Pricing Pressure and Shortages: How Manufacturer Financial Strain Is Driving Drug Shortages in 2025

By 2025, the U.S. is seeing more drug shortages than at any point since the 2010s-and it’s not because of factory fires or natural disasters. It’s because the companies making the medicines can’t afford to make them anymore.

The Real Cost of Making Cheap Drugs

Generic drugs are supposed to be affordable. That’s the whole point. But when a pill costs $0.10, there’s no room for error. Manufacturers are squeezed from every side: raw materials are more expensive, shipping costs have climbed, and tariffs on key ingredients-like active pharmaceutical ingredients (APIs) from India and China-have jumped from 2.4% in early 2025 to over 11% by August. That’s not a small bump. It’s a tax that eats into margins that were already paper-thin.

Take a common antibiotic like amoxicillin. A single dose might sell for $0.15 at Walmart. But the cost to produce it? $0.12. That leaves $0.03 for packaging, labor, compliance, quality control, and profit. When the price of penicillin V potassium-a key raw material-spikes 18% overnight because of export restrictions from a single Indian supplier, that $0.03 vanishes. Suddenly, the factory is losing money on every bottle it makes.

And here’s the kicker: pharmacies and insurers won’t pay more. They’ve locked in contract prices for years. So manufacturers face a brutal choice: keep producing at a loss, or shut down the line. Most choose the latter. And when one company stops making a drug, others don’t always jump in. Why? Because the market is too small, too unpredictable, and too risky.

Who’s Getting Hit the Hardest?

It’s not just one type of drug. The shortages are spreading across essential medicines:

• Injectables: Drugs like insulin, epinephrine, and chemotherapy agents. These require sterile production lines, which cost $50 million to build and certify. Few companies want to invest when the profit margin is 3%.
• Oral generics: Blood pressure pills, thyroid meds, antidepressants. These are high-volume, low-margin. A single plant might make 20 different generics. If one becomes unprofitable, they often shut down the whole line.
• Off-patent biologics: Even biosimilars are feeling the squeeze. The complex manufacturing process means costs are higher, but reimbursement hasn’t kept up.

According to the FDA’s 2025 Drug Shortage Report, 274 drugs were on shortage in October-up 32% from 2023. Of those, 68% were generic injectables or oral medications. The top three reasons? Pricing pressure, raw material shortages, and manufacturing quality failures-but the failures are often caused by cost-cutting.

Why Can’t They Just Raise Prices?

You’d think: just charge more. But it’s not that simple.

Pharmacies, Medicaid, Medicare, and big insurers negotiate bulk prices. These contracts lock in rates for 1-3 years. If a manufacturer tries to raise prices mid-contract, they risk losing the entire account. And if they wait until renewal, they’re competing against 10 other companies offering the same drug at the lowest possible price.

It’s a race to the bottom. One manufacturer cuts their price to $0.11 per pill. Another drops to $0.10. Then $0.09. Soon, no one can cover the cost of the API, the labor, or the FDA inspections. And when someone finally says, “We can’t make this anymore,” the whole system stumbles.

There’s a reason why 78% of pharmaceutical CFOs surveyed by Duke University and the Federal Reserve expect these pressures to last through 2026. They’re not just worried about next quarter. They’re worried about whether their business model is sustainable.

The Domino Effect: From Factory to Pharmacy Shelf

When a manufacturer stops making a drug, it doesn’t just disappear. It triggers a chain reaction:

1. One plant shuts down production of metformin.
2. Two other manufacturers can’t ramp up fast enough-they’re already at 95% capacity.
3. Pharmacies run out. Patients get switched to more expensive brand-name versions-or go without.
4. Hospitals scramble to find alternatives, sometimes using less effective or riskier drugs.
5. Insurance companies pay more. Patients pay more. Everyone loses.

And it’s not just about availability. Quality suffers too. When manufacturers cut corners to save money, they risk FDA warnings. In 2024, the FDA issued 42 warning letters to generic drug makers for contamination, poor recordkeeping, or unapproved manufacturing changes. Many of these were linked to cost pressures. One company in Pennsylvania reduced its quality control staff by 40% to stay profitable. A year later, they had to recall 300,000 bottles of levothyroxine.

What’s Being Done? (And Why It’s Not Enough)

There are solutions-but they’re slow, expensive, and hard to scale.

Dual-sourcing: More manufacturers are trying to get APIs from multiple countries. In 2023, only 29% did this. Now, it’s 53%. But finding reliable suppliers outside India and China is tough. Vietnam and Mexico don’t have the scale yet. And building new facilities takes 3-5 years and $100 million.

Government stockpiles: The Strategic National Stockpile has started buying bulk quantities of critical generics. But it’s reactive, not preventive. They buy when a shortage is already happening-not before.

Pricing reform: Some lawmakers are pushing for minimum profit margins on essential generics. But that’s politically risky. Pharma lobbyists fight hard against anything that looks like price controls-even if it’s just to keep drugs available.

Meanwhile, companies that are surviving are using technology. One Ohio-based maker of IV fluids implemented dynamic pricing software that adjusts bids based on real-time input costs and competitor pricing. They cut margin erosion from 9% to 2% in 14 months. But only 31% of small generic manufacturers have the budget for tools like that.

The Bigger Picture: A Broken System

This isn’t just a supply chain problem. It’s a market design problem.

The U.S. system rewards the cheapest drug, not the most reliable one. We’ve outsourced manufacturing to countries with lower labor costs, but we didn’t build resilience into the system. We assumed global supply chains were permanent. They’re not.

Climate events, geopolitical conflicts, and trade wars have exposed how fragile this setup is. A single port strike in Mumbai or a new export tax in China can ripple across American hospitals.

And the worst part? The people who suffer most aren’t CEOs or investors. They’re the diabetic who can’t get insulin. The cancer patient whose chemo is delayed. The elderly person whose blood pressure pill is replaced with one that causes dizziness.

What Comes Next?

The good news? Awareness is growing. The FDA is publishing more real-time shortage data. Congress is holding hearings. Some states are starting to require pharmacies to notify patients when a generic is unavailable.

The bad news? Without a fundamental shift in how we value generic drugs-how we pay for them, who produces them, and what risks we’re willing to accept-shortages will keep getting worse.

Manufacturers aren’t villains. They’re trapped in a system that demands low prices but won’t pay for the stability those prices require. Until we fix that, the shelves will stay empty-and patients will keep paying the price.