Roosevelt Institute | Cornell University

Aren't America's Generic Drugs a Good Thing?

By Harrison KadishPublished May 22, 2020

The influx of generic drugs into the market after the 1984 Hatch-Waxman Act appeared to be a godsend as it enabled generic drug companies to penetrate the market and decrease consumer prices nearly 30-40% through reducing their research and development costs by proving that their drugs were “bioequivalent” to the brand.  Now, the generic market produces 90% of the drugs Americans consume; however, in 2019, 58 million Americans experienced “medication insecurity,” the inability to obtain prescribed medication at least one time during the year.  This number translates to approximately 23% of the population being unable to afford necessary prescribed drugs, primarily due to ever soaring brand-name drug prices.

In response to the demand for cheaper pharmaceuticals, many generic companies have either started in or outsourced to developing countries, which can offer cost savings of around 40% to companies because of their weaker overarching regulations and regulation enforcements, as well as lower labor, energy, and transportation costs.  As a result, the globalization of pharmaceutical manufacturing has escalated over the past 30 years, particularly in China and India.  According to the FDA, only 28% of manufacturing facilities that produce active pharmaceutical ingredients (APIs) and less than half of the manufacturing facilities that produce final product drugs are located in the United States.

The demand for cheap drugs, in conjunction with the inability of the Food and Drug Administration (FDA) to comprehensively inspect foreign manufacturing sites, has encouraged systematic fraud.  In the U.S., FDA inspectors can arrive at a facility unannounced, incentivizing companies to perpetually comply or risk being sanctioned after an inspection. In juxtaposition, the FDA notifies foreign plants months in advance of visits in an effort to avoid straining diplomatic relationships. This advance notice gives overseas companies that do not comply with FDA regulations abundant time to prepare for inspections. In her book, Bottle of Lies, Katherin Eban elucidates how companies use hidden laboratories, coerce employees to not speak to FDA officials, rush to clean contaminated plants, shred true records and fabricate results, and even destroy visibly contaminated drugs.

These facilities do not adhere to the quality control guidelines outlined by the FDA, and the FDA in turn checks less than 1% of imported drugs before letting them into the country.  For instance, in 2018 the FDA announced that NDMA, a carcinogen onced added to rocket fuel, had been found in a widely used blood-pressure medicine called Valsartan and began recalling millions of drugs.  Chinese generic companies, including Zhejiang Huahai Pharmaceutical Co., one of China’s largest, had been producing the APIs with up to 17 times the safe amount. European health regulators estimated that for one out of every 3,390 people, there would be one additional cancer occurence. The FDA inspector who visited the Huahai site recommended giving the company one of the FDA’s strongest punishments because of its old machinery, arbitrarily dismissed customer complaints, testing anomalies, and signs of ignoring product contamination; however, senior FDA officials overrode the inspector and chose to let Huhai correct its problem alone.

Our reliance on cheap foreign production is, despite the FDA’s requirements, proliferating the number of subpar drugs on the market and illuminating an unstable supply of medicine, especially during COVID-19.  The overseas manufacturing of pharmaceuticals has ultimately become an issue of national security.

India leads the world in producing generic drugs, while China is the world’s largest supplier of APIs and exports approximately 70% of India’s APIs.  India, in turn, supplies approximately 40-50% of all U.S. generic drugs.  Thus, when the coronavirus pandemic outbreak shut down many Chinese factories, it disrupted the drug supply chain as India initially placed export restrictions on 26 pharmaceutical ingredients in order to treat its own citizens.  These restrictions will likely lead to increasingly critical shortages of medical products in the U.S., which generally has a 30 day supply of generic drugs, and heighten concerns that price-hikes will occur.

Moreover, after President Trump promoted the unproven malaria drug, hydroxychloroquine, as a remedy for coronavirus, the FDA lifted a restriction it had imposed on an Indian company with a history of manipulating data in order to enable it to make an ingredient in high demand.  Coronavirus has revealed the risks of the American public’s dependence on foreign supplies of medicine, as the FDA is allowing ill-reputed companies to flood the market with unproven drug ingredients for a mostly untested and off-label use.  In addition, in response to escalating political tensions between China and the U.S. regarding the origin of COVID-19, China has threatened to strategically control and ban pharmaceutical exports to the U.S.  Furthermore, the FDA announced that it would suspend all overseas inspections because of the travel bans and has not yet announced when they will resume.

After the COVID-19 pandemic abates, the U.S. government, distributors, and producers must institute major reforms to safeguard the country’s pharmaceutical infrastructure.  First and foremost, the FDA must receive increased funding in order to ameliorate its structural deficiencies.  The FDA must reform its status quo and conduct unannounced inspections at manufacturing facilities around the world.  Congress must pass legislation that mandates on-the-bottle labeling indicating which countries and companies were involved in every step of the manufacturing process, similar to what exists with clothing and processed foods.  Additionally, major pharmacy chains like CVS must also be held accountable for testing the drugs they sell.  Finally, there must be additional policies that not only incentivize innovation and production on U.S. soil, but seek to do it at more affordable prices.