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Each week, Health Affairs Editor-in-Chief Alan Weil brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
00;00;00;00 - 00;00;37;12
Alan Weil
Hello and welcome to “A Health Podyssey”. I'm your host, Alan Weil. The COVID-19 pandemic interrupted supply chains around the world, leading to everything from toilet paper shortages to shortages of automobiles due to the lack of computer chips. In health care, the shortage of personal protective equipment shone a spotlight on supply chain bottlenecks for essential items. Now, even before the pandemic, the U.S. Food and Drug Administration had testified before the House Energy and Commerce Committee about threats to the supply of pharmaceuticals.
00;00;38;03 - 00;01;06;18
Alan Weil
Possible weaknesses in the global supply chain for drugs is the topic of today's episode of “A Health Podyssey”. I'm here with Mariana Socal, associate scientist at the Johns Hopkins Bloomberg School of Public Health. Dr. Socal and colleagues published a paper in the March 2023 issue of Health Affairs, examining sources of production and levels of competition in the global supply chain for generic drugs sold in the United States.
00;01;07;09 - 00;01;23;15
Alan Weil
They found heavy reliance upon facilities around the globe, often with little redundancy or competition, suggesting significant vulnerabilities. We'll discuss these findings and their implications in today's episode. Dr. Socal, welcome to the program.
00;01;24;06 - 00;01;25;07
Dr. Mariana Socal
Thank you so much.
00;01;26;02 - 00;01;47;11
Alan Weil
This is a complicated topic. Anything having to do with drugs, drug pricing, drug manufacturing, always, I have to start with the basics. So if you could for me, just could you start by explaining to me why it's important for us to have a well-functioning market for generic drugs? That may seem obvious, but I think it's a good place to begin the conversation.
00;01;47;28 - 00;02;25;03
Dr. Mariana Socal
That's an important question, especially because our pharmaceutical market in the United States, it relies heavily on the entry of competition against branded products. So the entry of competition in the form of generics or biosimilars, it's what we rely on to bring prices of the reference originator products down. But it's not only about having price competition. A well-functioning generics market is also important to avoid shortages of drugs like you just mentioned, and also about ensuring the quality of these products that are available in our market.
00;02;25;19 - 00;02;50;06
Alan Weil
So that's great. I mean, I knew it was important, but those different dimensions seem critical. We really do rely on generics as the driver of price reductions against branded drugs. And of course, we need quality and access as well. So your study focuses on active pharmaceutical ingredients, APIs, a term I have to confess, I wasn't familiar with before I read your paper.
00;02;50;13 - 00;02;59;15
Alan Weil
What are these APIs and how does studying them help us understand the availability and supply of generic drugs in the US market?
00;02;59;21 - 00;03;23;00
Dr. Mariana Socal
So the active pharmaceutical ingredients, they can be understood as the part of the drug that really produces the clinical effect that is expected from that drug. So if we're thinking about an antibiotic, for example, that antibiotic can come on the form of a solution to be drink or a pill to be eaten or a, perhaps, an injection to be administered.
00;03;23;11 - 00;03;59;08
Dr. Mariana Socal
So the various dosage forms, the various formulations that are available commercially of a certain drug, they can be understood pretty much as the vehicle through which that drug will enter the body. But the actual clinical effect of the drug is going to be delivered by what is called the API or the active pharmaceutical ingredients. And like you mentioned, we have been relying heavily on other countries to produce these active pharmaceutical ingredients, even for drugs where supposedly the manufacturer is registered as a U.S. company.
00;03;59;18 - 00;04;19;02
Alan Weil
So let's get into this because this is really the heart of your paper. You know, I go to the drugstore, I pick up a prescription drug, a generic or something over the counter. I don't really think a lot about where it was made. I don't think a lot about what went into it. I just expect it to be there.
00;04;19;02 - 00;04;39;24
Alan Weil
And then every once in a while, we hear about shortages and suddenly you can't get something that you need. And it just seems sort of mystical. So I know there's not just one, but maybe if you could start by giving us a sense, as you found in your paper, what's the global supply chain look like for these active pharmaceutical ingredients?
00;04;40;02 - 00;05;05;26
Dr. Mariana Socal
Well, the global supply chain is actually globalized. That's, I think, that's the best summary of the whole conversation. You know, there's a lot of countries that participate in the global supply chain. We found evidence of 42 different countries participating in this chain. These countries are basically spread across the globe. Mainly, they're present in Asia, in Europe and North America.
00;05;06;04 - 00;05;37;05
Dr. Mariana Socal
But we have countries in Africa, and Australia, also participate. There’s South American countries that also participate in producing active pharmaceutical ingredients for the United States market. Of course, these countries also produce for other markets. That's a very interesting finding we had in our paper is that many facilities, especially the largest facilities who produce for the U.S. market, they're actually producing for all the markets that inspect these facilities that are competing with us for the same supply.
00;05;37;18 - 00;05;46;20
Dr. Mariana Socal
So, in fact, you know, things are very much interconnected in terms of manufacturing and the destination of where these drugs are going around the globe.
00;05;46;29 - 00;06;11;22
Alan Weil
So at first blush, you'd say, well, it's great, it's global. As you said, that's why we call it a global supply chain. But what that would suggest that if something goes wrong in one place, well, you just move to somewhere else or you get it from somewhere else. It should be flexible. But you actually found that even though the supply chain is global for any particular ingredient, that may not be the case.
00;06;11;23 - 00;06;14;02
Alan Weil
Can you say a little bit more about what you found there?
00;06;14;17 - 00;06;37;24
Dr. Mariana Socal
That is absolutely correct. And there was a very surprising finding from this study. When we examined the specific active pharmaceutical ingredients, which was a very novel thing we implemented, there had been other studies about where these facilities are located globally, but nobody had yet examined the specific ingredients we're talking about. These specific drugs, we'll call it like that
00;06;37;24 - 00;07;12;14
Dr. Mariana Socal
just to simplify, and what we found is that when you examine the specific substances, one third of all substances that are used to produce our final drugs that come out as generic drugs in the pharmacy shelves, one third of these substances, they were produced by only one facility located somewhere in the globe. It was not all the same facility, of course, but they had a single production facility, which means very vulnerable to problems that can occur and, you know, can be unexpected at any point in time
00;07;12;14 - 00;07;39;24
Dr. Mariana Socal
a facility is prone to having any problems. And if you have a full production of a certain drug reliant on that single facility, that may be a problem. Another third of these substances was produced by two or three facilities, which means, you know, taken together, we are relying on a very small number of facilities located around the globe to produce the actual ingredients for the drugs we need in this country.
00;07;40;02 - 00;08;07;24
Alan Weil
Yeah, I found this really astonishing. So you've got manufacturers all over the world. But when it comes to any given drug, the notion that a third of them have only one source and the possibility of interruption for any of a number of reasons seems quite high. When you say that for another third, it was just two or three, can you give me a sense or do the other third have robust multiple producers, or is it just four or five or I mean, how healthy is this market?
00;08;07;28 - 00;08;29;18
Dr. Mariana Socal
Yeah, well, there were certain key active ingredients and these were for very commonly used drugs typically. And they had up to a large number, like 30 producers, for example. But it was a total of one third of these substances that had either like four or more. And it was definitely not a large group that were in like the 30 or more category.
00;08;29;29 - 00;08;42;19
Dr. Mariana Socal
So overall, the redundancy levels were low, even if for certain specific compounds there may have been a large number of facility producing those specific substances.
00;08;43;04 - 00;09;19;08
Alan Weil
So I want to talk to you about the implications of this. They are a little scary, but we also should think about what we could do to reduce the risk. We'll talk about those topics after we take a short break. And we're back. I'm speaking with Dr. Mariana Socal about competition and vulnerabilities in the global supply chain for generic drugs in the United States.
00;09;19;20 - 00;09;42;00
Alan Weil
Before the break, we were noting how few producers there are for some of these ingredients for such a large number of the generics that we rely upon. Before we get into some of the other implications, I do want to turn to one of the topics at the very outset. You mentioned when I asked why it's important to have a good market, you also mentioned the issue of quality.
00;09;42;00 - 00;10;01;16
Alan Weil
We focused at this point just on numbers and availability, but you did some examination in your paper about quality monitoring. Can you give us a sense of how quality is monitored around the globe and maybe some of your top findings about how confident we should feel about the monitoring of these drugs?
00;10;01;29 - 00;10;30;29
Dr. Mariana Socal
Well, we didn't have access to the actual content of what the specific reports were about in terms of facility warning letters and inspections. We didn't have access to what these inspections uncovered or what these warning letters were about. What we did find was that the EER (Establishment Evaluation Requests) of the last FDA inspection recorded in certain areas of the globe was actually low compared to facilities inspected
00;10;30;29 - 00;11;04;10
Dr. Mariana Socal
in the United States, for example. So China, which is one of the top four producers for the active pharmaceutical ingredients, on average the last inspection that facilities recorded in China from an FDA perspective was in 2016. In all these facilities that we examined, they were actively producing as of 2020, 2021. So, you know, there's significant gaps here in the frequency with which these facilities may have been inspected.
00;11;04;24 - 00;11;54;17
Dr. Mariana Socal
You know, in addition to inspections, there's also this structure in which the FDA can issue these warning letters. And one surprising finding from our perspective was that U.S. facilities, they were similarly likely as international facilities to have received an FDA warning letter. Now, we don't know if the content may have been different That's an important question, but it also demonstrates how much oftentimes, you know, we consider that while domestic production of these active ingredients might have been a solution and it may not be as much of a magic bullet as we would intuitively wish for, because our supply is so reliant on these international sources, we should be doing a
00;11;54;17 - 00;12;35;14
Dr. Mariana Socal
better job in monitoring them, inspecting them, and also following up one important question here is also about this redundancy and reconciling redundancy in the API production with redundancy in the production of the finalized dose products. So the actual finalized drugs, finished drugs. The FDA keeps track of all of these locations where these API producers are placed around the globe, especially, you know, an additional way that the FDA tracks these facilities is because these facilities are required to pay GDUFA (Generic Drug User Fee Amendments) fees.
00;12;35;14 - 00;13;18;22
Dr. Mariana Socal
So annually, if the facility is producing an API for the U.S. market, they must pay fees to the FDA to maintain their status. And so the FDA knows where in the world they are located, what they are producing, and for which specific companies they are producing. But that information, you know, it's confidential, it's private. There is no good way for the general public or even us academics to recognize or fully understand what is happening in these inspections, what is being noted in these warning letters, and for which specific products, until we become something, you know, of the public knowledge.
00;13;18;22 - 00;13;43;08
Alan Weil
So this feels like sort of a classic economic dilemma. We rely upon the generics market to bring down prices. It's competitive if it's going to be competitive, then they're incentives for producers to find the least expensive way to manufacture. That's part of why we have global supply chains. But it also means that, you know, quality monitoring and cutting corners on quality.
00;13;43;08 - 00;14;03;11
Alan Weil
If you can get away with it, then that gives you a little bit of an economic edge. So then you say, well, let's bring it back to the United States. But as you just noted, even that has some challenges associated with it. So I don't want people to listen to this episode and think, well, this is just a mess.
00;14;03;11 - 00;14;18;15
Alan Weil
And, you know, who knows when the next drug is not going to be available? How do we start taking this very complex ecosystem and try to make sure it maximizes exactly the things you said at the outset?
00;14;18;20 - 00;15;04;06
Dr. Mariana Socal
Well, first, let me resonate with you in the optimistic message. I agree. You know, we do have a functioning generics market. Estimates show that our generic drug prices are either comparable or even lower, you know, than many countries around the world or even most countries around the world. This market is generally working. What we are concerned about are these pockets, you know, these specific drug classes, specific products, you know, specific niches in this environment that may not be fully functioning and, as you correctly mentioned, one of the reasons and perhaps the most important reason, is that the competition in this market occurs around prices in these manufacturers.
00;15;04;06 - 00;15;47;22
Dr. Mariana Socal
They don't really have a way to differentiate themselves from the competition with any other signals aside from price. And so one of the possibilities that has been talked a lot over the years is having quality metrics that generic, active ingredients or finalized products could have so that the purchasers could even justify paying a little bit more for that particular ingredient or for that particular finished product coming from that particular manufacturer, because the manufacturer has perhaps a better track record of sustainability in practice or good manufacturing practices or even sustainable supply without interruption.
00;15;48;02 - 00;15;56;15
Dr. Mariana Socal
So these would be very important signals to have in the market such that the only piece of information, the only signal, wouldn't be just price.
00;15;56;29 - 00;16;20;27
Alan Weil
That's a really fascinating idea. And of course, we talk about this in health care all over the place, that people can get at the same imaging procedure done at different locations and they have a sense of a price differential, but often they have no signal at all with respect to quality. So if we could factor that in, we might be able to make people better consumers.
00;16;21;06 - 00;16;32;02
Alan Weil
What about the concept of trying to bring more manufacturing to the United States? Is that a viable path? And if so, how might we pursue it? Or is that not a place to put a lot of energy?
00;16;32;12 - 00;16;56;20
Dr. Mariana Socal
One thing that we didn't discuss a lot, but I think it's very important to add to this conversation is the idea of national security, because, you know, we have price, we have quality, we have access. But there's also an element here that is, we have public health. At the end of the day, the drugs, they are there to produce a clinical benefit to our population.
00;16;56;29 - 00;17;29;28
Dr. Mariana Socal
And we should consider, you know, bringing in manufacturing not only based on, you know, supply levels. I think there may be other several other different policy options to resolve issues such as, you know, where these facilities are located, incentivizing, for example, diversification of supply. You know, we can discuss a lot of other policy options to strengthen our supply chain that don't necessarily involve on shoring of production. But on shoring of production,
00;17;29;28 - 00;18;00;25
Dr. Mariana Socal
I think it's very important for certain drugs, and I would give it as an example, antibiotics. There is an element that we uncovered and we recognized more clearly during the COVID pandemic that it was this element of sovereignty of multiple nations around the globe that are involved in the supply chain. As an example, we know India, very early on in the pandemic, implemented export bans on Tylenol because at the time it was not very clear how much supply was going to be needed by their own population.
00;18;01;08 - 00;18;28;21
Dr. Mariana Socal
And so if we are considering and I'm not saying that Tylenol is a great candidate to be produced by the United States, but it is clearly a case where we recognize how other countries interests can influence our access to drugs, to treat our population and meet our public health needs. So, you know, thinking about antibiotics, other medical countermeasures and perhaps other drugs of very important
00;18;28;21 - 00;18;54;09
Dr. Mariana Socal
public health relevance, I would say these should be the criteria that we should keep in mind while considering drugs for domestic production. You also mentioned, you know, personal protective equipment, for example. And that's another, it's just something that we learned during the pandemic of how we were reliant on other countries, even for the raw materials to create these PPEs.
00;18;54;16 - 00;19;22;11
Dr. Mariana Socal
So that's the same with drugs. We can't forget how important it is to supply of active ingredients because, you know, if we have ten U.S. manufacturers manufacturing a certain antibiotic, that would be fantastic. But if they're all buying from the same company located overseas and that country decides that their interests are more important than commerce, then we would not have the active ingredient and our supply would be significantly challenged.
00;19;22;11 - 00;19;26;15
Alan Weil
Is there anything else that comes to mind that we could do to strengthen the supply chain?
00;19;26;21 - 00;20;03;03
Dr. Mariana Socal
Well, we talked a lot about where these drugs are produced and the locations in the countries. But the fact is that all of this information is available to the FDA but is not currently being utilized in a way that aggregates that with the other available information. So, for example, today the FDA tracks how many producers of finished products, finished generic products, are available in the U.S. market and for drugs, finished drugs that have three or fewer manufacturers of finished drug products,
00;20;03;17 - 00;20;48;22
Dr. Mariana Socal
the FDA prioritizes approving a fourth competitor with the understanding that that will strengthen the market, with the understanding that drugs with three or fewer manufacturers are more prone to shortages or price increases. Well, that is ignoring the number of manufacturers of the active ingredients. And changing the FDA criteria, given that the FDA already has that information, mainly operationalizing that information into the same criterion in considering that perhaps tracking how many drugs have actually three or fewer API manufacturers and giving priority to those approvals because the FDA approves not only the manufacturer of a finished drug product, but also the API manufacturer.
00;20;49;04 - 00;21;20;22
Dr. Mariana Socal
So changing that criteria, I believe would be something very important that could generate more competition. Our study found that one in every five API markets was considered by the FDA as, quote, a functioning market, a well-functioning market, because they had four or more manufacturers of the finished product. However, they had three or fewer manufacturers of the API. So we consider that a hidden vulnerability in the supply chain.
00;21;20;22 - 00;21;41;13
Dr. Mariana Socal
And it would be great to for those vulnerabilities to not be hidden anymore, for them to be uncovered and for these particular products which have these upstream currently hidden vulnerabilities to be granted priority and be eligible for, for example, faster approval of other competitors to enter the market.
00;21;42;01 - 00;22;10;02
Alan Weil
Well, I really appreciate you taking a complicated subject and making it accessible. I think the findings of your study are bracing and the solutions or policy responses are not obvious, but at least it gets us thinking differently maybe than we had before, and we can start trying to figure out what to do about it. Dr. Socal, thank you for conducting the research and today for being my guest on “A Health Podyssey”.
00;22;10;02 - 00;22;16;05
Dr. Mariana Socal
Thank you so much. This was a great conversation. Thank you.