In this Best of 2021 episode, we are joined by Dr. Eric Edwards, CEO, and Co-Founder of Phlow to discuss how drug shortages affect hospitals in terms of costs and patient care, and what is being done to avert future shortages.
Highlights of this episode include:
- How much of our drug supply is manufactured overseas
- Vulnerable supply chain issues
- The underlying causes for increasing drug shortages
- How have advances in pharmaceutical manufacturing technology improves the supply of essential medicines
Mike Passanante: Hi, this is Mike Passanante, and welcome back to the award-winning Hospital Finance Podcast. Drug shortages have been a persistent challenge for hospitals and the healthcare system for decades. But it was only when the pandemic hit, and hospitals began running short of essential medicines did the problem strike a chord nationally and reveal just how dire the problem is and how dependent on foreign supplies we are. Joining me today is Dr. Eric Edwards, CEO, and co-founder of Phlow, to discuss how these drug shortages affect hospitals in terms of costs and patient care, and what is being done to avert future shortages. Dr. Edwards, welcome to the show.
Dr. Eric Edwards: Thank you for having me, Mike. Appreciate that.
Mike: So for those who may not be familiar with Phlow, can you tell us a bit about what you do there?
Eric: Sure. So Phlow Corporation is a public benefit pharmaceutical manufacturing company that is reimagining domestic production of essential medicines from start to finish utilizing advanced manufacturing processes, including what’s called flow chemistry. So this is a public benefit corporation. We’re an impact-driven company, and the medicines we’re making are essential medicines. And those are defined as those critical medicines that are necessary to support the health of a population. So critical medicines and the ones we’re focusing on first and foremost are those needed by our nation to support drug shortage challenges that have popped up over the years.
Mike: And many people may be surprised at how much of our drug supply is manufactured overseas. Can you share some of the latest data on that and why this is an issue for public health?
Eric: Yeah. It’s quite startling, actually. About 80% of our active pharmaceutical ingredients, so these are the ingredients that go into our medicines, are manufactured across more than 150 countries. 40% of the finished medicines outside the United States, making the current supply chain extremely vulnerable to economic, political, environmental, and public health crises such as what we saw with COVID. So when you’re talking about nearly three-quarters of the API manufacturing facilities for all medicines being outside the United States, primarily in India and China, it creates a significant challenge for the United States and exacerbates shortages when you have a public health crisis like COVID present itself. So when the pandemic broke, and both India and China actually shut down the exports of active pharmaceutical ingredients for the various central medicines we were focused on, the United States was essentially cut off from sourcing many vital medicines that were needed for COVID-19 related illnesses, specifically COVID-19 hospitalized patients such as the medicines needed to put patients on a ventilator. That’s what Phlow has been focusing on. We’ve been focusing on kind of solving this broken essential medicine supply chain by offering a resilient end-to-end solution that’s US based, comprehensive, and fully integrated.
Mike: How does this vulnerable supply chain translate into additional costs and potentially compromised patient care for providers?
Eric: Yeah. So the economic effects of medicine shortages are significant, especially with the drugs that we’re initially focusing on, these sterile injectable medicine products. The cost impact of medicine shortages are estimated to be in the hundreds of millions of dollars annually for health systems across the United States. In fact, as we’ve really started to get involved with building customer coalitions and hospital coalitions, and we talk to chief pharmacy officers, chief financial officers of hospital health systems, we’re seeing that they’re actually dedicating resources, full-time resources to just managing drug shortages. So that’s substantial in and of itself. So essential medicine shortages inflate the direct and indirect costs for managing these drug shortages. For example, well before the pandemic in 2014, a study by Premier determined shortage alternatives, including sourcing from more expensive compounding pharmacies as an example, cost on average about 230 million per year. In 2019, the FDA medicine shortage report highlighted the fact that medicine shortages not only impact the cost of the medicines themselves, but as I just mentioned, they require additional hospital staffing, overtime wages, increase in overhead, and then require updated technology. And then there’s a loss of revenue that can occur from postponing critical medical procedures if you don’t have the very drugs you need in order to complete that procedure. And all of that has played itself out during COVID.
Mike: Eric, what are the underlying causes for increasing drug shortages and associated supply chain challenges?
Eric: Yeah. It’s a great question. It’s a complex problem, and we know that it’s multifactorial. We know from data from the FDA that manufacturing quality problems has been a significant– and majority calls for medicine shortages. This is one reason why at Phlow we’re focusing on new advanced manufacturing technologies, and we’re focusing on doing it here in the United States. The United States manufacturing culture as it relates to quality is different than other foreign countries, significantly different, I should say. And the old traditional means of manufacturing these medicines were based off of conventional batch manufacturing processes that feature many steps that are often done at different facilities. That adds potential delays to the final product. The bulk material may be done in one facility, then shipped to another facility for blending, granulation, tablet resting. And then, along the way, you’re sampling, and you’re conducting analytics to make sure things are in specification. And unfortunately, during these whole times, some materials that are sensitive to the environment, they can risk degradation. They go out of specification. It impacts the quality. So we’re trying to fix that manufacturing issue by making this here at home using an advanced process called continuous manufacturing, leveraging flow chemistry.
And then, in addition to the manufacturing quality problems that we have, we also obviously have challenges associated with low labor cost in other countries that drive manufacturers to take medicine production outside the United States. And then we have supply chain challenges and just our broken pricing and reimbursement system in America. There’s a lot of waste in the system. So our goal has been to try to transform this essential medicine supply chain away from a global just-in-time production approach to a US-centric manufacturing approach that’s secure, that’s resilient, that leverages technology. We literally say we’re reimagining the supply chain from chemical to bedside. So we’re utilizing new chemistry approaches to cut down the costs of the actual medicines. And then, we’re leveraging unique customer coalitions by going direct to the hospitals to leverage efficiencies in the supply chain, all of which will help cut down on drug shortages in the future.
Mike: So let’s talk a little bit more about manufacturing. How have advances in pharmaceutical manufacturing technology made it possible to improve the supply of essential medicines?
Eric: So when we talk to hospital leaders in the C-Suite, we hear that the– including CFOs, CEOs, and chief pharmacy officers, we hear the same things over and over again. We have challenges with uncertainty. We have challenges with uncertainty relating to product availability because of these drug shortages. We have challenges in predictability and pricing impacting their ability to forecast and especially manage their pharmacy budgets. And we have challenges with quality and recalls that we’ve seen that have resulted in them having– and hospital systems having to use a Tier two, Tier three medication in place of a more safe and efficacious alternative. So what we’re trying to do is solve for all three of those, leveraging advanced manufacturing, as I said, as opposed to traditional batch manufacturing, that can allow us to produce high-quality, essential medicines at a lower production cost. And it’s only through achieving those goals that we’re going to be able to be competitive with other foreign manufacturers. So the way we do that is leveraging continuous processing. This allows flow reactors that put these chemicals together and run reactions on a much smaller scale over and over again until the entire volume of an active ingredient is produced. What this does is it maximizes throughput, increases quality and reproducibility. And then, most importantly, as you think about that lower labor cost comment I made earlier, it has significantly lower labor cost since most of the systems are highly automated.
In America, we use continuous manufacturing across many other industrial bases. Our food and beverage industry. Our energy sector. [As just?] petrochemical sector. Just as an example. We just haven’t been leveraging that in the pharma industry because there’s been no incentive to move from the old to the new. And it’s very costly. That’s why Phlow, in partnership with the federal government, the United States government provided a large contract to help subsidize our infrastructure, subsidize its R&D so that we could move into continuous advanced manufacturing approaches and try to take the entire industry, catalyzing industry change moving forward.
Mike: Some exciting changes ahead. Dr. Edwards, if someone wanted to find out more about Phlow, where can they go?
Eric: Sure. To learn more about Phlow, just visit our website at www.phlow-usa.com. And to learn more about our exciting customer coalitions, including our Children’s Hospital Coalition, you can visit childrenshospitalcoalition.org.
Mike: Dr. Eric Edwards, thank you very much for joining us today on The Hospital Finance Podcast.
Eric: Thank you so much.