http://online.wsj.com/article/SB10001424127887323415304578370022109807836.html?mod=dist_smartbrief

Deal Transforms Global Pill Pipeline

From the article:

The 10-year distribution contract between Walgreen Co., WAG -0.61% Alliance Boots GmbH and AmerisourceBergen Corp. ABC -0.08% hands one entity a significant amount of drug-buying volume, which will allow the companies to demand lower prices from drug makers. The international alliance also creates a clearer path for more U.S. drugs to launch more quickly overseas—and vice versa.

It was recently reported that generic utilization has reached 84%.  We have already had to deal with “drug shortages”.. nearly all generics… IMO… due to two primary contributing factors… the consolidation of the generic manufacturing industry until we now have only 1-3 companies producing a particular product or line of products and there is a “bump in the road”  when one of the manufacturers has a production problem and all of its products are recalled and/or production is shut down for extended period of time.

I would suspect that – in general – the pharmaceutical manufacturers commit equipment to produce a particular product to have a inventory sufficient to have on hand 3-6-9-12 months of supply on hand.

Once there is a “bump in the road” of the available supply … it is not hard to imagine the domino or cascading effects on the ready availability of products.

It won’t take a MBA to see that as the generic industry tries to remain profitable while trying to continue to provide product to the demands of this new group for lower and lower prices…

They will be forced to increase the utilization of the existing equipment and having “idle equipment” to bring on line in the case of unexpected problems in the supply chain may become more and more a luxury.  Likewise, it doesn’t take a mechanical engineer to figure out that as equipment is ran at or near 100% of capacity and down time for preventative maintenance is extended to optimize production time.. what will probably happen.

What could even compound the situation even more.. is if this new group causes even further consolidation within the generic manufacturing industry. As the old saying goes… we could end up putting all of our eggs in one basket…

How many pt will be inconvenienced, quality of life compromised or worse. As this new alliance gain a few pennies per transaction in profits… how many pts will end up being hospitalized and will the profits gained by one group… be additional expenditures for other portions of our health system?

This may take several years for things to evolve.. just like a snowball rolling down a hill.. it takes a while for it to gain both volume and velocity….but… these publicly held companies are probably only concerned about how the stock market and the their stock holders like – or dislike – what is going to happen.

Filed under: General Problems