Falsified or Substandard? Assessing Price and Non‐price Signals of Drug Quality

• Date: 01 October 2015
• Author: Aparna Mathur,Roger Bate,Ginger Zhe Jin
• DOI: http://doi.org/10.1111/jems.12114
• Published date: 01 October 2015

Falsified or Substandard? Assessing Price and

Non-price Signals of Drug Quality

ROGER BATE

American Enterprise Institute

Washington, DC 20036

rbate@aei.org

GINGER ZHE JIN

University of Maryland & NBER

College Park, MD 20742

jin@econ.umd.edu

APARNA MATHUR

American Enterprise Institute

Washington, DC 20036

amathur@aei.org

Pharmaceutical products can be of poor quality either because they contain zero correct active

ingredient (referredto as “falsified”) or because they contain a nonzero but incorrect amount of the

right active ingredient (referred to as “substandard”). Although both types of poor-quality drugs

can be dangerous, they differ in health consequence, price, and potential policy remedies.Assessing

basic quality of 1437 samples of Ciprofloxacin from 18 low-to-middle- income countries, we aim to

understand how price and nonprice signals can help distinguish between falsified, substandard,

and passing drugs. Following the Global Pharma Health Fund e.V. Minilab Rprotocol, we find

9.88% of samples have less than 80% of the correct active ingredient and 41.5% of these failures

are falsified. Falsified and substandard drugs tend to differ in two observable attributes: first,

falsified drugs are more likely to mimic drugs registeredwith local drug safety regulators. Second,

after controlling for other factors, substandard drugs are on average cheaper than passing generics

in the same city but the price of falsified drugs is not significantly different from that of passing

drugs on average. These data patterns suggest that careful consumers may have information to

suspect a drug is substandard before purchase but substandard drugs can still exist to cater to

poor and less-educated population. In contrast, falsified drugs will be more difficult for consumers

to identify ex ante because they appear similar to high-quality, locally registered products in both

price and packaging.

1. INTRODUCTION

Drug safety is a global health problem. According to Pincock (2003),1up to 10% of

the world’s pharmaceutical trade—25% in developing countries—involves poor-quality

drugs. The spectrum of poor-quality drugs is particularly wide, ranging from a near

1. Pincock (2003) cites these numbers as from the World Health Organization (WHO) but does not give

the direct source of reference from WHO. The same numbers are cited in the reviewpaper of Kelesidis et al.

(2007).

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precise copy of a genuine product to the extreme case of аdrug product with none of

the correct active ingredient (Newton et al., 2011).2

This paper aims to take a closer look at different types of poor-quality drugs. Using

the Global Pharma Health Fund e.V. MinilabRtest on 1437 samples of Ciprofloxacin,

we classify drugs according to its active ingredient only—those with zero correct active

ingredient are referred to as “falsified,” those with some but less than 80% of correct

active ingredient are referredto as “substandard,” and the rest are grouped as “passing,”

although they could still have imperfect quality due to impurity, insolubility, etc.3

This simple definition strives to highlight a rough quality difference while cir-

cumventing the confusing classification of poor-quality drugs in the existing literature.

As summarized in IOM (2013), WHO (2010) distinguishes counterfeit and substandard

drugs by the intent to deceive, but it is extremely difficult to prove intent in practice,

especially if the focus is on the intent to infringe trademark rather than the intent to

provide effective medicines. As a result, deliberating on trademark infringement often

diverts attention from drug quality and its public health implications. For this reason,

WHO has been hosting meetings of experts to derive clearer and more practical defini-

tions of substandard/spurious/falsely labeled/falsified/counterfeit medical products

(WHO 2011). Given the lack of a new and widely agreed term, we focus on the distinc-

tion of falsified and substandard drugs by active ingredient only. A similar definition

was used in Nayyar et al. (2012).

1.1 A Focus On Active Ingredient Is Important For Three Reasons

First, both falsified and substandard drugs can be dangerous for human health, but

their negative effects may differ (Newton et al., 2010). Withno correct active ingredients,

falsified drugs constitute no treatment at all. At the very least, it delays correct treatment

and exacerbates conditions being treated; wrong ingredients may even cause additional

problems. In either case death may result (Newton et al. 2002). In comparison, for many

diseases, substandard drugs may be more beneficial than falsified ones because the

correct active ingredient in them could provide partial benefits to patients or full benefits

to some patients (especially physically smaller patients—doctors usually prescribe the

same dose of antibiotic to all adults regardless of size). However, for drugs prone to

resistance, such as those for treating infectious diseases (e.g., antibiotics), consuming

some correct active ingredient could be even worse than consuming no active ingredient

for patients themselves and the population as a whole, because the strain of the disease

they are infected with may become totally resistant to even good-quality versions of

the substandard drug being taken (Bate et al., 2013). A better understanding on the

ingredient distinction between falsified and substandard drugs will help determine the

public health consequence of poor drug quality, and hence help drive public health

responses.

Second, the retail price of falsified and substandard drugs could differ greatly and

therefore generate different tradeoffs between drug quality and drug affordability. As

2. Between January 1999 and October 2000, the WHO received 46 confidential reports relating to poor-

quality drugs from 20 countries. About 60% of these came from developing countries. The drugs counterfeited

included antibiotics, hormones, analgesics, steroids, and antihistamines. About 32% of these drugs had no

active ingredient, 20% had incorrect quantities of the active ingredient, and 21% had the wrong active in-

gredient. In addition the WHO found that another 8.5% had high levels of impurities and contaminants

(http://www.who.int/medicines/services/counterfeit/overview/en/).

3. As we discuss later, the 80% cutoff comes fromthe minilab test, where the test accords a passing value

to drugs with more than 80% active ingredient and a fail to drugs with less than that value.