Tuesday, November 15, 2011

Drug Shortages and Our Fragile Supply Chain

The IMS Institute for Healthcare Informatics has joined the drug shortage debate with a valuable new report: Drug Shortages: A Closer Look at Products, Suppliers and Volume Volatility (free download with registration).

The IMS report has lots of interesting data for you to ponder, including an excellent illustration of just how fragile the supply chain has become for many generic injectable drugs. Four out of ten products with shortages have one or zero (!) suppliers. See the chart below.

Alas, IMS falls back on a better/faster/quicker warning system as the solution. But as I discuss in What’s Behind the Drug Shortage Epidemic, this solution ignores the lack of economic incentives that creates such a narrow supply base. Knowing this fact sooner will not solve the underlying incentive problem.


The IMS Institute for Healthcare Informatics examined 168 products with shortages. The data includes type, therapy area, date of product introduction, suppliers, and volume/sales trends. The report has a lot of good information, so I encourage you to read it.


This chart on page 11 caught my attention. As you can see, 51% have only two or fewer suppliers, i.e., “limited suppliers.”

On page 12, IMS sensibly compares this rate to the broader market, finding that shortage products are more likely to have few suppliers.
  • 31% of the 1,026 molecules in the overall generic pharmaceuticals market have two or fewer suppliers.
  • 36% of the generic injectable molecules have two or fewer suppliers.

In What’s Behind the Drug Shortage Epidemic, I highlight three culprits behind the reduced incentives for injectable manufacturers to enter the market:
  • Low reimbursement for mature generic injectable drugs
  • Highly-concentrated buyers that drive down prices and encourage supplier concentration
  • Lack of effective price signals due to the gray market
The comments below my original post highlight other explanations, including overregulation, fear of litigation, mandated rebates, and more. I encourage you to read the comments.

BTW, it’s nice to have smart readers who help me learn more about our sometimes dysfunctional drug channel system!

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