Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.ibd From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Executive Update Date: Wed, 28 Oct 92 13:12:52 EST Message-ID: <11.1992Oct28.131253@AmeriCast.com> 10/28/92 TITLE Executive Update Generic Drug Industry Still Facing Fallout Of Probe Laws, Oversight Have Been Tightened, And Many Firms Have Disap- peared The Associated Press In Baltimore Four years old and still going strong, a federal probe of the generic drug industry has left its mark in corporate board rooms, government offices, even neighborhood pharmacies. From humble beginnings that literally began in a Maryland trash can, the in- vestigation has uncovered corruption in the Food and Drug Ad- ministration and fraud among drug companies that Regulation manufacture copies of name-brand prescription drugs. It has resulted in dozens of convictions, $20 million in fines and, to some degree, a slowdown in the number of new generic drugs reach- ing the marketplace. It also has changed the way the industry views the FDA. "Every- body is scared to death about the FDA," said Hermant Shah, a pharmaceutical analyst with HKS & Co. of Warren, N.J. "They know the FDA means business." Federal prosecutors expect to close the investigation, which in- cluded allegations of fake drug tests and bribery, by fall 1993. "There have been a number of very important effects on the indus- try," said James E. Flynn, an analyst with Kidder, Peabody & Co. in New York. "One is that it is harder to get drugs approved. All the standards have been revised. The amount of paperwork that ac- companies applications has gone up dramatically." Jay Molishever, a spokesman for the Generic Pharmaceutical Industry Association, a New York-based trade group, says the tighter regulations have created a slowdown in bringing new products to market. "You spend a lot of money to do research, and if it is held up in the pipeline, it is very disruptive to companies," he said. "The basis of this industry is extreme competition. "In a sense, the scandal weeded out some of the small companies as well as some of the guilty companies." About 350 companies manufacture generic drugs, but the bulk of the medications come from 30 to 50 firms, according to the association. About 60% of all generic prescrip- tion drugs are manufactured by brand- name companies or their subsidiaries, it says. "About 20% of the industry is gone," said David Saks, vice president with Gruntal & Co. in New York. "Some of them (companies) are on the verge of going out; some are technically in business, but are literally not in business from day to day." Legislation permitting generic drugs was enacted in 1984. The chemical equivalent of brand-name drugs, generics can be licensed only after the patent expires on the brand-name ver- sion. They generally sell for less because they don't carry the heavy research, development, advertising and promotion costs of new brand-name drugs. Initially, "A whole lot of people jumped in . . . and there were a whole lot of drugs that were coming off-patent," recalled Kidder Peabody's Flynn. But by 1987, fewer patents were expiring, and competition grew more fierce. "That's what caused people to cheat on the approval process," Flynn opined. Stymied by its failure to get FDA approvals, Pittsburgh-based Mylan Laboratories Inc. hired a private investi- gator that year. While sifting through the garbage of Charles Y. Chang, chief of the FDA's generic drug division, the investigator found evidence that Chang had accepted furniture and a free trip from American Therapeutics Inc. of Bohemia, N.Y. Investigators later charged that the gifts were made in exchange for favorable treatment of generic drug applications, among other things. "If he had been very careful as to how he disposed of the cir- cumstantial or corroborating evidence, it would have been a dif- ficult case to prosecute, if at all," said Gary Jordan, the as- sistant U.S. attorney in Baltimore who prosecuted the case. So far, seven drug companies, one laboratory and 29 individuals have been convicted on a variety of charges including giving and re- ceiving illegal gifts, perjury and introducing drugs into the marketplace after submitting false testing data. The convicted businesses are American Therapeutics; PharmaKinetics Labora- tories, Baltimore; Bolar Pharmaceutical Inc., Copiague, N.Y.; Chelsea Laboratories, Inwood, N.Y.; Par Pharmaceuticals, Spring Valley, N.Y.; Quad Pharmaceutical, Indianapolis; Vitarine Pharma- ceutical, Springfield Gardens, N.Y.; and Superpharm Corp., Bayshore, N.Y. "It's hard to believe we have gone this long," said Jordan. "But I fully anticipate that in the next year there will be additional charges filed. It is not over yet." The scan- dal has caused the FDA to hire more reviewers, issue new ethics policies and reorganize the generic drug division into an office within the FDA, notes Mike Schaeffer, an FDA spokesman. Generic drug applications are now more thoroughly reviewed, he said. This article is copyright 1992 Investors Business Daily. Redis- tribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM