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The Long List of Pharmaceuticals in Short Supply

These unexpected conditions raise strategic questions — the kind that matter to investors. How dependent should any major pharmaceutical company or nation be on manufacturing and supply from outside the U.S.?
Michael McTague, Ph.D., Executive Vice President, Able Global Partners in New York, serves clients in a variety of industries that seek capital for expansion, acquisition, consolidation or re-financing.
Michael McTague, Ph.D., Executive Vice President, Able Global Partners in New York, serves clients in a variety of industries that seek capital for expansion, acquisition, consolidation or re-financing.

While everyone was watching the coronavirus, a bunch of respiratory ailments came along and caught the antibiotic industry — and indeed the larger pharmaceutical industry — off guard. Supply-chain slowdowns didn’t help. Over 42% of antibiotics that are exported are manufactured in China. No other country comes close in terms of dominance in this important area.

Investors will note that even though a supplier’s parent company may be located in the U.S. or the Eurozone — and even though some manufacturing may take place close to home — the greater portion of these critical medications comes from China.

Two colliding trends are at work. First, coronavirus strains put great pressure on the working population of China, which led to shut downs of various facilities. Second, operating in the shadow of the pandemic, a number of respiratory illnesses began to expand rapidly in the U.S. In the later months of 2022, children were coming down with more respiratory illnesses and making more emergency room visits. By December, media outlets were buzzing with new CDC data that 44 states were experiencing with unusually high levels of flu

These unexpected conditions raise strategic questions — the kind that matter to investors. How dependent should any major pharmaceutical company or nation be on manufacturing and supply from outside the U.S.? And how vulnerable is the country when an international supply chain issue develops?

Under such circumstances, the industry may consider substituting various antibiotics for the most widely used. This might be a feasible remedy. However, those cures are most likely caught in the same supply chain slowdown as the first line of medications. Either way, it would be better to secure ready access to the first-choice prescription.

Lost Luster

Consider amoxicillin, a heavily prescribed antibiotic. One or more of the major pharmaceutical manufacturers should be able to roll into production at short notice. Johnson & Johnson (JNJ - $163.40 0.04 (0.024%)  ), for example, should be able to roll out tons of the drug. However, the majority of antibiotics have lost their blockbuster status. Cost cutting and competition moved these products from production inside the U.S. to other nations, largely China. Even new antibiotics that successfully do battle with germs that are now resistant to old antibiotics lack financial luster.

One solution is to have facilities ready to shift production or expand production when a particular medication moves into high demand and short supply. Another solution is to shorten the supply chain – keep some portion of overall production inside the home country, cutting off problems in international shipping and other issues that may develop in the country where the product is made. Crises will always pop up. A quick solution is the way to go.

Sandoz (NVS - $86.34 0.87 (1.018%)  ), an amoxicillin manufacturer, pointed to heightened demand in the U.S., Europe and Canada as the reason for the overall short supply. Needless to say, USAntibiotics (a unit of Jackson Healthcare LLC), which manufactures in Tennessee and is the sole licensed amoxicillin supplier in the 50 states, has been very busy. So the crisis may disappear soon.

But amoxicillin is only one part of the antibiotic shortage.

Beyond the widely used remedy, it turns out that many other medications are in short supply. The Food and Drug Administration, through its Drug Shortage team, is tracking a long list of other short-supplied meds — not just antibiotics, but also cancer treatments and anesthetics. Even the likes of Adderal. A recent FDA Spotlight focuses on pediatric ibuprofen and acetaminophen, which are running out fast. It appears that this issue of inadequate supply only rises to the surface when there is a crisis.

Profits and blockbusters are important but the pharmaceutical industry has a critical mission to fulfill.