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Foreign Generic Drugs: A Matter of Life, or Death

Bottle of Lies: The Inside Story of the Generic Drug Boom, Katherine Eban, Ecco, 512 pages

It is rare that adjectives like “fast-paced” or “thrilling” describe a nonfiction book about the regulation of generic drugs. But these are appropriate descriptors for Bottle of Lies, the latest from investigative journalist Katherine Eban. 

Released in May, Bottle of Lies is a globally sourced, immaculately reported look at the effects of offshoring America’s generic drug supply. In it, Eban documents the rise and fall of one India-based pharmaceutical firm, Ranbaxy Laboratories; the whistleblower who brought them down, former Ranbaxy employee Dinesh Thakur; and the Food and Drug Administration investigators who fought both Indian and American bureaucracy to hold Ranbaxy accountable for fraud on a global scale. 

It is hard to overstate the importance of generic drugs to America’s medical infrastructure. By 2017, 90 percent of prescriptions filled in the United States were for generics, including 85 percent of prescriptions under Medicare Part D and 86 percent under Medicaid. Given the substantial savings afforded by generics—$265 billion in 2017 alone, with roughly half of that going to Medicare and Medicaid—it is hard to imagine how today’s health care system could function without them.

Things weren’t always this way. Under the Food, Drug, and Cosmetic Act (the FDA’s authorizing statute), generic producers faced onerous testing and approval requirements before they could bring their pills to market, thereby reducing competition. In the 1980s, responding to rising pharmaceutical prices, Congress passed the Drug Price Competition and Patent Term Restoration Act (a.k.a. Hatch-Waxman), which streamlined the generic approval process, requiring firms only to show that their drugs were “bioequivalent” to the original product.

The trick of the old system was that it limited the power of small, sometimes foreign firms to go up against American pharma-giants—as Eban puts it, “prior to 1984, the Ranbaxys of the world had no way to challenge the Pfizers.” Hatch-Waxman, however, opened the U.S. market to more competition, including of the international variety. This legal change abetted an industrial transformation in the developing world, predominantly China and India. By 2000, pharmaceutical manufacturing began offshoring; by 2008, the number of drug products made outside the United States had doubled.

Today, 40 percent of America’s generic drugs are produced in India. China is now the world’s largest producer of active pharmaceutical ingredients (API), cornering 40 percent of that market; India is also a “leading exporter.” In other words, the genericization of drugs has gone hand-in-hand with globalization, making U.S. patients reliant on developing world firms.

One of these firms was Ranbaxy. Founded in 1961, it had big dreams of making India a player on the world pharmaceutical stage. In 1995, it became the first Indian firm to get a plant approved by the FDA for production for the U.S. market. Ranbaxy was the first to file generic versions of blockbuster drugs Lipitor and Accutane. And in the 2000s, as American firms refused to cut their prices for AIDS-stricken African nations, Ranbaxy was one of several Indian generic makers to cut a deal with the U.S. government to sell the drugs for roughly a dollar a day, earning international acclaim. 

All this would have been well and good had Ranbaxy been operating above board. But it was not. This is where Dinesh Thakur comes in. Hired to Ranbaxy from the patrician Bristol Myers Squibb, he uncovered widespread failure to follow basic health and safety protocols, combined with a systematic, global effort on the part of executives to falsify data and cover up their sloppiness. Thakur departed Ranbaxy in 2005, then spent years fighting to bring his former employers to justice. 

If a foreign pharmaceutical firm wants to sell its products in America, it needs approval from the FDA. Much of the reason that Ranbaxy was allowed to carry on with poor pharma practices, Eban shows, is the cat-and-mouse game that American regulators are forced to play with overseas producers. That is because FDA inspectors are forced to obtain visas months in advance, and give forewarning to factories in other countries, making “surprise” inspections all but impossible.

What makes Bottle of Lies so gripping is this classic story of industrial subterfuge and the effort to uncover it. But the story of Ranbaxy that Eban has so painstakingly detailed is also an important case study in keeping our pharma supply chain secure in the 21st century. Ranbaxy is not the only shoddy Indian firm that she covers. The book’s most disturbing chapters visit a clinic in Ghana, where many Indian companies routinely dump low-quality medicines that barely work, and even kill patients. 

In the United States, misbehaving pharmaceutical companies would, at least in principle, be brought down by FDA inspectors able to exercise their full prerogative as agents of the U.S. government. But the offshoring of generic drug production has simultaneously neutered those inspectors and massively increased the size of their regulatory challenge. “From 2002 to 2009,” Eban notes, “the number of facilities overseas that required inspection by the FDA skyrocketed from around five hundred to over three thousand.” Today, although only about 25 percent of U.S. drugs are imported, foreign generics still account for millions of pills and $86 billion in spending in 2015. 

In other words, the FDA faces a classic needle in a haystack problem, with a haystack that grows exponentially. There are not that many needles, but they can be harmful, even deadly. Husband and wife team Joe and Terry Graedon have spent years documenting adverse reactions to foreign-sourced pharmaceuticals from listeners to their NPR program, “The People’s Pharmacy.” In 2007, dozens of dialysis patients died following exposure to bad heparin eventually traced to a factory in China—the FDA had never inspected the plant. Poor foreign drugs—the product of chemical free trade—are hurting Americans today, right now.

In this way, the rise of generic drug importation epitomizes the basic trade-off inherent in globalized free trade. Worldwide competition reduces costs, with Indian generics saving patients substantial money. This is a high-frequency, low-effect event, i.e. patients experience a little benefit very often. But the scale of globalization also renders effective regulatory oversight de facto impossible, or at least highly improbable, as the number of factories in need of inspection swiftly outpaces FDA resources, especially under the constraints of foreign law. The result is low-frequency, high-effect harms, like the heparin outbreak, the large but rare cost of doing business with developing-world pharma firms.

Eban’s proposed solution, outlined in a New York Times op-ed, is universal no-notification visits from the FDA to any plant in any country that wishes to sell to the United States. This might be a good start, but it also asks foreign nations to grant agents of the U.S. government free range in their sovereign territory, a deal few are likely to love. Indeed, in the face of a global generic supply chain, Eban’s proposal essentially amounts to making the FDA a global regulator.

The U.S. system as it currently stands cannot run without cheap generics, which are increasingly sourced from India and China. At the same time, it is not meaningfully possible for American regulators to oversee an ever-expanding, poorly managed foreign generic sector. Those regulators are left with two choices: accept the fact that there will be more heparin outbreaks, at possibly even worse scale, or make a concerted push to limit the American supply chain’s exposure to foreign drugs. They can either make the haystack smaller or they can be pricked by the needle; they cannot do both. 

Charles Fain Lehman is a staff writer for the Washington Free Beacon. He writes about policy, covering crime, law, drugs, immigrations, and social issues.

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