FDA and Industry Agree on Generic Drug User Fee to Contribute to Faster Approvals and Overseas Inspections

According to a recent article in the New York Times, “more than 80 percent of the active ingredients for drugs sold in the United States are made abroad, mostly in a shadowy network of facilities in China and India that are rarely visited by government inspectors, who sometimes cannot even find the plants.” In fact, a government report last year said that about 64% of 3,700 drug facilities overseas have never been inspected by the Food and Drug Administration FDA.

Congress has never given the FDA the money needed to inspect these plants, and for nearly two decades the generic drug industry resisted proposals to pay inspection fees.

But after decades of failed attempts, the federal government and the generic drug industry have reached an agreement that is almost certain to pass Congress and that will lead to routine inspections of these overseas plants, potentially transforming the enormous global medicine trade.

Under the landmark agreement, expected to be completed within weeks, generic drug companies — which make 75 percent of the prescription medicines sold in the United States — would set up a “user fee” program and pay $299 million in annual fees to underwrite inspections of foreign manufacturing plants every two years, the same frequency required of domestic plants. The program, known as the Generic Drug User Fee Act (GDUFA), would be similar to programs in place for drugs (PDUFA) and devices (MDUFMA).

The initial $299 million would pay the first year to get the program going—coming in large part from companies whose drugs currently are in the backlog waiting for approval. After that initial payment, companies would pay fees each time they seek agency approval for a generic drug.

The FDA’s Janet Woodcock, Director of the Center for Drug Evaluation and Research (CDER) has said the agency lacks manpower to conduct enough inspections overseas to ensure safety.  Executives of generic-drug companies had said in interviews with The Wall Street Journal in February that they supported the creation of such a system, in large part to speed drug approvals that now can stretch to 2½ years.

At its present pace, the FDA would need more than 13 years to inspect every foreign drug plant exporting to the United States. Some plants have never been inspected, which saves them huge sums in cleanup and other compliance costs — an important reason that drug manufacturing is disappearing from the United States and that tainted-drug scandals occur.

In one infamous case, Chinese manufacturers deliberately substituted a cheap fake for the dried pig intestines used to make the blood-thinning drug heparin. The tainted drug was linked to 81 deaths and exposed tens of thousands of people to danger. The FDA never inspected the plants making the crucial ingredients, a larger problem that only now, more than three years later, may be fixed.

“This agreement is epoch-making,” said Guy Villax, chief executive of Hovione, a generic drug maker with plants in New Jersey, Europe and China. Supply chains for many generic drugs often contain dozens of middlemen and “are highly susceptible to being infiltrated by falsified” drugs, Mr. Villax said.

Dr. Margaret Hamburg, commissioner of the FDA, said she was pleased with the generic drug fee proposals. “If a program along the lines of what the parties are working on is enacted by Congress, it would represent a real breakthrough,” Dr. Hamburg said. “FDA’s entire generic drug program would be placed on a much more stable footing.”

The agreement will not affect the making of over-the-counter medicines or vitamins, whose global supply chains are even more vulnerable to tampering since government inspectors almost never visit their makers. Aspirin and vitamin C supplements, among others, are now made almost entirely in uninspected plants in China.

Nor will the agreement change the FDA’s oversight of name-brand prescription medicines. Although branded drugs usually have more secure supply chains than those of generics, major pharmaceutical companies have moved aggressively into China in recent years and often rely on rarely inspected suppliers.

The Times noted that the generic drug “industry changed its stance for several reasons.”

First, the heparin scandal scared everyone. The fake ingredient was good enough to pass a sophisticated test, so the conspirators probably knew that deaths would result, reflecting a callous level of greed. And the Chinese government refused to allow the FDA to investigate, suggesting that the perpetrators were not only smart but politically well connected.

Second, the generic drug industry is no longer a motley collection of struggling mom-and-pop companies. Years of consolidation have created giants like Israel-based Teva Pharmaceuticals that understand that their businesses depend on winning the confidence of patients and regulators alike, and they can afford to pay the fees needed to achieve that confidence.

Third, the industry finally gave up hope that Congress would appropriate enough money for the FDA to perform the job. The agency’s oversight of generics has floundered so badly that new applications to sell generics take a median of 31 months to be approved, and there are now 2,458 applications awaiting approval, up from 2,361 at the end of last year. The new fees are expected to underwrite the hiring of enough reviewers to bring approval times down to 10 months and sharply cut the application backlog — providing cheaper and better drugs to patients.

The fourth reason is Heather Bresch. Ms. Bresch, 42, is the president of Mylan Inc., a generics giant, and the daughter of Senator Joe Manchin III, Democrat of West Virginia. For years, Mylan’s sole drug plant was in Morgantown, W.Va., and the facility is so huge — it produces 22 billion tablets and capsules a year — that the FDA stationed an employee there almost full time. But in 2007, Mylan bought two foreign companies with plants on nearly every continent. When Ms. Bresch visited these and other foreign plants, she was shocked to learn that many had not been visited by an inspector in almost a decade.

“As a mother of four children, I want to know the drugs I’m giving them are safe,” Ms. Bresch said. “And as an American businesswoman, I want to keep jobs here, and that means making sure foreign drug plants have to meet the same standards as domestic ones.”

Ultimately, generic drug fees will be included in a package of industry fees — including those for branded drugs and medical devices — in legislation the Obama administration is expected to send Congress in January. Legislation must pass before October 2012, or numerous FDA functions will halt, imperiling patients and creating chaos in the drug and medical device industries.

Since such an outcome is unthinkable to government officials and industry executives alike, most predict that the legislation will pass early and easily.