It’s not just hospitals running out of antibiotics or insulin. The real crisis is happening behind the scenes - in factories, warehouses, and corporate boardrooms where the people who make those drugs are barely keeping their doors open. By October 2025, pricing pressure and drug shortages have become inseparable, feeding off each other in a cycle that’s squeezing manufacturers dry. For the first time in decades, companies that once thrived on steady volume and predictable costs are now choosing which medicines to produce - and which to walk away from - because they simply can’t afford to make them anymore.
Why Drugs Are Getting Harder to Make
The problem starts with raw materials. Active pharmaceutical ingredients (APIs) - the core chemical components in medicines - are no longer sourced from a dozen reliable suppliers. Today, over 80% of APIs come from just two countries: India and China. And since 2024, both have tightened export controls, raised environmental standards, and increased labor costs. The result? Raw material prices for key drugs have jumped 15-20% in just 18 months. For a generic diabetes medication, that means the cost of the active ingredient alone has gone up by $12 per kilogram. Multiply that by millions of doses, and you’re talking about millions in added cost - with no room to raise prices.
Meanwhile, tariffs have turned into a hidden tax on medicine. The U.S. imposed new duties on pharmaceutical intermediates in early 2025, adding an average 11.5% cost to imports. That’s not just on fancy new drugs - it’s on the basic antibiotics, blood pressure pills, and antivirals that millions rely on. The Yale Budget Lab found that $23 billion in tariff revenue was collected in August 2025 alone - and most of it came from medicines. But here’s the catch: manufacturers can’t just pass these costs to patients. Insurance companies and government payers have fixed reimbursement rates. So if your cost to make a pill goes up 20%, but you can only charge 5% more, you’re losing money on every unit.
The Domino Effect: When One Shortage Triggers Another
It’s not just one drug that’s missing. It’s a chain reaction. When a manufacturer can’t afford to produce penicillin because the API cost jumped 18%, they cut production. That causes a shortage. Hospitals start rationing. Doctors switch to alternatives - but those alternatives rely on different APIs, which are already in short supply too. A shortage of amoxicillin in May 2025 led to a spike in demand for cephalexin, which then triggered a shortage of its own. By August, 14% of the top 50 generic drugs in the U.S. were listed as in shortage by the FDA - up from 6% in 2023.
And it’s not just about ingredients. Packaging matters too. Glass vials, rubber stoppers, and sterile blister packs? All made from materials that are now more expensive and harder to get. One small manufacturer in Ohio told the Manufacturers Alliance they couldn’t source the right type of glass for their insulin vials for six months. They had to halt production. That’s 200,000 doses gone - for a drug that’s on the WHO’s list of essential medicines.
Who’s Feeling the Pain the Most?
It’s not the big pharma giants. Companies like Pfizer and Merck have diversified supply chains, global pricing power, and R&D budgets that let them absorb shocks. The real victims are the small and mid-sized generic manufacturers - the ones that make 90% of the affordable drugs Americans use every day. These companies operate on razor-thin margins, often less than 5%. When input costs rise 10%, they’re in the red.
Take a company like Teva or Mylan - they used to be the backbone of the generic market. Now, they’re pulling back. In 2025, Mylan announced it was exiting five low-margin antibiotic lines. Teva cut production of its top-selling generic blood pressure drug by 30%. Why? Because the cost of the active ingredient had doubled since 2023, and payers refused to budge on reimbursement. These aren’t decisions made lightly. They’re made when the numbers don’t just look bad - they look impossible.
Why Price Hikes Don’t Solve the Problem
You’d think raising prices would fix this. But it doesn’t. In consumer goods, companies can adjust prices based on demand. In pharma, they can’t. Medicare, Medicaid, and private insurers set fixed prices for generics. If you raise your price too much, you get kicked off formularies. If you don’t raise it enough, you lose money. It’s a no-win.
Some manufacturers try dynamic pricing - adjusting prices based on inventory levels and demand signals. But that requires sophisticated software, real-time data, and finance teams trained in analytics. Only 31% of small manufacturers have this capability. The rest are flying blind. One CFO in North Carolina told a Federal Reserve survey he had to guess how much to order for the next quarter - because he didn’t know if the next shipment of API would arrive, or if it would cost 20% more than the last.
The Digital Divide: Who’s Surviving - and Who’s Not
The companies that are still making drugs aren’t lucky. They’re smart. They’re investing in three things: digital supply chains, dual sourcing, and pricing optimization tools.
- Digital supply chains: One small manufacturer in Indiana installed sensors on every raw material shipment. They now get real-time alerts if a container is delayed. That lets them shift production to other lines before a shortage hits. Result? Inventory costs dropped 14% in 12 months.
- Dual sourcing: Instead of relying on one supplier in India, they now have a backup in Vietnam and another in Poland. It costs more upfront - but it prevents shutdowns. 53% of manufacturers are doing this now, up from 29% in 2023.
- Pricing optimization: Companies using AI-driven pricing tools saw their margin erosion drop from 8.3% to 2.1% - even when raw material costs jumped 15.7%. They didn’t raise prices blindly. They adjusted them strategically, based on customer segments, competitor behavior, and inventory levels.
But here’s the hard truth: these tools cost money. And the companies that need them most - the small generics makers - can’t afford them. The result? A two-tier system. Big players survive. Small players vanish. And the drugs they made? They disappear.
What’s Next? The Long-Term Outlook
The Federal Reserve and MIT both warn: if nothing changes, drug shortages won’t get better - they’ll get worse. By 2030, manufacturing inflation for pharmaceuticals could stay 1.5-2.0 percentage points higher than pre-pandemic levels. Why? Because the global supply chain for APIs isn’t being rebuilt. It’s being reshuffled - and the new routes are more expensive, less reliable, and politically risky.
Some countries are trying to fix it. The EU launched a €2 billion initiative to bring API production back to Europe. The U.S. is offering tax credits for domestic manufacturing. But these efforts are slow. It takes 3-5 years to build a new API plant. And even then, it’s not guaranteed to be cheaper than importing.
Meanwhile, patients are already feeling the pinch. A 2025 survey by the American Pharmacists Association found that 41% of patients had to delay or skip a prescription because it wasn’t available - up from 22% in 2022. For diabetics, cancer patients, and people with chronic conditions, this isn’t an inconvenience. It’s a threat to their lives.
There’s a Way Forward - But It’s Not Easy
Solving this isn’t about one policy change or one new law. It’s about rebuilding trust in the entire system. Manufacturers need predictable costs. Payors need affordable drugs. Patients need access. Right now, none of those things are aligned.
Here’s what could help:
- Strategic stockpiles: Governments should maintain reserves of critical drugs - not just for emergencies, but for routine shortages.
- Fixed reimbursement adjustments: Allow Medicare and Medicaid to adjust generic drug prices annually based on inflation in raw materials, not just consumer price indexes.
- Subsidies for small manufacturers: Tax credits or grants to help them adopt digital tools and dual sourcing.
- Global cooperation: No country can solve this alone. The U.S., EU, India, and China need to agree on minimum standards for API production and export.
It’s not about making drugs more expensive. It’s about making them sustainable. The manufacturers who are still producing these life-saving medicines aren’t heroes - they’re survivors. And if we don’t change the system, there won’t be many left.
Why are generic drugs becoming harder to find?
Generic drugs are becoming harder to find because the companies that make them are losing money. Rising costs for raw materials, tariffs on imported ingredients, and fixed reimbursement rates from insurers mean manufacturers can’t cover their expenses. Many are choosing to stop producing low-margin drugs rather than lose money on every pill they make.
Are drug shortages only happening in the U.S.?
No. Drug shortages are a global problem. The U.S. is affected because it relies heavily on India and China for active pharmaceutical ingredients. But Europe, Canada, and Australia are seeing similar issues. In 2025, the WHO reported shortages of essential medicines in over 60 countries - mostly generics for infections, blood pressure, and diabetes.
Can big pharmaceutical companies fix this?
Big pharma can help, but they’re not the main source of the problem. Most shortages are in generic drugs - the kind made by smaller companies. Big pharma focuses on branded, high-margin drugs. While they have the resources to diversify supply chains, they don’t have the incentive to fix the generic market - unless regulations force them to.
Why don’t manufacturers just raise prices?
Because they can’t. Insurance companies and government programs like Medicare set fixed prices for generic drugs. If a manufacturer raises their price too high, they get removed from the list of approved drugs. If they don’t raise it enough, they lose money. It’s a tightrope walk - and most are falling off.
What can patients do if their medication is unavailable?
Patients should talk to their pharmacist or doctor immediately. Pharmacists often know which manufacturers still have stock or can source alternatives. In some cases, a different formulation or brand may work. Never stop taking a prescribed medication without consulting a healthcare provider - even if it’s hard to find.
