The Problem with Generics

February 2, 2020

Healthcare in America is expensive, and the means to lower healthcare costs are not effective. Generic drugs, a replica of brand name drugs, were introduced into the market in hopes of lowering healthcare costs. However, with the lowered costs of manufacturing drugs, also came the lower quality of those drugs. After the implementation of policies to help lower drug costs, studies were done to measure their effectiveness; a study published in the Journal of General Internal Medicine found that approximately 137.1 million adults reported some form of medical financial hardships in 2019.[1]

One of the policies established to ease the financial burden of healthcare was The Drug Price Competition and Patent Term Restoration Act of 1984, also known as Hatch-Waxman Amendment, which was established to ease the financial burden of healthcare. Under this act, the generic drug companies could submit an abbreviated new drug application (ANDA), unlike the lengthy application process brand-name companies were required to submit by the U.S. Food and Drug Administration (FDA). The importance of such a lengthy and costly process was to ensure that the drugs were tested properly and were being manufactured in a controlled environment. On the other hand, generic companies did not have to go through the same lengthy process as brand names since they had created a bioequivalence of said drug and only had to show that the manufacturing procedure of generic drugs was done properly.

While the ANDA was implemented in good faith, the effects were anything but that. Not even four years after the law was implemented, scandals of fraud and of bribery were rampant. The first case of corruption officially investigated was the bribing of Charles Chang, who helped oversee the review of the ANDA. Chang was bribed by many different generic companies including Par Pharmaceutical, American Therapeutics, and Quad Pharmaceuticals to block qualifying competitors’ ANDA. [2] The generic companies that were granted the ANDA first monopolized the generic market for that specific drug for the first six months, resulting in high profits. The hearing that followed Chang’s bribery revealed that generic companies often used bribing as a method to accelerate their investigation process. Yet, bigger scandals were to come overseas at Ranbaxy, an Indian pharma company producing generics.

In her book, Bottle of Lies, Katherine Eben, an investigative journalist talks about the extent of Ranbaxy’s fraudulent activities. Ranbaxy’s illicit activities started from the first drug they put on the market in 2003, Sotret, a generic version of Accutane – brand name anti-acne drug. The batch that had been approved from the FDA had been manufactured in a controlled environment rendering results nearly identical to Accutane. However, the commercial-sized batches had high levels of impurity triggering the drug to dissolve incorrectly. When Ranbaxy discovered the discrepancy, they had two choices: to put a recall for the drugs or hide the evidence. Ranbaxy decided to push the tainted drug and summarize the quality of their drug in a file that had a cover page reading “Do Not Give to FDA.” [3]

Ranbaxy’s dual-track manufacturing methodology spread throughout the world in countries whose government did not strictly regulate imported drugs. This method is common knowledge to both the manufacturers and those receiving the second-tier drugs. As one Ranbaxy medical director noted on the poor-quality AIDS drugs that were bound for Africa, “Who cares? It’s just blacks dying.” [3] The dual-track distribution of drugs was also was evident to the physicians treating patients in African countries. As Dr. Sean Runnels, an American anesthesiologist from Utah noted that many generic drugs “simply didn’t work.” The local physicians who were accustomed, to this problem, simply switched to an expensive version of the same drug manufactured by another company when they saw their patients were not improving with generics. [3]

The mentality of profit over quality and manufacturing drugs by cutting corners is still prevalent in the pharma industry. In 2008, Alexandra Graham, an African scientist, opened LaCray Chemical Co., with the goal of producing high-quality drugs that would follow international standards for good manufacturing practices. Graham, along with her husband, Paul Lartey, wanted to investigate developing low cost, high-quality drugs and believed the Indian generic drug market would be a great resource.

However, after taking a tour of the Indian companies, Graham learned that the Indian generic drug market was an example of what not to do. She described the facility as a house with “little bedrooms that were manufacturing sites.” These locations lack the quality control essential to prevent cross-contamination. She soon found out that running a company that is “US-FDA inspected” or “WHO-certified” is a myth. Most companies that toted those titles also had second-tier factories that produced lower quality drugs for developing countries. Graham discovered that Chinese and Indian companies would bribe developing countries to get away with selling low-quality generic drugs.

This became even more apparent to Graham when she learned that the factories developing the active ingredients needed for her company did not share her ethics in developing and maintaining high-quality drugs. When Graham tried to manufacture HIV drugs, she found that a Chinese company offered her discounted products that were reserved for “African Countries” – meaning it was of lower quality. By 2016, Graham closed her doors due to the unethical, profit-driven methodology the generic companies were promoting.

The many factors that play a part in the generic pharma industry affect all individuals worldwide, not just Americans. Since Eben published her book in 2019, more than 150 drugs have recalled by the FDA [4] and the price of drugs has been increasing. According to GoodRx, as of January 17, 2020, 12 generic drugs have increased by an average of 14.7% and for comparison, pharma companies are required to justify any increase in price above 10%. [5]

The other policy that has had a major impact on the generic drug industry is the Affordable Care Act (ACA). The generic drugs along with the ACA built to help ease the financial burden of healthcare. Yet, when the ACA was signed in 2010 by President Obama, the demand for generic drugs grew, causing the FDA to push the ANDA through to ensure that over 20 million Americans had access to essential drugs. Instead of fixing the broken system, the passing of ACA exacerbated the problems.

Tara O’Neill, Director of Human Welfare Policy at American Action Forum, explains it best in her article, Understanding the Policies that Influence the Cost of Drugs: the expansion of the Medicaid program increased the rebates provided by the companies to the patients covered by Medicare Part D. [6] Efforts were established to close the coverage gap that had increased from 2011 to 2016. Based on the data from the National Health Expenditure, it is estimated that from 2011 to 2015 drug manufacturers provided rebates to the Medicaid program of approximately $80 billion. [7] The increase in rebates in addition to the taxes imposed on the pharma companies increased the cost of production which was inevitably passed on to the patients this showing the ineffectiveness of such policies.

There is no simple solution for fixing the pharma industries. Not only are there problems regarding the price of the drugs but also in the quality of the drugs. These effects are then felt by people who are unable to afford quality healthcare, especially in countries where corruption keeps subpar generic companies in the business. Therefore, in order to prevent further corruption and ensure ethical standards, there will need to be open communication between governments and countries where the pharma manufacturing plants are located; in addition, there will need to be proper and random investigations, preventing pharma companies from hiding their possible fraudulent activities. Lastly, quality needs to be prioritized over profits, which will be the most difficult because healthcare systems are run like a business where the profits are the bottom line instead of increasing the quality of life for the people being helped.

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