Pharma Faces US Backlash

The Economic Times reported on June 25th, 2007 that US drug makers are turning the heat on pharma exports from India. They have accused India of being a source of low-quality exports and are exerting pressure on US Food and Drug Administration (USFDA) to tighten the oversight on Indian companies. The domestic pharma industry sees these as attempts to discourage exports from the country and is afraid that after the IT industry, it may now be the turn of Indian pharma to face a backlash.

“As manufacturing goes to China and India, the risk to human health is growing exponentially,” said Bulk Pharmaceuticals Task Force’s former chairman Brant Zell in an interview to a leading US newspaper. The group represents American drug-ingredient makers and had filed a citizen’s petition with the FDA last year, asking the agency to oversee foreign firms more aggressively. A former USFDA official has also gone on record to say that the agency does not conduct frequent inspections of FDA-approved plants in India and this is a matter of concern.

The Indian pharma industry is aware of the damage that a campaign based on the ‘risk to human health’ theme can do to Indian pharma exports to the US, the domestic industry’s largest overseas market. “It is a very sensitive matter. It is one of the key issues the industry is working on,” industry body Indian Pharma Alliance secretary general D G Shah said. India’s annual pharma exports are in the region of $2 billion, which is about 33 percent of its total exports. “In the recent past, pharma industry associations in the US and EU have stepped up their campaign using overt and covert means to vilify drugs produced in India by alleging poor quality.

This is because local API manufacturers and drug formulators in these countries are feeling the heat of competition from high quality affordable generics exported from India,” a senior executive of a leading pharma company who didn’t want to be named said. The official said that as pharmaceutical exports from India are not subsidised and conform to WTO rules and the foreign companies have no option left but raise a bogus argument with regard to quality. “This (health warning against pharma imports into the US) of course is baseless and cannot equate high quality medicines as being of inferior provenance just because of affordability,” the official said.

In a previous blog entry, I had talked of Big Pharma setting up research and manufacturing bases in India to bring down prices of medicines –
– If companies were indeed serious about “improving access to more and more people”, as Mr. Kindler and others of his tribe have claimed, a better alternative to including more people under US Social Security like schemes would be to shift manufacturing facilities into India. Indian generic manufacturers have increasingly demonstrated to governments in the Western world that it is possible to provide low-cost, high-quality products manufactured in India. Incidentally, the largest number of US-FDA approved manufacturing facilities outside the US is in India. If large scale production shifted to India, economies of scale would come into play and reduce costs of bulk drugs. Medicines could therefore be produced at a fraction of current costs while not compromising on quality. This would help firms take their products to peoples of many different countries thus helping achieve quantum growth and not incremental growth by, for instance, including relatively small numbers into the Social Security scheme for healthcare insurance.

So how would firms make the billions of dollars that are needed to get drug entities from the labs to the markets? While medicine costs would drastically reduce, it would be also possible to have differential pricing strategies (without worrying about parallel trade) and still make money to redeploy into research. The quantum of money made would surely reduce initially, but would even out as increased volumes would offset initial low revenue streams. It is time to rethink the entire R&D value chain since this is the single largest money guzzler for pharma and profitability is bound to increase when firms innovate to improve efficiencies and cut costs in research while also making more money from low cost & high quality manufacturing.

Its time that we take heed of the mixed global sentiment about the pharmaceutical industry. This should help us strive to create discipline around pricing strategies. Is it not true that when it comes to the prices we pay, we study them, we map them, and we work them? But with the prices we charge, we’re too sloppy.How would large scale shifting of research and manufacturing to India and China affect G-7 economies? BPO off-shoring did create news initially, but then eventually died down. Would this catalyze the ‘reverse brain-drain’? What percentage of US GDP does the pharmaceutical industry comprise? I don’t know the answers. The question is – IS MR. KINDLER THINKING OF THIS AS AN ALTERNATIVE WHEN HE PROMISES THAT HE IS WORKING TOWARDS ENSURING MEDICINE ACCESS TO THE NEEDY?

The backlash has just begun. Lets see how things unfold….watch this space!

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