Low prices are contributing to America's drug shortage problem

The challenging economics of domestic drug production don't only affect how our health system deals with unusually high levels of drug shortages — they also raise major national security implications, given U.S. dependency on foreign suppliers.

• But making more generic drugs at home would inevitably cost much more and require taxpayers, hospitals or patients themselves to pay more. Other commonly discussed options for easing shortages would also raise costs, albeit by not as much.
• "Our drugs in the U.S. are either too expensive or too cheap," said Janet Woodcock, the Food and Drug Administration's principal deputy commissioner.

Driving the news: Shortages of lifesaving cancer drugs, children's Tylenol and ADHD drugs have made headlines over the last year.

• That's also driven more awareness of how much the U.S. relies on countries like India and China for pharmaceutical products and sparked more discussion about how to shore up the drug supply chain, particularly amid tensions with China.
• President Biden in November outlined a plan to increase domestic production of essential pharmaceuticals through the Defense Production Act, a Cold War-era law used to bolster medical supplies during the pandemic.
• Former President Trump has vowed to bring back production "of all essential medicines" to the U.S. if reelected, and he issued an executive order aimed at boosting U.S. drug production during his final year in office.

The big picture: Drug shortages have multiple causes, including factors like increased demand, natural disasters disrupting production and manufacturing quality issues. The solutions vary, experts say, but almost all of them come with a significant financial cost.

• Generic drugs are much cheaper than branded versions, as manufacturers compete for market share based on price. This creates a race-to-the-bottom effect.
• For some especially cheap generics, there's less incentive for competitors to join or remain in the market, so there's less room for error if a drugmaker stops making a product or has production issues.
• Shortages are more common among drugs with lower list prices, according to a November report from health analytics firm IQVIA.

"If we want resilience of our supply chains, we'll have to pay for it," said Marta Wosińska, a senior fellow at the Brookings Institution. "How we're going to pay for it is going to depend on the mechanisms through which we're going to build resilience."

• "The majority of generic drug shortages cannot be addressed without raising prices," said David Gaugh, interim president and CEO of the Association for Accessible Medicines, which represents the generics industry.

Between the lines: The big threat that has experts worried is if there's an international feud or other incident that affects U.S. drug imports.

• "There's been a lot of offshoring because there is a drive to get the drugs made as cheaply as possible, so the manufacturer has a large incentive to go seek lower-cost environments," Wosińska said.
• "The geopolitical risk is not a current risk. It's a potential future risk. But it's a potentially massive risk," she added.

By the numbers: Less than a quarter of oral generics in the U.S. market are manufactured here, as are just over 40% of sterile injectable generics, which are predominately used in hospitals, according to U.S. Pharmacopeia data shared with Axios.

• Nearly half of oral generics used here and 17% of injectables are manufactured in India, and the EU makes about a quarter of injectables.

• Most active pharmaceutical ingredients are also sourced from outside of the U.S. Between 90% to 95% of generic sterile injectable drugs rely on materials from China and India, according to a 2023 congressional report.

Yes, but: Domestic production of more drugs is a popular solution, but experts say it's likely not a panacea and that less burdensome options may be more practical.

• "The price point to get a product to the American public made 100% in America is going to be a higher price point than whether it's made in Europe, India and China," said Gaugh, the head of the generics lobby. "If you want us to make in America, great. You're going to have to find a way to increase the price to do that."
• Making it economically feasible for more generic manufacturers to compete in the market — and adding redundancy — is crucial to creating a more stable supply, Woodcock said. Streamlining international regulatory standards and investing in advanced manufacturing would help, she added.
• When it comes to national security concerns, "do we need to onshore or do we need to de-shore? A lot of people will say it's not about bringing it into the U.S. but getting it away from countries that we're concerned about," Wosińska said.

And it's not just labor and other manufacturing costs that are cheaper abroad.

• Making the chemicals that go into drugs is an environmentally dirty process that would run into problems with U.S. environmental law, experts said.
• Joe Grogan, who led Trump's Domestic Policy Council, argued that American consumers may be willing to pay more for a pharmaceutical supply based more at home.
• "I think the American people generally speaking, across the aisle, get that we've become too dependent on the Chinese for many critical components," he told Axios.

The bottom line: Solving shortages of generic drugs will require significant investments and would likely raise prices.