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:
- July 16, 2009: Teva recalls its Propofol after 41 patients experienced post-operative fever, chills and other flu-like symptoms.
- Nov. 6, 2009: FDA announces a recall of Hospira's Propofol.
- May 8, 2010: A Texas jury hands down a $500 million verdict against Teva for making Propofol vials that encouraged multiple use, thus triggering cross-infection of patients with hepatitis.
- May 27, 2010: FDA announces a second recall of Hospira's Propofol products.
- May 28, 2010: Teva gives up making Propofol. A spokeswoman says it's just too difficult to make and isn't profitable. Teva faces 250 hep C contamination suits.
- June 9, 2010: APP Pharma says its working as hard as it at can "a significant incremental cost" to increase supply, including flying the stuff in from Europe (now that the volcano has died down).
- June 10, 2010: FDA makes another statement on the recall of Hospira's Propofol: "containers may contain particulate matter, primarily made up of sub-visible inert stainless steel particles. Since these particulate contaminants do not dissolve in blood they could potentially act as emboli and impede blood flow. Particulates may also cause mechanical damage to the body and may escalate damage through the Systemic Inflammatory Response Syndrome (SIRS). Restriction in blood supply to tissues could lead to stroke, respiratory failure, kidney failure, liver failure, heart attack and/or death."
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