JULY 2008
Washington, D.C.
David Nelson, a congressional investigator for the U.S. House of Representatives Energy and Commerce Committee, which oversaw the FDA, was at his desk in the Ford House Office Building on Capitol Hill when he read the startling twenty-eight-page motion filed by Maryland prosecutors. It laid out how Ranbaxy’s “systemic fraudulent conduct” was bringing “adulterated and misbranded products” into the United States.
Studying the motion, Nelson’s first question was, why had he been lied to? In February 2007, during the FDA’s raid at Ranbaxy’s New Jersey headquarters, he’d called the agency and demanded to know whether the action had anything to do with drug quality; if it did, Congress should have been informed. No, an FDA official had told him. Nothing to do with drug quality. So Nelson figured that the raid must have been related to financial irregularities and put it out of his mind. But now, many months later, it was clear that the raid had everything to do with drug quality. Something “reeked,” he would later say.
Why would the FDA continue to allow the sale of drugs in the United States made by a company that it knew was committing fraud? The agency had cause and authority to challenge every single application that Ranbaxy filed. But there had been no discernible action to remove Ranbaxy’s drugs from pharmacy shelves. Confronted with fabricated data clear enough for prosecutors to put in a court record, the agency appeared to have done what it historically did: almost nothing.
As Nelson pondered the massive and seemingly lawless Indian company that had tried to stonewall prosecutors, he had another thought: It’s happening again. Nelson had spent his year engulfed in another overseas drug catastrophe. But the Ranbaxy crisis seemed to echo one from decades earlier: the generic drug scandal of the 1980s.
David Nelson’s journey into a world of dangerous and badly regulated drugs began in 1988, four years after the Hatch-Waxman Act led to the creation of the modern-day generic drug industry. On a hot July 4 weekend, a prominent Beltway lawyer, a political operative, and a private detective arrived at his modest home carrying a large bag of trash. With his permission, they emptied the bag’s filthy contents onto his dining room table.
Nelson, a big, bluff Texan, had seen a lot of things in his career as a congressional investigator: venal corruption, epic incompetence, inexcusable lapses. But he’d never had anyone dump trash onto his table. As he studied the dirty, sodden papers, the visitors watched his face for a reaction. The trash had come from the Maryland home of an FDA chemist, Charles Chang, who helped oversee the review of generic drug applications. In the debris, Nelson saw tickets for a round-the-world airline trip and receipts for expensive furniture. The evidence suggested that the FDA chemist was on the take from generic drug executives seeking favorable review of their applications.
The people who had come to see Nelson had been hired by Mylan, the respected generic drug company from West Virginia. For months, Mylan had found itself inexplicably stymied in its dealings with the FDA. Its executives watched as less-experienced competitors secured lucrative first-to-file approvals while its own applications remained in bureaucratic limbo. They had heard rumors that Chang was getting his reviewers to slow down reviews or to fabricate excuses to block certain applications. Finally, the Mylan executives hired private detectives, who found a motive in his trash. Corrupt generic drug companies appeared to be bribing Chang with trips and furniture in exchange for approving their own applications and blocking those of competitors.
The evidence was enough for Nelson’s boss, Representative John Dingell (D-MI), to immediately launch a full-scale investigation and send the trash to the inspector general at the Department of Health and Human Services. In the months that followed, Dingell’s committee uncovered corruption that seemed to have no bottom. Generic drug executives had roamed the FDA’s halls, dropping envelopes stuffed with thousands in cash onto the desks of reviewers. Chang had accepted numerous bribes. A generic-drug trade association had subsidized the appearances of FDA reviewers at conferences with hotel bills they never saw. Representative Ron Wyden (D-OR) called the generic drug industry “a swamp that must be drained.”
Congressional hearings in 1989 revealed an FDA totally out of control, with no ability to adequately review the tsunami of applications that flooded its offices. Even the FDA commissioner, Frank Young, admitted that the agency was “drowning in a sea of paper.” Witnesses described wild disorder in the FDA’s document room, with applications lost amid teetering piles. The Office of Generic Drugs was a “horrible world of overwhelming work,” said its director, Marvin Seife, who led the office from 1972, when generics were at a trickle, through the explosion in applications after the Hatch-Waxman Act. Seife, a longtime public servant who got to work at 6:30 a.m. every day, became essential to Nelson’s investigation.
The hearings revealed that the generic drug companies had resorted to bribery and fraud in pursuit of a single goal: securing the coveted first-to-file status for their applications, which would give them six months of exclusive sales at a price a little below the brand-name price. Clearly, the original drafters of the Hatch-Waxman Act had not contemplated the frenzy this incentive would unleash.
One of the companies involved in the scandal was Quad Pharmaceuticals, an Indianapolis-based company whose CEO had given Chang $23,000. Gretchen Bowker worked as a bench scientist at Quad and knew that the company was required to make three sequential lots of a drug for approval, and that these had to meet certain testing criteria. With the very first drug Bowker worked on, her boss asked her to make one batch look like three by splitting it into three and giving each a different lot number. Bowker was appalled. She documented the fraud in her laboratory notebook so that she would have proof for regulators if they showed up.
Like Quad, the other implicated companies had done whatever it took to move their applications to the front of the FDA’s line. This rush left honest companies at an obvious disadvantage. The scandal shattered public trust in generic drugs. The FDA was forced to form an inspection team that went from company to company comparing claims in the drug applications with the actual manufacturing. Congress used those findings to publish a “clean list” of the companies that had actually made the drugs they claimed to. Nelson was often asked when he gave speeches, “Do you trust the drugs?” His answer was, “No—unless they’re on the clean list.” Even Mylan executives, who had launched the inquiry, were stunned by the extent of the corruption. They found their own company—and their industry—locked in a “life or death struggle” for legitimacy, Nelson recalled. A total of forty-two people, including multiple executives and ten companies, pleaded guilty to, or were convicted of, fraud or corruption charges.
In the scandal’s wake, the Dingell committee worked to ensure that corruption like the kind exposed never happened again. It backed legislation, the 1992 Generic Drug Enforcement Act, that gave the FDA the power to withdraw any application containing false data or to debar corrupt companies entirely, if need be. New regulations required companies not only to manufacture three commercial lots of a drug but to undergo a preapproval inspection, which would ensure that the companies actually had the capability to manufacture the drugs they’d applied to make.
Despite the corruption that had saturated at least half of the nation’s nascent industry, most medical experts and consumer advocates defended generic drugs. Joe Graedon and his wife, Terry, who wrote the syndicated newspaper column The People’s Pharmacy, assured readers that “a few bad eggs” shouldn’t spoil their confidence in the generic drug industry.
But even as the House Energy and Commerce Committee succeeded in strengthening the FDA’s regulatory arsenal and put up more roadblocks to thwart companies that flouted regulations, the problem of dangerous and fraudulent drug manufacturing was slipping beyond the nation’s borders. Within roughly fifteen years, the amount of pharmaceutical ingredients, by weight, that the United States imported from China would grow by over 1,700 percent, from roughly 5 million kilograms in 1992 to over 90 million kilograms by 2008. This meant that the FDA, which had struggled to regulate companies within driving distance of its headquarters, now had to regulate companies halfway across the globe. With the agency’s oversight precarious at best, foreign drug supplies became “a string of ticking time bombs,” as former FDA associate commissioner William Hubbard later told Congress.
A decade after Mylan’s private detectives had fished through Chang’s garbage, Americans started dying after taking a contaminated antibiotic, gentamicin sulfate, that contained cheap active ingredients imported from China. As it investigated these deaths, the House Energy and Commerce Committee learned that the FDA was barely monitoring the drug ingredients, known as bulk drugs, pouring in from overseas. The committee unearthed a 1996 memorandum from the agency’s own Forensic Chemistry Center that stated, “We literally have no control over bulk drugs that enter the U.S. . . . These drugs can reach anyone, including the President.”
By then, the FDA was inspecting about one hundred foreign facilities each year—an inspection rate of about once every eleven years for each overseas plant, according to a devastating U.S. Government Accountability Office report in 1998. Even when investigators found problems, the FDA would often skip a follow-up inspection in exchange for a promise from the manufacturer to correct them. The FDA barely knew what plants overseas had been inspected, or needed to be, as it was relying on a patchwork of fifteen different databases, most of which didn’t interface with one another. It was a system built on wishful thinking and infrequent scrutiny, which yielded disastrous results. The United States “turned a blind eye,” said Heather Bresch at Mylan, asking rhetorically of manufacturers overseas, “What do you do when your odds of getting caught are near zero?”
By 2007, as poisonous pet food and children’s toys made with lead paint flowed from Chinese factories into the American market, the U.S. government hammered out a “cooperation agreement” with Chinese regulators to improve the safety of food and drugs. In August 2007, the Committee on Energy and Commerce sent staffers to accompany FDA investigators as they traveled to China and India. They saw a threadbare inspection program that relied on the very companies being scrutinized to help arrange the inspections.
At a hearing that November, Representative Joe Barton (R-TX) begged the new FDA commissioner, Dr. Andrew von Eschenbach, to bolster the agency’s foreign inspection efforts: “I stand ready to give you the support you need to heroically improve the FDA’s interception of tainted drugs from abroad.” But an even graver crisis was already brewing.
That very month, at the St. Louis Children’s Hospital, two young patients experienced strange and alarming symptoms. As they underwent dialysis, a lifesaving procedure to filter blood for those whose kidneys don’t work properly, the patients’ eyes started swelling, their heart rates escalated, and their blood pressure dropped. These were signs of a life-threatening allergic reaction. Dr. Anne Beck, the director of the nephrology unit, directed her staff to wash out the tubing with extra fluid before hooking the children back up to the dialysis machines. For the next two months, everything seemed fine. But in January 2008, the symptoms struck again.
Beck contacted an epidemiologist specializing in children’s infectious diseases who immediately assembled a command center where a team worked around the clock to uncover the cause of the strange reactions. But as more children succumbed and the staff grew frightened, the epidemiologist notified the Centers for Disease Control and Prevention. The CDC immediately contacted dialysis centers in other states and learned of similar reactions elsewhere.
As the CDC and the FDA began a joint investigation, their efforts pointed to a common denominator: all the sickened patients had been given heparin made by the brand-name company Baxter, the nation’s biggest heparin supplier. It was a drug that patients took intravenously during dialysis to ensure that they didn’t suffer blood clots. Within weeks, Baxter—at the FDA’s urging—began a sweeping series of recalls, until finally the allergic reactions stopped.
Yet the mystery was far from solved. Nobody understood why heparin—which is made from the mucosal lining of pig intestines, most of which come from China—was suddenly making patients sick. In February 2008, the FDA discovered the likely source of the contamination: a Chinese plant supplying crude heparin to Baxter. In a clerical blunder, the FDA had completely overlooked and failed to inspect the facility, Changzhou SPL, located about 150 miles west of Shanghai. Instead, it inspected and approved a plant with a similar-sounding name.
Predictably, once FDA officials finally traveled to Changzhou in February 2008 to make an on-the-ground inspection, they found serious problems. The facility had dirty manufacturing tanks and no reliable method of removing impurities from heparin, and it acquired the crude heparin from workshops that had not been inspected.
Chinese regulators were no help at all. A loophole in Chinese regulations allowed certain pharmaceutical plants to register as chemical plants, which made them subject to far less oversight. For U.S. congressional investigator David Nelson, whose committee was now immersed in the heparin crisis as well, the situation laid bare the “classically good reason to be suspect of production coming from any country that doesn’t have competent regulatory authority.” The FDA issued an import alert in March 2008, meaning that Changzhou SPL’s shipments would be stopped at the U.S. border.
Though investigators had identified Baxter’s heparin as the source of the contamination, and the Changzhou plant as deficient, neither the FDA nor Baxter could find any contaminant in the heparin. Urgently needing help to figure out what was wrong with its own product, Baxter reached out to Dr. Robert Linhardt, a chemist at Rensselaer Polytechnic Institute in Troy, New York, who had been studying heparin for years. He promptly sidelined his other work to dig into the mystery, and his laboratory joined several others working on the crisis.
Stumped, the research teams finally turned to sophisticated nuclear magnetic resonance spectroscopy machines, which revealed evidence of a contaminant: a synthetic substance called oversulfated chondroitin sulfate (OSCS). The ingredient mimicked heparin, was almost impossible to detect, and produced life-threatening reactions. The FDA formally named OSCS as a likely contaminant in March 2008 and concluded that it had been added, somewhere along the supply chain, to increase the yield, and profitability, of the drug. The contamination exposed perilous gaps in the FDA’s oversight and intensified the long-simmering conflict between Congress and the agency.
In April 2008, tensions erupted during a highly publicized hearing, with regulators, manufacturers, and victims’ families all in one room. By then, David Nelson had pieced together the missteps that had contributed to at least eighty-one deaths from the adulterated heparin, a number that would continue to climb. The hearing laid bare the FDA’s blunders in crippling detail: the lack of facility inspections, the poor risk assessment, the woeful technology. Nor was Baxter spared. The company’s own audit of Changzhou SPL, conducted a few months before Americans started dying from heparin contamination, was “incomplete, bordering on failure,” Nelson testified. He concluded that corporate America could not be trusted to do the FDA’s job—nor could the FDA be trusted to do its own job.
Under questioning, Dr. Janet Woodcock, director of the FDA’s Center for Drug Evaluation and Research, acknowledged that the FDA had little idea how many overseas firms shipped pharmaceutical ingredients to the United States. “It’s most likely between three thousand and seven thousand,” she said. The FDA also attempted to pin the blame on Baxter, adopting a common refrain that it was a company’s responsibility to ensure the quality of its own products. The hearing intensified David Nelson’s longtime fury at Woodcock, whom he felt promoted the idea that manufacturers could be motivated to do the right thing without the threat of an inspection. “Woodcock—may her soul burn in hell for all eternity—did not believe in inspecting plants to ensure the safety of the drug supply,” he said years later.
The issue is far more complex than Nelson allows, Woodcock later told a journalist. “Inspections are not a panacea,” she explained. “You always have to do inspections. I’m no fool. But it really is important to make this industry responsible for quality itself,” she said. “People need to own that as a critical part of what they do, not just trying to fool inspectors.”
At the hearing, the most powerful testimony came from the family members of dead patients. Leroy Hubley of Toledo, Ohio, testified about losing both Bonnie, his wife of forty-eight years, and his son, Randy, to adulterated heparin within one month of each other. “Now I am left to deal not only with the pain of losing my wife and son, but anger that an unsafe drug was permitted to be sold in this country,” the seventy-one-year-old widower testified. “The FDA and Baxter have not done their job. Somebody sure as hell didn’t.” Members of Congress expressed anger on Hubley’s behalf. At one point, a congressman interrupted a witness midsentence to exclaim, “This is thuggery. This is thievery. This is high crime and a direct assault on the American public. . . . Someone did this deliberately.”
Assuming the culprits were in China, how could the United States hold them accountable? The FDA was a disorganized, weak-kneed agency with limited powers. It faced a foreign country with little effective regulation and a government with every incentive to suppress bad news. How were America’s investigators supposed to track down, and prosecute, those responsible? In the decade-long investigation that ensued, pitting the United States against China and the FDA against Congress, no one has yet been held accountable. Nevertheless, the FDA’s webpage on heparin still states that the agency is “continuing to aggressively investigate the situation.”
Three months after the heparin hearing, with the vulnerability of the American public still fresh in his mind, Nelson read the prosecutors’ motion about Ranbaxy and realized that something else linked the 1980s generic drug scandal to the Ranbaxy case. Although the earlier scandal had implicated American companies, those companies had largely been run by South Asians, such as Quad Pharmaceuticals CEO Dilip Shah. Whether fairly or not, those investigating and prosecuting the initial cases had referred to the corrupt executives as the “Bengali mafia.” At the time, some of the defense lawyers had tried to justify their clients’ crimes by explaining that they were viewed as acceptable business practices in their homelands. “I was insulted by the notion that people would be considered innocent because it was culturally okay with them to give bribes,” Nelson recalled.
At Quad Pharmaceuticals, Bowker learned that, in some Indian companies, “it is seen as an asset to be able to do something in a creative different way that goes around the arduous tasks and gets you there quicker and cheaper. What we would view as cheating would be viewed in their culture as creativity.” This was the model of aggressive shortcuts, the ability to dodge onerous rules and get to the desired results by the shortest means possible, known as Jugaad, which the innovation expert Dr. Raghunath Anant Mashelkar condemned. As Dinesh Thakur put it, “There’s a saying in India. ‘We don’t have a system. We have a way to work around the system.’”
Jugaad developed as a survival mechanism in response to failing systems. In Maximum City: Bombay Lost and Found, the Indian journalist Suketu Mehta studies just the sort of workarounds, or alternative systems, that govern daily life in Mumbai (which was called Bombay until 1995). As Mehta concludes:
You have to break the law to survive. . . . I dislike giving bribes, I dislike buying movie tickets in black [illegally]. But since the legal option is so ridiculously arduous—in getting a driving license, in buying a movie ticket—I take the easy way out. If the whole country collectively takes the easy way out, an alternative system is established whose rules are more or less known to all, whose rates are fixed. The “parallel economy,” a travelling partner of the official economy, is always there, turn your head a little to the left or right and you’ll see it.
The parallel economy operates wherever the official state lies in tatters. In drug making, too, India’s manufacturers developed an alternate set of rules in part because the actual rules had been ignored by the country’s regulators. The Ranbaxy case defied the imagination of U.S. regulators and investigators for so long because the fraud was so all-encompassing. The company’s intricate system for faking data involved hundreds of people. And the U.S. government all but volunteered to be fooled by announcing its inspections in advance.
The congressional investigator David Nelson knew nothing about Jugaad. But he knew a lot about the industry he had investigated. Paging through the prosecutors’ motion on Ranbaxy, Nelson saw a dangerous junction between the “get rich quick” schemes of the generic drug industry and the FDA’s “see no evil” approach to foreign drug regulation. The result, he feared, was a public health disaster in the making.