Could US Solve Drug Shortages With 'Heightened' M&A Scrutiny?

FDA's inter-agency drug shortage task force wants comments on whether new shortage prevention and mitigation policies should include closer examination of mergers and acquisitions that could create drug shortages.

US regulators may consider intervening in pharma company mergers and acquisitions if they feel that they could create drug shortages.

In a Federal Register notice announcing a Nov. 27 public meeting on shortage prevention and mitigation, FDA's inter-agency drug shortage task force listed "heighten scrutiny of proposed mergers and acquisitions that increase market concentration or the likelihood of shortages," as an example of a policy or additional authority it could recommend to prevent drug shortages.

There was no description of how additional scrutiny could be imposed in the notice, which was published Sept. 10. However, potentially adding regulatory merger review to its drug shortage response seems to indicate the government is willing to explore many avenues to end the ongoing problem.

The task force also asked in the notice if "consolidation in different parts of the supply chain created market barriers to entry and reduced competition" and whether it affects shortages.

Drug shortages have been an ongoing problem for several years and daily notices from FDA of drugs that either remain or have recently gone into shortage are routine. The meeting is the latest of many efforts to prevent and mitigate them.

The task force invited comments from stakeholders on the merger oversight idea, as well as other "adverse consequences of drug shortages, the underlying systemic causes and drivers of these shortages, and the policies and strategies that may help to prevent or mitigate them," according to the notice.

Comments will be used to write a report to Congress on root causes of shortages and recommend new authorities FDA or other federal agencies could use to fight them.

The task force includes representatives from FDA, CMS, and the Veterans Affairs and Defense departments. It is the second shortage task force convened by FDA. (Also see "FDA Shortages Task Force Looks More Broadly To Tackle Root Causes" - Pink Sheet, 16 Jul, 2018.)

Idea May Not Be Realistic

Marc Scheineson, a partner and head of the food and drug law practice at Alston and Bird, said in an interview that while using merger oversight to predict or prevent shortages may make sense, it likely is not realistic.

Scheineson said FDA is geared toward science and its staff do not have a lot of training on business realities, economics and market competitiveness.

"It's not realistic as far as something that could be monitored with any degree of expertise or sophistication," he said.

Scheineson added that when writing a strategic plan, the goal is to list as many bullet points as possible, which may explain why the idea appeared in the notice even though it seems outside FDA's scope.

FDA also may have received the concept from Capitol Hill. Sen. Richard Blumenthal, D-Conn., wrote in a 2017 letter to the Federal Trade Commission that it should consult with FDA to determine if output reductions are possible following a merger and the actions that must be taken by the companies involved to safeguard against a shortage. The letter was spurred by warnings of shortages after Pfizer Inc.'s acquisition of Hospira Inc. was finalized. (Also see "Pfizer Finally Sealing Hospira Deal " - Scrip, 25 Aug, 2015.)

FTC and FDA have consulted on mergers previously, Blumenthal said in the letter. But Scheineson said FDA likely doesn’t have information that FTC would need to analyze a merger.

"For them to analyze information themselves or work with [the Justice Department] or FTC to seek more confidential or specific information is not realistic," he said.

Encouraging and Forcing Capacity Building

The drug shortages task force also seems interested in ways to create more manufacturing capacity to avert shortages.

"Financial incentives, such as tax credits or revised reimbursement policies" that could "allow additional payments for drugs in or at risk of shortage or to encourage investment to expand manufacturing capacity or to modernize aging infrastructure, to enhance process capability and variability control, or to prevent manufacturing problems that affect product availability," is among the ideas listed in the notice.

"Federal investment in production capacity for essential medicines directly related to national security, emergency preparedness and defense," also is a possibility, according to the notice.

In addition, stakeholders were asked "what are the sources of funding that could be applied to provide incentives to remedy the root causes" of shortages.

FDA has been encouraging drug manufacturers to modernize their facilities and processes, as well as embrace new technologies, in part to increase production reliability and efficiency. (Also see "FDA Highlights Advanced Drug Manufacturing Approaches In Budget Plan" - Pink Sheet, 13 Feb, 2018.)

Other proposals would seem to force manufacturers to prepare for situations that could cause a shortage.

The notice mentions revising payment policies and authorities so they would be "coupled with a requirement to establish contingency plans for supplying medicines that go into shortage." Requirements that manufacturers have risk management plans to "prepare to respond efficiently and effectively to potential shortages" also was listed.

In addition, task force members want stakeholder comments on potentially allowing other entities like contact manufacturers to fill supply gaps.

Creation of an essential medicines list, i.e. drugs so critical clinically that an uninterrupted supply is necessary, also was proposed. The task force asked for comments on criteria for inclusion, as well as list maintenance and administration.

FDA Commissioner Scott Gottlieb said products on an essential medicines list may warrant more significant interventions than already used to avert shortages, such as increased regulation or financial incentives. (Also see "Who Wants To Be 'Essential'? US FDA Considers Critical Drugs List" - Pink Sheet, 19 Jul, 2018.)

Task Force Wants To Avoid 'Perverse Incentives'

Downside effects of any potential drug shortage policies also will be discussed, including what were described in the notice as "perverse incentives."

The task force wrote that it wants comments on how the government can avoid "negative cascading effects in the health care financing and delivery system" with any new shortage policies and whether lessons learned from other commodity shortages could be applied.

The sterile injectable market will be cited in multiple comments on the shortage problem. The sector has long been a focus for shortage management because of the limited number of manufacturers willing to invest in making the older products. (Also see "Code Cart Crisis: Anatomy Of An Emergency Drug Shortage" - Pink Sheet, 5 Jul, 2017.)