Stopping Killer Counterfeits

Resident Fellow
Roger Bate

The Justice Department and the Food and Drug Administration are looking into whether Ranbaxy Laboratories, one of the world's biggest makers of generic drugs, manufactured substandard HIV drugs that were administered to thousands of poor Africans under a contract with the President's Emergency Plan for AIDS Relief, the Wall Street Journal reported this week. But this type of tragedy has already affected American consumers.

Between November and February, 95 Americans died after experiencing an allergic reaction to heparin, the FDA has reported. The blood-thinning medication contained an active pharmaceutical ingredient from China that the FDA suggests was likely to have been "intentionally contaminated."

And for each American death from tainted drugs, there are thousands of similar tragic stories around the globe. The World Health Organization estimates that up to one-third of all medicines in poor countries contain too little or no active ingredients to work properly. In the 1995 Niger meningitis epidemic, 50,000 people were inoculated with fake vaccines--and 2,500 died. In 2006, more than 100 Panamanian children died after ingesting cough syrup that had been mixed with diethylene glycol, a common component of antifreeze. About 200,000 people die every year from malaria, the WHO estimates, because of poorly produced and inadequately delivered drugs. Because it is difficult to identify deaths from counterfeit drugs--did the patient die because he succumbed to the disease or because the drug failed to work?--many more wrongful deaths go undetected.

Developing countries must conduct more inspections of drugs entering their ports and routine inspections of in-country wholesalers.

Criminals counterfeit drugs because of the tremendous gains available at comparatively low risk. Fake ingredients are often significantly cheaper than authentic chemicals; in the heparin incident, the substituted ingredient, oversulfated chondroitin sulfate, cost $9 per pound. Authentic heparin goes for $900 per pound.

In some ways, it's surprising that counterfeiters and narcotic traffickers took so long to target the United States, the world's largest and most lucrative pharmaceutical market.

For decades the U.S. system has worked well (despite weaknesses in FDA inspections highlighted during congressional hearings this spring). Stringent regulation coupled with commercial vigilance minimized the counterfeits infiltrating the European and U.S. markets. They are less than 1 percent of the total market.

And a knee-jerk response to the heparin deaths would be a mistake. Better coordination and cooperation is clearly needed between the United States and the Chinese government. Banning imports, however, would increase the price of many drugs, possibly harming thousands who would then be unable to afford their prescriptions.

Not just for humanitarian reasons but also for greater self-protection, we should help poorer countries combat fakes. U.S. drug companies purchase 40 percent of their advanced pharmaceutical ingredients from India and China. That rate is expected to double within the next 15 years. While these countries can produce good advanced ingredients and finished products, lax regulation and poor rule of law means that myriad counterfeit actors remain. Until these problems are controlled, it is better for companies to import the active ingredients than for patients to buy finished products, because companies have greater knowledge to weed out bad products (the heparin case is a rare exception).

So what can be done?

Developing countries must conduct more inspections of drugs entering their ports and routine inspections of in-country wholesalers. It is generally far more difficult, given local corruption, to successfully prosecute counterfeiters in poor countries. Even so, Nigeria, one of the world's most corrupt countries, has implemented port and wholesale inspections, reducing the number of fakes in its market from well over 50 percent to roughly 16 percent in five years.

Other steps include educating pharmacists to spot fake packaging, especially in areas where drugs are often sold in paper envelopes and with no instructions on use. Police intervention at national and international levels to prevent organized crime from sabotaging distribution channels, as is allegedly happening in Russia, is important. Also helpful is increased sentencing for criminals, but this policy must be backed by stronger policing; evidence from the war on illegal narcotics suggests that stricter sentencing reduces the number of players but hardens those who remain.

For their part, Western countries should confront two weaknesses: the legal parallel trade within European countries (allowing wholesalers to repackage goods makes it easier for criminals to insert their products) and online sales. As much as half of the pharmaceutical products sold on the Internet do not work or may be dangerous, the WHO has said. Light but sensible regulation, assiduously enforced at borders and within countries, and routine product testing should overcome many of the problems of a parallel trade in the European Union. Greater public awareness of the location of Internet pharmacies (most of which claim to be based in Canada but are in fact rarely even in the Western Hemisphere) will be key to lowering the number of fakes sold online. Legitimate Web pharmacy promoters might set up a pedigree system to help establish provenance of supply.

If the United States and the European Union make sensible policy changes, we can reduce the likelihood of future heparin tragedies here. In the developing world, aid organizations must commit to purchasing only quality-tested drugs, and governments can make combating fakes a priority. Otherwise, hundreds of thousands will continue to die needlessly every year.

Roger Bate is a resident fellow at AEI.

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