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The decline of U.S. pharmaceutical production : Likely sources and possible solutions for domestic drug shortages

Summary:
[embedded content] The COVID-19 pandemic has led to a shortage in the supply of prescription drugs and their main active ingredients. These shortages pose a challenge for countries such as the United States, which depend heavily on imports of these types of products. The FRED graph above shows monthly, seasonally adjusted data for the industrial production of pharmaceutical products and medicines in the United States from January 1972 to April 2020. Since the peak in December 2006, U.S. production has consistently declined—by about 35%. What’s behind this decline? According to data from the U.S. Food and Drug Administration, most of the manufacturing of active ingredients for medicines that are sold in the United States are located in other countries, mainly in China and India

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The COVID-19 pandemic has led to a shortage in the supply of prescription drugs and their main active ingredients. These shortages pose a challenge for countries such as the United States, which depend heavily on imports of these types of products.

The FRED graph above shows monthly, seasonally adjusted data for the industrial production of pharmaceutical products and medicines in the United States from January 1972 to April 2020. Since the peak in December 2006, U.S. production has consistently declined—by about 35%.

What’s behind this decline? According to data from the U.S. Food and Drug Administration, most of the manufacturing of active ingredients for medicines that are sold in the United States are located in other countries, mainly in China and India because of their lower costs of production and in Ireland because of tax incentives. So, imports of these types of products have been increasing in the United States, causing a substantial decline in their domestic production.

The COVID-19 pandemic has exposed this U.S. dependence on imports of drugs and their active ingredients. The pandemic is global, so supply chain disruptions and other complications can have negative consequences for any country that’s heavily dependent on these products. One option to mitigate the shortages in the short run could be to scale-up domestic manufacturing of active pharmaceutical ingredients; in the medium run, international agreements could be created with the main foreign suppliers of these products.

How this graph was created: Search FRED for “pharmaceuticals” and select the series “Industrial Production: Nondurable Goods: Pharmaceutical and medicine (IPG3254S).”

Suggested by Ana Maria Santacreu.

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FRED Blog
The Federal Reserve Bank of St. Louis is the center of the Eighth District of the Federal Reserve System. This District includes Arkansas, eastern Missouri, southern Illinois and Indiana, western Kentucky and Tennessee, and northern Mississippi.

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