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AAM: Market Factors Contribute to Drug Shortage Crisis

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The Association for Accessible Medicines (AAM) published a white paper on the impact that ongoing drug shortages have had on the generic and biosimilar industries, as well as possible solutions stakeholders can put into action.

A white paper created by the Association for Accessible Medicines (AAM) explaining the myriad of causes that have resulted in mass drug shortages around the world proposed several actions that stakeholders can take to address current challenges and prevent future ones.

“Policymakers, healthcare providers, and manufacturers each play an important role in reducing drug shortages, and all should be cautious of short-term patches that create long-term barriers to robust generic competition and patient access to low-cost medicines,” wrote the authors.

Drug shortages affect about 3% of the branded drug market and between 4% and 6% of the generic market. However, because generic drugs are responsible for more than 90% of small molecule drug prescriptions, external factor influencing supply chain reliability, regulatory delays, or changes in competitive intensity can make producing certain generic products to be financially unsustainable.

The risk of drug shortages is increasing as the long-term sustainability of generic manufacturing faces challenges, including low return on investment because of lowered prices, drug purchasers becoming more concentrated, new generics facing slow adoption, less registered manufacturing sites, and canceled generic launches because of limited commercial opportunities.

The three main factors that lead to drug shortages are: (1) market and pricing factors that undermine the sustainability of low-cost generic manufacturing; (2) government policies that compound challenging market dynamics; and (3) regulatory and manufacturing challenges.

The authors broke down each of these factors and their respective causes, including:

  • High generic price deflation
  • Supply chain purchasing power
  • Increasing input costs
  • Slower adoption of newer generics and biosimilars
  • Seasonal/cyclical prediction models
  • Medicaid generic drug penalty
  • Government payment policies
  • State regulatory burdens
  • Inspections and warning letters
  • Insufficient supply of available raw materials and components
  • Ability to obtain the Drug Enforcement Administration quota for active pharmaceutical ingredients
  • Challenges associated with the manufacturing and release of products
  • Natural disasters
  • Drug Supply Chain Security Act

Generic drugs are launching at greater discounts from the price of branded drugs, providing short-term savings for patients and payers. However, lower price points for generics can cause companies to discontinue products or close manufacturing facilities, placing a burden on the market.

“Not only might this leave a void that, at best, takes time for other manufacturers to fill, but it may be financially unattractive for another manufacturer to attempt to enter a new market or ramp up production to prevent a shortage. Altogether, this ‘race-to-the-bottom’ calls into question the generic market’s long-term sustainability,” the authors noted.

Additionally, slower adoption for generics makes it more difficult for companies to justify the continued production of medicines that are losing money. On the same note, products that are used on a seasonal or cyclical basic can be affected by unforeseen changes in demand, making it hard for suppliers to ramp up production when another supplier experiences supply disruptions.

The Drug Supply Chain Security Act requires manufacturers to implement interoperable exchange, verification, and tracing for all drug products by Nov. 27, 2023. The ramp up of these policies could cause a spike in drug shortages.

“It is unknown how many generic manufacturers are prepared for this, but some manufacturers will likely not be fully ready for this deadline. And those manufacturers that are fully ready will be asked to supply additional volumes to cover shortfalls when supply may already be constrained,” the authors explained.

The authors suggested several solutions to ensuring a sustainable generic drug market, including:

  • Update the generic drug Medicaid Inflation Penalty to align with the inflation penalty written into the Inflation Reduction Act (IRA)
  • Expand the drug shortage exemption of the IRA to exempt drugs that are transitioning out of shortage
  • Speed new generics to market through legislation that enables generic manufacturers to receive key quantitative and qualitative formulation information from the FDA

This story originally appeared on the Center for Biosimilars.

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