As we previously noted, the Food and Drug Administration (FDA) recently released guidance to industry regarding the reporting of drug shortages to the agency. There has been significant attention lately regarding drug shortages, especially in light of major shortages for two critical cancer drugs.
Methotrexate is the essential treatment for one of the most common forms of pediatric leukemia, while Doxil is used to treat ovarian cancer and AIDS-related sarcoma. A recent article from the Wall Street Journal explained that, “The shortages occurred when Benvenue, one of only four domestic suppliers, closed its plant because it could no longer guarantee product safety.”
Unfortunately, as the author noted, “These shortages were not rare episodes. Last year, a record of 267 drug shortages were reported, up from 58 in 2004. Even more tragically, most 2011 shortages remain unresolved.” The article explained some of the causes of these shortages.
First, the number of suppliers of generic drugs has dwindled. There were 26 U.S. vaccine makers in 1967; today there are only six. Supply disruptions are common, including the possibility that a facility completely shuts down for a protracted time because of quality or safety problems.
Second, unlike in most consumer-goods industries, many pharmaceutical manufacturers have failed to invest in the technology and quality-control improvements that would reduce the risks of partial or complete facility shutdowns—and this despite the FDA’s regularly issued current guidelines for good manufacturing practices (cGMPs).
Behind both problems are the government’s tight price controls for generic drugs, especially when purchased by Medicare and Medicaid. Low prices induce drug makers to exit various markets, or at least to reallocate their manufacturing capacity toward more profitable, patented pharmaceuticals. Low prices also tend to eliminate the rationale for investments in better manufacturing technologies and processes, as shown in a 2009 study conducted by the author and published in the Journal of Management Science. Government price controls on generic drugs limit the manufacturers’ margin to 6% in many cases.
In the case of vaccines, for example, the Centers for Disease Control and Prevention (CDC) pays as little for generics as it can negotiate. This results in an average reduction of 40% off the catalog price that applies to sales in the private sector, according to a 2006 study in the journal Clinical Infectious Diseases. As that study noted, the federal government’s own National Vaccine Advisory Committee identified price controls as the primary reason for the dramatic decline in the number of suppliers.
Second, the government’s oversight of manufacturing safety and quality is unnecessarily contributing to shortage problems. The pharmaceutical industry generates many applications for new manufacturing facilities and manufacturing processes within existing facilities. The government has failed to allocate the money to hire enough reviewers to analyze the applications or inspectors to visit the facilities.
The backlog of applications for new generic drug facilities and manufacturing processes at the FDA remains a year long, according to the Generic Pharmaceutical Association, and generic drug reviews take 15 months longer on average than evaluations of brand-name products. The generic drug industry, tired of the government’s inability to execute, has proposed providing the agency with $299 million in annual fees through the Generic Drug User Fee Act (GDUFA).
Conclusion
Consequently, the author argued that one “way to resolve the shortage of critical drugs is to relax or eliminate government price controls, and to increase the FDA’s review and inspection capacities. In the latter case the generic drug industry is willing to foot most or all of the bill.”
Unfortunately, the Obama administration has thus far pursued the opposite objective, at least as far as price controls are concerned. Last November, it issued an executive order instructing the FDA to report any violations of price controls to the Justice Department. As a result, he asserted that GDUFA should be approved as part of the upcoming renewal of the Prescription Drug User Fee Act (PDUFA V). This may be one of the few areas in which Congress and the Obama administration could find common ground.
The benefits are high in relation to the costs. In the fall of 2004, the nation faced a major shortage of the flu vaccine due to an unexpected closure of Chiron Corp.’s plant in the United Kingdom. The problem caused alarm, and with good reason. Even in a year without a vaccine shortage, no less than 200,000 hospitalizations and approximately 36,000 deaths are directly attributed to influenza or resulting complications. The annual economic burden imposed by influenza alone, according to a study in the journal Vaccine, has been estimated at $87 billion, while the part of the FDA budget paid by the taxpayer, amounts to $3.5 billion.
In the years since, the number of drugs with major shortages has more than quadrupled. Fortunately, as the article notes, the cure for this problem is Congress approving GDUFA.