This story from the New York Times got a lot of attention yesterday, and understandably so. It’s fundamentally about the shortage of some generic drugs, a problem that’s been with us for some years now in one form or another. My own belief is that much of this is a regulatory problem, and I note that Scott Gottleib, the current FDA commissioner, has said that he wants to do something about the situation (or these situations, more properly, since there are several factors). One way is to work through what still appears to be a backlog of generic application reviews, so that more companies can get into some of these markets.
But for now, let’s just stipulate that there’s a problem: it’s the solution proposed in the article that’s raised eyebrows:
Now, some of the country’s largest hospital systems are taking an aggressive step to combat the problem: They plan to go into the drug business themselves, in a move that appears to be the first on this scale.
“This is a shot across the bow of the bad guys,” said Dr. Marc Harrison, the chief executive of Intermountain Healthcare, the nonprofit Salt Lake City hospital group that is spearheading the effort. “We are not going to lay down. We are going to go ahead and try and fix it.”
But right off, that runs into the paragraph above: if you’re going to start your own generic manufacturing effort, you have to get in line for the FDA to review your application to sell the compound(s). And that’s one of the logjams – one that will not be fixed by jamming another log into it. The article, though, mixes several problems together. You have the not-enough-players-making-cheap-drugs problem (which can happen through several means, regulatory approval not least among them), and you also have the only-one-manufacturer-eat-my-dust problem, which also takes many forms.
In some cases of the latter, you have old, off-patent, formerly cheap compounds where one supplier has been granted market exclusivity (and the ability to raise prices and drive everyone else out of the market). How does this happen? Deliberately by design of the FDA: there are incentives to bring older drugs into the modern regulatory framework, and if you do the tests needed, you get a very, very nice reward. Too nice, from my point of view, but that’s how the law is written. In other one-manufacturer cases, people have bought up the only supplier of a small drug and then taken it into “restricted distribution”, which basically keeps any other potential competitor from running the comparison trials needed to even get in line at the FDA to sell the drug, too. That’s the Martin Shkreli playbook (although he’s not the only one), and it also takes advantage of FDA regulations about how and why distribution of a drug can be so restricted. Want to change these? Change the law.
The Times, though, doesn’t go into these details, and you have to read closely to even get the sense that there are several different problems here. This is probably the most overt statement:
“We’re seeing an acceleration of both shortages and escalation of prices,” said Dr. Richard Gilfillan, the chief executive of Trinity Health, a large Catholic system that operates in nearly two dozen states and is part of the group. “There’s not been any effective push back on either of these.”
That’s a key distinction. There’s no shortage at all of (say) daraprim (Shkreli’s notorious example) or colchicine, an old drug whose current owner got the modern-regulation reward. It’s just that their prices have gone through the roof. On the other hand, there are a number of other old compounds where there really isn’t enough to go around, because the lone manufacturer has run into sourcing or production problems at some point.
Intermountain executives would not discuss many details of the project, citing fears that competitors could shut them out of the market by quickly dropping the price of the drugs in question, then raising them again later. They said they would focus on drugs whose prices have risen sharply or that have been in short supply.
“We’re going to have to hold that very close to our vest,” Dr. Harrison said. The company will either rely on third-party manufacturers or decide to make the drugs themselves.
Now that’s a big distinction, though. That third-party manufacturer solution is the most straightforward, but in the case of plain-old-shortage drugs, you’re going to be asking them to make something that they’re not making now. They’ll have to get the process going, and everyone will have to get regulatory approval to give it to patients. In the case of expensive restricted drugs, though, this solution would seem to be impossible: the law says that the current manufacturer has exclusivity, or can force exclusivity by denying supplies to competitors. What then?
As far as making the drugs themselves, that’s an even bigger hill to climb. Making even a relatively simple old generic drug is a much different thing than a hospital does, and getting that going will not be simple. And there’s the matter of – yes, yet again – regulatory approval. This is not a process that will alleviate a shortage any time soon, although (as the article correctly notes), the FDA has said that it will give priority to facilities that are working to alleviate such shortages.
Here’s another key part:
Erin Fox, a drug shortage expert at the University of Utah, said the idea of creating a nonprofit drug company is promising. “I think anything that increases the number of suppliers will help,” she said. She added that the trick will be in selecting the right third-party manufacturer to ensure good quality.
Why yes, that will be the trick. And you’ll have to see if you’re actually increasing the number of suppliers when you do that, or just asking an existing one to supply you as well (which you will at least pass on at cost). In some of these cases, said manufacturer might wonder why they should supply you at all, depending on their own situation with the current customer. I’ll watch this proposal with interest, but some of it is on a collision course with reality (not that I’m defending reality, in this case!) A reader of the Times article might get the impression that “Hey guys, let’s just make the drugs!” is the obvious and easy solution, though, and that’s just not quite the case.