Tim Ray & Stuart Glickman
Imagine a crisis where U.S. citizens are abruptly cut off from lifesaving medications. Pharmacy shelves are empty. And medicine cabinets lay bare. This isn’t a far-fetched dystopia. It’s a real and growing threat. Generic drugs, which make up nearly 90% of U.S. prescriptions, depend on Chinese and Indian manufacturing for active pharmaceutical ingredients (API), finished dosage forms, or both. In the event of a possible – if not probable – trade war or geopolitical rupture, these supply chains could be severed; leaving Americans vulnerable to “pharmacological blackouts.”
Senators in June reintroduced the bipartisan RAPID Reserve Act, a legislative lifeline designed to prevent a pharmacological blackout. And as Congress reconvenes in the coming weeks, policy makers should not only advance RAPID’s call to bring critical medicine manufacturing back to U.S. shores and build strategic reserves, they should go further.
Three decades of a combination of economic forces and strategic decisions hollowed out the domestic generic drug manufacturing base. First, the consolidation within the commercial channels (retailers, wholesalers, and pharmacy benefit managers) shifted market leverage heavily toward the buyers. Increased leverage allowed these buyers to aggressively negotiate lower prices for generic drugs and erode profit margins of drug manufacturers. At the same time, Indian and Chinese manufacturers – benefiting from significantly lower production costs – entered the market. Many Western companies followed suit, either building or acquiring manufacturing facilities in India to remain cost competitive. The influx of low-cost suppliers gave the buyers even greater leverage and pushed prices and manufacturer margins even lower. We now have a system where generic drugs make up 90% of prescriptions but account for just 10% of drug revenue – leaving little financial incentive to manufacture them onshore or invest in supply chain resilience.
Market forces have created unsustainable economics and a reliance on offshore manufacturing. These market forces will not solve the very problem that they created. An active, strategic federal response is required to restore domestic manufacturing capacity and protect the public.
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