Monday, September 9, 2013

Inventory: sterile injectable generic drugs

Generic drugs are known for their low costs to consumers taking them.  Sterile injectables represent a special case within generics because they require specialized manufacturing to ensure patient safety.  After the product in manufactured, most sterile injectables require special storage and shipping conditions to maintain drug efficacy.  Since the consumer price is lower, the contribution margin for the manufacturer is much lower.  This leads to manufacturers not holding much inventory since the higher COGS and higher overhead for proper storage and shipping conditions result in lower margins than other types of generics like oral solids.

With low inventory, increases in demand or manufacturing issues will lead to shortages of these drugs.  This is seen all the time since 80% of drugs on the FDA’s shortage index are sterile injectable generics.  Sterile branded injectables do not usually make their way onto the list since margins on these drugs are still high so the manufacturer has the incentive to hold higher inventories to meet demand.  The best way to prevent these shortages is to incentivize the manufacturers of these injectable generics to hold more inventory or produce more units.  This can be done by raising reimbursement levels so the profit margins for these manufacturers are higher.

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