The generic pharmaceutical supply chain is growing in complexity. Sterile injectables and oncology drugs with hazardous or cytotoxic molecules have a very intricate manufacturing process, making it difficult for manufacturers to quickly increase production. A closer look at the generic drug market, as well as various strategies to increase stability, will offer some insight into how drug shortages can be minimized.
Price erosion impacts supply, while patent expiries drive more manufacturers to generics
Currently, drugs are reimbursed in the outpatient setting using a percentage of the average selling price (ASP), including discounts and allowances manufacturers provide in the sale.1 Mature generic injectables have experienced significant price erosion, contributing to manufacturer exits. As the price for a generic drug erodes downward, reimbursement is being reduced by payers.
However, worldwide demand for generic drugs continues to grow, encouraging some manufacturers to enter the generic market.2 Over the next five years, several additional expirations are expected to occur, which may help sustain growth and encourage more manufacturers to enter the market.4 What is also needed is a reimbursement model that creates an incentive for manufacturers to consistently stay in these generic products.
Strengthening Supply Assurance
Distributors serving community-based oncology and other specialty areas continue to meet the demand for life-saving drugs. Three key pillars can provide a strong foundation for a dependable supply chain:
- Resilience
Our team at McKesson is building continuous process improvement, redundancy, and contingency planning into the system, providing surety of supply as well as identifying and proactively mitigating potential points of failure. We work closely with supplier and manufacturer partners to optimize our inventory levels despite constraints, secure backup product and alternatives where available, and obtain supply from multiple manufacturers, when possible.
We’re also creating models and ways of working such as the Critical Care Drug Task Force – a dynamic, cross-functional team of clinical pharmacists and supply chain professionals – to monitor, communicate and respond to supply chain trends and needs. As one of the largest distributors of medicines in the U.S., we have the right scale and solutions to support emerging and diversified suppliers with new product launches to bring greater supply to market.
- Intelligence
Building real-time visibility of the supply chain delivers actionable insights in both the supply and demand sides of the equation. This provides a better understanding of what is actually happening, enabling a closer balance of demand and supply, anticipating disruptions or shortages, and providing insights for channel participants about how to efficiently manage their inventories.
At McKesson, we’ve deployed and continue to scale Artificial Intelligence (AI) capabilities and predictive analytics in an attempt to better forecast drug shortages and take proactive steps to address future issues. Through Ontada, McKesson’s oncology technology and insights business, and The US Oncology Network, a network of more than 2,500 independent, community-based providers supported by McKesson, we leverage our unique oncology data and insights to help anticipate the need for potential clinical alternative regimens. Additionally, our CoverMyMeds solutions bring together prescribing and dispensing data to strengthen predictive analytics.
When there is a drug shortage, we harness our team of clinical experts inclusive of pharmacists and physicians to help predict where the demand will go and ready supply.
- Equitability
Public and private sectors must collaborate and strive to achieve a supply chain where all healthcare providers and settings of care have equitable access to critical drugs for their patients.
Distributors can play a vital role in managing access and availability when supply disruptions or shortages occur. As one of the nation’s largest drug distributors, McKesson is often called upon to fairly manage constrained inventory. We have an equitable allocation program in place that helps ensure pharmaceuticals are distributed across the country, including to health systems, chain retailers, community pharmacies, specialty clinics and care facilities that reach underserved communities and populations.
Solid trust across stakeholders can effectively identify early warning signs of a shortage
Strong collaboration and communication across the public and private sector are imperative to strengthen supply chain visibility and help prevent supply disruptions. Where the FDA may see market softness, early warning signals should be shared with distributors to optimize their response. For example, while distributors continue to diversify their supply sources, lack of insights of a particular therapy’s origin could prohibit them from creating safeguards or simply new sourcing routes to the same origin source.
Additionally, customers can help mitigate supply disruptions by refraining from stockpiling excessive quantities of products. This practice, known as hoarding, can amplify the bullwhip effect in the supply chain, causing minor fluctuations in demand to escalate into significant fluctuations at the distributor, manufacturer, and raw material supplier levels. Manufacturers should also maintain a certain amount of safety stock in place for patient emergencies.
Building a stable supply chain is possible
Many wonder what the future holds for the generic drug landscape. Can the situation really be improved? While each drug shortage is unique and there is no silver bullet that can prevent all disruptions, we can bolster a more resilient supply chain by understanding the root causes and deploying targeted solutions such as enhancing the reimbursement landscape, incentivizing supply preservation programs, and improving supply chain visibility. All stakeholders—manufacturers, distributors, providers, and consumers—need to work together to achieve these goals, collaborating when critical shortages are not happening, becoming proactive rather than reactive.
1. Piana R. Oncology Drug Shortage: An Unintended Consequence of the Medicare Modernization Act and Free-market Forces. The ASOC Post. September 15, 2011. Accessed online July 16, 2023. https://ascopost.com/issues/september-15-2011/oncology-drug-shortage-an-unintended-consequence-of-the-medicare-modernization-act-and-free-market-forces/
2. van den Heuvel R, Rollman R, et al. Generics 2030. Three strategies to curb the downward spiral. kpmg.com.2020. Accessed online November 15, 2023. https://kpmg.com/kpmg-us/content/dam/kpmg/pdf/2023/generics-2030.pdf
3. Ibid
4. Ibid
Jessica White, PharmD
Jessica White, PharmD, is VP of Specialty Portfolio and Programs at McKesson.
