This posting provides another update to our continuing commentaries reflecting on the causes of unacceptable supply shortages of critical life-saving drugs among various pharmaceutical and life sciences supply chains.

Our most recent Supply Chain Matters commentary reflected on the FDA’s latest alert to healthcare providers indicating that some non-approved, potentially counterfeit versions of the cancer treating drug Avastin as well as other medicines has begun to further infiltrate both U.S. and global supply chains. That development added ever more heightened concerns to the existing problem of limited supplies of critical life-saving injectable drugs.  As healthcare providers attempt to find all means to save patient lives, they sometimes have little choice but to explore all available means, with the unintended consequence of exploring grey market or foreign based distribution supply sources.

This situation however seems to have developed additional complications.  Pharmaceutical supply chains have long been challenged by conflicts in stakeholder interests and some of these conflicts may be compounding themselves in both leading up to as well as resolving the current problems. The drug manufacturers themselves, in an effort to respond to cost control directives, may have placed too much emphasis on singular points of production, which have suffered breakdowns in quality and production consistency.  This placed healthcare providers in the precarious position of stockouts and lack of adequate response from certain drug manufacturers.  The other conflict involves a high pricing imbalance among geographic markets, which has fostered an alternative grey market supply chain.

Last week the Wall Street Journal published an article (paid subscription or free metered view required) observing that the importation of low-cost foreign pharmaceuticals into the U.S. may be at the core of the current concern for safe product.  Noted were investigations of Canadian based distributors who have long histories in the providing of alternative low-cost drugs for U.S. consumers. One Canadian distributor is reported as acknowledging that his company may have inadvertently shipped fake vials of the cancer treatment drug Avastin to U.S. healthcare providers. The byline of the WSJ article points to the flourishing of grey market distributors because of the large price differential among U.S. channels as contrasted to lower-cost, foreign based Internet channels. These drugs enter the U.S. presumably after they have been shipped across many other foreign jurisdictions with different regulatory controls.  In the specific example of fake Avastin, which turned out to contain starch and cleaning solvents, there is some belief that the supply route originated in China and made its way through Turkey, Egypt the UK and Canada before its entry into the U.S. supply chain.

However, it is important to keep a historic perspective to industry tensions. The WSJ points out that for the past several years, there has been a history of drug manufacturers pressuring Canadian based wholesalers to stop supplying lower-cost drugs because in effect, it undermined the ability of drug companies to charge far higher U.S. prices than exist in Canada or other countries. Drug companies seek proprietary supply and pricing control, but as the current supply shortage crisis continues to unwind, events compound themselves.

In the point of view of Supply Chain Matters, there remains three significantly different challenges at-play and industry participants and government regulators need to align toward common stakeholder interests to resolve the current shortage crisis.

Pharmaceutical and life sciences companies should strive to provide the most innovative and cost affordable drugs to combat diseases and ailments.  Their supply chains should be focused on insuring safe and adequate supply, with contingency for unexpected supply interruption or unforeseen quality breakdowns.  Industry supply chain teams have always marched to the mission of zero stockouts and never failing to provide needed drugs when patients are in need.  That mandate extended itself into far too much excess inventories, or having on-hand supplies that exceeded expiration dates.  Today, the counter reaction has perhaps been too much emphasis on cost reduction without corresponding controls and process investments, resulting in a complete breakdown in insuring adequate supply.

Healthcare providers strive to provide their patients with safe and speedy choices in the treatment of chronic diseases such as cancer. Any patient faced with a chronic condition should demand the best available outcome without having to endure financial peril. Patients and their providers expect drug manufacturers to collaborate on cost affordable choices, particularly in the new era of needed healthcare reform.  This goal should not equate to drug manufacturers cutting back on quality, demanding proper adherence to good manufacturing practices (GMP) or placing additional single source production supply risk on any critical life-saving drug’s supply plan.

When broader political and industry agendas are brought to bear on an existing chronic problem, the issues become ever so compounded and patients suffer even more.  In our view, the current chronic supply shortages should not be the fodder in efforts to curb competition or derail the efforts of generic drug producers to introduce more cost affordable sources of supply. Just this week, India’s patent office granted an India based producer of the generic equivalent to Bayer’s kidney and liver cancer treating drug Nexavar, the right to distribute its drug to patients within India.  The government felt compelled to act because the cost differential was substantial, $5600 per month for the proprietary drug compared to $175 per month for the generic equivalent.

As this situation continues, it benefits all of us to differentiate within the current media reporting to identify the existence of competing stakeholder interests and urge industry stakeholders to align and solve one problem at a time. Now is not the time for the industry to be seeking protections, but rather a speedy response to current patient needs.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.

On Friday, McNeil Consumer Healthcare division of Johnson and Johnson announced the voluntary recallof the entire U.S. supply of infants grape-flavored Tylenol which amounted to over 570,000 bottles. The product had just returned to retail outlets in November. This latest recall comes after a long series of past recalls involving Tylenol and other J&J branded medicines including Benadryl, Motrin and Zyrtec that date back to 2009 and have been attributed to previous cutbacks.  The reason for the latest voluntary recall was described as a design flaw involving the bottle cap and dose dispensing syringe.  The new cap was introduced last year in an effort to re-capture lost sales. J&J took the action after receiving a “small number of complaints” from consumers but stresses that to the company’s knowledge, no infants have been harmed, and that “the risk for a serious adverse medical event is remote”.

This recall could not have come at a worst time as J&J was struggling to rebuild consumer credibility in its OTC medicine brands, and must now face yet another challenge to rebuild consumer confidence.  Even though the recall involved a specific product area (one ounce oral suspension infant Tylenol) we speculate that the decision to take this action was not taken lightly and had to involve discussions at the senior most levels of the company.

According to a report published in the Wall Street Journal, total revenues for the McNeill division are down 55 percent from a peak year in 2008. The Tylenol brand itself has slipped from second in sales of over the counter pain medicines in 2009, to now rank eight.  In a released statement on Friday, J&J CEO William Weldon stated that this latest recall was “clearly disappointing after all the progress that McNeil has been making to ensure its products meet the highest level of quality and consumer satisfaction”. Readers may recall that it was only a couple weeks ago that J&J announced a re-shuffle of senior management concerning the McNeil unit which perhaps adds even more perspective to this latest development.

When an organization discovers significant systemic breakdowns in quality and accountability there is always a tendency for existing players to exhibit a rather cautious mentality, or perhaps a “bunker” mentality.  This often times requires senior management to set very clear direction, motivation and an emphasis for what needs to change vs. what tenets need to remain.  There is often a need for articulating an overall integrative framework of required transformation including what areas of operating practices, business metrics and people-related training skills must be changed.  Management must lead by example and be visibly active and participative in key transformation decision-making.

Sometimes however, change is only defined in a singular context, for instance a need to revamp a single production facility or change a few specific processes, without context and alignment to an overall end-state framework.  Sometimes, a particular function such as sales and marketing can still have a final say. In the case of McNeil and J&J only they and their management teams can readily conclude whether this has occurred.

Setting integrative goals is so very important.  In this latest situation involving infant Tylenol, we have to speculate why was a new packaging design introduced on an infant product area without extensive consumer involvement and testing, especially in light of the need for restoring consumer confidence? What about adequately addressing and testing the quality control measures of the packaging process?

Fundamental questions but yet, another challenge for J&J and its McNeil unit to once again overcome.

Bob Ferrari

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 3^rd, 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

Yet another follow-up to report regarding our ongoing Supply Chain Matters commentary regarding the fairly large recall of ground turkey in the U.S. because of suspected infection by a highly resistant strain of salmonella. Readers may recall that in mid-August, Cargill announced the recall of 36 million pounds of ground turkey after over 100 people were sickened across 31 states.

The Wall Street Journal is reporting today (paid subscription or metered view required) that Cargill is recalling an additional 185,000 pounds ground turkey product produced on August 23-30 and August 31, due to contamination of salmonella Heidelburg.  The company announced this second recall after a USDA test indicated that this form of salmonella was present in a sample taken from the company’s Springdale Arkansas plant on August 24, just two weeks after the first announced recall.  This was the same facility identified in the initial product recall in mid-August.  This latest recall involves ground turkey trays, patties and product sold in sausage-like packaging and distributed nationally under the Honeysuckle White, Kroger and HEB brands.

Cargill further announced that it is now suspending production of ground turkey at the Springdale facility until corrective actions can be taken and approved by the USDA.  This is an obvious wise move. Various other turkey products also produced at the subject facility are not impacted by this suspension. According to the WSJ, Cargill operates four turkey processing plants in the U.S. and no ground turkey products from the other three facilities are involved in this latest recall.

The obvious question is whether the company performed adequate inspection and due-diligence to eliminate the prior root-cause of the contamination before deciding to resume production.  As we noted in our previous commentary, the hands of government inspectors are somewhat tied when it comes to enforcing findings of salmonella, and the burden lies more on the producer to self-enforce quality and inspection.

Readers may also recall the saga of Johnson and Johnson who continues to endure the implications of multiple product recalls that originated from a noted single manufacturing facility, but later involved other manufacturing facilities.  The problems were not just local, they were systemic.  An internal J&J investigation which was reported by the WSJ in mid-July pointed to reduced staffing levels as a cause

That is not to say that Cargill has a breakdown in its overall quality monitoring processes but it is certainly an alarm that quality and inspectional efforts need to be re-doubled across all production facilities.

We trust that Cargill will now follow-through

Bob Ferrari

The Wall Street Journal reported today(paid subscription may be required) that Johnson and Johnson will embark on yet another  reorganization in the wake of significant manufacturing quality problems resulting in multiple product recall incidents  that stretch back to 2009. There have been 19 product recalls dating back to September 2009. J&J’s McNeill Consumer Healthcare Group is the primary manufacturer of cold, allergy and pain relief medicines under the popular Tylenol, Benadryl, Motrin and Zyrtec brand names which have been involved in various product recall incidents.

According to the WSJ article, the McNeill unit in the U.S. will be spun-out as a separate organization. The unit will be headed by Patrick Mutchler, a 35 year veteran employee who has had a variety of assignments on the consumer business side.  Also reported was that executives Marc Robinson, who had overseen J&J’s OTC worldwide businesses, and Peter Luther, who had been president of the McNeil  unit, have been given other roles.  These moves were apparently motivated to give more focused attention to quality and compliance needs as well as restoring consumer confidence in J&J consumer brands.  Supply Chain Matters commented in late December on a series of previous executive promotional appointments at J&J which were designed to assure more focused accountability and attention to company-wide manufacturing and supply chain process needs. These included the promotion of executives Alex Gorsky and Sheri McCoy, who were speculated to be in line for succeeding current Chairmen and CEO William Weldon.  We communicated in that commentary our hope that the newly elevated executives would put personal competitive instincts aside and come together with a unified plan of action to address the ongoing quality crisis. (As a side note, Mr. Weldon was granted a 3 percent base salary increase for 2011, but his 2010 bonus was cut by 45 percent.  The increase was reported to be based on Mr. Weldon’s handling of the product recall crisis.)

As these new appointments were announced, another J& J product recall announcement came yesterday involving 34,000 bottles of Tylenol 8-Hour Extended Release caplets after continued consumer complaints of musty or moldy odor. Readers might recall that similar complaints, tracked to chemicals applied to wooden pallets, existed in certain 2010 recalls. In this occurrence, the presence of trace elements of the chemicals TBA (2,4,6-tribromoanisole) and TCA (2,46-trichloroanisole) were linked to the recalled product, which is different than previous recalls. J&J also as a precautionary measure, widened a wholesale-level recall first announced in January, adding 10 product lots comprising 717,696 bottles of various Benadryl, Tylenol and Sudafed products. A review of past manufacturing methods found cases where equipment cleaning procedures were insufficient or not adequately documented.

While J&J is taking organizational action to resolve its ongoing quality crisis, one has to wonder about the clarity and speed of management actions.  What does a spinoff of McNeill accomplish?  More importantly, where are the accountability efforts across all of J&J’s manufacturing and supply chain activities?  It was previously noted that Mr. Gorsky was given responsibility for proactively addressing company-wide manufacturing and supply chain quality measures while Ms. McCoy had oversight of the consumer business units. There have, at least to our knowledge been no high-level executive firings, other than announcement last September of the early retirement of Colleen Goggins, the former lead of the consumer business.

As noted back in October, no company, not even J&J, can rest on a previous reputation of quality and responsiveness. J&J needs to fix its quality and supply-chain problems fast. It is unclear that adding more executive layers of focus and responsibility will help in this effort. What J&J needs is a complete transformational strategy that encompasses accountability, process, technology and change management components.  Time is of the essence along with clarity of communications and action.

Bob Ferrari

One of the very first supply chain risk and disruption incidents that the Supply Chain Matters blog noted during its inception a little over two years ago was the incident involving contaminated heparin that occured within China.  We were literally taken aback that product contamination incidents would be occurring in the most regulated and safety sensitive of supply chains.  If these quality breakdown incidents were occurring in this segment, what about other less regulated supply chains?  It did not take long to gather other evidence after the incidents of quality breakdowns in drug-related supply chain continues.

In one of our summary commentaries in March of 2008, Drug Imports from China- Controls are Mandatory, we noted that government inspections cannot be relied upon to be the sole quality control point for drugs, medicines and medical materials being imported from China. At that time, there were over 700 Chinese drug makers registered with the U.S. Food and Drug Administration (FDA), with just 14 inspections completed.

Two years since, a recent Wall Street Journal article, FDA Faulted in Heparin Case (paid subscription may be required) indicates that U.S. congressional investigators have observed that the “FDA failed to pursue several “specific and credible leads” that might have identified culprits in China” during the 2008 heparin contamination incident.  The overall incident was ultimately linked to 80 deaths impacting the most medically critical area of drug delivery.  This article further notes that “one red flag that the FDA allegedly ignored was that a foreign “respectable regulatory government agency had shared “a significant finding” that a Chinese company was making counterfeit crude heparin to be shipped to the U.S. under another firm’s label.” The FDA never issued a definitive finding as to who or what was responsible for the heparin contamination incident, that in essence there were too many sources of potential contamination. Even more problematic is that the Congressional letter further observes “that the FDA faces legal and linguistic hurdles in conducting probes overseas.”

The obvious question therefore remains, has the pharmaceutical industry learned anything from previous deadly and shocking incidents of contamination?  Have new, more adequate controls been put into effect to both control or detect the presence of contamination from either foreign or domestic production sources before reaching patients? I believe that the answer is sketchy at best.

The newest conflicting evidence involves the incident of McNeil Consumer Healthcare, a division of Johnson and Johnson Inc., that is working in consultation with the FDA in implementing a voluntary recall of infant and children’s liquid products due to manufacturing deficiencies which may affect quality, purity or potency. The products include certain liquid infant’s and children’s Tylenol®, Motrin®, Zyrtec®, and Benadryl® products which were produced in U.S. facilities. According to an ABC News Report (video) an FDA inspection found a wide range of problems at McNeill’s Pennsylvania production facilities triggering a number of  “red flags”.  In this incident, the FDA actually did its job and called for action by the manufacturer.

As we noted previously, quality and safety will have to come from highly controlled and monitored processes, managed by the brand owners themselves.  Two years after the heparin contamination incident, the U.S. government is still engaged in a finger-pointing exercise and pharmaceutical companies have breakdowns in quality control and monitoring processes. Patients and consumers have to figure out for themselves what drugs are safe, and a highly regulated supply chain shows signs of breakdowns among its various players.  The industry has to solve its problem of quality controls both from domestic and international production sources, and it cannot just punt to the FDA to be the continual watchdog. The FDA has a finite number of resources and cannot be expected to cover all international sources of production.  As noted, the FDA is busy enough just trying to monitor and control domestic incidents.

Sick and dependent patients, children, and all of us, deserve better. The Pharmaceutical industry needs to step-up in efforts in quality monitoring and control, as well as risk detection.

Bob Ferrari