Drug shortages in the U.S. continue to affect patients daily. They range from something as simple as buffered aspirin to life-saving medications such as cancer chemotherapy agents, antibiotics, and epinephrine. In the second piece of our Drug Shortage Series, we explore common causes of drug shortages as well as strategies for identifying and mitigating them. You can read the first piece on an overview of drug shortages in the U.S. here. 

We previously showcased four categories related to drug shortages: manufacturing challenges, the discontinuation of products, material shortages for production, and quality control issues. The challenge in both our analysis as well as with the FDA shortage list is the ability to understand the true root cause of drug shortages. However, leveraging our subject matter expertise, we have reviewed and reclassified the information to assist in our discussion and recommendations.

Background: Common Causes of Drug Shortages

The availability of critical and essential drugs has increased to its highest levels since monitoring began in 2012. According to the University of Utah Drug Information Service at the end of 2023, the most common drug shortages have been seen in nine common classes, with the top five being, in order, central nervous system (CNS) agents, antimicrobials, hormone agents, chemotherapy, and fluids and electrolytes. As we broke this down further, we identified a rise in new shortages within oncology, psychiatry, gastroenterology, and others. In both the University of Utah analysis and ours, we found the leading cause of shortages has to do with various manufacturing challenges. Using the raw data, we reviewed the related information provided, in addition to the reason provided by the manufacturers, and grouped the items that had seen excess demand into the category of Manufacturing Capacity and the items that had seen a delay in shipping as a Manufacturing Delay.

Common Challenge Areas

Companies have shifted the manufacturing of drugs and their active ingredients to contract manufacturing organizations (CMOs) both within the United States and abroad. This outsourcing strategy has introduced challenges into the process. The most common challenge is related to adequate communication between the parties, often due to rapidly adjusting supply for demand changes, scaling up/down capacity, and achieving transparency for supply chain disruptions from raw material and labor shortages, quality failures, and production output shortages. With the rising number of drug shortages and the trend of CMOs not expecting to decline, it is crucial for the relationship between the drug companies and CMOs to improve.

Contract Manufacturing

As there are many articles published on this subject, we felt it important to reach out to a few of our clients to gain their perspective on how to improve the relationship between the company and their CMO. We choose three different companies: two of them are CDMOs (contract development and manufacturing organizations) and one uses CDMOs and in-house manufacturing. We believe these companies offer unique perspectives on what and how to improve the relationship between both entities.

Our first question was related to how to maintain a good partnership between the two companies. The first company is a small CDMO in the field of cell and gene therapy. According to them, the most important element is to establish and maintain transparency between the two parties. This requires the two companies to honestly discuss the challenges related to capacity and delays, along with many other areas. When both companies recognize the importance of an ‘equality at the table’ approach, it removes the barriers of distrust. This allows the development of clear expectations between the companies.

Further areas that can support the relationship are clearly identifying the roles and responsibilities between the two companies. Both CDMOs shared that when these are not clearly identified and the client forgets or is not aligned on the expertise the CDMO provides, it causes the relationship to become tenuous and leads to distrust, a lack of transparency, and a severing of the relationship. This can be easily resolved through alignment from the beginning with an agreed upon approach on the way of working, communicating, and handling challenges. Taking these steps upfront ensures when challenges arise, the breakdown in trust is not eroded.

Another area we sought perspective on is related to capacity constraints, delays, and how these can be resolved. All three of our clients overwhelmingly shared that the most common reason these challenges arise is a breakdown in communication between the two parties. They also shared many of the same recommendations for what can be done to improve and resolve the issues, including:

• Assure leaders from both organizations are committed to the sharing and transparency of vital information between the companies
• Implement a rapid communication model allowing the escalation of critical and timely changes/challenges within either company
• Implement a robust monthly supplier collaboration meeting, replacing the typical yearly supplier review, with a focus on rough-cut capacity, order fulfillment, quality, and material shortages
• Ensure clear incorporation and synchronization of the monthly supplier collaboration meeting input/output is used by both the customers and the CDMO/CMOs in their Integrated Business Planning (IBP)/Sales and Operations Planning (S&OP) process to maintain visibility of changes within both organizations
• Establish a joint risk and rewards strategy
• Develop a collaborative incentive strategy to mitigate items such as lead-times, minimum order quantities, and cost savings

Manufacturing Capacity and Delays

Leveraging these recommendations, we return to the issues of manufacturing capacity and delays, which are impacting drug shortages. As we assess the data further, the information within the FDA’s shortage list has contributed to capacity issues and also indicates an increase in demand. This imbalance between demand and supply is known as disequilibrium.

In markets outside of the life sciences, demand is referred to as the amount of goods or services consumers are willing and able to purchase at the price set. Demand is based on both needs and wants. What a buyer pays for a unit of the product or service is called price. The total number of units that consumers would purchase at that price is considered the quantity demanded. Traditionally, a rise in price decreases the quantity demanded, and a lowering in price increases the quantity demanded.

The challenge in life sciences, particularly with regards to drug shortages, is that the purchase price of the drug is not controlled by the patient. Instead, there are many more factors that impact demand. According to Health System Tracker, within the U.S., the cost of retail prescription drugs has become a top health policy issue for both consumers and policymakers. Furthermore, adults in general say that prescription drugs are unreasonable and unaffordable. This has driven Americans to favor actions to address high prescription prices.

Therefore, traditional economic market conditions related to demand and supply are more difficult to apply within life sciences, as pricing alone is not a singular reason there has been a shift in demand. Additionally, as there may not have been a patient or prescribing demand increase, there has been an increase in drug shortages. Thus, the analysis turns to looking at other causes for an increase in demand.

We now examine capacity and what could have caused this. We know there has been an increase in product discontinuation caused by a loss of profitability. This discontinuation has caused a reduction in overall market manufacturing capacity. The challenge for companies that remain in the market is how to prepare and address this shift in demand and supply. We will provide our recommendations in our upcoming series article related to the discontinuation process.

Looking Ahead

With the vastness of the drug supply chain in addition to the limitations of the FDA and the US Congress on solving the drug shortage problems, it becomes important for business leaders to take a more proactive approach in solving this issue. We suggest business leaders identify and develop solutions to the underlying problems as well as take an honest look at the unintended consequences of resolving vs. discontinuing drugs that are important for people’s health and well-being. Stay tuned for our third article, where we will dive deeper into addressing drug shortages within generic drugs.

Learn more about our Life Sciences Supply Chain Consulting services.