Climate change in your medicine cabinet: How the FDA is working to secure the pharmaceutical supply chain.
The US Food and Drug Administration (FDA) takes steps to protect against threats to the pharmaceutical supply chain posed by extreme weather events.
The FDA and Climate Change:
The 2017 hurricane season gave us a terrifying view into the future that awaits us – extreme storms, unprecedented flooding, and mass devastation. One industry that was hit particularly hard by this year’s extreme weather events was the pharmaceutical industry. Even minor disruptions to the pharmaceutical supply chain can have far-reaching, detrimental effects due to the life-saving nature of these products and the lack of available substitutes in the event of a shortage [1]. This paper will examine the steps the US Food and Drug Administration (FDA) is taking to help mitigate future risks to pharmaceutical supply chains as a result of natural disasters and extreme weather patterns.
When Hurricane Maria hit Puerto Rico in September 2017, it caused a major shock to the pharmaceutical supply chain. As a result of its attractive tax policies, Puerto Rico had become a haven for pharmaceutical manufacturing, and housed approximately 50 pharmaceutical manufacturing facilities [2]. In the wake of the hurricane, companies such as Astra Zeneca and Eli Lilly stated that they were bracing for the possibility of months of downtime [3].
While this downtime is bad for each company’s bottom line, it is even more detrimental for human health. Approximately 8% of all medications taken in the US are produced in Puerto Rico, and following the storm, the FDA stated it was monitoring possible shortages of 30 different drugs, including 14 that have no substitutes [1]. Baxter, a supplier of intravenous saline, was hit hard by the storm, and as a result, some US hospitals downstream in the supply chain reported trouble getting supplies they use to deliver drugs to patients [4].
The events in Puerto Rico offer a first glimpse of problems we will likely face in the future as climate change increases the frequency of extreme weather patterns, posing a threat to the pharmaceutical supply chains. This looming risk demonstrates a clear need for the FDA to intervene now to mitigate future probable disruptions to the supply chain.
Short term management:
After Hurricane Maria, in response to the mass supply chain disruptions, the FDA created a Hurricane Drug Shortage Task Force [5]. The goal of this task force is to identify potential problems and devise solutions to deal with possible drug shortages resulting from extreme weather [5, 6]. The exact nature of these solutions has yet to be articulated, but given that this committee was announced less than two months ago, I am optimistic that we will hear more specific details in the near future.
Medium term management:
Hurricane Maria catalyzed immediate action from the FDA regarding drug shortages, but the FDA had been grappling with the issue of pharmaceutical supply chain interruption for many years before Hurricane Maria. In 2012, the FDA issued the FDA Safety and Innovation Act (FDASIA), which, among other things, gave the FDA more visibility into the pharmaceutical supply chain in an attempt to protect against future shortages [7, 8]. While this act was largely put into place to guard against human errors that can lead to shortages, it also protects against factors outside of a manufacturer’s control, such as natural disasters [8]. Moving forward, I suspect we will see this act used more and more to respond to or anticipate supply chain disruptions caused by natural disasters.
Additional steps I recommend:
Given that we are likely to see more extreme weather events moving forward, I would recommend that the FDA enact policies to force companies to geographically diversify the locations of their production facilities, particularly for products that are life-saving and have no substitutes. These life-saving products should not be produced in a single location – there should be at least two production facilities located in two different geographies in order to hedge against the risk of environmental disruptions to the supply chain.
Additionally, I would suggest that the FDA mandate that pharmaceutical companies carry heavy inventory at all times in order to protect against the possibility of disruptions to the supply chain. In order to lessen the financial impact of carrying inventory on the manufacturer, the additional inventory could be spread out over various stages of the supply chain including the production center, wholesale distribution centers, and end users.
Outstanding questions:
- Can and should the FDA require pharma companies to keep heavy inventory in order to protect against possibly supply chain shortages in the future?
- Should there be a reward for pharmaceutical companies that willingly spread out their production over multiple geographies in order to mitigate environmental risks to the supply chain? Could this reward come in the form of a patent life extension?
(766 words)
Sources:
[1] Aton, Adam. “Hurricane Maria Takes a Toll on Global Medical Supplies.” Scientific American. N.p., 25 Oct. 2017. Web. 14 Nov. 2017. <http://www.scientificamerican.com/article/hurricane-maria-takes-a-toll-on-global-medical-supplies/>.
[2] Isidore, Chris, Tal Kopan, and Julia Horowitz. “Closed Puerto Rico Factories Are the Sole Source of Some Critical Drugs.”CNNMoney. Cable News Network, 29 Sept. 2017. Web. 14 Nov. 2017. <http://money.cnn.com/2017/09/29/news/companies/puerto-rico-drug-makers/index.html>.
[3] Bomey, Nathan. “Hurricane Maria Halts Crucial Drug Manufacturing in Puerto Rico, May Spur Shortages.” USA Today. Gannett Satellite Information Network, 22 Sept. 2017. Web. 14 Nov. 2017. <https://www.usatoday.com/story/money/2017/09/22/hurricane-maria-pharmaceutical-industry-puerto-rico/692752001/>.
[4] McGinley, Laurie. “Hospitals Scramble to Avert Saline Shortage in Wake of Puerto Rico Disaster.” The Washington Post. WP Company, 11 Oct. 2017. Web. 14 Nov. 2017. <https://www.washingtonpost.com/news/to-your-health/wp/2017/10/09/hospitals-scramble-to-avert-saline-shortage-in-wake-of-puerto-rico-disaster/?utm_term=.bb64b5004fc4>.
[5] Kroll, David. “FDA Works To Prevent Global Drug Shortages From Damage To Puerto Rico Factories.” Forbes. Forbes Magazine, 26 Sept. 2017. Web. 14 Nov. 2017. <https://www.forbes.com/sites/davidkroll/2017/09/26/fda-expands-role-to-prevent-puerto-rico-sourced-drug-shortages-after-hurricane-maria/#6aaba90f3f5d>.
[6] FDA. Press Announcements – Statement from FDA Commissioner Scott Gottlieb, M.D., on FDA Actions to Bring Relief to Citizens of Puerto Rico; to Help the Island Recover Its Considerable and Economically Vital Medical Product Manufacturing Base; and to Prevent Critical Shortages of Life-saving Drugs Made in Puerto Rico. U S Food and Drug Administration Home Page. Office of the Commissioner, 25 Sept. 2017. Web. 14 Nov. 2017. <https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm577338.htm>.
[7] “Fact Sheet: Drug Products in Shortage in the United States.” U S Food and Drug Administration Home Page. Office of the Commissioner, 29 Jan. 2016. Web. 14 Nov. 2017. <https://www.fda.gov/RegulatoryInformation/LawsEnforcedbyFDA/SignificantAmendmentstotheFDCAct/FDASIA/ucm313121.htm>.
[8] Strategic Plan for Preventing and Mitigating Drug Shortages. Rep. Food and Drug Administration, Oct. 2013. Web. 14 Nov. 2017. <https://www.fda.gov/downloads/Drugs/DrugSafety/DrugShortages/UCM372566.pdf>.
Great essay, this is definitely a critical topic. Agriculture is often the first industry that comes to mind when I think about the impact of climate change, so it’s enlightening to hear about how pharma and other manufacturing industries are impacted by extreme weather events. I agree with your suggestion of diversifying geographic exposure in manufacturing footprint and am a bit surprised that big pharma companies have not already focused on this. I would think that having several manufacturing locations for a drug worldwide would make sense from a general distribution perspective and these are large, well-capitalized companies with financial wherewithal to invest in multiple facilities.
On how FDA/government policy should drive more manufacturing diversification, I wonder if there is a way to provide tax incentives for companies that build facilities in the US. The federal government has provided tax breaks to incentivize infrastructure investment in the energy sector (i.e. pipelines) and that framework may be applicable here. Another thought in response to the point on carrying excess inventory you mentioned is that the FDA could require that pharma companies have one ‘mothership’ inventory warehouse in a location that is not at significant extreme weather event risk. This does not have to be an actual manufacturing facility but rather just a place where companies can be forced to store some appropriate level of auxiliary inventory in the event of an emergency.
Thanks so much for your post on such a critical topic. I agree with your suggestions for short, medium, and long term supply chain management goals for the FDA. To respond to your question — can and should the FDA require pharma companies to keep heavy inventory in order to protect against possible supply chain shortages in the future? — I believe that the FDA cannot go so far as to require heavy inventory. Since the pharma companies have more expertise in predicting demand for the drugs, I believe it will be difficult for the FDA to mandate a specific amount of inventory that should be held for various drugs at various companies a) because there are too many drugs / companies to monitor in this way, and b) because I assume “safe” inventory levels across drugs could vary significantly. Instead, I believe the FDA and other government organizations should work with the pharma companies to incentivize them to manage inventory in a more prudent fashion. For instance, the government can use economic means such as tax breaks to drive increased inventory buffer for drugs that treat fatal diseases. Alternatively, the government can institute backward-looking penalties, in the form of fines or future tax increases, for pharma companies that fail to meet demand in extreme weather events. Another important impetus for pharma companies could be the media: if news outlets report on the pharma companies’ poor inventory management during extreme weather events, the public and government will demand action.
Thanks for sharing your insights on this important topic. To answer your question regarding geographic diversity and whether or not pharmaceutical companies should be rewarded for spreading out their production over multiple locations in order to mitigate environmental risks to the supply chain, I definitely agree that pharmaceutical companies should be incentivized to reduce natural disaster risks by diversifying their global footprint. The fact that 8% of all drugs in the US come from Puerto Rico, an area likely to be battered by intensifying storms over the next century, poses huge health risks. One way to incentivize pharmaceutical companies to diversify in the US may have to come in the form of state tax incentives in regions of the country less likely to be impacted by natural disasters. Regarding the question of FDA-enforced inventory demands, I do not think this will be feasible given that climate change is also expected to increase the number of vector-borne diseases and other health issues that will probably strain capacity in the medium and long-term anyway [1]. Again, I think monetary incentives like tax-breaks can also be implemented to help Big Pharma companies better manage their inventory levels moving forward in this high risk environment.
[1] http://www.pharmaceutical-journal.com/opinion/time-to-act-pharmacists-must-be-prepared-for-environmental-changes/11138390.article
This was a very interesting paper, Sam, that makes a lot of great points – but I take some issue with one of the proposed solutions: the suggestion that the ‘FDA enact policies to force companies to geographically diversify the locations of their production facilities, particularly for products that are life-saving and have no substitutes’.
Given the power of the pharma lobby, such a costly measure would be difficult to implement – and given the nature of the current supply chains for pharma companies, would take years to enact. But the main reason for my oppositions stems from the fact that the proposal would drive up the every day prices of drugs for consumers by requiring more expensive geographically diverse supply chains and would lead to worse outcomes for the majority of the consumers. Every dollar of incremental price passed on to consumers or insurers correlates to worse health outcomes – that is certain, while disaster frequency is fundamentally uncertain.
Instead the government should prepare better for emergency situations rather than passing that burden to private companies. For example the government could have stores of medicine that can be deployed in emergency situations or they could have an emergency factory with capacity to devote to drug production if a major facility is taken offline. This would seem to be a way to mitigate the risks of the problem with fewer of the downsides.
Great article! Before reading, I did not realize how big a percentage of medications taken in the US are produced in Puerto Rico and hadn’t before considered the need for geographical diversification of pharmaceutical companies.Your recommendation that the FDA require geographical diversification to mitigate climate change risks and heavy inventory to protect against supply chain shortages are both sound solutions. However, the challenging part is that these solutions are expensive and I wonder who would bear the cost. Would the FDA bear the burden and provide financial rewards to the pharma companies that enacted these solutions? Or would it be the pharma companies footing the bill? If the pharma companies must bear the costs of new construction and carry more inventory, then my worry is that they will pass these costs down to the consumer contributing to the sadly, ever rising costs of healthcare.
I disagree that the FDA should stipulate supply chain security and inventory levels for pharmaceuticals. Your example of pharmaceutical manufacturing in Puerto Rico is an excellence example as to why. Section 936 of the Internal Revenue Code, the United States Federal terms that govern Federal taxes, gave mainland United States companies an exemption from Federal taxes on income earned in Puerto Rico. [1] Puerto Rico would not be a attractive location to base pharma manufacturing in for many reason, and the risk of hurricanes is one of them. I lay blame for stock-out risks from hurricanes on government interference in the free market. Adding additional government interference as you are proposing is not the answer. But what is? Don’t ask me.
[1] Rohter, Larry. “Puerto Rico Fighting to Keep Its Tax Breaks for Businesses.” The New York Times., 10 May 1993. Web. 1 Dec 2017.
Thanks for sharing your insight into an important topic. I agree that a lack of preparation for disruptions from natural disasters in the pharmaceutical supply chain is highly problematic, but I question the viability of stockpiling inventory. In addition to capital costs of carrying heavy inventory, drug stockpiles have a finite shelf-life, and an excess of unused inventory exclusively set aside for emergencies can become wasteful. I would argue that regulatory policy intended to minimize manufacturing downtime of drugs that lack viable substitutes has the potential to be more effective, even if it means weakening property rights for patentholders in extreme scenarios.
Long-term storage of drugs can threaten their chemical integrity, which beyond reducing their effectiveness can result in the formation of toxic byproducts. That said, there is considerable variability in the shelf-life of medicines, which can make a strategy of building inventory more or less effective depending on the product in question [1].
In geographically concentrated drug manufacturing, downtime for a single facility resulting from local challenges can cause medicine shortages for the entire industry because intellectual property rights inhibit competition. Strong intellectual property rights incentivize medical innovations, but they prevent alternative manufacturers from stepping in to meet demand when the patentholder falters, with potentially severe implications on the wellbeing of the population. A policy position to reduce patent protections when disasters occur could keep the market from grinding to a halt when unexpected challenges arise [2].
—–
1. Wan Po AL, Farndon P, Palmer N. Maximizing the Value of Drug Stockpiles for Pandemic Influenza. Emerg Infect Dis. 2009;15(10):1686-1687. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2866417/.
2. Allen E. Prosecution Benefits: A New HOPE for Bridging the Patent Law Access Gap. Seattle J Soc Justice. 2011;10(1). http://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?article=1028&context=sjsj.
Thanks for bringing such a critical topic to our attention. Like many of our classmates, I too did not realize how many of America’s pharmaceuticals were being produced in Puerto Rico. To your first question — I also agree that large inventories of life-saving drugs should be kept in multiple locations around the United States. I would also extend the storage to other critical drugs that are difficult or expensive to manufacture, or whose manufacturing process, should it be disrupted, would require significant investment to restore. However, I would also be cautious potential costs this method may incur, specifically regarding drugs that pass expiration. Life-saving drugs are typically very expensive with shorter than average lifecycles. Higher churn rates for these drugs would bring significant cost burdens to someone… who pays that bill? And at what volumes are these drugs kept? Because the disruptions caused by Hurricane Maria seemed to be a first for this supply chain, I would caution against overreaction to a worsening, but not immediate, problem.