Race to the Bottom: Boom Times

Note: This transcript has been created with a combination of machine ears and human eyes. There may be small differences between this document and the audio version, which is one of many reasons we encourage you to listen to the episode above!

Dan Gorenstein (DG): Hey and happy New Year!

2026 is shaping up to be another big one in health policy. 

Our team is hard at work on stories digging into the future of rural health, opioid addiction in older adults, court-ordered mental health care and more.

You’ll start seeing those stories later this month, but first, we’re diving into a corner of America’s prescription drug policy that doesn’t always get the attention it deserves.

Generic drugs now fill 9 out of every 10 prescriptions in the U.S.

But experts warn that America’s market for these cheap, essential medicines is on shaky ground.

We explore why in Race to the Bottom, a special, three-part series that we first aired in 2024.

Here we go.

ORIGINAL STORY:

Dan Gorenstein (DG): Generic drugs are, in many ways, the unsung hero of our health care system.

They bring remarkable medical innovations within reach for millions more Americans — drugs that fight cancer, stop heart attacks and seizures, treat otherwise fatal infections — often for just a few bucks a bottle or less.

Patient A: When I found out that I could get, the generic version for the first time, there was like an exhale, like, honestly this will change my life.

Patient B: This medication that was once $130,000 a year to, you know, nothing. The copay is zero dollars. It’s kind of hard to wrap your head around.

DG: These much cheaper copies of brand-name medications now fill 9 out of every 10 prescriptions in the U.S. They save us hundreds of billions of dollars a year.

But will affordable, high-quality generic drugs continue to be there when we need them?

News clip: Akorn Pharmaceuticals closed its doors nearly a week ago… 

DG: Big players are leaving the business.  

News clip: Leaving hundreds without a job.

News clip: Company says increased competition is causing the closure here.

DG: Expensive cutting-edge therapies are proving harder to copy on the cheap.

News clip: Critics say some drug companies are playing games to stave off generic competitors leaving patients out in the cold.

DG: Shortages of generic drugs are now the norm, leaving doctors and patients scrambling to find the medicines that they need.

News clip: According to the FDA more than 130 drugs were in short supply as of this week.

DG: Why is this industry that’s been so successful and so essential to our health in so much trouble?

News clip: Antibiotics, antivirals, ADHD, diabetes medications, you name it.

DG: Welcome to Race to the Bottom, our special series on the problems plaguing the generic drugs we all rely on. Over the course of three episodes, we’ll explore how we got here and what it would take to reverse these worrying trends.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein. This is Tradeoffs. 

*****

DG: Today, Part One: Boom Times.

Where did we go wrong? That’s the natural question we ask ourselves anytime something strong starts to fall apart. 

Tradeoffs senior reporter Leslie Walker and I started kicking around that question about the generic drug industry earlier this year.

Hey, Leslie.

Leslie Walker (LW): Hey, Dan.

DG: So Leslie, we asked you to pinpoint when this trouble first began. 

LW: Right, and at this point, I’ve talked to north of 30 folks. And most agree our story really starts in 1984 with the passage of this really important law known as the Hatch-Waxman Act — not surprisingly named after its authors, Republican Senator Orrin Hatch and Democratic Congressman Henry Waxman.

And this really is the law that gave birth to a modern generic drug industry that we have that’s been this amazing boon to society.

DG: Right, I mean yes, we pay very high prices for a small number of brand name drugs. But thanks to this other kind of drug — cheaper generic copies — we actually pay less than almost any other country for most of the prescriptions that we fill.

LW: Amazing, right? But what I learned through my reporting is that this law also sowed the seeds of some of the problems we see today — problems like big players quitting this business, critical drugs being out of stock and some serious quality questions. So it made sense to me to start by better understanding this law that is the origins of both the good, even the amazing and the bad here.

And I started by talking with this guy who was in the room when this rare moment of bipartisan dealmaking went down.

LW: Do you want to go by Alfred or Al in our story?

Al Engelberg (AE): I started out, uh, in life as Alfie, and my dog now has that name, so that’s out. And, uh, most people call me Al.

LW: So this guy, Al Engelberg, is now 85 years old, enjoying the retired life in Aspen, Colorado. But back in the day, he was the generic drug industry’s top attorney — a time when, he says, Democrats and Republicans were feeling the heat on high drug costs.

Spending had more than doubled between 1970 and 1980. Patients felt the sting back then because, unlike today, very few insurers even covered drugs. And that was tough for older Americans who had to pay for all these prescriptions on their own. That got the attention of our political leaders. Here’s President Ronald Reagan.

Ronald Reagan: Senior citizens require more medication than any other segment of our society. I speak with some authority [laughs] on that. They use about 25% — we use — about 25% of all the drugs sold.

LW: The Gipper, a real jokester there. Beyond wooing voters, lawmakers were also worried about money. Between the military, veterans and Medicaid, the government’s drug bill was blowing up.

Ronald Reagan: In 1983 alone, the federal government spent an estimated $2.4 billion for drugs.

LW: That’s roughly triple what the feds had spent on drugs just a decade before.

DG: Okay, so that’s the landscape: Consumers and the government feeling the pinch on prescription drugs.

LW: Yep, and lawmakers, on both sides of the aisle feeling some urgency to act. But the multi-billion dollar question is: what do they do about it?

Because this is about as thorny as a policy issue as you’ll find. The simplest sounding solution — at least the most direct one — is to just cap the prices. Don’t let drug companies charge more than a certain amount.

DG: Right. And it’s important to point out here, Leslie, that is what the governments of most other Western countries do to keep prescription drugs affordable, either cap or directly negotiate the prices of brand-name drugs.

LW: Yes but here in the U.S., branded drugmakers successfully fought that idea for decades, basically scaring the pants off politicians any time it came up, saying if you cap our profits, we’ll develop fewer new drugs and you might miss the next cure for cancer. That argument, according to Al Engelberg, highly effective even back in the 80s.

AE: You know, the drug companies basically said, “Research is very expensive. If we can’t make a profit, your grandmother will die.” [Laughs]

LW: So sweeping government price regulation: basically a political dead end. But then there’s this Democratic Congressman from California, Henry Waxman, who sees a very different type of solution.

Henry Waxman: At some point, public policy calls for the free market system competition, which will bring about the result of a lower price for the consumer.

LW: Waxman makes this important choice: He passes over the brand-name drugs under patent and instead zeroes in on this other set of drugs whose patents have expired but still have super high prices.

DG: And the prices are high because why?

LW: Because even though in theory, once a drug’s patent expires, other companies could come knock them off — you know, make generic versions of them and sell them on the cheap — almost no one was doing that.

DG: Why not?

LW: Well, Al told me very few companies even existed to sell cheaper copies of these drugs after their patents had expired.

AE: The generic drug industry, if you want to call it that, was six or seven companies about 80% of those Jewish family businesses in which the husband was a chemist and the wife was a bookkeeper. [Laughs]

LW: So Al basically said the business was seen as super risky and unattractive. For starters, the FDA made generic companies jump through a bunch of expensive and time-consuming hoops to get these copycats approved. Plus, they could get hit with patent lawsuits from these big brand-name players with much deeper pockets.

DG: So you’re saying to me, Leslie, I think that you’ve got these sort of like mom-and-pop generic companies that are facing a total business minefield to get their drugs to market.

LW: Exactly. And here’s the result of that, as Al put it.

AE: There were probably 100 drugs on which patents had expired and which, there was no generic competition.

LW: So that’s like a hundred drugs, Dan, out there that in theory, generic competitors could be copying and selling, but they weren’t because this business was barely viable.

DG: Got it. So this is that other option that Henry Waxman sees: Get this industry working better so we can bust this open and deliver consumers a bunch of savings. And, another benefit: sidestep that political third rail, regulating drug prices.

LW: Right but Waxman needs the brand drug companies to play ball. Remember they hold a lot of sway in Congress. They could kill your grandma or cure your cancer.

And the brands are willing to talk. They’ve got their own agenda. At the top of their list: Extending their own patents — these monopolies they have — for their own drugs. They’ve got a champion in Republican Senator Orrin Hatch from Utah, and together Hatch and Waxman bring this deal across the finish line.

LW: Now don’t let the nostalgia for bipartisan compromise fool you, Dan, cause Orrin Hatch himself wrote an essay decades later recounting just how bitter these negotiations were.

DG: What did he say?

LW: Well, he wrote that the two sides argued over almost every single word in the bill. Sometimes he felt less like a lawmaker and more like a therapist and then there’s this gem.

The two guys leading the negotiations on behalf of the generic and brand name companies once got angry at the same time. They jumped to their feet, rushed to the door, get there at the same time, right?

And, Hatch writes, “Not wanting the other to win on anything, they both tried to jump through and smacked their heads.” Hatch said he had to turn away to keep from cracking up.

DG: I mean, can you can you can almost hear that sound, right? That thwack.

LW: Totally. And then the door going, like, bang, you know, like in a cartoon.

But as ferocious and kind of ridiculous as those negotiations were, I mean, Al told me that even when he was in a lot of those heated meetings, his generic clients never forgot which side their bread was buttered on.

They knew that the whole goal was to try to find a way to bring drug costs down without harming what they and everyone else agreed was really the engine of drug innovation in America. And that’s the brand drug industry.

AE: I was representing a bunch of people who copy drugs. We can’t exist without these guys. If they don’t invent them, there’s nothing for us to copy. My job was not to kill the goose that laid the golden eggs, it was to prevent the goose from getting too fat.

LW: In 1984, the two parties finally reached a deal.

Now whether the deal actually prevented that goose — the brand drug industry — from getting too fat, remains a big, open question about this law’s legacy that we’ll get more into later in our series.

But for now, what you need to know about this historic deal, is it gave brand companies some extra patent protections. And the generic companies, well, Al said they felt they got something pretty damn remarkable.

AE: Sitting there in the Rose Garden — I’ll never forget it — with the leaders of the industry, we thought that we had hit a home run.

DG: What did he see as the home run, Leslie?

LW: So in place of what used to be this one-lane, super bumpy, very slow road to market, they get a super highway — way fewer FDA hoops, patent lawsuits became easier to settle. Basically, it became much faster, cheaper and easier for generic companies to start selling their stuff.

DG: And the hope, I assume, was that once you open up this super highway, you get a bunch more cars that want to drive on it and more competition will mean lower prices and more savings for consumers.

LW: That’s exactly right.

Ronald Reagan: [Applause] Thank you all.

LW: Here’s how President Reagan summed up those hopes in the Rose Garden.

Ronald Reagan: So when you add it all up, this bill will provide regulatory relief, increased competition, economy in government, and best of all, the American people will save money and yet receive the best medicine that pharmaceutical science can provide.

LW: Win-win-win-win right?

DG: Like Vegas with the triple cherries, right? Less red tape, cheaper drugs, the same lifesaving treatments.

LW: But there was this big unknown: Would this law actually deliver on those lofty promises?

And, no one honestly had any idea because this law really was unprecedented. Check out what UCLA economist Bill Comanor said to me.

Bill Comanor: The framers of Hatch-Waxman came up with the most astounding solution. They, I think for the first time in American economic history, created an industry that did not exist before. 

LW: Obviously the industry did exist at some level before, but I wanted to play you that bite because it underscores that Congress really swung for the fences here.

No one really knew if this faster, cheaper path to market would actually attract more companies, would save anybody much money or might even backfire in some way.

DG: And no one knows the answers to those questions just to be clear here, Leslie, because this was basically uncharted territory. At a time when many other countries were turning to government regulations to slow drug spending, we here in the U.S. were putting our faith in the power of private companies to basically compete our affordability problem away.

LW: Yeah, let one set of companies, this new, revamped generic drug industry, act basically as a check — a balance — on the excesses of these other brand-name companies. A very American solution.

DG: Great, we’ll leave it there for a second. After the break, a gold rush unfolds, prices start to plummet and we see the limits of competition.

BREAK

DG: Welcome back. When we left you, President Reagan had just signed a bill that Republicans and Democrats hoped would harness the power of the free market to bring high-quality, cheaper drugs to Americans faster.

We’re joined again by senior reporter/producer Leslie Walker.

Look, Leslie, I know from my own reporting that it took a while for this industry to get up and running: Doctors and patients trusting generics as safe alternatives to branded products, companies ramping up production, lawsuits..

We know the generic drug industry is huge today. So when did things really get huge?

LW: So a lot of people I interviewed pointed to the early 2000s as the era when this faith that lawmakers had put in the free market really starts to pay off.

By 2007, for example, generics were filling nearly two out of every three prescriptions. Patients, insurers, the government are all saving tens of billions of dollars a year. Generics, on average, the first year they’re on a market, they cut prices in half. By year two, they’re cutting prices by 75%.

DG: 75%? I mean this all sounds really impressive. Is all this success the direct result of that hoop clearing that Hatch-Waxman did, making it easier for generic companies to get to market?

LW: That was a lot of it for sure, plus state laws also changed to let pharmacists start automatically swapping in these generic drugs. And, there was this one other big piece of Hatch-Waxman. It was this incentive that lawmakers included — a kind of golden ticket — where whichever generic company was first to apply with the FDA got 6 months of profit all to themselves.

DG: In other words, exclusivity: No other generic company could enter for those 6 months.

LW: Exactly, and that was to reward the company who put in the work to clear the hoops that did still exist — FDA testing, paying lawyers to settle patent issues. And this reward, it starts getting generic executives chomping at the bit.

Christine Baeder (CB): In the heyday, we were launching 40, 50 products a year. Boom, boom, boom. Let’s go.

LW: That’s Christine, let’s call her, “Boom Boom” Baeder. To paint a picture of Christine for you, when she says, “Boom, boom, boom, let’s go,” that really is kind of her vibe in a nutshell.

Today Christine is a president at Apotex, which is a massive generic drug company. But back in 2008, she was leading what’s called the launch team at Teva, this other really big generic drugmaker. Her team’s whole job was to take on these brand-name behemoths.

CB: It’s super exciting. It was a fun thing to do. You knew you were making a difference.

LW: And to be clear, Christine also said you knew you were about to make a boatload of money because for these particular launches, Dan, Christine’s team had that golden ticket.

DG: Right, those 6 months of generic sales all to themselves.

LW: Yeah, which Christine told me could make you more than a million dollars a day on some drugs. So as soon as that 6-month clock starts — 180 days, Dan – you’re in this sprint. And that, Christine said, meant the night before these product launches often looked like this.

CB: I had on, I think, jeans and a sweatshirt. I brought a pillow. I think I had a little blanket.

DG: [Laughs] Wait, did she bring the marshmallows? Like, what are we talking about? What’s going on? S’mores?

LW: It was actually the day before Thanksgiving and Christine had just gotten the green light from her bosses to launch a new generic asthma drug.

CB: And it was very important to us since we would be the only one on the market, that we would get it into as many pharmacies as possible very, very quickly.

LW: And so Christine basically figures out that the fastest way to get this drug into as many pharmacies as possible is actually using a fleet of truckers. So each is driving a tractor-trailer carrying cases and cases of this new drug 

CB: Which is kind of ridiculous but honestly the only way to ensure that all of the loads hit at the same time and that you can utilize the weekend for shipping.

DG: And wait, Leslie, why are they rushing like this?

LW: So again, time is money here. They have this 180-day period to make as much money as possible so she’s hired a fleet of truckers on the night before Thanksgiving because shipping is slow during the holidays. But if they hire their own truckers, Christine’s like, this is the fastest way to get these drugs out there.

DG: Oh my God, we’re talking about millions of dollars a day riding on the speed with which these truckers can drop the drugs off.

LW: And Christine knows that. She knows some of these truckers might be driving overnight, you know, on the holiday away from their families, so she decides to leave a little extra inspiration in the cab of each truck.

CB: I actually wrote a personal letter that we gave to every truck driver, and I explained what the drug was for, and I explained that our price was more than 55% off the brand’s list price so it would really make a difference to people.

LW: So she signs it with her name and number and the truck starts to roll off the lot. She goes under her desk, takes her pillow, thinks she’s going to get some shut-eye. But then something unexpected starts to happen.

CB: My phone continued to ring with truck drivers.

LW: It’s 11 p.m., 2 a.m., 3 a.m., her phone keeps ringing.

CB: They were calling and saying, “Hey, I’m hitting weather in Omaha. I might be a little late, but I’m still going.”

DG: I guess the letters worked.

LW: The letter worked. So yeah, this fleet of truckers is calling super motivated. like she said, “I’m hitting weather in Nebraska. I might be late, but I’m going to get there.” And Dan, this was the Hatch-Waxman dream, right? They had successfully designed a market that was so appealing for companies to jump into that they’re pulling all-nighters, right. They’re hiring fleets of truckers.

No one is forcing them to. It is simply the magic of the market at work.

DG: From your lips to Ronald Reagan’s ears, Leslie Walker. And I apologize for this cliche, but this really is the ultimate win-win: You’ve got Boom Boom raking in millions of dollars and at the same time, all these everyday Americans are saving a whole bunch of money on their drugs.

LW: Totally. And other people start catching on. I mean, there’s only so many ways in America to make a million dollars a day. And, actually, this is where our story starts to turn.

CB: It was an attractive industry. We were having a lot of fun and a lot of other companies jumped into the fray.

LW: Christine tells me that, other health care companies start to see an opportunity to make money. And before long, you know, like Al said, in the beginning, maybe there were 6 or 7 generic drug companies in the 70s, but by the early 2000s, more than 100 companies a year were getting new generics approved.

DG: Wow, so this industry really exploded.

LW: Yeah, and my favorite kind of little piece of color here is that at one point, companies literally started pitching tents outside of the FDA’s headquarters to make sure they were the first ones to file because they wanted that 180-day exclusivity so badly. I mean, they were literally sending staffers with tents to camp outside of the FDA.

DG: Is this the opportunity for s’mores? Do they have s’mores here?

LW: We’ve really got to get you a marshmallow. I mean, the crazy thing is the FDA decided it was basically a public health hazard that there were so many people camping outside of their offices — like it was a Duke basketball game — that they actually had to change the rules and some pretty significant ways. It really was this gold rush, right? These are people trying to, you know, stake their claim. It gets pretty crazy.

DG: This sounds wild with this camping, but I mean, you said it, right? You said a gold rush. So my question is Leslie, though, isn’t this good? This is the supreme efficiency of the market at work.

LW: Great question. So basically what starts to happen is the market kind of goes into overdrive. It’s like who can cut your prices the lowest the fastest, and you’re not just competing with 3 or 4 other businesses. You’re competing with 10 or 20. And the only thing you’re really competing on is price. And if these companies were just cranking out sleeping bags, coffee makers, couches well then maybe that’s fine.

DG: Right, but we’re talking here about critical medicines that people need for their everyday health.

LW: Exactly and because of that, it’s really important to make sure these drugs are made safely and that there’s enough that people can always get them whenever they need. But in the last four decades since Hatch-Waxman, no major laws or regulations have effectively slowed this race to the bottom on price to make sure that as these prices fall and fall and we all get these great savings, that we also still get the quality and reliability that we need from these drugs.

DG: So Leslie, to bring us all the way back to the beginning and our original question — where did we go wrong — this is it. This is when our trouble began, when the market seemingly became too successful.

LW: Bingo. And if this episode was really about the good old days, then Episode 2 is going to give us an up-close look at what’s happening today where people can’t always count on the generic drug supply because of some of these problems.

Laura Bray: We go in for what both Abby and I know is a very important chemotherapy, and the doctor just comes in and says, you know, you’re not going to get this one today because it’s on shortage.

DG: Leslie Walker, thanks so much.

LW: Thanks, Dan.

UPDATE:

DG: Since this episode first aired, Al Engelberg published his own version of this slice of health care history.

A memoir titled “Breaking the Medicine Monopolies: Reflections of a Generic Drug Pioneer.”

I’m Dan Gorenstein. This is Tradeoffs.