It’s Time to Check the Safety, Not Price, of Imported Drugs
In December 2016, the Government Accountability Office released its report on the Food and Drug Administration’s oversight of foreign drug production. Strikingly, the report found that most FDA infractions occur in overseas pharmaceutical production sites, primarily in India, while a third of all production locations go without any oversight at all.
“Quality issues are an ongoing challenge for the Indian Pharmaceutical Industry,” wrote Mary Lou Valdez, associate commissioner of international programs at the FDA.
The Indian Pharmaceutical Alliance (IPA), the industry lobby that speaks for the Indian pharmaceutical industry, made an astonishing admission last week. It finally acknowledged that 85 percent of medicines sold in India are never tested for therapeutic efficacy. It said that these products “may or may not be harmful but will certainly not cure patients.” IPA has been the biggest proponent of the industry that manufactures and markets these unproven remedies in the local market for the last two decades.
Why should Americans be concerned? History shows that despite FDA warning letters, import alerts, and other regulatory actions, manufacturers in India -- who supply more generics drugs to the United States than any other nation -- have done little to remedy this worrisome situation. These companies, which have sold products globally for more than 50 years with little to no accountability, as the IPA admits, are not going to change overnight. And even after Ranbaxy was found guilty of seven felonies and fined $500 million in 2013 for repeatedly lying about quality to the FDA, things have not improved, Dinesh Thakur, a former Ranbaxy employee, tells me. Thakur blew the whistle on Ranbaxy’s antics and has been trying to improve quality across the entire industry ever since.
Even worse, local experts suggest to me that FDA staff in India may be too close to India’s industry, unwisely lifting bans on plants that do not deserve such approval.
Some of the indicators of the effectiveness of the FDA in India are concerning. For example, Indian media reported just in the last month of inspections at Lupin’s facility in Aurangabad and at Dr. Reddy’s manufacturing facility at Srikakulam, days ahead of the inspection schedule. This never happens to equivalent mid-size generics companies in United States. How is it that these Indian manufacturers are still getting a heads-up in order to “prepare” for an inspection? The same GAO report cited above shows that despite having been approved for 19 staff members in the India office, six of those positions remain vacant. More importantly, in 2015, eight temporary duty staff participated in FDA Inspections conducted in India. Does this inspire confidence in the FDA’s India office? As its own metrics show, the FDA continues to find evidence of fraud, duplicity, and intent to mislead from inspections of Indian generic drug manufacturers, even nearly four years after the Ranbaxy scandal.
I recently suggested that Thakur be made head of the FDA’s India office, a suggestion that the IPA, I am reliably informed, is determined to squash in Washington.
In the past week I have been contacted by financial analysts at numerous firms covering the Indian pharma sector. Over the last two years many Indian companies have not performed well in the market. And right now analysts are uncertain of the future performance of those stocks.
Is it time to short the entire sector?
There is little doubt that when a small or medium-sized innovative company fails in a clinical trial, or withdraws a product in development, that the price impact is significant. But by and large, share price movements for companies found to fail in quality control is limited. Even when 81 Americans died from contaminated Heparin marketed by the U.S. company Baxter International, its share price recovered rapidly. This demonstrates that providing an inferior or low-quality product to the market carries minimal market impact.
Recall that when Ranbaxy was found guilty in 2013, it was permitted to continue supplying at least some pharmaceuticals to the United States largely because no one else produced them, and because FDA allowed Ranbaxy to retain exclusivity for Atorvastatin (generic Lipitor), the biggest cholesterol lowering blockbuster drug of all time.
Even in countries like Ghana, where Indian companies have supplied abysmally poor drugs, horror stories are typically forgotten within months, and supply continues. I spoke with a few physicians in Accra after the disclosure that India and China had sent uterotonic medicines that failed quality control well over 80 percent of the time. These physicians would rather prescribe non-Indian medications, and wealthier patients buy such medicines at their suggestion. But as long as the government buys generic drugs based on price then China and especially India continue to win the business.
One would expect the United States to be above such price grubbing, but one would be wrong. Generic drug companies with no infractions cannot differentiate themselves by advertising this fact, since FDA staff assume, against mounting evidence, that all generics are equal. As a result, all buyers base their decisions on price, which drives demand for cheap medicine of uncertain provenance. Patients buying generics have no idea who produced the product before they buy it.
The reality is that Indian companies have been given license to sell shoddy medicines, since demand (reflected in their share price) rarely suffers for too long. And in today’s environment, in which the focus seems to be entirely on price, there is little for these companies to worry about as far as their ability to make money in the U.S. market is concerned.
The FDA should change the rules to allow non-price competition. If it did, quality would likely improve, and a significant differentiation of the drug market will result. Good quality producers would be rewarded with higher prices and demand, and inferior producers would likely lose market share. This is a win-win for pharmaceutical producers and consumers.
Roger Bate is a scholar at the American Enterprise Institute in Washington DC.