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The Growing Crisis of Drug Shortages in the United States

Piper Boss
Jan 227 min read

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In 2023, a nationwide shortage of amoxicillin—a critical antibiotic used to treat bacterial infections, especially in children—sent ripples through the U.S. healthcare system. Manufacturing delays combined with surging demand during a severe cold and flu season left parents scrambling to find alternatives for their sick children.


The amoxicillin shortage epitomizes a broader crisis: between 2021 and 2024, drug shortages have intensified due to manufacturing delays, raw material scarcities, and geopolitical disruptions. In 2023, the United States experienced a significant increase in drug shortages, with the FDA reporting 309 active shortages by the end of the year: a 30% rise from 2022 (1). The repercussions are felt across the healthcare ecosystem: patients face delays in critical treatments, sometimes resorting to less effective or riskier alternatives; healthcare providers are burdened with the challenge of rationing supplies and navigating ethical dilemmas in resource allocation; and biotech and pharma companies experience financial losses, missed growth opportunities, and damaged reputations as their ability to meet demand falters.


The Causes of Drug Shortages


Raw Material Shortages


The pharmaceutical industry relies heavily on global suppliers for active pharmaceutical ingredients (APIs). Events like natural disasters or geopolitical conflicts can disrupt the availability of these raw materials. The COVID-19 pandemic exposed vulnerabilities in the global supply chain, with countries like China and India—the primary exporters of APIs—imposing export restrictions to prioritize domestic needs (2). Geopolitical tensions, such as the Russia-Ukraine conflict, have also exacerbated raw material shortages by disrupting supply chains and driving up energy prices, straining pharmaceutical manufacturers' ability to maintain consistent production levels (3).


Just-in-Time (JIT) inventory management practices further exacerbate supply chain vulnerabilities. JIT is a strategy popular in healthcare inventory management where materials and products are received or produced only as needed for immediate use, minimizing inventory levels and thus reducing waste and storage costs. While the cost saving is very attractive to manufacturers, JIT systems are highly sensitive to disruptions. Any interruption, such as delayed shipments or quality issues with raw materials, can halt production entirely, as there is little to no buffer inventory to compensate for shortages (4).


Manufacturing Delays


Manufacturing inefficiencies are a key driver of drug shortages, often stemming from outdated production facilities and stringent regulatory requirements. Many pharmaceutical plants operate with old infrastructure and struggle to meet the precision and scalability required for modern drug production. These limitations particularly affect sterile injectable medications, which require highly controlled manufacturing environments to prevent contamination; even minor deviations in production standards can disrupt the entire supply chain (1).


Regulatory hurdles add another layer of complexity—while strict oversight is essential to ensuring patient safety, the lengthy processes involved in approving new manufacturing facilities or upgrading existing ones often slow production timelines. A 2019 FDA report identified manufacturing quality issues as a leading cause of drug shortages, noting that deficiencies in quality control measures frequently result in extended delays (2).


Market Factors


Market consolidation within the pharmaceutical industry has led to fewer manufacturers producing essential drugs, leaving the supply chain vulnerable to disruptions from a single supplier (2). Low-cost generics are particularly sensitive, as financial margins are often too slim to incentivize production. When manufacturers discontinue such products, the resulting supply gaps significantly impact patients who rely on affordable medications. This consolidation has been occurring for years—the number of generic drug manufacturers in the U.S. has decreased by 20% since 2018—but the pandemic led to unprecedented shifts in demand, and thus exposed the particularly fragile state of the pharmaceutical supply chain when reliant on fewer manufacturers (5, 6).


The Impact of Drug Shortages


Economic Losses for Drug Companies


Drug shortages directly affect the bottom line of biotech and pharma companies as revenue streams shrink due to delays in product launches and reduced availability of products for sale. The recent shortages of obesity medications, such as Eli Lilly's Zepbound and Novo Nordisk's Wegovy, have led to significant economic implications for these companies. Supply constraints have resulted in missed revenue opportunities, as the high demand for these treatments could not be met. For instance, Eli Lilly reported a $1.5 billion sales shortfall for Zepbound and Mounjaro, even after their removal from the FDA shortage list (8).


Compounding pharmacies have capitalized on these shortages by producing and selling their own versions of these medications, often at lower prices. This practice not only diverts potential revenue away from the original manufacturers but also raises concerns about the safety and efficacy of compounded drugs. Eli Lilly and Novo Nordisk have taken legal actions to challenge the compounding of their GLP-1 receptor agonists, aiming to protect their market share and ensure patient safety (9).


Companies can also face penalties from healthcare systems or governments when contractual obligations for product delivery are unmet. During the COVID-19 pandemic, some vaccine manufacturers, including AstraZeneca, entered into agreements with governments to deliver doses within specific timeframes. In April 2021, the European Commission initiated legal action against AstraZeneca, claiming that the company had not respected its vaccine supply contract and lacked a reliable plan to ensure timely deliveries (10).


Reputation and Trust


Drug shortages can erode trust among healthcare providers and patients, particularly when critical medications are unavailable. Inconsistent supply undermines partnerships with healthcare systems, and patients forced to seek alternative treatments may lose faith in a company's reliability (2).


Healthcare Implications


Drug shortages pose significant challenges to patient care. Healthcare providers often struggle to find suitable alternatives, leading to delayed or suboptimal treatments. In 2023, a cisplatin shortage was caused by the shutdown of a major manufacturing facility due to quality control issues (11). Shortages have a domino effect; the subsequent increase in demand for carboplatin, as an alternative to cisplatin, strained its supply chain, leading to shortages of both drugs. While a study found that there was no increase in patient mortality caused by alternative medications, the study did not assess the financial burden of more expensive non-generic alternatives, side effects of different drugs, and the emotional toll on the thousands of patients who had to change treatment regimens (11).


Preventing Drug Shortages


Diversifying Suppliers & Inventory Resilience


Relying on a single geographic region or manufacturer for APIs creates significant risk but can be mitigated by diversifying suppliers. Partnering with multiple suppliers, especially those in different regions, reduces the likelihood of disruptions impacting the entire supply chain (7). Additionally, building strategic reserves of critical raw materials and finished products can maintain inventory levels that buffer against unexpected supply chain shocks. Some vaccine manufacturers during the pandemic stored excess doses to prepare for distribution bottlenecks, ensuring a continuous supply even when production lines were interrupted (2).


Flexible Manufacturing Practices


Flexible manufacturing systems enable pharmaceutical companies to adapt production lines swiftly to accommodate various drugs, allowing them to respond effectively to market demands. These systems incorporate modular equipment or continuous manufacturing processes. While both aim to improve efficiency, modular manufacturing focuses on flexible, reconfigurable production units that can be easily adapted to different products, while continuous manufacturing prioritizes a seamless, uninterrupted flow of production with minimal downtime between steps, allowing for faster overall production speeds (12, 13). These modifications allow for the scaling of production to meet demand or rapid reconfiguration of production to meet demand for a different product.


Predictive Analytics & Demand Forecasting


Predictive analytics offer a proactive approach to preventing drug shortages. By leveraging historical data, machine learning algorithms, and real-time monitoring of electronic health records and insurance claims, predictive analytics enable companies to identify potential supply chain disruptions before they occur (14). By integrating these forecasts into their operations, pharmaceutical companies can develop contingency plans, such as preemptively increasing production or securing alternative suppliers, ensuring a consistent supply of products.


The View from the Crow’s Nest


Addressing drug shortages will require coordinated efforts from biotech and pharma companies, regulatory agencies, healthcare providers, and governments. Biotech and pharma companies must take the lead in fortifying supply chains by diversifying raw material suppliers and reinvesting in U.S. manufacturing to mitigate risks from geopolitical disruptions. For example, Pfizer reinvested in U.S. manufacturing facilities in 2022 to support COVID vaccine production, while AstraZeneca announced plans in 2024 to establish separate supply chains for China and Western markets, reducing reliance on Chinese manufacturing (15,16).


Adopting flexible manufacturing systems and predictive forecasting technologies is another critical strategy for addressing potential disruptions. Pfizer’s investment in flexible gene therapy manufacturing facilities exemplifies this approach, which will allow the company to rapidly transition capacity to entirely new products in response to shifting needs (14). By proactively building strategic reserves of critical materials and incorporating advanced manufacturing practices, companies can enhance their resilience to supply chain shocks, even if these measures entail higher initial costs. Such investments not only safeguard production continuity but also help maintain trust with healthcare providers and patients.


Meanwhile, collaborative efforts among regulatory bodies, governments, and private companies are essential for addressing systemic challenges. Regulatory agencies like the FDA can streamline approval processes for new or upgraded manufacturing facilities and establish expedited pathways for resolving quality control issues. Governments can incentivize manufacturers through subsidies or tax breaks to produce low-margin essential generics or to invest in supply chain redundancy. Public-private partnerships, exemplified by Operation Warp Speed during the COVID-19 vaccine rollout, highlight the potential for collaboration between government agencies, private pharmaceutical companies, and research institutions to accelerate the development, manufacturing, and distribution of critical medical resources during crises.


Addressing drug shortages must remain a priority in healthcare policy and industry practice. Strengthening supply chains through resilient manufacturing practices and predictive tools, incentivizing the production of essential but low-margin medications, and fostering public-private collaborations will create a system better equipped to meet healthcare demands. With proactive investments and collaborative action, the industry can safeguard patients and ensure continuity of care in the face of future disruptions.


 
If you are interested in learning more, get in touch at strategy@spinnakerLS.com. 

Spinnaker offers true partnership and comprehensive guidance to help leaders navigate the complexities of the Life Sciences industry and chart a path to success. From early-stage market assessment through commercial execution and ongoing lifecycle management, we deliver tailored solutions to ensure optimized practicable results.
 

Sources:

2.      Report | Drug Shortages: Root Causes and Potential Solutions (https://www.fda.gov/drugs/drug-shortages/report-drug-shortages-root-causes-and-potential-solutions)

4.      Just-in-time approach in healthcare inventory management: Does it really work? (https://www.sciencedirect.com/science/article/pii/S1319016422002699)

5.      America Is Running Out of Generic Drugmakers. Another One Is on the Brink. (https://www.wsj.com/health/pharma/america-is-running-out-of-generic-drugmakers-another-one-is-on-the-brink-dbd8bb17)

8.      Eli Lilly And Novo Nordisk's Weight-Loss Drugs Face Supply Challenges (https://finimize.com/content/eli-lilly-and-novo-nordisks-weight-loss-drugs-face-supply-challenges)

10.  Coronavirus: EU sues AstraZeneca over vaccine delivery delays (https://www.bbc.com/news/world-europe-56891326)

12.  End-to-end: Can pharma finally make the dream of continuous manufacturing a reality? (https://www.fiercepharma.com/manufacturing/end-to-end-how-pharma-making-dream-continuous-manufacturing-a-reality)

14.  The Role of Predictive Analytics in Transforming Pharmaceutical Supply Chains (https://pipharmaintelligence.com/blog/148)

15.  AstraZeneca plans independent drug supply chains for US and China, CEO says (https://www.fiercepharma.com/manufacturing/astrazeneca-builds-separate-drug-supply-chains-us-and-china-ceo-says)

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