Why is there a propofol shortage in a free market?

A longtime reader (Austin says so) emails us:

This NEJM article relates the sustained problem we have had obtaining a key drug, Propofol.  I can understand how we end up with drug companies not wanting to make orphan drugs. Even after reading this article, it remains unclear why someone would not want to produce such a highly used medication. The price should go up, and producers respond by making more. This is not happening. Why arent markets working?

Well, I’m not an economist, but I think this is an example of a “perfect storm”.  Here is a small piece from the FDA-written NEJM piece:

Recently, the supply of one drug — the sterile injectable drug propofol, a fast-onset, short-acting sedative–hypnotic agent used for the induction and maintenance of anesthesia or sedation — has become critically low. In 2009, there were three manufacturers making propofol: Teva Pharmaceuticals, Hospira, and APP Pharmaceuticals. In early October 2009, Hospira recalled multiple batches of its propofol owing to the presence of particulate matter in the vials. In late October 2009, Teva recalled multiple lots of its propofol owing to possible microbial contamination. As of May 2010, Hospira had not yet returned propofol to the market and had expanded its recall to capture all product that might currently be in customers’ inventories, and Teva recently announced that it would not be returning to the market. This confluence of events has left only one company to supply propofol to the entire U.S. market — an unrealistic expectation, given anesthesiologists’ reliance on the drug.

Let’s recap.  Propofol is an excellent drug for anesthesia.  It starts working really fast, and its effects go away really fast when you stop adding it.  That’s exactly what you want.  But there are a number of factors that make it unappealing:

  • Propofol is relatively difficult to produce.
  • Propofol gets contaminated easily in use, as it has no preservatives.
  • Propofol is generic, and therefore the price is lower than on patent drugs.  So it’s hard to make money.

In general, sterile injectables are especially prone to shortages because of these reasons.  As the NEJM piece notes:

Although shortages can occur with any drug, sterile injectable drugs such as propofol are particularly susceptible. Data collected by the Drug Shortage Program of the Food and Drug Administration (FDA) show that of 110 shortages that occurred in 2008, 39 involved sterile injectables (35%), and in 2009, the proportion rose to 73 of 157 drug shortages (46%).

Some time ago, three companies made propofol: Teva Pharmaceuticals, Hospira, and APP Pharmaceuticals.  But starting last October, the dominoes began to fall.  First, Hospira was forced to recall multiple batches of its drug because of contaminants in vials.  Soon after, Teva was forced to recall multiple batches of the drug because of  possible microbial contamination.  Instead of recovering, things got worse.  Six months later, Hospira was still recalling the drug and was not bringing any new propofol to market.

And then, in May, a Jury awarded a $500 million verdict for the first (of many) civil cases concerning a Hepatitis C outbreak linked to propofol use in a Las Vegas GI endoscopy center.  Teva took the brunt of that that verdict.  Faced with that massive payout, and more likely on the way, Teva bowed out of the propofol market.  Baxter (which merges with Hospira distributed the propofol) was also slapped with a nine-figure verdict in that trial, so it’s unlikely they will be bringing propofol back soon either.

That leaves only one company making all the propofol for the US.  That’s not enough.  We’ve got a shortage.

Our reader asks why the market failed.  I’m not sure it’s possible it could succeed here.  Sure, the remaining company could charge a fortune for the drug, but that won’t end the shortage.  And other companies aren’t likely to enter the field because it’s so hard to make and they would be open to the same dangers that Teva and Hospira/Baxter faced.  It’s just not a risk that I can see pharmaceutical companies taking, when they can make money in much less risky areas.

What should we do?  I don’t have a good answer.  I’ve seen the usual snark wondering how long it will be until “Obama determines that access to propofol is a right and forces Teva to initiate production”.  Teva is an Israeli company (many pharmaceutical companies are foreign corporations) so that’s not going to happen.  I expect that as we are forced to import replacement drugs from foreign markets we will hear the usual scare stories (ignoring that it was contamination in US-imported drugs that started all of this).  Some will blame the laywers, and some will blame the doctors, and some will blame the companies.

But the truth of the matter is that these types of drugs are not going to get any more profitable or enticing to make.  So how should we move forward in a non-socialist solution?  I’m looking at you, free marketeers…

UPDATE: Fixed sloppy language.

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