Sterile injectable oncology drugs include both generic and branded drugs. Approximately half the market is generic and the proportion of the market that is generic is rising. Virtually all manufacturing of sterile injectable drugs used in the United States takes place in the United States. Drugs manufactured in the United States are also sold in Canada (which has also been experiencing drug shortages). While some overseas countries in the Organization for Econcomic Co-operation and Development have been experiencing shortages of sterile injectable oncology drugs; others have not.
Manufacture of generic, sterile injectable drugs is a somewhat concentrated market with 7 manufacturers making up a large percentage of the market. Most of the production of a given drug is by three or fewer manufacturers. Analysis of a sample of 33 generic sterile injectable oncology drugs shows that of 33 drugs, for 28 at least 90 percent of total unit sales in 2010 was by 3 or fewer manufacturers. These manufacturers each operate a small number of facilities (1- 10) at which injectable drugs can be produced. These facilities, in turn, each contain several manufacturing lines. A particular drug can be produced on one or more of these lines, in runs that may last hours to weeks. The same line may be used for multiple different drugs (produced in separate batches), however certain drugs (including cytotoxic drugs) may only be produced on certain types of lines and in certain types of facilities, so the extent of substitution is limited. Moreover, there are costs in shifting from one drug to another on a specific line.
There is little evidence of recent increases in consolidation activity among sterile injectable manufacturers at the corporate level. Moreover, consolidation at the corporate level need not have any effect on manufacturing capacity. Consolidation at the corporate level would be a significant contributor to drug shortages only if the consolidations have resulted in closures of manufacturing facilities that reduced production capacity. Conversations with leading generic drug manufacturers, and data from the FDA, indicate that the consolidations have not resulted in decreased production capacity or in the closure of manufacturing facilities.
One major manufacturer of sterile injectable drugs estimated that it usually holds 3-4 months of inventory and that, in addition, wholesalers carry 30 days worth of reserve inventory. However, other manufacturers have notified FDA of shortages when their remaining supplies were one month or less, indicating that the available stock varies widely at manufacturers.
It is important to note that the low price responsiveness of demand for sterile oncology drugs also has implications for inventories and capacity decision. If there is an excess supply of a particular oncology drug, there may be no market for it, even at a low price. The combination of limited ability to compel supply (through failure-to-supply clauses or contractual breach provisions) and low price elasticity means that manufacturers face an asymmetry of incentives: there is little cost (except reputational) of producing too little of one drug (rather than another), but a potentially high cost of producing too much of that drug.