A Prescription for Scandal

By Christine Gorman

For many consumers, generic drugs have been a welcome remedy for sticker shock at the pharmacy counter. Designed to work as effectively as their brand- name counterparts, generics often sell for half the price. Since 1984, when Congress sought to make generics more readily available by speeding up the Government-approval process, competition has skyrocketed -- and so has the opportunity for abuse. Now a yearlong investigation by the Justice Department and the Food and Drug Administration is uncovering evidence that some makers of generic pharmaceuticals falsified laboratory test results and paid off FDA chemists to gain quick Government approval for their products. While no drugs have been found so far to be harmful or ineffective, the fraud is shaking the reputation of the $7 billion generic-drug industry.

Hastening to restore confidence in its imprimatur, the FDA last week launched a crash program to re-evaluate 30 of the most commonly prescribed generic medications, including such prevalent antibiotics as ampicillin and oral penicillin. Over the next six weeks, the agency will test more than 1,000 samples to make sure they are biologically equivalent to their brand-name counterparts. In addition, the FDA, which had cut back its commercial inspections because of budget restraints, announced that it will hire more field inspectors and seek tougher punishments for unscrupulous manufacturers.

Compared with an original, patented drug, a generic is much less expensive to develop. After the patent on a brand-name product has expired, usually involving a period of 17 years, a pharmaceutical company simply replicates the original drug's components. But in a two-year study released earlier this month, the American Academy of Family Physicians found that many generics are not as potent as their originals. Reason: unless certain production tricks are used, it is often difficult to produce a formulation that will work as well in the body as the brand-name drug. In its approval process, the FDA relies on a generic-drug manufacturer's in-house lab tests to establish a product's effectiveness. But the temptation for the manufacturer to cut corners can be strong, since the first companies to gain approval are likely to carve out the largest market shares.

The current scandal started to unravel after Roy McKnight, head of Pittsburgh-based Mylan Laboratories, began to suspect the FDA of favoritism. Frustrated that a rival firm consistently won FDA approval for its products before his company did, McKnight hired private detectives to spy on the Government. The detectives' snooping produced enough evidence of corruption to encourage the Justice Department to initiate a probe. In July, Charles Chang, 47, former head of the FDA's generic-drug division, and two co-workers pleaded guilty to accepting a total of $24,300 in illegal gifts in exchange for preferential treatment. The favored firms: American Therapeutic Inc., Bohemia, N.Y.; Par Pharmaceutical, Spring Valley, N.Y.; and Par's subsidiary Quad Pharmaceuticals of Indianapolis. American Therapeutic has not been charged so far and denies any wrongdoing.

As the FDA pursued its own probe, it discovered that Vitarine Pharmaceuticals of New York City had taken a more drastic step to ensure approval of its generic version of Dyazide, a standard antihypertension drug developed by SmithKline. The generic-drug company substituted Dyazide for its own capsules and sailed right through the efficacy tests. Vitarine admitted the deception earlier this month and has recalled the product.

Even if the misdeeds are limited to a few unscrupulous firms and some greedy bureaucrats, the entire generic-drug industry is likely to suffer. Generic products are so anonymous, says Dee Fensterer, president of the Generic Pharmaceutical Industry Association, that "when one company has a problem with one drug, it is jumped on as a problem of all generic drugs."

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CREDIT: [TMFONT 1 d #666666 d {Source: Arthur D. Little, Inc.}]CAPTION: Generic-drug sales

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CREDIT: [TMFONT 1 d #666666 d {Source: FDA}]CAPTION: FDA Inspections

With reporting by Priscilla Painton/New York and Dick Thompson/Washington