The Effect of Regulation and Competition on Drug Supply

Drug shortages more than tripled between 2006 and 2011. In 2011, these shortages reached unprecedented levels, affecting 268 drugs. The most common drug being shorted is a drug without patent protection and is injectable or infused. Common classes being shorted include cancer, antibiotics, vaccines, pain relievers, and anesthetics.

We estimate how regulation affecting price and entry impact the number of manufacturers. We then estimate how the number of manufacturers and other factors influence drug shortages. Our analysis is done in a global context because some policies are unique to given countries, but the drug market is truly global. We define a market as a molecule, form (injected/infused versus capsule/tablet), country, and year. This is the first economic analysis (of which we are aware) to estimate generic entry and drug shortages from a global perspective.

We use shortage data from government sources and sales data from IMS MIDAS. The IMS MIDAS data include the US, Canada, and several countries in Europe for 2003 through 2010. Variables include sales and units. Dividing sales by units gives average price.

Our analysis not only informs the debate about drug shortages, but also informs a broader debate about the effect of government policy on global drug supply and quality. The analysis also has implications for the market for off-patent biologics, because these products, like the generic injectable drugs that are in short supply, are complex to manufacture, heavily regulated, and without patent protection.