OHE’s submission to a parliamentary inquiry on UK drug shortages

Overview

Last month, the House of Lords Public Services Select Committee launched an inquiry into the UK’s ability to predict and prevent medicine supply issues. 

Drug shortages are a growing global concern, becoming more commonplace, and lasting longer. They affect multiple therapeutic areas but are often concentrated in generic and biosimilar markets. Cost-containment policies can result in very low prices being paid for medicines in these markets with the unintended consequence that suppliers leave the market and the supply chain is left weakened and lacking resilience.

Key takeaways

• Reliance on sole suppliers can have negative implications for both patients and healthcare systems at large, as single-supplier markets can be more prone to medicine shortages. This is especially so in rare disease medicine markets. 
• Policy at all levels should reflect the value added by supplier diversity and supply resilience.  Single-winner tenders (e.g. winner-takes-all) and other preferred supplier contracting approaches should be avoided or designed very carefully to mitigate the risks of supply chain fragility.
• The value added by available treatment alternatives and supplier diversity should be recognised and used to complement pricing and reimbursement decisions.

Causes of Medicine Supply Chain Issues

Although the causes of drug shortages are interlinked and multifactorial, with the root cause often difficult to establish, OHE research has found three main drivers of shortages, focusing primarily on off-patent medicines (generics and biosimilars):

1. Demand-side increases for a drug

• The surge in respiratory infections in Europe has been identified as a cause of some recent drug shortages. For example, in England, the surge in respiratory infections, particularly strep A, has led to Amoxicillin shortages.
• Increased demand, sudden changes in prescribing, and growing prevalence of chronic conditions strain the supply chain. For example, increased diagnoses of ADHD have led to higher prescriptions for its treatment– shortages of ADHD medication have persisted since September 2023.
  

2. Supply-side production issues

• Manufacturing and supply disruptions, including shortages of raw materials and industrial capacity issues, are commonly cited.
• Brexit has changed UK’s access to EU medicine reserve responses and further complicated cross-border logistics.
• Pharmaceutical supply chains are complex and global, with each stage typically carried out by different companies in different countries, presenting multiple points of failure. 
• Overreliance on raw materials and active pharmaceutical ingredients (APIs) imported from a single manufacturing country.
• Quality issues (e.g., viral contamination of biologic medicines at manufacturing) or catastrophes (e.g., hurricane) affecting large scale global manufacturing plants. This is especially relevant for biosimilars.
  

3. Misalignment of government policies, manufacturer strategy, and financial incentives

• Low prices in generic and biosimilar markets force manufacturers to cut costs or exit the market, reducing supply resilience.
• Economic pressures such as inflation and changes in pricing/concession agreements have reduced supplier engagement.
• Sustained underinvestment in manufacturing facilities, as low profits and low prices may lead to a lack of incentive to invest.
• Tendering can lead to price erosion, which can result in suppliers leaving tendered markets leading to supplier concentration. This reduced competition has the potential to lead to drug-supply shortages, due to the weakening of the supply chain.
• The lack of a unified definition of ‘drug shortage’ is a key regulatory issue – there is not a consensus on the level at which all drug shortages should be assessed and the appropriate timeframe applied.

The impacts of medicine shortages on patients and frontline services

Our research identified that Pediatric, Gastroenterology, Anesthesia, Nervous system, Cardiovascular and Anti-infectives are the main therapeutic classes experiencing shortages, although there are many shortages across different therapeutic areas.

Infusion and Injectables followed by Tablets and Capsules are the most common drug presentations to experience drug shortages. 

The OHE has identified three key routes through which drug shortages impact health systems and patients: price increases for the drug in shortage as well as substitute products, additional healthcare resource use, and patient health impact. 

For health systems, increase in demand for treatment alternatives can put upward pressure on prices and spending, and the human effort in managing shortages and mitigating their impact can be significant. For patients, there may be a rise in adverse events from taking a substitute drug or prescribing errors, and worse outcomes associated with the prescribed treatment alternatives (or lack thereof). Our research demonstrates that the costs to society of key medicinal products running into shortage could be huge, with case studies showing potential costs of hundreds of millions in system disruption. 

Additionally, drug shortages mean that patients and frontline NHS teams face delays, interruptions to prescribed therapy, increased workload, and risk of deterioration in health.

This impact may be even more keenly felt if the shortage is experienced in a rare disease therapeutic area. Market characteristics that lead to shortages — such as limited competition and a lack of treatment alternatives– are typical in rare disease medicine markets, given their small patient populations and low financial incentives for innovators to invest and compete. 

This results in concentrated markets with limited treatment options for patients — sometimes even when alternative medicines have received regulatory approval. Additionally, because rare diseases generally are chronic and seriously debilitating, people with rare diseases are likely to acutely feel the impacts of medicine shortages, especially when treatment alternatives are not available.

Current and future threats to the UK medicine supply chain

Our research notes increased reliance on a small number of suppliers for rare disease and generic medicines, heightening risk from any single supply disruption.

Climate change and geopolitical instability represent emerging systemic risks that current planning inadequately addresses. Our research finds that the energy crisis shows how vulnerable the global pharmaceutical supply chain is to geo-political events (such as the COVID-19 pandemic or the war in Ukraine), fluctuations in the price of energy due to shortages of supply and the effects of climate change like heatwaves, fires and droughts.

Brexit has created additional regulatory fragmentation risks, and changes in supply chains will add production costs while potentially creating legal and regulatory gaps in pharmaceutical regulations. 

OHE research suggests that commercially unattractive markets with low profit margins (for example in the generics and biosimilars space) tend to result in markets with few producers, which limits the bandwidth and resilience to deal with demand shocks or supply issues. 

Supply Chain Monitoring

To improve supply chain issues, it’s crucial that the UK:

• Invests in diversification in the supply chain, not relying on single suppliers or single active pharmaceutical ingredients (API) sources—and monitoring both final products and key inputs. Diversification is likely to be most effective in off-patent markets, as there is a greater range of supplier options for generics and biosimilars.
• Increases transparency in supply chains and streamlining processes (such as mutual recognition agreements between MHRA and EMA) to reduce barriers to market entry and simplify how new medicines launch in the UK. 
• Improve information systems needed to prevent or anticipate shortages – current UK monitoring systems capture shortage incidents but are inadequate at predicting what will happen. The US’ Health and Human services white paper on drug shortages is one example of how to measure and correct supply chain shortages, although it’s important to note that the US’ proposed Manufacturer Resilience Program (MRAP) may also increase the cost of manufacturing if implemented at the company level, therefore increasing the risk of shortages if some of them deter market entry. 

Procurement Strategies

Our research finds that procurement policies can exacerbate shortages by prioritising low-cost contracts at the expense of supply resilience. Additionally, the UK’s departure from EU medicine solidarity mechanisms limits international procurement collaboration and exposes the market to global disruptions.

Procurement mechanisms favouring single suppliers, such as tenders and reimbursement policies that limit supply diversity, may exacerbate the risk and impact of frequent shortages.

OHE research recommends:

• Procurement reform to balance price competition with guarantees of supply diversity and reliability.
• We suggest broader involvement in international networks and coordinated stockpiling could improve resilience.
• All parties (including manufacturers, suppliers and governments) should work together to proactively identify threats to supply, strengthen resilience and manage disruptions when they do occur. To do so successfully, the approach must encompass the whole supply chain, from raw materials, through to manufacturing, storage and distribution.
• Incentives to strengthen supply-chain and health system resilience—for example, rewarding diversified raw material and API sourcing, local or regional manufacturing capacity, and stronger quality controls through price premiums or improved contract terms.

The UK Medicines Market

Low predicted profitability may reduce UK’s attractiveness for investment across the pharma supply chain, especially for generics and biosimilars. A 2024 Parliamentary Briefing by BGMA (now Medicines UK) stated that supply chain resilience in the off-patent market has worsened, due to a lack of prioritising by the government. The newly published Life Sciences Sector Plan promises to substantively support the generic and biosimilars market – how this will work out in practice remains to be seen..

For innovative (i.e branded) medicines, a recently published report by the Association of the British Pharmaceutical Industry (APBI) concluded that the UK is increasingly being ruled out of consideration as a viable location for pharmaceutical investment, largely due to high clawback rates negotiated as part of the VPAG agreement. This may also result in companies choosing to delay or not to launch new treatments in the UK, as well as disinvesting in UK-based R&D and manufacturing facilities.   This could make the UK even more vulnerable to shortages, both as a result of fewer approved treatment alternatives, and reduced domestic capacity for production in case of global supply shocks.  

The UK’s strengths in research excellence does not always translate into sustained manufacturing/clinical investment. The ABPI’s report also found that life sciences foreign direct investment into the UK was around 58% lower in 2023 (standing at £795 million) than in 2017 (when it was at £1.9 billion).  

Concluding thoughts

A general lesson from our research is that if key medicinal products run into shortage the costs to society can be huge. Current policies focusing on cost containment and expenditure control may be short-sighted as they neglect these broader costs associated with increased shortage risks.

Policymakers should consider the magnitude of shortage costs and balance them with the expected benefits of expenditure control measures if they aim to promote sustainable drug markets and resilient supply chains in the long term that generate mutual gains for all stakeholders.

By acknowledging the causes and impacts of drug shortages, policymakers should recognise the value of supply diversification, effective market competition, and supply-chain resilience, supported by incentives at regulatory, health technology assessment, and pricing and reimbursement levels.