Generic Drug Shortages: When Too Much Competition Hurts Supply

Every year, millions of Americans rely on generic drugs to manage chronic conditions, treat infections, or survive emergencies. These pills and injections are cheaper, widely available, and just as effective as their brand-name cousins. But behind the scenes, something’s broken. In 2023, nearly 8 out of 10 U.S. hospitals reported at least one shortage of a generic drug. Some were common antibiotics. Others were life-saving heart medications. And in many cases, the problem wasn’t a lack of demand-it was a lack of makers.

Why Do Generic Drugs Disappear?

Generic drugs aren’t supposed to be rare. They’re meant to be abundant. After a brand-name drug’s patent expires, any manufacturer can copy it. The FDA approves these copies through a faster, cheaper process called an ANDA. That’s supposed to trigger a price war. And it does. Within three years of a generic entering the market, prices often drop by 80% or more. That’s great for patients and insurers. But it’s terrible for manufacturers.

Imagine you’re a company making a generic version of a blood pressure pill that costs $0.05 per tablet. You sell it to a pharmacy for $0.07. After accounting for packaging, labor, compliance, and shipping, your profit might be a penny a pill. Now imagine your competitor does the same thing. And then another. And another. Soon, you’re all selling at $0.03. Then $0.02. At some point, it’s not worth it anymore.

So you shut down the line. You move your production to a more profitable drug. Or you exit the market entirely. That’s what happened with doxycycline, a common antibiotic. In 2022, only two companies made it in the U.S. When one of them had a quality issue and was forced to halt production, the country faced a nationwide shortage. No one else was willing to make it at the price it was being sold.

The Myth of Too Many Generic Makers

People assume the generic market is crowded. And technically, it is. There are dozens of companies making generics-Teva, Sandoz, Mylan, Aurobindo, Lupin, and more. But that’s not the full picture. Competition isn’t evenly spread. For some drugs, there are 15 or 20 makers. For others? Just one or two.

According to IQVIA, 35% of generic drug markets have fewer than three active manufacturers. For 12% of them, there’s only one supplier left. These aren’t obscure drugs. They’re the ones doctors prescribe every day: injectable epinephrine, insulin, phenytoin, and hydrocortisone. These are the drugs that don’t make money anymore. But they’re the ones patients can’t live without.

Meanwhile, newer generics-like those for expensive cancer drugs-are flooded with competitors. The first few companies to enter make a killing. But then the price collapses. And the cycle repeats: rush in, cut prices, exit when margins vanish. This isn’t competition. It’s a race to the bottom. And the finish line is a broken supply chain.

Why Making Generic Injectables Is a Billion-Dollar Gamble

Not all generics are created equal. A pill you swallow is easy to make. A sterile injection you get in a hospital? That’s a different story.

Producing sterile injectables requires clean rooms, advanced equipment, and years of validation. Building a single facility costs between $200 million and $500 million. It takes 18 to 24 months just to get FDA approval. And if you make one mistake-contaminated solution, wrong temperature, flawed packaging-the entire batch is destroyed. The FDA issued 147 warning letters to generic drug makers in 2023 for data integrity issues. That’s up 23% from the year before.

Only five companies control nearly half the U.S. market for sterile injectables. That’s not competition. That’s a cartel of necessity. When one of them shuts down-like the 2023 closure of a major plant making generic epinephrine auto-injectors-the entire system feels it. Hospitals scramble. Patients delay treatment. Some switch to more expensive brand-name versions. Others go without.

The Price of Too Little Competition

When there’s only one or two makers of a drug, prices don’t stay low. They go up.

From 2018 to 2024, the average price of 50 commonly used generic drugs rose by 15.7% per year, according to CMS data. These weren’t new drugs. They were old, off-patent, low-cost medications that should’ve been dirt cheap. But with only one or two manufacturers left, they had pricing power. Some drugs like digoxin and chlorpromazine saw price hikes of over 1,000% in a decade.

This isn’t about greed. It’s about survival. If a manufacturer can’t make money on a drug, they won’t make it. And if no one else will, the drug vanishes. Patients don’t care that it’s “just a generic.” They need it to work. And when it doesn’t show up, the consequences are real.

Doctors in a 2023 AMA survey said 78% had seen a generic drug shortage in the past year. Over 40% said it frequently disrupted care. One oncologist told me his patient couldn’t get her chemotherapy drug for three weeks because the only U.S. supplier ran out. She had to switch to a less effective alternative. That’s not hypothetical. That’s happening right now.

What’s Making It Worse?

The problem isn’t just market forces. It’s policy.

The Inflation Reduction Act, starting in 2026, will force drugmakers to accept lower prices for some of the most expensive medications. That’s good for patients. But for generic makers already scraping by, it’s a death sentence. A 15-25% price cut on top of existing thin margins? Many won’t survive.

At the same time, the FDA is approving more generics than ever. In 2024 alone, they approved 956 new generic applications. But they’re also cracking down harder on quality. A company can get approved to make a drug, but if they don’t pass a follow-up inspection, they’re shut down. That’s necessary. But it leaves gaps. No one steps in fast enough.

And consolidation hasn’t helped. When Pfizer sold its generic division to Viatris, or when Novartis spun off Sandoz, it didn’t create more competition. It created fewer, bigger players. Bigger companies have more resources, but they also focus on the most profitable products. The low-margin, high-risk drugs get left behind.

Who Pays the Price?

Patients do. But not just in money.

When a generic runs out, insurers may cover the brand-name version. But patients still pay higher copays. A $20 generic becomes a $200 brand. For someone on a fixed income, that’s impossible. Others get a substitute-maybe a different antibiotic, maybe a different heart drug. But substitutes aren’t always the same. They can cause side effects. They can be less effective. In some cases, they’re dangerous.

And then there’s the emotional toll. Imagine being told your insulin is unavailable. Or your seizure medication is on backorder. You don’t get to wait for the next shipment. Your body doesn’t pause.

Is There a Solution?

There’s no magic fix. But there are clear steps.

First, we need to recognize that not all competition is good. For essential medicines, the goal isn’t to have 20 makers. It’s to have 4 to 6. That’s what the European Medicines Agency found: enough to keep prices down, but enough to ensure reliability. We need incentives for companies to make these low-margin drugs-tax credits, guaranteed minimum purchase agreements, or even public manufacturing partnerships.

Second, we need to protect the makers who do produce them. The FDA should prioritize inspections for critical drugs. If a company is the only one making a life-saving generic, their facility should get faster approvals and more support-not more penalties.

Third, we need transparency. Hospitals and pharmacists should know which drugs are at risk. A public dashboard showing manufacturer status, production capacity, and inventory levels would help prevent surprises.

Right now, we treat generic drugs like commodities. But they’re not. They’re lifelines. And like any lifeline, they need maintenance, investment, and protection-not just price pressure.

What’s Next?

The next five years will be critical. Biosimilars-generic versions of biologic drugs-are coming fast. They’ll bring down the cost of cancer and autoimmune treatments. But they’ll also add pressure to the system. If we don’t fix the foundation, we’ll just be replacing one shortage with another.

Generic drugs are supposed to be the answer to high drug costs. But if we keep pushing prices down without protecting supply, we’ll end up with fewer choices, not more. The real challenge isn’t finding more manufacturers. It’s finding the right ones-and making sure they can stay in business.

Generic drugs are the backbone of affordable care. But if we treat them like disposable commodities, we’ll lose them when we need them most. The solution isn’t more competition-it’s smarter competition. Enough makers to keep prices low, but enough support to keep them in business.