2024 Report

Securing the US Pharmaceutical Supply Chain

COVID-19 exposed the vulnerabilities of US reliance on international markets for pharmaceutical inputs and manufacturing, resulting in drug shortages and increased costs. This deep dive explores how the US can build supply chain resilience for pharmaceutical products to better ensure patients have access to life-saving treatment.

Rios Partners’ annual Health of Health Index report provides a holistic overview of the current state of American healthcare. We built an integrated set of metrics, the Health Ecosystem Index, to track changes in American healthcare over time. Through this lens, we aim to identify areas where critical interventions are needed and elicit discussions among stakeholders involved in the healthcare ecosystem to mobilize action. The 2024 report has focused in on three topics we believe are existential for the “health” of the healthcare system: the pharmaceutical supply chain; administrative burden on the healthcare provider system; and Medicare and Medicaid expenditure growth in select areas. We believe in-depth discussions on these topics will focus stakeholders on conversations that matter and mobilize action. Given the ongoing urgency of drug shortages, the following reflects a deep dive on the pharmaceutical supply chain.

The U.S. pharmaceutical supply chain faces mounting pressure from rising demand, escalating costs, and heavy reliance on foreign manufacturing. In 2023, prescription drug spending surged to $449.7 Billion¹, an 11.4% increase from 2022 and a 73.3% increase over the last decade. Projections indicate that by 2030, prescription drug expenditures could exceed $650 Billion.² Drug prices have consistently outpaced inflation, increasing three times faster over the last two decades.³

These widespread price hikes affect nearly all therapeutic categories including treatments for central nervous system disorders, cancer, respiratory conditions, infectious diseases. In 2023, 68.8% of U.S. adults used prescription drugs – up 5% from 2020.⁴ Yet in 2023, 7.8% of adults reported not taking their prescribed medication due to cost – a 14% increase from the previous year.⁵ As more Americans rely on prescriptions, more are also unable to afford them.

Figure 1. Percent Change in Drug Prices Since 2002 by Drug Type

Critical to understanding the pharmaceutical market is the marked difference between the market for generic drugs and brand name drugs. While generics represent 90% of drugs sold in the US, they only make up 18% of drug costs.⁶ In the last several decades, manufacturers have moved pharmaceutical manufacturing offshore in order to reduce costs. While offshoring has made generic drugs more affordable (a 2022 report found that the average co-pay for generics is $6.16, and 93% of the time the co-pay is under $20⁷), it has also created a serious security vulnerability for Americans.

The United States now depends heavily on foreign partners for these critical medications. The COVID-19 pandemic exposed how disruptions in global manufacturing and transportation can jeopardize access to essential drugs for millions of Americans. Since then, drug shortages in the United States have become increasingly frequent and severe, impacting patient outcomes and healthcare costs. In 2023 alone, the American Society of Health System Pharmacists tracked 130 new drug shortages in the U.S.⁸ These shortages affect essential treatments like chemotherapy agents and antibiotics. Furthermore, our growing reliance on a single country—and geopolitical rival—China, for raw materials, active pharmaceutical ingredients (APIs), and finished drug products, threatens our ability to ensure a stable and resilient pharmaceutical supply.

As the new U.S. administration considers its policies impacting the future of the US pharmaceutical supply chain, we aim to provide:

Background on US drug shortages and the pharmaceutical manufacturing market
Considerations for China’s rise and influence in the current supply chain
Prompts for industry and government to consider in its efforts to build more resilient pharmaceutical supply chains

Background

The COVID-19 pandemic, geopolitical tensions, and continued drug shortages have exposed the vulnerabilities of the pharmaceutical supply chain, which heavily depends on foreign production. There have been a number of preliminary attempts by the Trump and Biden administrations and Congress (such as Trump’s Aug 2020 Executive Order on Ensuring Essential Medicines⁹; Biden’s February 2021 Executive Order 14017 to secure America’s Supply Chains¹⁰; Senate Dec 2024 introduction of S.5419 Protecting Our Essential Medicines Act in the 118^th Congress ¹¹, among others) to gain better visibility into the supply chain, bolster domestic manufacturing, and increase diversification of suppliers. Significant research and policy recommendations have been identified on this topic, including by the National Academy of Sciences in their publication “Building Resilience into the National Medical Product Supply Chains” published in 2022. Despite these efforts, the number of drugs in shortage per year and the duration of drug shortages continues to increase.¹² ¹³

The stories (see CNN report for one story) of individuals who were unable to be treated with chemotherapy agents, carboplatin and cisplatin, due to their shortage and lost critical time with their families is heartbreaking. A 2023 report by the American Society of Health System Pharmacists reported that 99% of surveyed pharmacists are facing drug shortages, with 32% saying that it is directly leading to rationing, delaying, or cancelling treatment.¹⁴

Critical to note, in addition to the patient impact, drug shortages are also driving up costs. The cost of Fludarabine – which is used in the treatment of Leukemia and is currently in shortage – increased by a staggering 2,387% between 2022 and 2023 alone, rising from a wholesale acquisition cost (WAC) of $110 to $2,736. ¹⁵

Market dynamics in pharmaceutical manufacturing are critical to understanding the drug shortage trend. Drug shortages predominately affect generic drugs; ERG identified that ~66% of shortages affect generic drugs, while IQVIA estimates up to 84%.¹⁶ ¹⁷ While generics represent 90% of drugs sold in the US, they only make up 18% of drug costs. ¹⁸ Profit margins for generic drugs are very low, creating little incentive for manufacturers to enter the market, remain in it, or invest in improving manufacturing quality and capacity. ¹⁹ Although drug shortages can stem from various causes — such as spikes in demand or shortages of raw ingredients — the underlying driver of persistent shortages is primarily economic-driven: limited market participation leading to fewer manufacturers and capacity and underinvestment in manufacturing quality leading to quality issues. ²⁰ The GAO published this past month, April 2025, in its report, “HHS Should Implement a Mechanism to Coordinate its Activities,” that the three root causes to drug shortages are:

Lack of incentives to produce less profitable drugs
Lack of recognition and reward for manufacturers with robust quality management (often manufacturers underinvest in quality oversight and control, leading to quality problems)
Logistical complexities of the global supply chain and significant regulatory requirements ²¹

The Global Pharmaceutical Supply Chain

Since the early 2000s, pharmaceutical manufacturers have increasingly offshored production of both Active Pharmaceutical Ingredients (APIs) and Finished Drug Products (FDPs) to countries like India and China, drawn by lower labor costs, looser environmental regulations, and a lack of strong incentives to build domestic capacity.

APIs form the backbone of pharmaceutical manufacturing, and their global supply has shifted dramatically over the past two decades. From 2000 to 2021, India’s share of FDA Drug Master Files (documentation on API manufacturing) rose from 19% of to 62%, though it has since declined to about 50% as China’s share has markedly increased.²² While India continues to be the largest share of total active API DMFs, India is highly reliant on China for the raw materials and Key Starting Materials (KSMs) used to make the APIs; India also imports a significant amount of APIs from China.²³ ²⁴ Ramping up production of active pharmaceutical ingredients (APIs) and bulk intermediates and establishing themselves as essential links in global drug supply chains was a strategic move of the Chinese. Now, China is producing not only the critical APIs for generics, but has expanded API production for more complex APIs, supporting their broader investment in more advanced drug manufacturing.

China’s Strategic Positioning

China’s rise in pharmaceutical manufacturing is not incidental—it’s the result of its deliberate industrial strategy, most notably through its “Made in China 2025” (MIC 2025) initiative. Launched in 2015, MIC 2025 aimed to transform China from a low-cost manufacturing hub into a global leader in high-tech industries, including biotechnology and pharmaceuticals.²⁵ The government has invested significant capital through government subsidies; developed industrial regional clusters; and organized intellectual property acquisition. Shanghai’s Zhanjiang Science City has become a center for China’s biopharmaceutical rise, serving as a home for hundreds of biomedicines and R&D companies.²⁶ These investments position China not only to dominate manufacturing of generic pharmaceuticals and the supply of drug substances, but also to emerge as a source of innovation and developer for new drugs.²⁷

There are growing reports of China’s significant advancements in manufacturing, particularly in its adoption of robotics, AI and other technologies. The so-called “dark factories”- highly automated facilities that require little to no human labor – demonstrate China’s manufacturing evolution and global dominance and expertise. ²⁸ While automation in pharmaceutical manufacturing is still in its infancy, there’s broad consensus that advanced manufacturing technologies are critical for modernizing production and improving efficiency. Accordingly, the FDA has launched initiatives like the Emerging Technology Program to encourage development and adoption of advanced manufacturing technologies like continuous manufacturing and 3D Printing. ²⁹ Without a strong U.S. domestic base of advanced manufacturing capabilities, high labor costs and stringent regulatory requirements will continue to undermine efforts to reshore pharmaceutical production. Accordingly, building and deploying these new technologies at scale are critical for the U.S. and its allies to compete with China’s cost and scale advantages.

Call to Action

After several years of widespread recognition of pharmaceutical supply chain vulnerabilities, the U.S. is now at a critical inflection point. As the U.S. reconsiders its reliance on foreign manufacturing, we call on both industry and government to coordinate a long-term strategy that combines smart industrial policy, innovation investment, and global partnerships. Only through decisive leadership and action can the U.S. protect its healthcare infrastructure and reassert control over this critical piece of its national security. Robust policy recommendations already exist across the healthcare ecosystem. We highlight several critical priorities requiring coordinated leadership:

Collaborate with Trusted Allies: The U.S. should collaborate with trusted allies like EU, Mexico, Japan, and India to build a more resilient, diversified pharmaceutical supply chain. These countries offer lower cost or advanced manufacturing capabilities and can act as alternatives to China. The Biopharma coalition initiated in 2024 is a foundation to expand upon. As the U.S. explores policies to strengthen domestic production, it is important to consider trade measures that may also support these key alliances.
In order to appropriately incentivize new entrants and alternative suppliers, industry players must work together to consolidate demand. There is a critical opportunity for GPOs, drug wholesalers, and large health systems to coordinate purchasing strategies that shift the supply chain strategically and sustainably away from China.
Reshore Critical API and Drug Production: To reduce dependency on foreign suppliers and strengthen supply chain resilience, the U.S. should reshore key elements of pharmaceutical manufacturing, including certain Active Pharmaceutical Ingredients (APIs) and generics. This requires investment in modern manufacturing capabilities and government support given the unfavorable market economics of generic and API production. Securing long-term purchase commitments from institutional buyers like the VA and DOD could de-risk investment by guaranteeing demand for domestically produced critical drugs.
Invest in Smart, Innovative Manufacturing: The U.S. must actively invest in more automated manufacturing and quality control technologies to remain competitive. Amazon Web Services highlights a variety of innovative tools to use in pharmaceutical manufacturing that improve efficiency and quality: “predictive maintenance of equipment to prevent unexpected downtime, AI-enabled digital twins for real-time process monitoring and optimization, and AI agents to orchestrate simulations and manual tasks.” ³⁰
Establishing advanced manufacturing capabilities will require strategic knowledge acquisition, partnerships, and technology development. As China strategically used joint ventures to bring IP to the country, the US must similarly be aggressive in innovation acquisition. ³¹ The Novartis-MIT Center for Continuous Manufacturing piloted the Integrated Continuous Manufacturing (ICM) platform and produced tablets in a 2-day lead time (usually requiring 200 days); this reflects one example model partnership. ³² Additionally, public-private partnerships (PPPs) offer an effective mechanism to accelerate innovation, combining government support with private sector execution. The new administration can model from their previous success of launching BioMADE, the PPP launched in 2020 with an initial $87M award from the DoD. BioMADE has continued to grow and is working to accelerate Bioindustrial manufacturing through investments in innovative projects and new facilities.
Enhance Regulatory Agility: The FDA must be equipped with faster, more agile regulatory tools to assess new manufacturing technologies, rapidly evaluate product quality and safety, and accelerate the approval of domestic production facilities — without compromising patient safety. A modernized regulatory infrastructure is essential to match the speed of reshoring and innovation efforts.
Improve Supply Chain Transparency: The U.S. must prioritize end-to-end transparency in the pharmaceutical supply chain by establishing real-time monitoring systems and requiring more detailed reporting of sourcing / manufacturing locations. Regulators and manufacturers should collaborate to create standardized, interoperable data-sharing frameworks that enable proactive risk management.

For Discussion

Strengthening America’s pharmaceutical supply chain is not simply a government responsibility or a market inevitability — it requires leadership and coordination across the entire ecosystem. To further this critical conversation, please consider the following prompts:

How should we define and protect “pharmaceutical sovereignty”?
How might we aggregate demand to encourage domestic or ally manufacturers to enter the market to reduce collective dependence on China?
What should we learn and emulate from China’s playbook in industrial strategy and innovation development?
How might we accelerate the development and deployment of smart manufacturing?

As a part of Rios Partners’ continued engagement on this topic, we are soliciting perspectives from industry leaders to continue to expose the depth of concern of this topic. If you’d like to share your perspective, please email us at healthofhealth@riospartners.com.

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