This is an excerpt from Medically Necessary, a health care supply chain newsletter. Subscribe here.
The news: The Department of Health and Human Services, with assistance from an Air Force team, is researching ways to expand domestic production of nitrile gloves and medical gowns.
HHS is also investigating ways to expand the production of raw materials needed to make these products.
Rather than requesting specific supplies, the effort focuses on expanding the entire industry. The requests are described as “market research.”
Background: Medical gowns and surgical gloves were some of the hardest products to find during the height of the COVID-19 pandemic.
U.S. demand for gowns was nearly double the supply in March 2020, according to a Congressional Research Service report. In 2020, glove production capacity was only 60% of global demand, according to a U.S. International Trade Commission report.
In both cases, shortages have been more persistent than other types of personal protective equipment, such as N95 respirators.
The Strategic National Stockpile has met its inventory goal for N95 masks, but it’s far behind its goals for gloves and gowns. In July, HHS removed N95 respirators and surgical masks from its list of scarce resources. Surgical and isolation gowns remain on the list.
Everstream Analytics predicts that Malaysia, which makes a large portion of the world’s masks, won’t fully reopen from a COVID-19 lockdown until the end of the year. A USITC analyst expects glove shortages to last until 2022.
The U.S. also relies heavily on foreign suppliers for both products. HHS estimates that domestic manufacturers produce less than a quarter of the gloves needed in the U.S. and less than 10% of the necessary gowns. Most of the gowns used in the U.S. come from China and most of the gloves come from Malaysia, according to the USITC.
USITC data shows that gown imports exploded in 2020 and most of those products came from China. (Chart: USITC)
Gloves: HHS is mainly interested in understanding whether U.S. companies will be able to produce chemicals needed to make butadiene rubber, the material used to make nitrile gloves, such as nitrile acrylonitrile, methacrylic acid and butadiene.
The federal government expects that the glove industry will need to increase domestic annual production of nitrile butadiene rubber to 270,000 metric tons. HHS is asking companies to list some basic capabilities related to the production of these chemicals, but it also probes larger issues.
The request asks companies to identify regulatory, legal or policy barriers preventing domestic production of these chemicals.
“Do you currently rely on foreign suppliers within your supply chain? What would it take to source from domestic sources?” the request asks.
Gowns: HHS also hopes to expand production of disposable isolation gowns and surgical gowns, as well as the fibers needed to produce those products.
The request specifically focuses on level two isolation gowns and level three surgical gowns, which offer more protection. Like the glove request, it asks about basic information related to production capacity, but then goes further, asking businesses to identify barriers to U.S. production.
“What would help alleviate these concerns for accelerating your manufacturing timelines in order to escalate production?” the request asks.
It also asks companies to offer recommendations for how the federal government could support domestic gown manufacturing throughout the supply chain.
Ground truth: In the spring of 2020, Cadillac Products, which mainly produces car parts, started making medical gowns on a voluntary basis to supply hospitals without PPE.
The company started with one machine. Volunteers made a few hundred gowns every day. The company ultimately donated more than 150,000 gowns.
“Over a long weekend, the engineers and manufacturing guys went to work and fashioned a process and product and we started making gowns,” Cadillac spokesperson Don Lowe told FreightWaves. “It was kind of easy for us because we have the equipment. We had the material.”
Pro TEC-USA also produces the materials used to make the gowns, which is similar to materials used to make car parts.
In October, Cadillac decided to start selling the gowns, calling the new business Pro TEC-USA. Last week, the company announced it bought automated machines that will boost the company’s production to more than 2 million gowns per year.
“That is our objective now, to move from a labor-intensive manual process to a much more automated and higher speed process,” he said.
However, Lowe said U.S. companies really need consistent demand to feel comfortable about stepping into the PPE production space.
Lowe said at the beginning of the pandemic, health care organizations were eager to buy American products. Now many Chinese companies are lowering their prices — Lowe claims the price is below the cost of raw materials — and it’s hard for U.S. companies to compete.
“The pandemic is subsiding and buyers now … are interested in the price more than the product,” he said.
Lowe wants to see legislation that requires the federal government to buy a chunk of PPE from domestic suppliers.
In many cases, government agencies already do that. For example, the Strategic National Stockpile has replenished its supply of N95 respirators with all American-made products. Congress is already advancing legislation that would require government agencies to buy more PPE from U.S. companies.
Medical distributors reach opioid settlement with New York
(Photo: Anna Shvets)
The news: AmerisourceBergen, Cardinal Health and McKesson agreed to pay up to $1.2 billion to the state of New York and some counties to settle claims that those companies distributed too many addictive opioids.
The settlement was negotiated as part of a broader resolution that is supposed to resolve claims from a large number of states and counties. If the larger settlement is finalized, the deal with New York would be wrapped into that agreement.
“The companies view today’s settlement as an important step toward finalizing a broad settlement,” the distributors wrote in a joint statement.
According to Bloomberg, the larger settlement could be finalized this week.
The allegation: New York Attorney General Letita James claims AmerisourceBergen, Cardinal Health and McKesson irresponsibly distributed opioids, contributing to the epidemic of overdose deaths.
“Today we’re holding them accountable and delivering more than $1 billion more into New York communities ravaged by opioids for treatment, recovery and prevention efforts,” she said, according to a press release.
Most of the money would go toward mitigating the damage caused by excessive opioid prescriptions. Payments will continue in two months and continue over the next 17 years.
New York will drop its cases against those distributors in return for a portion of the larger settlement. A case against the distributor Rochester Drug Cooperative, which wasn’t part of the settlement, will continue.
The defense: The big distributors “strongly dispute” the claim that they irresponsibly distributed opioid and contributed to the crisis.
“The distributors remain deeply concerned about the impact the opioid epidemic is having on communities across the nation and remain committed to being part of the solution,” the companies wrote in a joint statement.
However, the companies believe that settling the case will allow them to focus on their core business.
McKesson sells parts of European business
Phoenix Group headquarters in Germany. (Photo: Phoenix Group)
The plan: Earlier this month, U.S. drug distributor McKesson announced it will sell its businesses in much of continental Europe to the German wholesaler Phoenix Group.
The deal includes businesses in France, Italy, Ireland, Portugal, Belgium and Slovenia. McKesson will still operate businesses in the U.K., Norway, Austria and Denmark, but it hopes to sell those companies as well.
“McKesson is committed to exploring strategic alternatives for all remaining European businesses and focusing future investments on growth strategies outside of Europe,” the company said in a statement.
The numbers: McKesson didn’t disclose the terms of the deal, but Bloomberg Intelligence estimated that McKesson’s European and U.K. businesses were worth between $3 billion and $4 billion.
Background: McKesson became a major player in the European market in 2003 when it acquired the medical distributor Celesio AG for $8.3 billion.
In a press release, McKesson claimed that the acquisition would make the combined company one of the largest drug wholesalers in the world. That was McKesson’s largest acquisition since 2008, according to Bloomberg.
Now McKesson is backtracking. In 2019, McKesson combined its pharmaceutical wholesale business in Germany with Walgreens’ German business. Walgreens had a 70% controlling interest in the combined company, with McKesson holding the remaining 30%.
The motivation: Financial documents show that McKesson’s European business has not been profitable since 2018.
Revenues for the European division have been mostly flat since 2018. In the company’s 2021 fiscal year the European division reported a $37 million operating loss.
“We’re very pleased with the performance of the European business. We run it in a very, disciplined, very tight way,” McKesson CFO Britt Vitalone said on a May conference call. “It is not an inherently high-growth market. So to get the growth that we see, we’re very pleased.”
What’s next? Bloomberg reports that the company is already negotiating the sale of its U.K. businesses to a private equity group. McKesson expects to close the sale with Phoenix Group in 2022.