The economics behind the Adderall shortage: Why low prices lead to scarcity

On October 12, 2022, the FDA confirmed what many patients with attention-deficit / hyperactivity disorder (ADHD) already knew: There was a shortage of the immediate-release formulation of amphetamine mixed salts commonly known by the brand name Adderall. The implications of this announcement have rippled across the United States, affecting scores of patients reliant on the medication. More than six million adolescents in the U.S. have been diagnosed with ADHD, according to the CDC. In addition, another eight million adults, or roughly 5% of Americans, have the condition.

A dramatic drop in prescriptions

According to data from Definitive Healthcare, Adderall prescriptions fell 24% in January 2023, marking the largest month-over-month drop in more than two years.

Definitive Healthcare derives this data from their ClaimsMx product, which collects and updates information monthly from several medical claims clearinghouses across the U.S. States. “This approach offers valuable insights into drug prescription trends, specifically for medications like Adderall, Concerta and Ritalin,” Gross said.

A variety of factors have contributed to the Adderall shortage, with the economics behind these shortages including manufacturing and supply chain constraints, the uptick in ADHD diagnoses and restrictions from the Drug Enforcement Agency (DEA).

Four main categories of drug shortages

According to Gross, the root causes of most drug shortages can be grouped into four main categories. Understanding the Adderall shortage economics involves a deep dive into these root causes, which tend to involve hurdles related to drug manufacturing, pricing, supply chain logistics, and regulatory constraints.

1. Branded drug shortages

Branded drug shortages. “These are typically short as the sole manufacturer for expensive, branded drugs is highly incentivized to quickly resolve the issue and will spend significant capital to do so,” Gross said. Such a shortage might last several months. The shortage of the in-demand diabetes and weight-loss drug semaglutide, branded as Ozempic, Wegovy and Rybelsus, is an example of the drug. In general, the high price of branded rugs and the patent clock “ensures these shortages do not last a long time,” Gross said.

2. Generic medication with more challenging formulations (injectable/infusion) products

Such shortages, along with low-volume generics, can be long lasting. “In addition to the normal supply chain issues, sterility of the final formulation and the short shelf life of the product makes it difficult to hold inventory, even without economic considerations below,” Gross said.

3. Oral generics

Most generics, included generic Adderall, compete relentlessly on price. This intense price competition is a driver of supply chain vulnerability. It contributes to pharmaceutical firms’ “stockpiling either active pharmaceutical ingredient (API) or finished product inventory reduces the already thin margins on these products,” Gross said. Generic drug makers often enter into annual contracts with pharmacy benefit managers (PBMs) or chain pharmacies.

4. Low volume generics (oral or infusion)

These medications have such low volume that regulatory compliance costs deter many companies from entering the market. Consequently, it’s not uncommon for only a single manufacturer to produce one of these drugs. “If that manufacturer has any supply chain or general business issues, the drug might not be available for extended periods of time,” Gross said.

For all scenarios above except the first and sometimes the fourth item above, the cost structure of generic medications is the fundamental issue. “It’s important to note here that in most cases we are not talking about a substantial consumer burden,” Gross said. “If all generic medication prices increased by 50%, it would be  approximately 5% of overall drug spend.”

Competition, price sensitivity and economic incentives heavily influence the dynamics of the pharma market, significantly influencing the supply of generic medications like Adderall. Because economies of scale often tie profitability in the industry, the rush to undercut competitors with lower prices can destabilize supply

Decline in substitute medications

It’s not just Adderall prescriptions that have taken a hit, according to Definitive Healthcare data. Parallel claims data highlighted a noticeable dip in the prescriptions of other ADHD drugs  such as Ritalin and Concerta, which fell 10% and 17% respectively. Complicating matters further, ADHD diagnoses have surged in recent years and abuse of ADHD medicine is another factor stoking demand.

Strategies that could help address the shortages

Strategies that could help address the shortages and improve the Adderall shortage economics include pharmaceutical manufacturers renegotiating contracting terms with PBMs and pharmacies, Gross said. The idea is to “allow prices to increase for a set period beyond a year in exchange for larger standing inventories to offset increases in demand and encourage capital expenditure,” he noted.

If supply chain issues are clearly understood, Gross recommends that drug companies alert physicians earlier about possible medication substitutions. For instance, during a shortage period, if there are supply chain issues with specific formulations like extended-release products, patients could consider switching to immediate-release versions even if they are less convenient.

The FDA could help reduce shortages by mandating that production lines have reserve capacity, mandating a standing two-month inventory of excipients and APIs, according to Gross. “This is challenging with the current stimulant shortage, because DEA quotas might limit API inventory reserves of controlled substances,” he acknowledged.

Regulatory and marketplace action required for generics industry

Because of the complexity of the situation, a multi-pronged approach is necessary. Gross shares his perspective on the matter, stating, “This is a particularly high-profile shortage involving medications that are complicated from a regulatory perspective.”

In an ideal scenario, this situation could trigger changes in generic drug pricing, contract agreements, regulatory processes and coordination with the DEA. “Being sanguine, it’s not likely effective changes will result,” Gross said. “We have and have had shortages in categories related to generic medications with challenging formulations and low-volume generics for many years that do not get resolved.”

In light of the ongoing opioid crisis, advocating for changes in the regulation and production of prescription stimulants is likely to be an uphill battle. While stimulants like Adderall are classified as Schedule II drugs, as are many opioids, their potential for causing widespread societal harm is significantly less, Gross said. “Therefore, it would be appropriate for the FDA to have more regulatory power,” he added.

While extending FDA’s regulatory powers may seem logical, Gross argued that it doesn’t necessarily address the core issue at hand, which is deeply embedded in the Adderall shortage economics. “The issue here is the larger structure of the generics industry – generics cannot be a race to the bottom without resulting in frequent shortages. A combination of regulatory and marketplace action is needed to fix the structural problem,” he added.