Pharmaceutical and Drug Supply Chains Remain Challenged- Commentary Six

Supply Chain Matters provides yet another update regarding our ongoing series of commentaries as to why pharmaceutical and drug supply chains are 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 and the shortage supply situation is getting more critical with each passing day.  It unfortunately remains rather clear that for this category of necessary life-saving drugs, supply chains are failing, and the reasons are becoming much more visible.  The time for industry action remains long overdue.

For background, readers can reference our previous updates by clicking on the following web links:

Initial commentary

Commentary Two

Commentary Three

Commentary Four

Commentary Five

Probably the most visible aspect of this problem concerns the ongoing global shortage of Doxil, a generic injectable drug utilized to treat ovarian cancer in women. The drug itself is marketed and distributed by an operating division of Johnson and Johnson, but the production of this critical drug was contracted to Ben Venue Laboratories, a subsidiary of Boehringer Ingelheim.  Significant ongoing production quality problems that occurred at the Ben Venue production facilities in Bedford Ohio forced the complete voluntary shutdown of that facility pending the need to reconstruct a new wing of the facility.  According to the U.S. Food and Drug Administration, plant personnel failed to investigate more than 1,200 microbial contaminants over a 14-month period which presumably led to this situation.  A recent posting on FDA News.com notes that the full resumption of production at Ben Venue’s plant will not take place for another nine months as reconstruction of a new wing continues.  Meanwhile, the CEO of J&J has indicated to press and analysts that the company continues to seek other production alternatives, but also cautions about an extended shortage for the remainder of 2012. As we have noted in all of our previous commentaries, Doxil is not the only problem, and a discernible trend involving multiple generic injectable drug supplies is evident. The American Society of Health System Pharmacists reported shortages of 251 drugs in 2011, mainly generic injectable medications.

To add more credence to major symptoms of this problem, an article published in the Twin Cities Pioneer Press notes that according to FDA, nearly half of the existing shortages stem from quality problems at manufacturing facilities. Manufacturing and shipping delays, as well as shortages of active pharmaceutical ingredients, explained another 25 percent of shortages. Business decisions by manufacturers to halt production were factors in 8 percent of cases.  Experienced sourcing and operations management teams can easily conclude that over 75 percent of current problems are traced to supplier related operational effectiveness and quality processes.

One of the more insightful perspectives regarding this ongoing situation comes from a commentary penned by Catherine de Fontenay, Associate Professor at the Melbourne Business School in Australia. In this commentary, Risky Business: the human cost of outsourcing drug production, Fontenay rightfully concludes that many of the current shortages can be attributed to a classic problem involving other industry supply chains, that being outsourcing strategies.  The problem however is more acute since the production of these drugs is far more specialized and expensive, while capacity has become extremely tight. She notes: “For more traditional (non-biological) drug lines, the motive is cost-cutting. In-house production facilities do not always feel the same pressure to keep costs down as do external suppliers. With large drug batches, the pharmaceutical company can play several contractors against each other, and get very good prices.”  Professor De Fonternay also observes: “After a decade or so of outsourcing, one could argue the core competencies of pharmaceutical companies are now research and development, helping drugs through the regulatory approval process, and marketing, rather than manufacturing.”

That is a rather significant statement and more to the core of today’s problems. Certain pharmaceutical providers have concluded that operations and supply chain oversight are best outsourced under the umbrella of cost avoidance.  Rather than invest in increasingly more expensive in-house owned production and quality monitoring processes, outsourcing to contract manufacturing providers provides more favorable financial options.  The concept is similar to the semiconductor industry, where expensive owned fabrication facilities became too cost prohibited in favor of today’s outsourced fab facility.  Unfortunately, the pharmaceutical industry has far more quality and human health considerations.  Supply chain risk, namely having only a single source of global production, is another apparently overlooked consideration, as J&J has discovered.

As the current shortages continue into 2012, unscrupulous and unconscionable grey market operators take advantage of the supply and demand imbalance by offering hospital pharmacies outrageous pricing and highly questionable supplies. Supply Chain Matters praises the ongoing efforts of hospital and cancer treatment pharmacy teams in their extraordinary challenges to find safe and adequate supplies of these life-giving drugs.

More importantly for all of us as a global citizenry, patients continue at-risk.  Certain pharmaceutical supply chains need immediate fixing.  Procurement and sourcing teams no doubt have foreseen these problems occurring. The time for investing in production and supply chain related operational controls and balanced sourcing is way overdue.  If the industry deems that outsourcing continues to be a viable strategy than procurement teams need to be supplemented by experienced operational management and regulatory control resources. Conversely, if the industry feels that outsourcing to global regions where regulatory controls are less burdensome, than there will be more issues to deal with. Our view is that there needs to be a risk balanced strategy to assure continuous supply and lack of supply disruption.

One thing is certain. If the industry continues to not feel or demonstrate an overt sense of urgency, then government agencies should do all in their power to demand that sense of urgency.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and Supply Chain Matters, all rights reserved.

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