Today I picked up yet another article about the crisis of drug shortages in the U.S., this one by The New Your Times on MSNBC.com. Many of the usual causes alleged by other articles are mentioned here: industry consolidation, quality challenges, price issues, etc. Ok, we know all this and it’s getting old… What are we going to do about it?
The ‘cry of agony’ that is most often mentioned in the press comes from the field of Oncology. Indeed, in this area the pain is atrocious: some don’t get treatment, with fatal consequences; others do but, in addition to the pain caused by their disease, they live in perpetual anxiety for not knowing if they will be able to complete their treatment. That things have gotten this far, in advanced societies like the U.S. and Canada is tragically deplorable. But this ‘high pain area’ is only the tip of a deep iceberg, the one that is most visible. Below the ‘water line’ shortages are felt in most therapeutic areas.
I’m from the Generic Pharmaceutical industry and I know well about shortages. On the one hand, there are challenges of Quality, particularly in more specialized areas like Injectables. But the Quality challenge is not widespread, it is localized. By and large, we can produce good, reliable medication. The challenge that I see as being widespread, is a challenge of Supply, which I view as follows:
a) Generally speaking, the industry doesn’t have a problem of lack of capacity. The real problem is really one of capacity mis-alignment.
b) Manufacturers follow an old model of so-called “make to order”. That means that they make product ahead of demand and do so by ‘guessing’ what that demand is going to be – this is called forecasting. The problem is that today, due to the shortages crisis and other factors, demand is showing extremely high variability and forecasting is a hopeless practice. What I see happening as a result is a catch-22 situation of excess stock in some products and shortages in others.
c) This gap in supply and demand, caused by mis-use of capacity, caused by inaccurate forecasts, is brutal. I have estimated it to be in the order of 10% to 20% of demand. And this is the problem that can be resolved through a drastic change in how Manufacurers work with Distributors and Retailers.
There are individuals in Pharmacies – at the counter and in back office labs – who monitor consumer demand and product availability; there are other individuals at wholesaler offices in Buying departments, who monitor stock in warehouses and order from manufacturers; and there are individuals at Manufacturers’ offices, trying to forecast what wholesalers are going to order; there are also individuals taking those orders. But each of these layers of people are working in isolation thus depriving the others from their knowledge.
Instead, what needs to happen is this:
1) All of those individuals should join an open (or closed) network of collaboration – a social network of sorts, dedicated to the management of supply agains real-world demand
2) These individuals can work together to determine what manufacturers should be making each month – instead of the latter doing guess-work about future orders. Thus, the market provides guidance to manufacturers on what to make.
3) Manufacturers have to abandon the old model of mass production which favours making large quantities of product a few times a year; and move to a model of Lean manufacturing, of smaller quantities produced more often, thus acquiring the flexibility to modulate quantities to the variations of demand.
4) Finally, Manufacturers – of both raw materials and finished goods – have to shrink their horribly long cycle times to make the supply chain shorter and more responsive.
A network of collaboration as I describe above isn’t suggested to be an open marketplace like eBay – it can’t; too many things need to be controlled and a plethora of regulations need to be followed. But, once old paradigms are removed, it can be put together fairly easily. The people who need to collaborate are already doing what they need to do, following appropriate regulations; there are already relationships between these players – manufacturers, distributors, retailers; the same people can leverage existing relationships and simply do together what they are doing separately. Social Networking tools for Enterprises already exist that can be easily mobilized and used to provide a virtual medium for people to work dynamically and in “now mode”, thus reacting more rapidly to instantly available information, instead of batching their work in monthly cycles that rely on stale information.
It can be done. Breaking paradigms is a challenge but maybe a crisis of life and death will make it possible.
Drug shortages occur most often with products that are produced by one manufacturer or the majority of the demand is covered by one manufacturer. I believe the issue is the number of manufacturing sites able to product a product. The limited sources of production are typically due to:
1. Proprietary manufacturing processes ie brand products
2. Difficult to make products
3. Old products where profitability for low sales is a disincentive to producing the product.
4. Reimbursement prices that have decreased making certain product unprofitable.
5. Quality events cause the single source to decrease or stop its output.
Forecasting in these cases is not the issue as the therapy is well understood the history stable and major demand swings do not occur because the demand is all in one place. The disease being treated for these product rarely if every spikes into a epidemic where the forecast would be critical to predict the spike in demand. Forecasting the supply constraint may be a area where there can be some benefit, but again these quality events are typically not predictable.
Two area of focus for eliminating drug shortages are patent laws where others can enter the market and therefore have multiple sources of production and reimbursement pricing where the selling prices are maintain where there are profit and incentives of manufacturers to continue to produce old products or not discontinue production leaving fewer or no producers and therefore drug shortages.