If a pharma plant closes because of an explosion or a natural disaster, well there is business interruption insurance for that. But if it closes to deal with issues after the FDA issues a Form 483 or a warning letter, then the drugmaker is on the hook for all of the costs. Now a couple of insurance companies say they will offer something to soften such blows.
Munich Re, the world's largest reinsurer, says it will insure drugmakers against regulatory actions by the "FDA and its international counterparts" that could cause them to suspend manufacturing. In a release Wednesday, Munich Re said that the product would cover companies that "suspend their manufacturing and distribution due to a cGMP violation" for up $10 million. Along with insurance, the German insurer will provide 60 hours of consulting services to " to aid in the assessment and management of their supply chain exposures to potential FDA regulatory actions." The policies are offered only through Marsh & McLennan, the largest insurance broker in the U.S.
Claudia Hasse, head of special enterprise risks for Munich Re couched the motivation for the product in very positive terms to Bloomberg. "The question is always, 'Where do you find kind of the next blockbuster?'" he said in an interview. "We saw that this is really a huge danger for pharmaceutical companies."
There have been some very notable plant closures in the U.S. and abroad over FDA concerns. Johnson & Johnson ($JNJ) is still working on a consumer products plant in Pennsylvania closed in 2011 after the FDA found huge problems there. Novartis ($NVS) closed its OTC plant in Lincoln, NE over quality issues while Boehringer Ingelheim's sterile injectables Ben Venue plant in Ohio became the poster child for GMP concerns when the FDA savaged it in a warning letter in 2011.
But the size of the losses for plant closures and remediation projects of this magnitude well exceed $10 million. J&J's plant problems have reportedly cost it billions of dollars in lost sales and the drugmaker has spent more than $100 million on improvements. It shelled out $25 million in penalties to resolve federal action against the company for the problems. Boehringer Ingelheim after several years of remediation efforts finally gave up and closed its Bedford, OH plant. It reported at the time, it had already invested $350 million on upgrades but projected $700 million in operating losses over the next 5 years to keep it open.
Those are some of the high-profile closures. There have been many more for companies of every size, some for whom a $10 million insurance payout might be a life saver.
Loretta Worters, vice president of communications at the Insurance Information Institute tells Bloomberg she sees the coverage might be welcomed by the industry. "There is a need for this product as inspections that result in a suspension of manufacturing, whether voluntary or enforced, can be extremely costly for life-sciences companies," she said.
- here's the release
- read the Bloomberg story