Paying for the Safety of Generic Drugs

After years of negotiation and discussion, the federal government and the generic drug industry, first reported by the New York Times, reached an agreement in principle that will lead to routine inspections of foreign generic drug manufacturing plants.  

Expected to be ready for congressional approval before year’s end, generic drug companies — which manufacture almost 75 percent of the prescription medicines sold in the United States — would pay $299 million in annual fees to underwrite inspections of foreign drug manufacturing plants every two years, the same as that required of domestic drug manufacturers.  Part of the new fees are expected to underwrite the hiring of enough reviewers to bring approval times down to 10 months.  The agreement was a result of concerted efforts by generic drug manufacturers to instill confidence in the industry after scandals over the last few years related to tainted pharmaceutical products threatened credibility.  

At its current pace, partly based on resource allocation, the Food and Drug Administration would need more than 13 years to inspect every foreign drug plant exporting to the United States.  Up to 40 percent of the drugs Americans use are imported and the FDA only inspected 11 percent of the more than 3,700 foreign manufacturing sites in 2009, according to a published report from the U.S. Government Accountability Office last year.  Some foreign plants have never been inspected, a factor in the movement of drug manufacturing from the United States to overseas facilities.

China has surpassed the U.S. to become the largest bulk drug manufacturing and exporter in the world, and as a result, China’s raw materials impact on the global pharmaceutical market continues to grow.  In 2008, Chinese manufacturers substituted a fake for the dried pig intestines used to make the blood-thinning drug heparin manufactured by Baxter.  The tainted heparin was linked to 81 deaths in the U.S. and traced to its Chinese supplier, Changzhou Scientific Protein Labs, which apparently purchased crude material from a number of Chinese heparin workshops.  The fact that the Chinese government refused to allow the FDA to investigate raised concerns on whether the Chinese government played a much larger role in the scandal.  The plant was eventually cited by the FDA for several significant deviations from good manufacturing processes, but prior to the heparin scandal, the FDA had never inspected the plants making the crucial ingredients. 

The industry also stands to gain as much as brand name drug manufacturers in the global medicine trade market. Years of consolidation have created giant generic drug manufacturers, such as Israel-based Teva Pharmaceuticals or India-based Ranbaxy Laboratories Limited, that recognize their bottom-line is dependent on consumer and regulator confidence.  Under the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, generic drug companies do not have to repeat expensive clinical trials.  As a result, generic drugs can be marketed at lower prices because the generic manufacturers do not face the same development costs as brand-name companies.  However, the heparin scandal demonstrated that public backlash for a tainted drug product would reach the generic drug industry as well.

Most tellingly, the industry may have acted under the belief that Congress would never appropriate enough money for the FDA to perform the job.  The agency’s oversight of generics is so backlogged that new applications to sell generics take over 30 months to be approved, and there are now over 2,000 applications awaiting approval.  The backlog currently benefits brand-name drug manufacturers, as their drugs come off patents and do not face competition from generics still seeking approval. 

Although the agreement clearly will impact the global generic drug market, it stands to reason that the efforts will not affect over-the-counter medicines or vitamins, whose supply chains are even more susceptible to tampering because inspections rarely, if ever, take place among those manufacturers.  The question is not whether, but when, these other drug products will be added to the FDA’s inspection function.