SCRC Research on Drug Shortages: Lawsuits, Low Cost Countries, and Litigation

Recent articles have started to highlight the number of drug shortages occurring in retail channels.  Not surprisingly, these are often related to supply chains – a topic that I have written extensively about in my books on Pharmaceutical Distribution and on Network Integration in the Life Sciences.  I also collaborated with a group of researchers at the University of Palermo on research related to the relationship between the common practice of offshoring and product recalls, which are also unfortunately becoming increasingly common (and are often the root cause of shortages). Our sample in this case was the more than 1452 drug recall events compiled from the FDA website from 2012 to 2016.  Analysis of this dataset revealed some interesting findings, including the fact that many of the problems can be attributed to outsourcing to low cost countries…

Coincidentally, I was recently interviewed by WebMD (by Matt Smith, the author of the story) regarding the underlying root causes for the sudden crop of drug shortages that are being seen on the market.  The story focused on the growing number of drug recalls that are occurring due to quality problems that are happening in outsourced drug supply chains.

Drug manufacturing has always been a tricky business.  The biggest challenges has to do with how production needs to be controlled more tightly through direct managerial oversight.  Our prior research suggested that the increased complexity associated with an extended (but financially controlled) supply chain does not lead to lower product recall volumes.  In addition, we found that Foreign ownership of plants may lead to perceptions of control, but in fact the inability to manage communication protocol, cultural and process factors may exacerbate a recall incident. Our results are unequivocal in concluding that captive offshoring leads to difficulties in managing the entire supply chain, and reduces the ability to respond to product recalls efficiently. The research that the Palermo team carried out links product recall difficulties to reduced quality failure detection and consequent product recall magnitude, and results in increased levels of product quantities having to be withdrawn from the supply chain as a manifestation of such behaviors.

The recent incidents documented in the WebMD story are demonstrating how our empirical results pan out in real life.  Consider the following:

• Since this summer, several batches of three generic drugs used to treat high blood pressure (produced in China and India) have been recalled because they were tainted with chemicals listed as probable human carcinogens — first N-nitrosodimethylamine, or NDMA, and later N-nitrosodiethylamine, or NDEA.
• In July, the FDA announced a recall of the blood pressure drug valsartan after pills made by Chinese manufacturerZhejiang Huahai Pharmaceuticals were found to have been contaminated by NDMA and NDEA. The drugs were sold in the United States by more than a dozen companies, and the list eventually covered more than half the valsartan products on the U.S. market.
• In late October, Indian pharmaceutical manufacturer Aurobindo recalled 22 batches of the blood-pressure drug irbesartan, which also is used to treat kidney disease in diabetes patients with high blood pressure. Aurobindo reported it had found the drug was contaminated by NDEA.
• And in early November, Sandoz had to pull back a similar medication, losartan potassium-hydrochlorothiazide, after discovering NDEA in it. Losartan, the active ingredient in the pills, was also made by Zhejiang Huahai.

These incidents highlight the importance of putting the right resources in place for supplier quality management.  Organizations who think that outsourcing is a case of “out of sight, out of mind” are sadly mistaken.  Pharmaceutial manufacturing requires tight control, supervision, and oversight of trained workers.  As I noted in the interview, “Outsourcing can lead to communication problems between the consumer-facing company and its manufacturer, “and you kind of get what you pay for.” The problems may happen at “a very small percentage” of plants — but, “once you lose control of a process, all bets are off.  You really don’t have control over what’s going on, particularly when you go to low-cost countries like China and India.  You get high turnover in some of these factories. You get people who aren’t trained in the procedures, or they take shortcuts, or they don’t follow all of the steps, and you get impurities introduced through chemical reactions and so forth.”

The same link of thinking on how shortages occur applies to the recent WSJ story on the state of New York imposing a $600M “tax” on drug distributors and pharmacies to cover the cost of opioid addition in their state.  I was also consulted by the HDMA based on my pharmaceutical distribution book to opine on the likely outcomes of what will occur given this situation.  Taxing the distributors and pharmacies is like fining the guy at the Waffle House who cooks your bacon for you, claiming he is responsible for the heart disease due to high cholesterol in the client base.  The ones who are ultimately responsible are the physicians prescribing opioid drugs, not the distributors who are only doing their job and providing the service to fulfill demand.  The HDMA is mounting a legal challenge to the state of New York, noting that the tax is an improper end-run around resolution of that case.  Ultimately, this will result in distributors refusing to distribute drugs for which they are making little to no profit on to begin with.  The result?  You guessed it…. more drug shortages – this time, for opioids in New York for people who really are in pain and need them.

Shortages all comes back to the supply chain!