(669e) Optimal Intervention Strategies for Reducing Drug Shortages in the Presence and Absence of Flexible-By-Design Emergency Therapeutic Production Facilities

Optimal intervention strategies for reducing drug
shortages in the presence and absence of flexible-by-design emergency
therapeutic production facilities

                   Yankai Cao, Chen Wang, Michael Pishko and Carl D. Laird[a]

Because of high risk associated with uncertain demand, key
pharmaceutical manufacturers of some drugs have left the market, resulting in
recurring drug shortages. For example, in 2000, a manufacturer of Td vaccine
discontinued production and caused a shortage of the vaccine that disrupted
immunization programs until 2002. Drug shortages like this can have serious
societal and economic impact. In an effort to reduce drug shortages, various
strategies have been proposed to reduce the risk to pharmaceutical manufacturers
and ensure production levels remain. Risks can be reduced by government
intervention, such as guaranteed contract order levels, or inventory buy-back. Furthermore, existence of flexible-by-design emergency production facilities reduces the probability
of a drug shortage while allowing manufacturers to mitigate risk by planning
for lower production levels.

In this paper, we analyze this
system and determine optimal government intervention strategies to reduce the
likelihood of drug shortages in the presence and absence of emergency
production facilities. The manufacturer, the market, emergency
supply facilities, and government authorities are considered in the overall
system model. The object function of manufacturer's decision-making model is to
maximize the expected profits with constraints on profit ratio and conditional-value-at-risk
of the loss. The resulting model is a linear programing problem and convex
formulation can be derived from it under reasonable assumptions concerning
model parameters.

For a given set of parameters, simulation
results show that government intervention can reduce the financial risk to the
manufacturer and maintain a certain amount of steady production. Based on the
overall system model, optimal government policies can be deduced to ensure the
continued production of a particular drug and increase the likelihood of
meeting the uncertain product demand. Furthermore, the existence of emergency production
facilities can increase the flexibility of the system and reduce the government
order costs for a particular guaranteed demand.