Who Makes This Drug? Disclosing The Identity Of Generic Drug Manufacturers

Counting and identifying manufacturers able to supply the U.S. with generic drugs or their base ingredients is critical for promoting the following public health goals:

1. Forecasting national spending on generic drugs;
2. Planning patient treatments when supply interruptions and shortages occur or are threatened; and,
3. Choosing manufacturers with a demonstrated commitment to quality production.

Yet the number and identity of these manufacturers is shrouded from public oversight. In June 2015, we argued in a U.S. Food and Drug Administration (FDA) hearing convened on the occasion of the 2012 Generic Drug User Fee Amendments (GDUFA) reauthorization that the U.S. Congress should authorize the FDA to increase public oversight into generic drug manufacturing.

In the following blog post we list our recommendations, mainly that the U.S. Congress:

1. Authorize the FDA to make public information on the location of the manufacturing facility sites for each generic drug;
2. Consider restructuring GDUFA user fees to mitigate incentives for the outsourcing of drug manufacturing; and,
3. Consider creating new incentives for firms to enter into the manufacturing of generic drugs, especially among specialty drugs that have recently experienced price hikes and supply interruptions.

We conclude by discussing the underlying rationales for these recommendations.

Recommendations

Make public information on the location of the manufacturing facility sites for each active Abbreviated New Drug Application (ANDA).

The FDA currently collects information on active pharmaceutical ingredients (APIs) and final drug fill and finish (FDFs) manufacturing sites when collecting GDUFA user fees, including the use and identity of Contract Manufacturing Organizations (CMOs) from ANDA sponsors. Without imposing additional respondent burden on ANDA sponsors, the FDA could provide a valuable service by making this information public. This need not involve disclosure of any monetary/financial details of these arrangements.

We recognize that adoption of this recommendation would likely require a change in statute. Thus, we are recommending to the U.S. Congress that the FDA be authorized to make public a list of which drugs are self-manufactured and which are manufactured by CMOs and in which facilities. This database should be available in electronic form and be searchable by drug, formulation, ANDA sponsor, CMO, and production facility location.

Restructure GDUFA user fees to mitigate incentives for the outsourcing of drug manufacturing.

We are sensitive to the concern that increases in overall user fees increase manufacturers’ costs, and could lead to higher drug prices. We therefore recommend that as part of the GDUFA reauthorization, the U.S. Congress ask the FDA to restructure user fees with provisions that some of the API/FDF facility site fees be shifted to product-specific fees, leaving total fees unaffected. This would act to reduce perverse incentives to concentrate manufacturing while maintaining an overall revenue-neutral user fee burden to suppliers.

Create new incentives for firms to enter into the manufacturing of generic drugs, especially among specialty drugs that have experienced recent price hikes and supply interruptions.

One possible policy action the U.S. Congress could pursue and the FDA could oversee involves creating incentives for generic manufacturers to multi-source their final drug fill and finish manufacturing operations rather than sole-source them. The attainment of multi-source production approval subsequent to initial ANDA approval could also be announced publicly in supplemental ANDA approval letters.

Payers, purchasers, and the intermediaries could complement these efforts by writing contracts in which manufacturers specify the extent of back-up production available for each required API and FDF and include verifiable provisions that penalize manufacturers in the event of supply disruptions and/or quality lapses.

Why Are These Changes Necessary?

Promoting robust entry into manufacturing after a drug’s patent expiration is a critical tool for promoting the cost-effectiveness of prescription drug spending.

There are two types of prescription drugs: brand name and generic. In the U.S., branded drugs are generally FDA approved for use in a given indication under New Drug Applications or Biologics License Applications. Sponsors awarded New Drug Applications or Biologics License Applications are able to sell their products exclusively while the drug is patent protected.

Loss of patent exclusivity in the U.S. opens the branded market up to potential competition from multiple manufacturers. According to provisions of the 1984 Drug Price Competition and Patent Term Restoration Act (the “Waxman-Hatch Act”), other sponsors can apply to the FDA to obtain approval to market the generic drug under an ANDA in anticipation of patent expiration.

FDA approval of an ANDA does not require its sponsor to repeat clinical or animal research on API or FDF already found to be safe and effective. Rather, the ANDA sponsor must provide evidence either substantiating bioequivalence and compliance with current good manufacturing practices at its own manufacturing sites, or else indicate that portions of the manufacturing will be outsourced to designated FDA-approved CMO(s). The FDA is responsible for enforcing these requirements among ANDA sponsors upon entry and via subsequent periodic routine inspections.

Since the passage of the Waxman-Hatch Act, generic entry and price competition has been vigorous. In 1996, approximately 43 percent of all U.S. prescriptions were filled with generic drugs; in 2008, over 63 percent of the total drug market volume was accounted for by generics, and in 2013, this fraction had risen to 86 percent.

The magnitude of cost savings as a result of generic entry has increased over the past decade, due in part to virtually automatic generic substitution and other policies promoting the use of generic drugs when available. Generics commonly capture 80-90 percent of molecule sales within the year following entry.

Spending on specialty drugs, including small molecule drugs formulated as injectables and infusables, has been of more recent concern given their widespread use and high prices. These drugs are not immune from the power of generic competition — we have documented significant price concessions and use expansions with the generic entry of specialty drugs.

Despite this, recent studies report half of all generic drugs became more expensive in the past two years. Price increases appear to be concentrated among generic specialty drugs.

Counting the number of and identifying manufacturers able to supply the U.S. market with generic drugs is critical for ensuring continued cost savings and promoting public health.

Counting the number of manufacturers of generic drugs and promoting transparency regarding their identity is critical to promoting public health goals in three ways.

First, these counts are critical to forecasting national spending on generic drugs and the potential effect of changes to the organization of their manufacturing on U.S. supply and prices. The number of suppliers of generic drugs is a critical determinant of price declines after patent expiration. Results of our work suggests the number of unique manufacturers equipped to successfully enter generic specialty drug markets is smaller (three or more) than that of small oral solids.

Consequently, unique manufacturer counts are critical inputs to antitrust authorities charged with assessing how proposed mergers and acquisitions of generic drug manufacturers might alter the concentration of drug supply and the prices at which they are available. They are also inputs to the Bureau of Labor Statistics charged with constructing the monthly Producer Price Index for Prescription Drugs.

Second, counting the number and identifying manufacturers of generic drugs is critical for promoting public health, especially when supply interruptions and shortages are reported. Since 2006, the U.S. has experienced a marked increase in drug shortages. Three-quarters of shorted drugs in 2011 were injectable specialty drugs and over 80 percent had lost patent protection. The majority of these shortages initially appeared around 2009 and thereafter.

Knowing the identity of manufacturers making drugs informs the primary purchasers of these drugs—hospitals and outpatient pharmacies—to prudently plan treatments for patients when supply interruptions and shortages occur or are threatened. Indeed, when an interruption in supply is threatened or occurs, the first action item by these providers is to determine if there are alternative sources. Likewise, when factory closures are announced, the first action by these providers is to determine exactly which products might be affected.

Third, only when medical providers know the identity of drug manufacturers can they reassure patients and their families that the supply of essential medicines is meeting the highest quality standards. According to a recent report, poor quality manufacturing practices of selected manufacturers of APIs and FDFs in 2010 and 2011 contributed to shortages. When the identity of manufacturers is known, medical providers can choose manufacturers with a demonstrated commitment to quality production.

There is no public data on the source of base ingredients or use of contract manufacturing in the supply of finished drugs.

The identity of manufacturers of generic drugs supplying the U.S. market and their base ingredients is shrouded in secrecy.

It is common for ANDA sponsors to qualify new facilities to manufacture their approved drug(s) due to either the loss of the old facility or changing market demand prompting the sponsor to acquire additional capacity. In these cases, ANDA sponsors often turn to CMOs. To the extent that they are able to exploit production economies, CMOs can offer their services at a cost lower than that incurred by self-manufacturing. Moreover, because of scope economies, CMOs face incentives to expand the portfolio of products they produce, but they can also take advantage of scale economies, producing the same drug for different ANDA sponsors.

A recent FDA report documents more than a doubling of branded and generic drug manufacturers relying on CMOs worldwide between 2001 and 2010. Many prominent manufacturers hold ANDAs from the FDA for their own drugs and simultaneously act as CMOs for others.

Data on the use of CMOs and their identity upon initial filings and/or subsequent manufacturing changes is not publicly accessible through the web portal Drugs@FDA and is exempt from being released under the Freedom of Information Act. A proprietary data source, Truven’s RedBook, maintains more updated information on which ANDA sponsors are actively offering a drug in the U.S. market, but even this source does not identify CMO arrangements.

The sources of API manufacturing are shielded from public scrutiny similar to that of FDFs.

GDUFA fees exacerbate incentives for generic drug sponsors to use CMOs.

Current GDUFA provisions assess one-time user fees for ANDA sponsors. They also require annual payments that vary by whether the manufacturing site is domestic or foreign, and whether the manufactured product is the API or FDF.

This increase in manufacturing fixed costs can be expected to incentivize ANDA sponsors to outsource their manufacturing to CMOs. Since the annual user fee is site rather than product-specific, it generates incentives for CMOs to increase the number of products manufactured at their site. To the extent that CMOs are able to produce the same molecule for different ANDA holders, the increased fixed costs and scale economies brought about by GDUFA may result in the further outsourcing of manufacturing to CMOs and thereby reduce the number of distinct organizations manufacturing generic specialty and non-specialty drugs, thereby increasing the concentration of manufacturing and making the drug supply chain more vulnerable to supply disruptions.