20 weeks, and then forecast with suppliers, wholesalers and GPOs to make sure there is enough supply,” says Zweigenhaft of Onco360. “In the old days, we did not have to do these projections because there was always plenty of supply.”

In the crosshairs: Sterile injectables
Overall demand for sterile injectable drugs increased by 39% from 2002 to 2013, according to IMS, and within that same time frame, the number of units sold by generic manufacturers increased by 57% as more of the leading drugs went off-patent.
Consistently over the past decade, the majority of drug shortages have been related to sterile injectables—a whopping 80% in 2013, according to FDA; the remaining shortages were for oral solids (18%) and other types of drugs (2%).

While the supply of any given drug can become quickly constrained in the short term, resolving any drug shortfall can take several years, thanks to the costs and logistical challenges associated with adding manufacturing capacity or enabling new suppliers to enter the arena.

“And the base of generic drug manufacturers has become consolidated to just a handful of manufacturers, each operating only a small number of facilities. Having fewer manufacturers and certified facilities, especially for low-volume products, creates the perfect storm when any shortage-inducing problem arises,” says Evans of Genentech.

“Making matters worse, companies have not taken steps to improve their legacy products by taking advantage of advanced technologies and this lack of investment has contributed to persistent quality issues and poor yields—all of which impacts supply,” adds Sam Venugopal, a director at PwC.

As producers of generic medications have faced smaller profit margins in recent years, they have few, if any, financial incentives to invest in the infrastructure needed to ensure adequate or even surplus capacity (and surplus inventory) to buffer the impact of potential shortages of older, less-lucrative product. And the ability to manufacture excess capacity to create a surplus supply of certain drugs is not always possible, especially as many of today’s costly specialty therapies (especially biologics) have limited shelf life or highly specialized and costly storage protocols, so their manufacturing schedules tend to follow more of a just-in-time approach.

“Executives say: ‘What are the incentives to invest in older product lines and older facilities if there are no financial gains to be realized?’” says Saran of PwC.

Business drivers and Medicare Part B
Economists say that changes in the Medicare Part B reimbursement policy that went into effect in 2005 set in motion industry-wide changes in prescribing patterns, which are now partly to blame for the sustained drug shortages—especially among generic injectables—that have persisted over the past 10 years.

Specifically, the Medication Modernization Act of 2003 (MMA) changed the way in which Medicare reimbursed for drugs administered to Medicare patients in hospitals, group oncology practices and other outpatient infusion settings—those facilities that typically purchase the drugs they dispense and administer as part of their practice using the buy and bill model (common practice among oncologists and anesthesiologists).

Prior to 2005, the Average Wholesale Price (AWP; the self-reported price most states use to set Medicaid and Medicare reimbursement rates) was used as the basis for Medicare Part B drug reimbursement. Critics agree that AWP figures were often consistently inflated above the actual transaction price to increase Medicare reimbursements—as much as 49%, according to a 2005 Offier of Inspector General (OIG) study. MMA changed the reimbursement basis to Average Sales Price (ASP) plus a 6% margin.
An unintended consequence has been a willingness by healthcare providers to buy higher-priced branded products, which afford them a higher net margin. According to a June 2014 briefing by the HHS, there is a growing body of evidence to suggest that hospitals and group oncology practices systematically changed their prescribing practices in response to the lower reimbursement rates, moving away from less lucrative generics and back toward higher-priced branded drugs. [2] The result: manufacturers experienced declining margins and—from the perspective of a CEO choosing where to invest in new capacity—a disinclination to modernize and expand.

Prolonged decreased demand has further exacerbated the economic pressure on generic drug makers—already functioning on a razor-thin profit margin—giving them even less financial incentive or opportunity to invest in the types of modernization and automation upgrades needed to safeguard product lines and ensure adequate, predictable supply, and they are unlikely to build redundant facilities.

These market dynamics have also led to further market consolidation among the makers of generics. “Inventory tends to be very thinly managed for many low-profit generic product lines and there’s very little slack in the system to allow a manufacturer to quickly ramp up production at an alternative site, or another competitor to jump in to cover a shortfall if a problem arises with a producer in that class of drugs,” says Zweigenhaft of Onco360.

“We have seen many cases in the past few years where makers of lower-cost drugs that have thinner margins were the very ones that ended up with significant quality issues that then lead to a regulatory agency noncompliance result and ended up with them ceasing production and creating shortages,” says Aaron Davenport, managing director of SK Capital Partners (New York, NY), which owns contract drug manufacturer Halo Pharmaceutical (Whippany, NJ), and of which it has taken a controlling interest in early 2015.

U. of Utah Count of Drug Shortages
drug shortages graph
source: Univ. of Utah Drug Information Service

An ounce of prevention…
Industry observers agree that over the long term, prevention—trying to react swiftly to early warning signals to stay ahead of any pending drug shortage—is the most effective tool for dealing with this persistent public health crisis, and recent FDA initiatives have demonstrated that the approach is working.


In this context, prevention is best managed by two strategies: early notification by manufacturers of ensuing problems, and improved focus on robust, reliable manufacturing quality.

The ISPE Drug Shortages Survey, conducted in 2013, found that only 54% (142 survey respo ndents) confirmed that they had a drug shortage prevention program in place. Of these 142 respondents, more than half indicated that despite the programs put in place, the company was “still unable to prevent a drug shortage.”

While FDA cannot directly affect many of the business or economic decisions that contribute to drug shortages, it is able to play a larger role to help drug makers prevent shortages or restore lost production, thanks to regulatory changes enacted in FDASIA, FDA now has greater authority to aggressively manage drug shortages by expediting inspections and remediation reviews, applying “regulatory discretion” in enforcement of manufacturing quality rules, and helping manage inventory allocations, among others.
Importantly, FDASIA broadened the scope of the early notification requirement for manufacturers. Today, all manufacturers of covered drugs, including biologics—compared to just sole manufacturers of certain drugs, as before—are now required to notify FDA within six months of any permanent discontinuation and as soon as possible about a temporary interruption of manufacturing that could lead to a shortage.

With better early notification by drugmakers and FDA’s expanded regulatory power, the agency has prevented 195 drug shortages in 2011, 282 in 2012, and another 170 in 2013, by its count.

Focusing on quality and redundancy
Redundancy is a key factor in helping to combat drug shortages—in terms of both redundant manufacturing capabilities (through the use of parallel processes, multiple site locations, contract manufacturers and so on), and multiple certified suppliers of APIs and other essential ingredients to shore up the supply chain. However, investments needed to ensure redundancy are often seen as a luxury. “Regulatory requirements, time and cost are often cited as barriers to redundant suppliers, but in our opinion this is a small cost to bear for risk mitigation in the supply chain,” says Davenport of SK Capital Partners.

“Dual sourcing of supply, both of API and finished goods manufacturing, is critical. We have many customers who use our sites as a second source to ensure security of supply,” says Maryse Laliberté, VP and general manager at Halo Pharmaceuticals.

Sadly though, it appears that across the board, the use of redundancy is still underutilized. For instance, of the 900 abbreviated new drug applications (ANDAs) for sterile injectables approved by FDA between 2000 and 2011, only 11—or 1%—had a backup facility if manufacturing was interrupted. By comparison, 20% of branded sterile-injectable applications had backup facilities, according to an FDA study. [3]

“Redundancy is always a balancing act,” says Tee Noland, chairman and CEO of contract manufacturer Pharma Tech Industries (Royston, GA). “You have to prioritize in terms of looking at the risks that are most critical for your business and your customers, because building in redundancy across the board would be too costly and time-consuming.”

When it comes to investing to improve your quality manufacturing infrastructure, “you don’t have to upgrade or automate the whole facility. Capital-constrained companies can be selective and focus on risk-based investments to improve the most vulnerable parts,” notes Saran of PwC.

“Proactive quality management is critical in a pharmaceutical manufacturing environment, and an ongoing program of adapting and updating processes can be one of the most effective tools in improving quality,” adds Laliberté of Halo Pharmaceutical.
M&A activity: Wanted—Sterile injectables

Over the past several years, makers of sterile injectable drugs have been the target of a wave of mergers and acquisitions:
  • Pfizer acquired privately held InnoPharma (Piscataway, NJ) for “innovative growth opportunities for our sterile injectables portfolio, which will increase to 73 products [including currently marketed products and those filed with FDA] with this acquisition,” said John Young, group president, Pfizer Global Established Pharma, at the time of the announcement.
  • Sun Pharmaceutical Industries Ltd. (Mumbai, India) has acquired Pharmalucence (Billerica, MA) “for its sterile injectable capacity in the US and strong R&D capabilities”
  • Lupin Ltd. (Mumbai, India) had acquired Nanomi B.V. (Oldenzaal, Netherlands) to “make significant inroads into the niche areas of complex injectables”
  • Par Pharmaceutical Companies (Woodcliff Lake, NJ) has acquired New Jersey-based JHP Pharmaceuticals (a maker of branded and generic sterile injectables)
  • Hikma Pharmaceuticals PLC (Amman, Jordan) has acquired all assets of the sterile injectables manufacturing site of the Ben Venue Laboratories (the generic injectable drug division of Boehringer Ingelheim). Hikma’s stated goal is to relaunch as many as 20 drugs between 2015 and 2017 that were impacted when Ben Venue’s sterile injectable plant in Bedford, OH—one of the largest in the world—was shuttered by FDA in 2013 after a range of quality problems. Hikma has said it plans to reintroduce Bedford Lab products to address critical supply shortages that have resulted in part from the plant’s closing
  • Mylan (Canonsburg, PA) has acquired Agila Specialties, the sterile injectable business of India’s Strides Arcolab (Bangalore, India)
“Mergers focusing on sterile injectables may help to improve some of the capacity constraints over the long haul as foundering facilities now have new corporate partners who have deeper pockets and a vested interest in improving quality and productivity, so this trend should provide some momentum in the right direction,” says Dinkar of PwC.

“Some of this M&A activity is also likely done in preparation for the next wave of drugs and biosimilars that tend to favor sterile injectable formulations,” adds Evans of Genentech.

Best practices for contract manufacturers
“To reduce the risk of shortages, CMOs need to take a more active role in managing and auditing their own supplier base than before,” says Noland of Pharma Tech Industries. “FDA now requires CMOs to have their own audit program for all of their suppliers, whereas before, CMOs could rely on their customers to perform this function,” he explains. “This new auditing requirement has helped to improve the integrity and reliability of the supply chain for us and other CMOs,” says Noland. “As a result, we now have more knowledge about various commodity markets, and strategies to source reliable, quality product through multisourcing, a matrix approach to supplier auditing whereby we prioritize and rank key suppliers based on risk and commodity class.”

“Pharma Tech has put robust quality agreements in place with its suppliers, so that it is understood whose responsibility it is to address various supply chain deficiencies and, from there, to take corrective action,” says Noland. “As a result, over the past few years, our customers have begun to look at us more strategically—not just as a manufacturer or packager but as a supply chain expert.”

It’s equally as important for drugmakers to routinely audit their contract manufacturers. “We face 40 to 50 audits per year by our pharma industry partners, in addition to frequent audits from FDA, EMA and Canadian regulators,” says Laliberté of Halo Pharmaceutical. “That level of scrutiny provides plenty of avenues to learn and improve our quality system and become aligned with pharmaceutical best practices, especially as they relate to reducing deviations through standardizing processes and reducing complexity.”

An essential part of any quality-improvement initiative is to really engage corporate governance in a way that fosters a top-down commitment to quality. “Anybody can design the best, most effective system or invest in upgrades to their existing processes—but it does no good if there is no compliant and consistent execution,” says Saran of PwC. “The biggest challenge is how to drive the understanding and execution, especially among the shop floor operators and supervisors.” One way to engage everyone fully from the top floor to the shop floor,” he suggests, “is to tie performance incentives for all employees to the facility’s ability to meet key quality metrics.

“At the end of the day, industry so often views quality and compliance as a burden when the pursuit of these things should be viewed as the means to achieve a higher level of product quality and operational efficiency,” says Venugopal of PwC. “In this way, the payback may not be obvious in the short term, but such investments should be viewed as money well spent over the long haul.” 

References
1. http://www.ispe.org/drug-shortages-initiative
2. http://aspe.hhs.gov/sp/reports/2014/medicarepart/ib_mprpd.cfm
3.(Economic and Technological Drivers of Generic Sterile Injectable Drug Shortages, J. Woodcock and M. Wosinka, Clinical Pharmacology & Therapeutics, Vol. 93, Issue 2, Feb. 2013, pp. 170-176; DOI: 10.1038/clpt.2012.220. Accessed at: [http://www.nature.com/clpt/journal/v93/n2/full/clpt2012220a.html]).