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U.S. Surgical Anesthetic Supply Dwindles as Companies Exit the Market for a Difficult, Unprofitable Drug

You know Propofol as the drug that killed Michael Jackson, but in the pharmaceutical business it's familiar as the surgical anesthetic used in about 75 percent of all operations -- and its supply has been drastically reduced in the last few months.

Propofol's string of bad luck is almost outlandish: Two companies -- Teva (TEVA) and Hospira (HSP) -- have stopped supplying it after a series of recalls, contaminations, and a $500 million jury verdict, in addition to the bad press from the Jackson death. When the FDA warned doctors Propofol was in short supply, the volcano in Iceland interrupted new product from being flown in.

Teva and Hospira supplied about 60 percent of U.S. Propofol needs, according to APP Pharma, the lone remaining American supplier. (Some back of the envelope math suggests that 45 percent of all U.S. surgeries now face a Propofol supply problem.)

Drug business managers should be able to see some parallels here with the recent Genzyme (GENZ) situation. In both cases, contamination disabled factories, allowing rivals to suddenly steal huge chunks of market share. The lesson: Keep your operation in tip-top condition at all times, because the FDA can hobble your rivals at any time, making you very rich in the process.

The shortage seems set to continue for some time as the drug is difficult to make and not very profitable to sell.

Here's the Propofol Timeline of Doom:

What next, a plague of frogs?


Image by Flickr user crucially, CC
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