It’s 2025, and hospitals are running low on antibiotics. Cancer centers are delaying treatments because a key chemotherapy drug is out of stock. Pharmacies are rationing insulin. These aren’t isolated incidents-they’re symptoms of a deeper crisis: manufacturer financial strain caused by crushing pricing pressure and persistent shortages.
For decades, drug manufacturing was seen as a stable, predictable business. But that’s gone. Today, manufacturers are caught between skyrocketing costs and customers who won’t pay more. The result? Fewer drugs made, less profit, and patients paying the price.
Why Are Drug Prices So Unstable?
It starts with raw materials. Active pharmaceutical ingredients (APIs) used in everything from blood pressure pills to antibiotics are mostly made overseas-primarily in China and India. In 2025, tariffs on these materials have jumped from under 3% to over 11% on average. That’s not a small bump. It’s a tax that gets added to every pill, every vial, every injection.
But here’s the catch: manufacturers can’t just raise prices. Patients and insurers are already stretched thin. A 2025 Duke University survey of 347 pharmaceutical CFOs found that 72% say they’ve held off on price increases because they fear losing market share. So instead, they absorb the cost-and their margins shrink. Some companies have seen profit margins drop by 8-12% in just 18 months.
It’s not just tariffs. Climate disasters have disrupted chemical production in India. Geopolitical tensions have blocked shipping routes through the Red Sea. And the war in Ukraine cut off supplies of key gases used in sterile drug manufacturing. One manufacturer told a trade group they lost 40% of their nitrogen supply in Q2 2025-forcing them to pause production for three weeks.
The Shortage Domino Effect
When a manufacturer can’t make a drug profitably, they stop making it. That’s simple math. And when they stop, the shortage hits fast.
Take doxycycline, a common antibiotic. In 2024, three major U.S. manufacturers stopped producing it because the price per unit had dropped to $0.03-below the cost of packaging and shipping. By early 2025, the FDA listed it as “in shortage.” Hospitals had to switch to more expensive alternatives. Patients waited days for prescriptions.
It’s the same story with heparin, insulin, and even basic IV fluids. The FDA recorded 238 active drug shortages in September 2025-the highest number since 2012. Of those, 68% were linked to manufacturing decisions driven by financial strain, not quality issues or equipment failure.
And it’s not just small drugs. Even life-saving oncology drugs like methotrexate and cyclophosphamide have been affected. One cancer center in Ohio reported they could only get half their usual supply of cyclophosphamide in Q3 2025. They had to prioritize patients based on prognosis. That’s not a medical decision-it’s a supply chain failure.
Who’s Getting Hit the Hardest?
Not all manufacturers are affected equally. Big pharma with global supply chains and pricing power can sometimes ride out the storm. But generic drug makers? They’re getting crushed.
Generic manufacturers operate on razor-thin margins. Their business model relies on volume: make a lot of cheap drugs, sell them to pharmacies and hospitals at pennies per unit. But when raw material costs rise 15%, and you can’t raise your price, you lose money on every box you ship.
According to the Manufacturers Alliance, 81% of generic drug producers reported negative operating margins in Q1 2025. That’s not a loss for a quarter-it’s a pattern. And when you’re losing money, you stop producing. That’s why 9 out of 10 drug shortages now involve generics.
Even companies that try to adapt are stuck. One mid-sized generic maker in New Jersey switched to a new API supplier in Portugal to avoid Chinese tariffs. The new supplier charged 22% more. The company tried to pass on 10% of that increase. The buyer- a major pharmacy chain-threatened to drop them. So they absorbed the loss. They’re now considering shutting down their entire generic division.
Why Doesn’t the Market Fix This?
You’d think competition would fix this. If one company stops making a drug, another should step in. But that’s not how it works.
Drug manufacturing isn’t like making sneakers. You can’t just buy a new machine and start cranking out pills. It takes years to get FDA approval for a new production line. It takes millions in capital. It takes trained chemists and engineers who are already in short supply.
And when a company finally does get approval, they face another hurdle: the price ceiling. Medicare and Medicaid reimbursements for generics are set by government formulas that haven’t changed meaningfully since 2018. Even if your cost goes up, your revenue doesn’t.
One manufacturer in Pennsylvania told a Senate committee: “We can make a better, safer version of this drug. But if we do, we’ll lose money on every unit. So we make the old one-and it’s in shortage.”
What’s Being Done?
Some manufacturers are trying to fight back. A few are investing in domestic API production. The Inflation Reduction Act allocated $1.2 billion for domestic drug manufacturing in 2024. By 2025, six new API facilities had broken ground in Ohio, Kentucky, and North Carolina.
Others are using technology. One company in Illinois installed AI-driven demand forecasting tools that reduced inventory waste by 31% and improved production scheduling. Another started using blockchain to track raw materials from source to final product-cutting delays caused by customs inspections by 40%.
But these are exceptions. Most small and mid-sized manufacturers can’t afford the $5 million price tag for AI systems or the 18-month timeline to build a new facility. And without financial support, they’re stuck.
What’s Next?
Unless something changes, shortages will get worse. The St. Louis Federal Reserve predicts that by Q4 2026, 1 in 5 commonly used generic drugs will be unavailable at least once a month.
Experts agree: the problem isn’t just about money. It’s about broken incentives. The system rewards low prices over reliability. It punishes manufacturers for investing in resilience. And it ignores the human cost.
Some policymakers are pushing for “minimum viable pricing” rules-setting a floor on how low generic drug prices can go. Others want to tie federal reimbursements to supply reliability. A few are even considering direct subsidies for manufacturers of critical drugs.
But none of these solutions are simple. And none are guaranteed to work.
What’s clear is this: if we keep treating drugs like commodities, we’ll keep running out of them. And when patients can’t get their medicine, no algorithm, no tariff policy, no supply chain hack can fix that.
Why are generic drugs in short supply?
Generic drugs are in short supply because manufacturers can’t make them profitably. Raw material costs have jumped due to tariffs and supply chain issues, but reimbursement rates from Medicare and insurers haven’t kept up. Many generic makers are losing money on every unit they produce, so they stop making the drug-and once they stop, it takes years to restart production.
How do tariffs contribute to drug shortages?
Tariffs on active pharmaceutical ingredients (APIs) imported from China and India have increased from under 3% to over 11% in 2025. These costs are added to the price of every drug, but manufacturers often can’t raise prices because insurers and government programs won’t pay more. This squeezes profits, forcing some companies to stop production entirely.
Can the U.S. make its own drug ingredients?
Yes, but it’s expensive and slow. Building a single API facility costs $100 million to $500 million and takes 3-5 years. The Inflation Reduction Act has funded six new U.S.-based facilities as of 2025, but they’ll take years to reach full capacity. Until then, the U.S. remains heavily dependent on foreign suppliers.
Why don’t drug companies just raise prices?
Many can’t. Medicare, Medicaid, and large insurers set reimbursement rates that rarely change. If a drug’s price goes above that rate, pharmacies won’t stock it. Even if a company raises prices slightly, patients may switch to alternatives or skip treatment entirely-making the shortage worse, not better.
Are brand-name drugs also affected by shortages?
Less so, but yes. Brand-name drugs have more pricing power and higher margins, so they can absorb cost increases better. However, if a key ingredient is shared with a generic version (like an API), and that ingredient is in short supply, even brand-name drugs can be affected. Some cancer drugs and rare disease treatments have seen delays due to shared supply chains.
What can patients do if their drug is in shortage?
Patients should talk to their doctor immediately. Pharmacists can often suggest alternatives or help locate stock at nearby pharmacies. The FDA maintains a public list of drug shortages that includes estimated resolution dates. In urgent cases, some manufacturers offer emergency supply programs for patients with no other options.
Is this shortage problem getting better or worse?
It’s getting worse. The number of active drug shortages hit a 13-year high in 2025, with 238 drugs listed by the FDA. Experts predict shortages will continue to rise through 2026 unless pricing policies change. Without financial support for manufacturers, the cycle of shutdowns and delays will keep repeating.
Final Thoughts: A System That’s Broken
Drug shortages aren’t accidents. They’re the result of a system that values low prices over reliability. We want cheap medicine. But we don’t want to pay for the infrastructure that makes it possible.
Manufacturers aren’t greedy. They’re trapped. They can’t raise prices. They can’t move production fast enough. And without support, they’re walking away.
If we want drugs to be available when we need them, we need to change how we pay for them-not just the price on the label, but the entire cost of making them. Otherwise, the next shortage won’t be a surprise. It’ll be inevitable.
