A prescription for disaster: The dangers inside the global generic drug industry

In January 2013, a young investigator with the U.S. Food and Drug Administration arrived in the city of Kalyani in Eastern India, to inspect a manufacturing site that appeared to be the perfect emblem of a global drug supply. It was owned by the German brand-name drug company Fresenius Kabi, was operated by an Indian management team and it manufactured active ingredients for injectable generic cancer drugs that were sold in the U.S. market.  

Despite the far-flung locale, the plant faced one non-negotiable requirement. It had to follow the elaborate architecture of regulations known as current good manufacturing standards (cGMP). These required consistency, control and transparency, particularly over the data generated at each manufacturing step. Though the U.S. drug supply is manufactured across the globe, at its core is a rigid quality standard.  

The U.S. FDA investigator, there to ensure the plant observed these essential regulations, did not seem like an obvious enforcer of life-and-death rules. Peter Baker, 32, a computer-savvy analytical chemist, sported the oversized tattoo from his motorcycle group on one arm. Once inside the Kalyani plant, he headed directly to the quality control laboratory. It was the place where a compliant plant audits the test results coming in from the factory floor, in order to detect and stop failing drug products. But Baker would soon discover that the lab could serve another purpose: as a hub for manipulating or discarding data that might expose failing drugs. He was about to uncover a massive lie at the core of the plant’s operations. 

In a globalized world, Western brand-name and generic drug companies have snapped up manufacturing plants in India and China and realized instant cost savings on labor and supplies. Today, as a result of this manufacturing exodus, coupled with an influx of foreign drug manufacturers being approved by the FDA, 80 percent of the active ingredients in all U.S. drugs, whether brand or generic, come from overseas. Ninety percent of the U.S. drug supply is now generic. The majority of these drugs are manufactured abroad, 40 percent in India alone. This has left regulators and companies to ensure that these distant plants meet exacting FDA standards. In a number of cases, seemingly slam-dunk corporate decisions to cut costs or expand a global footprint by offshoring production have turned into agonizing trials by fire, in which companies in developed markets confront nightmarish financial and reputational costs.

The FDA’s top officials have posited that, despite language barriers and distinct corporate practices — a culture of quality is a language all its own. They contend that good manufacturing practices, the required cornerstone of pharmaceutical manufacturing, can be implemented anywhere through “global vigilance,” as a recent FDA statement put it. The Fresenius Kabi plant in India seemed like a good exemplar of that principle. The last FDA inspection there four years earlier had only one finding: the company had not correctly documented the chain of custody for the drug samples it was testing.

This time, at the quality control laboratory, instead of asking for data, Baker sat down at a computer and began to scrutinize the results from tests done on high-performance liquid chromatography (HPLC) machines. The bulky instruments separated and measured the impurities in a drug sample and displayed them as a series of peaks in a record called a chromatogram. Toggling back and forth between computer files, Baker found the official test, with the result stored in the correct data folder. But in a file called “MISC.,” he saw what looked like earlier tests of the same drug sample, some a day apart, some a month apart. The earlier tests were either in ancillary folders, like “MISC.,” or within the proper folder but labeled “DEMO.” This unofficial pretesting and the subsequent retesting were not explained or permitted. Some of the HPLC machines were not officially registered and had not been connected to the plant’s main server. The plant was conducting offline tests.

Baker had uncovered the outlines of a secondary manufacturing operation hidden beneath the surface of the first. The technicians were using the initial hidden tests to get preliminary results, which they used as a guide to tinker with the test settings — adjusting the parameters, the amount of solvent. Then they retested in the plant’s official system to get the desired results.

As Baker asked questions, plant managers in India relayed those to quality managers in Germany, sparking alarm. On the last day of the inspection, Baker faced a stunned and exhausted executive vice president, who’d flown all night from Germany with an entire team to be there when Baker rendered his final verdict. It was evident that the Germans hadn’t known what was happening inside their own plant. 

In the months that followed, Fresenius Kabi launched a probe and made grim discoveries. The plant’s managing director had overseen a scheme to pretest drug ingredients, preview the results, make secret adjustments to the test settings, and then retest the drug samples until they passed. The plant had reblended failing drug ingredients that had high impurities with higher-quality ingredients until they passed testing. The company admitted to the FDA that it could not trust any data from the plant, or the compliance of any batches, for years prior to Baker’s inspection. To its credit, Fresenius Kabi halted production at the plant, fired the entire management team, and recalled all the medicine made with reblended ingredients. As shocking as the situation was, Fresenius Kabi seemed to be a victim of its own poorly managed offshoring. Had Baker not uncovered the malfeasance, the company might never have discovered what was happening in its own plant.

As the West’s reliance on drug products manufactured in India and China grows, the FDA’s investigators have encountered a facade of compliance in remote pharmaceutical plants that papers over a darker reality. They have found data fraud so far-reaching that some overseas plants have even falsified sterility data proving their air, water and surfaces are free of microbial contamination. They have found snakes, toilets in sterile facilities that lack drainage piping and insects “too numerous to count.” They have waded through dumpsters to retrieve critical manufacturing documents that companies have sought to hide. “It’s like it was at the turn of the twentieth century,” a Dutch pharmaceutical consultant, who encountered a frog infestation at a manufacturing plant in China, put it. “It’s like ‘The Jungle,’” he said, referring to the book by Upton Sinclair that exposed gruesome conditions in America’s meatpacking plants. 

One might think that at big international companies, regardless of where they are headquartered, plant conditions — and corporate conduct — would adhere to accepted global norms. That’s what Japan’s second largest drug company Daiichi Sankyo assumed when it acquired India’s largest drug company Ranbaxy, buying the shares of the company’s CEO, Malvinder Singh, and his brother Shivinder, grandsons of the company’s founder, for $2 billion. In their secret talks leading up to the acquisition, Daiichi Sankyo’s head of global corporate strategy, Tsutomu Une, proceeded under the assumption, as summarized by a company consultant, that “if we show our best efforts, sincerity and reasonableness on the coming negotiation, they also will show their best efforts, sincerity and reasonableness to us.”

But the two corporate cultures were like “oil and water,” as Ranbaxy’s senior vice president of global intellectual property Jay Deshmukh would later observe. Indians succeeded in business by being “ultra-aggressive,” he said. “Ethics are not important.” By contrast, the Japanese were “very trusting. Babes in the woods.”

As the two companies negotiated in secrecy under the code names Diamond and Ruby, Malvinder Singh concealed from Une the massive liability Ranbaxy was facing. The company’s dark secret — that it had fabricated quality data in the applications of 200 drug products sent to regulators in 40 countries around the world — had been memorialized in a potent document shown to a subcommittee of the board of directors. That document had made its way to U.S. regulators through a company whistleblower, prompting an investigation by the U.S. Justice Department and a search warrant at the company’s New Jersey headquarters.

But during negotiations with Daiichi Sankyo, Ranbaxy CEO Malvinder Singh had pressed his top executives and company lawyers to follow a script, stating that the U.S. government investigations were routine and dealt with different, unrelated issues. Five years after the acquisition went through, Daiichi Sankyo found itself on the hook for $500 million to settle the Justice Department’s allegations of fraud inside Ranbaxy. Une and a team of lawyers brought their claim of Singh’s deception before an international court of arbitration in Singapore, which sided with the Japanese company and leveled a $500 million judgment against Singh and his brother, which is still the subject of court battles in India.    

Before Peter Baker had arrived in India, the FDA’s investigators had long suspected that something was not right. Typically, a compliant manufacturing plant will reject a certain percentage of drug batches for many different reasons. But in India, investigators rarely saw a rejected batch. Somehow, almost all of them passed. Plants were also missing documentation. “I’ve always known [Indian companies] had a hard time keeping paperwork,” one FDA investigator explained. “Their habit and practice is not to keep documentation. They have a chalta-hai attitude,” he said, using a popular phrase in India usually accompanied by a shrug, which means a willingness to accept a less-than-ideal outcome.

As one FDA consultant explained, corporate culture is affected by country culture. Is a society hierarchical or collaborative? Does it encourage dissent or demand deference to authority? When you get off a plane and a customs agent demands a bribe, that is one data point among many that can impact employee behavior inside a manufacturing plant and affect the final quality of a drug. Cheaply made pharmaceuticals reach the consumer “at a very low dollar price,” as the FDA consultant posited, “but perhaps at the expense of other principles for which it is difficult to measure a dollar value.”

In 2012, Pfizer looked eastward and partnered with the Chinese drug company Zhejiang Hisun to create a line of high-quality, low-cost medicine under the newly formed umbrella of Hisun-Pfizer Pharmaceuticals. Zhejiang Hisun seemed like a safe bet: it was China’s largest exporter of drug ingredients to the United States. Pfizer had another reason to be confident about the company: The last few FDA investigators who’d arrived there had deemed the plant to be largely compliant. 

Pfizer had a battalion of employees working to safeguard its drugs at the 200 or so plants that it operated or contracted with around the world. Its layered system made far-flung partnerships and offshoring seem relatively safe. “If you have the appropriate controls,” as Pfizer’s former senior director of supply chain security put it, “I don’t think it’s adding risk.”

But by March 2015, Baker had left India and relocated in China, where he arrived at Zhejiang Hisun’s sprawling plant in the Northeastern city of Taizhou. Using the spotty Mandarin he’d studied in college, he went directly to the quality control laboratory. There, despite Pfizer’s three-year head start, it took him about a day to figure out that the company was running a hidden laboratory operation aimed at making poor-quality drugs appear compliant with FDA standards.

The plant was secretly pretesting its drug samples and then masking the results, in part by turning off audit trails to leave no evidence of the pre-tests. In one instance, Baker found that technicians had turned off the audit trail on February 6, 2014 at 9:09 a.m., then proceeded to run 80 secret tests. The audit trail was turned back on two days later at 8:54 a.m., and the tests — now rigged and with the outcomes assured — were repeated. Baker found the telltale evidence of the manipulations in the software’s metadata.

By the third day of inspection, the plant managers and analysts were well aware of how devastating his inspection might be. When Baker returned from his lunch break to the quality control laboratory, he saw an analyst quickly remove a thumb drive from one of the testing instruments and slip it into his lab coat. Baker demanded that he hand over the thumb drive, but the man “began running and fled the laboratory premises,” Baker documented in his inspection report. Fifteen minutes later, a manager returned to offer him the thumb drive, but Baker had no idea whether it was the same one. He noted the incident as a refusal to share records — which was serious enough to get the plant’s drug ingredients blocked from the United States. Two-and- a-half years later, Pfizer ended its partnership with Zhejiang Hisun.

By then, Baker had added a new tattoo to his collection: a word written in cursive on the inside of his arm that summed up the requirement he’d tried to enforce in a globalized world: “Integrity.”

Katherine Eban is the author of “Bottle of Lies: The Inside Story of the Generic Drug Boom,” from which this article is adapted.