Relentless drug shortages are fueling a niche sector that operates outside the realm of the traditional pharmaceutical industry: compounding pharmacies.
Large-scale compounders, which make custom versions of medicines in bulk without individual prescriptions, are filling more of the demand for crucial drugs such as pain medications and respiratory treatments, hospitals, pharmacists and industry officials say. Compounding facilities are also supplying more anesthetics, including lidocaine and ketamine hydrochloride.
More than half of the 1,100 members of the American Society of Health-System Pharmacists surveyed recently said they increased purchases from large compounders—known as outsourcing facilities—because of drug shortages, according to the professional organization.
“Almost every time there is a fear of some new shortage, we turn immediately to the compounders and say, ‘What do you have for our needs for this?’” said Eric Tichy, who leads the medical supply chain at Mayo Clinic, which is using compounders to source widely used blood-pressure drugs.
The demand is turning bulk compounding into an attractive business.As shortages become more widespread, more drug manufacturers are expanding into the market, while compounding businesses are drawing investments from private equity, venture capital and hospitals.
The Food and Drug Administration in 2021 estimated the bulk compounding market to be as high as $4.6 billion and growing.
Bulk compounders usually make custom versions of medicines, such as anesthetic drugs in ready-to-go syringes, without individual prescriptions. But they can also make copies of existing drugs that are deemed to be in shortage by the FDA.
Large compounding facilities must follow the same manufacturing rules as generic drugmakers. But they don’t need approval from the FDA to start making a drug, so they can deliver drugs to hospitals in a matter of weeks or months, rather than the years often needed for the regulatory steps that come with commercial generic drugs.
The industry has a mixed safety record. In 2013 the U.S. government ratcheted up regulation after contaminated drugs from the New England Compounding Center sickened hundreds with fungal meningitis and killed more than 100 people.
Some in healthcare still question the quality control of bulk compounders, but others say they have grown comfortable with the industry’s expanded role, pointing out that generic manufacturers also face safety problems. Having a steady supply of drugs, compounded or not, means healthcare providers are less likely to ration drugs and patients are less likely to miss treatments.
Hospitals in recent months have contended with scarce antibiotics, chemotherapies and other generic drugs, partly due to drugmakers abandoning unprofitable products or failing quality checks. Supplies could be further pinched after a recent tornado damaged a Pfizer manufacturing plant that produced 8% of sterile injectable medicines used by U.S. hospitals.
Lobbyists for compounders say they could do more to help with shortages if they had more regulatory flexibility. Large compounders can duplicate drugs that are on the FDA’s shortage list, but predicting when drugs will make that list and how long they will stay on can be difficult. Compounders are sometimes reluctant to invest in ramping up production for drugs that could go either way.
House Republicans last month proposed lengthening the amount of time bulk compounders could copy drugs—30 days to produce and six months to distribute—even after the drugs are no longer in shortage.
Data from Premier, a major group-purchaser for U.S. hospitals, shows that its 4,400 members purchased 41% more products from outsourcing facilities in 2022 than in 2021, compared with roughly 4% between 2020 and 2021.
“More and more hospitals are inclined and interested to move to the outsourcing facilities,” said Amish Vyas, who leads a compounding division started last year by generic drugmaker Hikma.
The FDA, too, sometimes taps compounders for help with drugs in shortage. In June, it asked generic manufacturer and compounder Nephron Pharmaceuticals to consider compounding cardioplegia, a solution used in open heart surgery, said Chris Fortier, president of the company’s compounding division. He said Nephron has distributed all2,000 cardioplegia bags produced.
About half of the lidocaine with epinephrine purchased by hospitals in June through hospital group purchaser Vizient was from compounding facilities, compared with none in October 2021, when the drug was entering shortage, the company’s data shows.
For ketamine hydrochloride, the supply from compounders jumped to about 70% in that same period from about 20%.
Leiters Health, whose investors include private-equity firms Welsh Carson Anderson & Stowe and Frazier Healthcare Partners, is now producing three times as much lidocaine as two years ago, said Leiters CEO Joe Cosgrove.
At STAQ Pharma, ketamine production rose after it began hearing about shortfalls last fall from customers,said Mark Spiecker, STAQ president. The compounder, whose investors include Rev1 Ventures and health systems such as University Hospitals Ventures in Ohio, through June made as much ketamine as it did last year, when it had doubled its production from 2021.
STAQ last year helped provide key medicines used for infants in neonatal intensive care units after receiving $100,000 in grants from the nonprofit patient group Angels for Change, according to the two groups. The group gave another $200,000 this year to STAQ and two other compounders to help share the risk of producing drugs that may go into shortage, said the nonprofit’s Founder Laura Bray.
When a concentration of albuterol, which is used for treating asthma and RSV in children, went into shortage last year, South Carolina outsourcing facility Ritedose produced 30,000 doses daily after just two months of preparation because the company was already making a different concentration through its contract drug manufacturing business, said CEO Jody Chastain.
In early 2022,Novo Holdings, the controlling shareholder of Danish drugmaker Novo Nordisk, said it would acquire Ritedose.