What does contaminated heparin in our drug supply chain have in common with Memorial Day BBQ?

Scientific Protein Laboratories, the company that brought us contaminated, deadly heparin made from pig intestines was founded by Oscar Mayer, the company that likely will be providing the hot dogs you grill on the barbee this holiday weekend (see the story in the News Times: “Financier Stands by a Firm Tainted by Heparin“).

Mr. Mayer was “apparently interested in profiting from the whole pig, and he started [Scientific Protein Laboratories] to make use of the animal byproducts of his food empire,” says Jacob Goldstein over at the WSJ Health Blog.

I call this the “snout-to-anus” food-drug supply chain, which is best depicted in this illustration:

Scientific Protein Laboratories is owned by American Capital, an investment firm that clearly is interested more in financial gain than it is in the nation’s drug supply. American Capital owns about 170 other companies that make up what I am sure is a diverse portfolio of holdings.

Is any one else disturbed that there are such companies determining which end of the pig we end up with? I think some in Congress might be concerned.

In the good old days big pharma earned attractive returns by bringing differentiated, patent protected products to market, supporting them with robust sales and marketing programs, and making intelligent use of a variety of communications channels to physicians, and –for the last decade– consumers.

As pipelines dried up and the generic industry became more sophisticated and aggressive, big pharma adjusted its tactics. In product development it’s turned to in-licensing, creating new formulations (especially extended release products), and combination products. Big pharma has combated generics in the courtroom, introduced “authorized generics” that cut into the profits of the initial generic supplier, and attempted to bundle multiple products into its contracts with payers.

It’s been a losing battle, though and new tools are needed. The current wave of cost cuts and acquisitions of smaller firms won’t be decisive.

It’s unlikely that big pharma will succeed in reviving its pipelines anytime soon, but there are things the industry could try.  For example, if branded pharmaceutical companies can demonstrate better clinical results through medication adherence programs, they may be able to make the argument that they are selling a “solution” rather than a product. Instead of losing roughly 90 percent of their sales when generic competition begins, maybe they can cut it to 50 or 60 percent. That will make a huge difference –if pharma can pull it off. I haven’t seen much indication yet that this strategy will be pursued in a serious way or that big pharma can execute.

The recent Heparin scandal makes me think that there is another opportunity. That is, rather than shifting production to low-cost locations such as China, as big pharma seems to be doing, why not deploy a manufacturing network strategy that is deliberately more expensive but more assured? Only make products in Europe, North America, Japan, Singapore and their ilk, and don’t accept any inputs from questionable sources.

Then make the pedigree of the finished products and their components a significant part of the marketing/educational campaign to payers, pharmacists, and patients. Since the cost of goods sold for branded products is so low (typically 5-15 %), it won’t matter so much if those costs rise. On the other hand, generic companies are really pressed to offer the lowest possible price and they need to shave costs wherever they can.

Of course it would be unseemly to cast aspersions on competing products based on their manufacturing quality, but because of the publicity surrounding the Heparin recall and problems with Chinese products in general awareness is already high and the customer will make the connection.

A Pharmaceutical Executive article about the Heparin recall sums up the current view on China:

“Greed is universal. But in China, it is especially dangerous because of the lack of regulations and enforcement,” says Wang Fei-ling, an expert in Chinese policy at Georgia Institute of Technology. “That combination creates rampant corruption, which is the most serious problem China faces.”

Pharma companies that can afford not to manufacture in China might be wise to keep that observation in mind. I believe there is a profitable niche available for products going off patent that want to compete on manufacturing quality and pedigree.

China, which reportedly now has more Internet users than the U.S. is admitting a home-grown problem with illegal online drug sales.

China’s State Food and Drug Administration (SFDA) just announced a new effort to shut down on-line drug sellers. (Source: China tightens scrutiny over illegal online drug sale)

As they say…good luck with that.

I’m sure that not all drugs at online sellers are counterfeit. However, many online pharmacies are typically just diverting drugs from one country/channel/whatever to another. And drug diversion creates openings for counterfeits to get into the hands of consumers. In fact, diversion is the entry point for every case investigated by the FDA involving counterfeit drugs going into legitimate pharmacies.

Domestic education efforts have hardly dampened U.S. consumer’s enthusiasm for buying from potentially shady sellers. In addition to the occasional FDA warning, there are reliable, industry-sponsored websites designed to educate consumers about the dangers of buying products from potentially disreputable sellers. (See the Links on the right.) Yet a Wall Street Journal-Harris Interactive survey in 2006 found that 1 out of 9 U.S. adults has ordered drugs from another country to save money, showing that some consumers just do not care very much about safety. I’m sure that a fair number of consumers also buy online so they can get a drug they shouldn’t be getting.

Maybe China will figure out how to stop their citizens from taking ludicrous risks, but the U.S. experience should not make them hopeful.