Drug shortages suggest business niche

Watching gas prices nudge the $4 per gallon mark here in the Northeast makes me think of the old market fundamentals, supply and demand. And then I remember the many drug shortages we're experiencing, with more reported nearly every week.

I know in both cases that a lot more than supply and demand drive the current dynamics. But I don't understand in the case of drug shortages how demand can have so little impact on supply.

Some drugs, regardless of demand, are more difficult to make than others. Costly processing and thin profit margins are sound reasons to exit a business, thus constraining supply.

Some makers cite raw material shortages, while others say "manufacturing issues" are preventing drugs from reaching patients. Such issues might involve the one-off installation and validation of equipment, but they might also involve more extensive remediation efforts that follow a warning letter or even a plant shutdown--voluntary or otherwise.

On the demand side, most drugmakers profess an ideal of treating disease or minimizing suffering in addition to returning shareholder value. No drugmaker that I have come across states an objective of one over the other.

Considering it all, there must be a viable business opportunity in manufacturing drugs in short supply. The model might be more akin to that of a contract manufacturer rather than a pharma company.

This new entity should be able to get the necessary process and production data on a temporary basis for a nominal fee from the drugmaker that's come up short, given the brand holder's healing ideal. And the gap-filler ought to get some kind of preferential treatment from the FDA, which has lately been combing non-U.S. suppliers for the drugs we can't seem to make here. Facilities shouldn't be a problem either, given recent plant shutdowns, equipment fire-sale prices, and incentives from state governments. Finding manufacturing employees should be no problem, either. Anywhere.

I'm going to start drafting the business plan this weekend. Let me know if you want in, or if you care to offer advice. - George Miller