David Ridley reports that over the past several years, some critically needed medicines (treatments for cancer and other serious diseases; called “sterile injectables”) have been in short supply and in some cases have been unavailable due to stock outs. These drug shortage problems “fly in the face” of economic theory which predicts a reaction to shortages would be product price increases, making these products more profitable (creating incentives to keep inventory levels up) and attracting more producers to these profitable product categories. Typically, and unfortunately for patients and their providers, the shortages persist because more producers are not entering these markets and prices have not been increasing.
There a variety of explanations for the shortages: over-zealous regulation, manufacturing-quality problems, group purchasing market effects and others. Two FDA regulators have argued the problem is the inability of the market [generic sterile injectable drugs] “to observe and reward quality”.* Two of my Duke colleagues, Professors Peter Arcidiacono and Jeffrey Moe worked with me to give these shortages a deeper look. What is the explanation for these chronic shortages and the lack of the expected market response: higher product prices and more manufacturers producing these products? We developed an economic model using US and non-US drug market and regulatory data to pose questions to explain these chronic shortages. I will describe the sterile injectables shortages problem and our findings on Thursday, November 6, at the Fall 2014 Health Sector Advisory Council meeting. I look forward to discussing these findings with the Council members.
Dr. and Mrs. Frank A. Riddick Associate Professor of the Practice
Fuqua School of Business, Duke University
* J Woodcock and M Wosinska “Economic and Technological Drivers of Generic Sterile Injectable Drug Shortages” Clinical Pharmacology & Therapeutics, Volume 93, Number 2, February 2013