Prescription & Inflation
The closure of Akorn Pharmaceuticals in February worsened the ongoing drug shortage crisis in the US. As a major player in generic drug manufacturing, Akorn’s shutdown highlighted challenges in producing cheaper generics and navigating a complex supply chain. This shortage particularly affects cancer patients and those requiring specific intravenous medications. Factors like competition and a decline in US facilities for active pharmaceutical ingredients contribute to the problem. Akorn’s closure left a gap that strains other manufacturers. The economics of generic drugs, with low prices and intense competition, make it difficult for manufacturers to sustain profitability. Moreover, the reliance on foreign suppliers raises concerns about quality and safety standards. Addressing the crisis requires incentivizing hospitals, providing grants to manufacturers, and expanding Medicare coverage for new generics. The implications of this story are significant for pharmaceutical, healthcare, and supply chain sectors, impacting companies involved in drug manufacturing and distribution.
Beyond Akon, the general pharmaceutical industry has been trending towards less and less affordable drug options. Indeed, the high cost of prescription drugs is expected to remain a significant issue in 2023. Record-high prices in 2022 led to widespread calls for action. Investigations revealed that the median annual price of 13 novel drugs approved for chronic conditions by the FDA reached $257,000 last year. To address this concern, the Inflation Reduction Act was passed and signed into law in 2022, signalling progress towards controlling prescription drug prices. The legislation empowers the federal government, as the largest drug purchaser, to negotiate prices for a limited number of drugs annually under Medicare. The bill’s implementation will be gradual, with negotiations for “fair prices” of 10 drugs covered by Medicare Part D starting in 2024 and the implementation of new prices commencing in 2026. Medicare will choose from the 50 drugs with the highest total annual costs under the program. Overall, efforts to tackle the high cost of prescription drugs are underway, but the full impact of these measures will take time to materialise.
What do you think about the drug market? And will things get better with time?
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
