Whether created artificially or reflective of a very real and serious issue, pharmaceutical supply chain problems can have deadly consequences for patients

Posted on October 7, 2011


“[Patients] don’t know if they will be able to receive their treatment on time. If they are switched to another regimen, they will always wonder if they got the best treatment and therefore the best chances at survival,” she wrote in an e-mail.

from the August 18th, 2011 Globe & Mail article “Health Canada warns of worsening drug shortages” by Carly Weeks

As I took the preliminary steps towards understanding the extent of the problem referenced in articles such as the one above and, the growing concern surrounding the “continuing drug supply problems” that currently plague the pharmaceutical industry, I was at once reminded of a comment made to me by a retired Department of National Defense General who had indicated that unlike many organizations an interruption in defense supply chains can mean death for soldiers.

The epiphany associated with the realization of just how essential the supply lines are with respect to running a nation’s military apparatus understandably put into perspective the seemingly silly panic associated with shortages in say the production of toys or other non-essential items in which losses are counted in terms of dollars instead of loss of life.

While it may seem as if I am trivializing supply risks as it relates to general business overall – which is not my intention as I am merely attempting to portray the challenges of everyday business in their proper light or perspective, there is however a major difference between being inconvenienced and being placed in a life and death situation.

Certainly the mortality factor with a military exercise or action is at least expected.  However, and in the 21st century, similar risks in terms of health care and patient treatment options are completely unacceptable.  Especially given the fact that pharmaceutical companies are incredibly profitable as reported in a January 6th, 2010 segment of the PI Window on Business on Blog Talk Radio.

Specifically, and if you do not know the actual numbers be prepared for a big surprise:

  • Based on a 1995 study, the Canadian Pharmaceutical Market was at the time the ninth largest in the world accounting for 2% of global pharmaceutical sales.  According to the current “Invest in Canada” web site, the annual growth rate for the Canadian Pharmaceutical Market is 8%, making Canada the 4th fastest growing market in the world for pharmaceuticals.  How does the corresponding growth of the Natural Health Product industry in Canada compare?
  • According to a study from Canada’s Research-Based Pharmaceutical Companies, they employ 22,000 Canadians, inject $4.5 billion in the Canadian Economy each year and invest $1 billion in R&D annually.  What are the comparable numbers for the Natural Health Products industry?

In the U.S., where the shortage in Canada seems to originate, the numbers are even more staggering as reflected in a following excerpt from my research and the show’s transcript:

Host Comment: There is no doubt that the Pharmaceutical Industry is a behemoth sector with incredible financial resources.  This is based on the fact that according to a 1995 study, in the 8 years ending in 1995 profits before taxes, or shareholder equity, was 29.6% for the pharmaceutical market compared to 10.2% for all other Canadian industries.

A December 7th, 2004 article titled “Excess in the pharmaceutical industry,” which appeared in the Canadian Medical Journal web site, as well as other articles by Marcia Angell disclosed the following:

“In 2002, as the economic downturn continued, big pharma showed only a slight drop in profits—from 18.5 to 17.0 percent of sales. The most startling fact about 2002 is that the combined profits for the ten drug companies in the Fortune 500 ($35.9 billion) were more than the profits for all the other 490 businesses put together ($33.7 billion).  In 2003 profits of the Fortune 500 drug companies dropped to 14.3 percent of sales, still well above the median for all industries of 4.6 percent for that year. When I say this is a profitable industry, I mean really profitable.  It is difficult to conceive of how awash in money big pharma is.”

Conversely, and according to Angell, ” Prescription drug costs are indeed high—and rising fast. Americans now spend a staggering $200 billion a year on prescription drugs, and that figure is growing at a rate of about 12 percent a year (down from a high of 18 percent in 1999).”  Angell went on to state that ” the prices of the most heavily prescribed drugs are routinely jacked up, sometimes several times a year.”

This leads to the obvious question (or questions) . . . how can an industry that is so profoundly profitable not get it right in terms of ensuring a consistently reliable supply chain?

For those true blue conspiracy buffs, the answer is pretty clear . . . corporate avarice, pure and simple.  But is it really that simple and, because of the essential nature of the products upon which they are being relied to deliver, are pharmaceutical companies given a bad rap when a break down in the supply chain occurs?

After all, and according to a 2007 Aberdeen survey of senior executives, while more than 90% of all businesses experienced at least one interruption in their supply chain in the previous 12 month period, only 23% of said executives polled expressed the belief that their organizations had taken the necessary steps to address such problems in the future.

Over the next week I will, following my usual serialized format, examine the pharmaceutical industry’s supply chain controversy and its implications on the health care industry as a whole including why these problems occur and what should be done to prevent them from happening again in the future.

Next – Pharma Supply Chains (Part 1): A problem of focus versus avarice?