This article originally appeared in Washington Examiner, 3-1-12
Last week, the Food and Drug Administration announced that it had taken critical steps to mitigate shortages of two vital cancer drugs, Doxil and preservative-free Methotrexate.
Doxil, a branded drug used to treat ovarian and other cancers, has been in short supply for months, after manufacturing problems shut down the drug's sole U.S. plant. The FDA will temporarily allow importation of Doxil from an Indian manufacturer, a move that is expected to effectively end that shortage.
For preservative-free Methotrexate, a critical generic cancer drug for pediatric acute lymphoblastic leukemia (ALL) and bone cancer, the FDA has asked other pharmaceutical companies to step in to fill demand after a major supplier, Ben Venue, shut down a plant making the drug for "maintenance and requalification of equipment." The FDA reports that it has prevented nearly 200 shortages in 2011 thanks to advance notice from manufacturers, but 280 drugs (mostly generics) remain in short supply. The FDA's efforts are welcome, but policymakers will have to consider additional, longer-term solutions that improve incentives for manufacturers of critical generic drugs to stay in the market and upgrade their manufacturing facilities.
The U.S. market strongly encourages substitution of branded drugs by generics immediately after a drug loses patent protection. For very profitable drugs (like statins) generic companies will rush in to fill the vacuum, slashing prices and saving consumers and insurers billions in annual drug costs. For high-demand, high-profit generics (and branded drugs), shortages will be few and far between.
But for other medicines, like sterile injectable drugs, which have high manufacturing costs and narrow profit margins, fierce price competition may eventually drive all but one or two manufacturers from the market.
And when there are only one or two suppliers, it creates the opportunity for life-threatening drug shortages when unexpected manufacturing problems arise at a single plant or elsewhere in the supply chain.
In recent years, a combination of market forces and government price controls have reduced incentives for companies to either enter the market for critical generic drugs or make manufacturing investments to keep their plants up to date -- and running safely.
Medicare restrictions on average sale prices (which can only be updated every six months) for generic medicines, just-in-time inventory supply practices at hospitals, reverse-auction contracts from large group purchasing organizations for supplying generic drugs, tougher FDA manufacturing and inspection standards for domestic companies (which can raise costs), and increased global competition from low-cost suppliers in India and China have all created a "perfect storm" for creating shortages of some vital generic medicines.
In other words, unless we improve incentives for makers of critical generic medicines to stay in the market and invest in manufacturing upgrades, drug shortages may become an endemic feature of the marketplace.
Removing Medicare price controls for generic drugs and creating tax or other incentives for companies making critical generic drugs to invest in state-of-the-art manufacturing facilities would do much to prevent future shortages.
The recent Generic Drug User Fee Program agreed to by the FDA and industry will also help address drug shortages, by giving the FDA new funding to accelerate the review of new generic drug applications (bringing new manufacturing capacity online), and expanding FDA inspections of foreign manufacturers that supply the U.S. market (leveling the playing field for U.S.-based manufacturers that adhere to higher, but more expensive, safety and quality standards).
The FDA is doing everything it can to prevent and reduce shortages of critical medicines. But, in the long run, creating an attractive market for quality manufacturers is the best way to ensure a stable supply of life-saving generic medicines.