The world’s broken market for medicines 

Part way through her 23-year-old son’s chemotherapy, Kristin Caparra was told that one of the drugs key to his treatment — methotrexate — was running out. 

Used at high doses in cancer care, the drug is part of common chemotherapy to treat paediatric cancers. There is often no good alternative to the treatment. 

The shortage led Caparra’s son to miss a dose of methotrexate for treatment of a rare, malignant bone cancer at Pennsylvania Hospital in Philadelphia. Caparra immediately contacted elected officials and cancer organisations, one of which helped arrange an alternative source. For other patients, shortages can mean switching to less effective drugs and facing worse outcomes.

“I know my son is one of thousands using this treatment. To know that children in particular would be affected by this is devastating,” says Caparra.

Medicine shortages like the one affecting methotrexate recently reached record highs across countries in Europe and hit a 10-year peak in the US last year. The problem is recurrent and widespread: in 2022 and 2023, national pharmacy bodies across 26 European countries all reported shortages, with the picture worsening last year.

While big pharma companies focus on developing innovative drugs that they can sell under patent and at high margins, recouping research and development costs, off-patent generic medicines such as methotrexate make up the backbone of pharmaceutical care. Ninety-one per cent of drugs prescribed in the US and 70 per cent in Europe are generics and biosimilars, a more complex off-patent drug.

Despite their essential role in global healthcare, manufacturing issues, weak supply chains and low pricing have combined to create a “broken market” for these medicines that makes them unattractive to produce and vulnerable to supply shocks, quality defects or surges in demand, say industry leaders and analysts.

“The whole system has a just-in-time principle and any rupture in that causes a downstream shortage,” says Rob Moss, a hospital pharmacy consultant in Utrecht, the Netherlands. “But the quality measures are so high and it’s so regulated that if there’s a quality defect, it’s harder for other suppliers to step in than in other industries.”

In the UK, 99 generic drugs were short in January, double the number counted two years ago, according to the British Generic Manufacturers Association, a trade body. This has affected supplies of drugs like hormone replacement therapies and medicines for ADHD, partly due to spikes in demand.

There is limited data to track shortages in lower- and middle-income countries. But they are unable to compete on price with richer nations. “Where there is scarcity of supply of the product, almost without exception the scarce supply will go to the highest bidder,” says Claudia Martinez, head of research at the Access to Medicine Foundation, a European NGO.

For patients, shortages ultimately translate into less effective treatment. Clinicians in a 2021 Pakistani study reported that shortages led to treatment delays, disease complications and even risk of death. In richer countries, systems are often better equipped to adapt to shortages by sourcing drugs from elsewhere or using alternative treatments. Yet three quarters of European national pharmacy groups surveyed last year said that shortages had led to worse treatment, and 15 per cent said they had led to adverse events such as more side effects.

Dario Trapani, a doctor at Milan’s European Institute of Oncology, says that when he heard that a drug called paclitaxel, a “backbone for curing women with breast cancer”, was running short in Italy, he was scared. He has few good alternatives to the drug.

Trapani, who also chairs the cancer medicines committee of the European Society for Medical Oncology, says in the past six months ESMO members have reported shortages in “very cheap drugs” of the sort that “they use every day” across the continent.

“They are told they shouldn’t use [a drug] anymore or to use alternatives,” he says. “This is really shocking and distressing for all parties.”

The first phase of drugs manufacturing involves making active pharmaceutical ingredients (APIs) through processing, refining and purifying chemical compounds. The API and other inactive ingredients such as preservatives are then converted into finished dosages during the second stage of manufacturing, typically at separate facilities. The finished drugs are then shipped to distribution centres.

For both manufacturing stages, the world relies heavily on Indian and Chinese factories, due in part to lower production costs and a higher skills base. FT analysis of a European database has found that Indian and Chinese manufacturers own over half of the quality certificates needed for drug APIs to be used in Europe and 48 per cent of the certificates for those used in key oncology drugs.

Like globalised supply chains for other goods, this adds an element of uncertainty. “The more you are dependent on a producer far away, the more vulnerable you are to facing medicine shortages. Multiple things can happen from production until it arrives at the final distribution point,” says Mujaheed Shaikh, a professor of health governance at Berlin’s Hertie School.

Reliance on Chinese factories for active pharmaceutical ingredients contributed to sustained shortages of antibiotics in Europe in 2022, partly due to zero-Covid restrictions in China. Faults at an Indian finished dosage factory were instrumental in the recent shortage of methotrexate experienced by the Caparra family. 

While each shortage has different causes, the hit to methotrexate underlines several problems with the generic medicines industry.

First used to treat cancer in children in 1949, methotrexate is also used for psoriasis, rheumatoid arthritis and Crohn’s disease. But the highest doses that have most frequently been in shortage are for cancer care, including for acute lymphoblastic leukaemia and non-Hodgkin lymphoma, a cancer of the lymphatic system.

Unusually, around 80 per cent of methotrexate API is made in Europe, says Jürgen Bank, general manager at German manufacturer Excella, which supplies large makers of the drug. “There is, and was, no shortage for methotrexate API,” he adds.

An Indian pharmaceutical manufacturer, Intas, is a major supplier of finished dosage methotrexate to the US through its subsidiary Accord Healthcare. In 2022, Accord provided 35 per cent of the US’s methotrexate supply as well as more than half of the US supply of other key cancer drugs: carboplatin and cisplatin. 

When FDA inspectors visited the Intas plant in Ahmedabad making methotrexate and other oncology drugs in November 2022, it found a “cascade of failure”. An employee had rushed to destroy sheets of data ahead of the arrival of inspectors by throwing acid on torn pieces of paper. 

After the inspection, Intas suspended production to address shortcomings. Within six months, this had sparked a scramble for the key cancer drugs produced by the plant. Shortages then rippled through global markets, as the US sought to find supply from elsewhere.

In August last year, the European Medicines Agency reported shortages of methotrexate in 11 EU countries. Monica Dias, the body’s head of supply and availability of medicines and medical devices, says that manufacturing issues at several European suppliers lay behind shortages rather than the Intas outage.

But the incident revealed “inherent structural weaknesses” in the market for sterile injectable drugs such as methotrexate, says Vimala Raghavendran, a pharmaceutical supply chain expert at US Pharmacopeia, an NGO.

“If you look at the data, you can see that one manufacturer had very aggressively gained market share over the last several years and they did it by competing on price,” Raghavendran says.

The price of a methotrexate injection in the US was $21.80 when FDA inspectors visited the Intas plant in December 2022, down from $26.30 at the beginning of 2019. Methotrexate’s list price has since risen to $28.40 per dose but the price of an average sterile injectable drug is $90.

In Europe, prices are lower still. The Dutch list price for 50mg is around €10, says Moss, in line with other prices in Europe, and prices have not risen in step with recent inflation.

Intas has since resumed supply of oncology drugs to the US but Valerie Jensen, associate director of the FDA’s drug shortages staff, says the company and its competitors have not been able to ramp up capacity and shortages will not be resolved for several months.

Pfizer, a supplier of methotrexate to 40 countries, is increasing production at sites in Australia, but this requires investing in more staff, specialist equipment and manufacturing capacity, measures that can take 12 to 18 months to affect supply.

Meanwhile, low prices have pushed out competition and prevented newcomers from entering the market. “Because the pricing was so appalling, no one else bothered to invest capital to enter that space because it wasn’t an attractive market,” says Richard Saynor, chief executive of Sandoz, a generics manufacturer spun-out from Novartis last year that does not make the drug.

The shortage has also led to scrutiny of how healthcare systems buy drugs.

The Federal Trade Commission last month launched an inquiry into the role played in the shortage by so-called group purchasing organisations, which buy generic drugs for US hospitals and other healthcare providers. The FTC will assess whether these “opaque drug middlemen”, in FTC chair Lina Khan’s words, disincentivise suppliers of generics.

In Europe, most systems rely on tendering for contracts to supply drugs, meaning the lowest bidder can often secure large amounts of supply, according to one industry executive who did not wish to be named for commercial reasons. “You literally plug in the price, not many other factors are considered and the product is awarded,” they say.

In Europe, tendering based solely on price or in a “winner takes all” agreement can create “monopolies in the market and you can rely entirely on one particular company,” says Shaikh. “The moment something goes wrong, whether it’s a quality recall or a manufacturing issue or they can’t meet demand, everything goes bust.”

In both markets, price rather than security of supply is the most important metric, say industry executives.

The severity of the methotrexate shortage has since abated. Caparra was able to secure supplies for her son with the support of a non-profit organisation, Angels for Change, that focuses on drug access.

But experts say that more people will probably be affected by drug shortages in the near term, as the underlying causes remain unaddressed.

FDA inspections of international plants dropped sharply during the Covid-19 pandemic. While Jensen says the FDA has “no set goal regarding the number of foreign inspections”, several experts expect a rebound will identify more quality issues.

“The FDA has not been inspecting facilities during Covid that much outside of the USA. If they go to a [foreign] generic facility, the chances are pretty good that they are going to find issues,” says Marta Wosińska, a health economist at the Brookings Institution.

Longer term, as populations age and chronic conditions rise, global growth in demand for medicines is likely to put further strain on supply chains.

An unanticipated boom in demand from China, Latin America, the Middle East and north Africa for alteplase, an off-patent drug used to treat strokes, has led to a shortage of supplies, according to Torsten Mau, head of supply chains at the drug’s German manufacturer Boehringer Ingelheim.

“The advancement of diagnosis and understanding [in stroke care] was . . . triggering a demand which, with all our historical data and all our expertise, we couldn’t foresee,” he says.

Because the drug must be grown from enzymes, rather than produced synthetically, it is complex to manufacture and in Europe, generics companies have decided against creating biosimilar alternatives, adds Mau. This means the German company is the sole supplier of a treatment that has become a standard of care in recent years.

The drug has been in shortage since 2022, with doctors forced to ration its use for non-critical alternative uses, such as clearing catheters. Boehringer Ingelheim is building a new manufacturing plant but, says Dias of the EMA, “you don’t build a new site overnight”. The EMA and the company have agreed to extend the shelf life of the product by a year and are encouraging use of lower doses where possible to avoid waste.

Lower-middle-income and upper-middle-income countries, such as India and China, will also make up the vast majority of demand for methotrexate doses in the years ahead, according to Scott Howard, global development officer at Hospital Sant Joan de Déu Barcelona, who has studied increased demand for drugs.

“Drug shortages . . . disproportionately affect people living in low-income countries, where shortages of personnel and funding limit capacity to promptly identify shortages, acquire emergency supplies and register new products,” he says.

Problems with supply are likely to continue as generics companies do not have a commercial interest in making older, complex drugs like alteplase and methotrexate. Sandoz, for instance, is focused instead on developing generic versions of more profitable, innovative drugs that are approaching the end of their patent, Saynor says.

Over 6 per cent of prescription sales will lose patent protection in 2028, the highest level since 2015, according to data provider Evaluate.

While doctors raise concerns about the effects of supply bottlenecks on patients, and manufacturers underline the unattractive economics of generic drugs, policymakers are discussing the geopolitical risks of Chinese and Indian supply. A goal of an upcoming Critical Medicines Act from the European Union is to reshore some supply and encourage drug stockpiling.

Currently, there is little incentive for manufacturers not to source from cheap factories in Asia using just-in-time supply mechanisms. “It has surprised me that there is a lot of talk of “strategic autonomy” around chips and all sorts of digital technologies [in Europe] but not so much around drugs,” says Diederik Stadig, a healthcare economist at Dutch bank ING.

To reshore manufacturing, healthcare systems will ultimately have to pay more for their drugs, at a time when national budgets are increasingly stretched.

Bank, from Excella, the German maker of methotrexate API, is doubtful that this will happen any time soon. “During Covid, we had a lot of political talk about bringing manufacturing back to Europe to avoid these kinds of shortages,” he says. “When this problem was finally resolved, pricing rules again.”

Source: Economy - ft.com