Blame capitalism? Because hundreds of decades-old but viable drugs are nearly impossible to find

Past public wrath over high drug prices has recently taken a back seat to a more insidious problem: no drugs at any price.

Patients and their suppliers are increasingly faced with limited or no supplies of medicines, many of which treat essential conditions such as cancer, heart disease and bacterial infections. The American Society of Health System Pharmacists now lists over 300 active shortages, mostly of decades-old generic drugs that are no longer protected by patents.

While this is not a new problem, the number of medicines in short supply has increased in recent years, and the average shortage lasts longer, with more than 15 essential pharmaceuticals having been in short supply for more than a decade. Current shortages include widely known drugs such as the antibiotic amoxicillin; the heart medicine digoxin; the anesthetic lidocaine; and the medicine albuterol, which is essential for treating asthma and other diseases affecting the lungs and airways.

What is going on?

I am a healthcare economist who has studied the pharmaceutical industry for the past 15 years. I think the drug shortage problem illustrates a serious flaw in capitalism. While expensive brand-name drugs often yield high profits for manufacturers, there is relatively little money to be made supplying the market with low-cost generic drugs, no matter how vital they may be to patients’ health.

A generic problem

The problem boils down to the nature of the pharmaceutical industry and how differently the generic and branded drug markets operate. Perhaps the clearest indication of this is the fact that brand-name drug prices in the United States are among the highest in the developed world, while generic drug prices are among the lowest.

When a drugmaker develops a new pill, cream, or solution, the government grants the company an exclusive patent for up to 20 years, although most patents are filed before clinical trials, and so the actual patent life is closer to 8-12 years. However, patents allow drug makers to cover research and development costs and make a profit without the threat of competition from a competitor producing an identical product.

But once the patent expires, the drug becomes generic and any company can produce it. Since generic manufacturers produce essentially the same product, profits are determined by their ability to produce the drug at the lowest marginal cost. This often results in low profit margins and can lead to cost-cutting measures that can compromise quality and threaten supply.

Outsourcing production creates higher procurement risks

One consequence of generics’ low margins is that pharmaceutical companies outsource manufacturing to low-cost countries.

As of mid-2019, 72 percent of manufacturing facilities producing active ingredients for drugs sold in the United States were located overseas, with India and China alone making up nearly half.

While overseas manufacturers often enjoy significant cost advantages over US facilities, such as easy access to raw materials and lower labor costs, outsourcing production at such a scale raises a number of issues that can hurt supply. Foreign factories are more difficult for the Food and Drug Administration to inspect, tend to have more production issues, and domestic factories are much more likely to be shut down once a problem is discovered.

In testimony to a House subcommittee, Janet Woodcock, the FDA’s chief deputy commissioner, acknowledged that the agency has little information about which Chinese facilities are producing raw materials, how much they’re producing, or where the ingredients they’re producing are distributed around the world.

The COVID-19 pandemic has underlined the country’s dependence on foreign suppliers and the risks this poses to US consumers.

India is the world’s largest producer of generics, but imports 70% of its raw materials from China. About a third of factories in China have closed during the pandemic. To secure domestic supplies, the Indian government has restricted the export of medicines, disrupting the global supply chain. This has led to shortages of medicines to treat COVID-19, such as for respiratory failure and sedation, as well as for a wide range of other conditions, such as medicines to treat chemotherapy, heart disease and bacterial infections.

Low profits hurt quality

Producing drugs to consistently high quality standards requires constant testing and evaluation.

A company that sells a new, expensive, brand-name drug has a strong profit motive to keep quality and production high. This is often not the case with generic drug manufacturers and this can lead to shortages.

In 2008, an adulterated version of the blood thinner drug heparin was recalled worldwide after it was linked to 350 adverse events and 150 deaths in the United States alone.

In 2013, the Justice Department fined the US subsidiary of Ranbaxy Laboratories, India’s largest generic drug maker, $500 million after it pleaded guilty to civil and criminal charges related to drug safety and falsifying safety data. In response, the FDA banned products made at four of the company’s manufacturing facilities in India from entering the United States, including generic versions of gabapentin, which treats epilepsy and nerve pain, and the antibiotic ciprofloxacin.

And while there may be multiple companies selling the same generic drug in the United States, there may be only one manufacturer supplying the basic ingredients. Therefore, any production hitch or stoppage due to quality problems can affect the whole market.

A recent analysis found that approximately 40% of generic drugs sold in the United States have only one manufacturer, and the market share provided by just one or two manufacturers has increased over time.

Repatriation of drug supply

It is difficult to quantify the impact of drug shortages on population health. However, a recent survey of US hospitals, pharmacists and other healthcare providers found that drug shortages have led to increased medication errors, delayed delivery of life-saving therapies, lower patient outcomes and deaths.

What can be done?

One option is to simply find ways to make more generics in the United States

California passed legislation in 2020 to do just that, allowing the state to contract with domestic manufacturers to produce its own generic prescription drugs. In March 2023, California selected a Utah company to begin manufacturing low-cost insulin for California patients.

It’s unclear whether this approach is feasible on a larger scale, but, in my view, it’s a good first attempt at repatriating America’s drug supply.