Pharmaceutical industry news is full of stories of shortages and recalls. The company Johnson & Johnson recently admitted that production and quality control mistakes had caused the recall of dozens of best-selling over-the-counter medicines in 2010, resulting in $900 million in lost sales. At the same time, scarcity of life-saving drugs in U.S. hospitals and clinics tripled from 2006 to 2010, to a record 211 cases. This year, 89 incidents have already been reported.
The increasing reliance on active pharmaceutical ingredients (APIs) made in unreliable plants, particularly in China, is part of the problem. APIs are the most important ingredients in any drug, and today, Chinese and Indian products are found in nearly 80% of American pharmaceuticals. In 2002, the U.S. imported $331 million in drug products from China - by 2010, it was $1.74 billion.
There are good reasons for sourcing chemicals from China, since it competently produces them more cheaply than anywhere else on the planet. Americans would pay a lot more for drugs if companies didn't buy ingredients from China, which is why, with constant pressure to lower drug prices, U.S. pharmaceutical manufacturers flock to China. But some western companies have behaved naïvely, implicitly assuming that cost savings are made through lower labor costs and large economies of scale, not through systemic corner cutting.
Cynthia Reilly, a director of the American Society of Health-System Pharmacists thinks we are already at greater risk every day because of the chemicals coming from China: "not through lethal products, but because quality is lower, causing far more product recalls, and hence drug stockouts", she told me.
My own research team's findings suggest that the more obviously lethal products are indeed not coming to the U.S., nor are they made here. However, these dangerous products are routinely made and consumed elsewhere. As part of a major project on the quality of pharmaceuticals in emerging markets, we collected and tested over 2000 drugs from 20 cities. Once the numerous counterfeit products were removed from the samples, 1838 legitimate products remained, and of those, about 5% failed basic quality control tests. These drugs were unfit to be consumed, but were sold by legitimate companies, attempting to comply with reasonable standards of care.
It is difficult to be certain, but the erratic quality of the APIs coming from China is likely contributing to these quality failures from smaller companies in emerging markets. Patrick Lukulay of US Pharmacopeia, the leading private drug quality standard setting agency, believes that most drug problems in emerging markets come from poor APIs. Of course, any company doing simple testing would have spotted the gross API errors we uncovered, which suggests that no such tests were conducted. By western standards, many of these companies are negligent, perhaps criminally so.
But the U.S. and other western nations do not escape quality issues entirely. Many of the problems in richer emerging markets, like Brazil, India and Russia, and in the rich world too, are from trace impurities in products, which are very hard to spot, but which can be equally lethal. Such problems are found in clinical case reports for oncology products, immunosuppresants, antidepressants and other classes of drugs.
One might wonder why such failures are not found before products reach patients. As many university and pharmaceutical company scientists have explained to me, scientists have to know what to look for in order to find it: trace elements of unexpected chemicals may slip through even rigorous testing regimes. For example, traces picked up from an improperly cleaned production line are unlikely to be suspected by western company scientists, but can be highly toxic.
Watching TV shows gives consumers the false notion that one can detect almost anything and do it rapidly. Yet this is simply not feasible in the real world, where it is economically impossible to do every conceivable test for all impurities. It is therefore essential for good practices to keep these impurities out in the first place.
If audit reports I've seen are accurate, far too many Chinese manufacturers cut the required corners. Even though all western pharmaceutical manufacturers are required to buy ingredients from audited and approved sites of good manufacturing practice, few check where those approved sites get their chemicals which may be from a shoddy, unapproved, unhygienic plant down the road. Experts in China tell me that maybe a quarter of ingredients going to western companies come from unknown sources. Unfortunately, western purchasing habits are enabling this type of corner cutting.
The Chinese Food and Drug Authority simply cannot oversee most of its rapidly expanding industry. While the U.S. Food and Drug Administration has established an office in China and is increasing investigations of the plants that export to U.S., at best it can only assess each site once every 13 years.
As a result, the U.S. is not immune to lethal failings in the quality of pharmaceutical drugs. With little realistic oversight, and more importantly, little ethos of business integrity in China, a major tragedy in the U.S. from a Chinese export is likely in the near future. In 2008, 149 Americans were killed by reactions to contaminated heparin, a blood thinning drug, imported from China. Even though the heparin had been quality-checked when it reached the U.S. manufacturer, the lethal contamination was impossible to detect with the tests which were then required by regulations. The problem was only suspected after people started to die.
Two years after the heparin disaster, little improvement has been made in general oversight, and in 2010 U.S. companies imported $284 million more Chinese pharmaceutical ingredients than in 2008. Cost pressures are understandable, but any sourcing from unapproved suppliers should stop. U.S. consumers are unknowingly accepting higher risks than just a few years ago, and facing shortages as more products are recalled due to quality concerns.
Roger Bate is the Lagatum Fellow in Global Prosperity at AEI.