In the US, there are frequent shortages of sterile injectable drugs. Firms often do not maintain either backup capacity or sufficient inventories to mitigate supply disruptions. To address this, the Food and Drug Administration (FDA) implemented the Safety and Innovation Act (FDASIA), requiring manufacturers to share disruption information. FDA makes this information public, hoping that other firms will be incentivized to cover the shortfall. However, the impact of FDASIA on drug supply, both short and long-term, remains largely unexplored. This manuscript uses equilibrium analysis to study FDASIA's effects.

Methodology/results: We model a market with two firms selling partially substitutable drugs. Firm makes two production decisions. Early production occurs before knowing the rival's disruption status. Under FDASIA, late production occurs after knowing such information. Pre-FDASIA, late production is based on probabilistic information about the rival's disruption status. We find that firms benefit from information sharing and increase their investments in capacity. However, they may reduce production post-FDASIA, especially when disruptions are frequent. Consequently, information sharing substitutes proactive production. Furthermore, we find that when capacity cost is not high, firms may substitute reliability with inexpensive capacity, leading to shorter yet more frequent shortages.

Managerial implications: Our analysis informs pharmaceutical firms’ managers and regulatory agencies how edicts such as FDASIA could impact them and the market. Policies such as FDASIA benefit firms by reducing competition, but they might not necessarily increase supply. Although sharing information can mitigate intense shortages, direct incentives to enhance reliability are essential to prevent frequent shortages.