Generic drug shortages have been in the news for several months now, with many stakeholders and interested parties trying to find a solution so that patients don’t have to go without their life-saving treatments. While there have been several different theories floated since the shortages first started appearing, including increased demand and manufacturing quality issues, one interesting concept is that the shortages may be the result of generic drug prices being too low.
Generic drugs tend to be much cheaper than their branded counterparts as manufacturers are in a “race to the bottom” for the lowest price to garner the largest market share. This can lead to less incentives for manufacturers to join – or remain – in the market, which can lead to significant issues if a manufacturer stops producing or has production issues. In fact, a November 2023 report from IQVIA found that drug shortages are more common among drugs with lower list prices.
“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. Gaugh notes that manufacturing generic drugs in America may be a potential solution, but “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,” which means that generic prices would need to increase to allow for that.
However, it may not just be the American labor and manufacturing costs that would cause the price of generic drugs made domestically to increase, but making the chemicals that go into drugs can be an “environmentally dirty process” that may “run into problems with U.S. environmental law.”
Former Food and Drug Administration (FDA) Commissioner and Pfizer board member Scott Gottlieb also noted the difficulty in manufacturing generic drugs in the United States, saying, “There are things the government can do but most of them are going to cost money. We’re going to have to look for ways to provide more reimbursement for these hard-to-manufacture drugs.”
Companies Scaling Back Generic Production
In early Summer 2023, Teva Pharmaceutical Industries announced that they were going to scale their generic drug business and ramp up their branded drug business, based on low profitability of generic drug manufacturing.
Around that same time, Lannett Company, Inc., announced that it was entering a Restructuring Support Agreement as part of a bankruptcy process. Lannett develops, manufactures, packages, markets, and distributes generic pharmaceutical products.
Congress has also held hearings on the matter, with various witnesses present to testify about the sustainability of the generic industry and the difficulties faced by generic drug companies.
What’s Next?
What is next for the generic drug industry remains to be seen, but with many different stakeholders recognizing the issue and Congress getting involved by holding hearings, we can expect the issue to remain front and center for the foreseeable future.
We received this comment from one of our readers:
You got it right more than a decade ago: https://www.policymed.com/2013/09/physicians-against-drug-shortages-challenge-the-controlled-drug-market-for-hospital.html.
Fortunately, on Feb. 14, 2024, the FTC and HHS, in partnership with FDA Commissioner Robert Califf MD, announced an investigation into the role of hospital group purchasing organizations (GPOs) in causing the shortages. As for Scott Gottlieb, he told the AP in July 2018 that GPOs caused the shortages by squeezing the margins of generic drug makers. Then after he left office, he started doing speaker-for-hire gigs for Vizient, the largest GPO. That was the end of his public criticism of GPOs.
Physicians Against Drug Shortages Challenge the Controlled Drug Market for Hospital
https://www.policymed.com/2013/09/physicians-against-drug-shortages-challenge-the-controlled-drug-market-for-hospital.html
Phillip L. Zweig
Executive Director at Physicians Against Drug Shortages
You got it right more than a decade ago: https://www.policymed.com/2013/09/physicians-against-drug-shortages-challenge-the-controlled-drug-market-for-hospital.html.
Fortunately, on Feb. 14, 2024, the FTC and HHS, in partnership with FDA Commissioner Robert Califf MD, announced an investigation into the role of hospital group purchasing organizations (GPOs) in causing the shortages. As for Scott Gottlieb, he told the AP in July 2018 that GPOs caused the shortages by squeezing the margins of generic drug makers. Then after he left office, he started doing speaker-for-hire gigs for Vizient, the largest GPO. That was the end of his public criticism of GPOs.
Physicians Against Drug Shortages Challenge the Controlled Drug Market for Hospital
https://www.policymed.com/2013/09/physicians-against-drug-shortages-challenge-the-controlled-drug-market-for-hospital.html
Phillip L. Zweig
Executive Director at Physicians Against Drug Shortages