PHARMACIST STEVE

www.aei.org/publication/indias-dodgy-pharmacy/

Key Points

• The quality of medicine today is much less reliable due to several factors: Western regulators have difficulty overseeing foreign plants, domestic regulators lack the interest to oversee these plants, and generic companies are unable to differentiate their products except by price. This is not limited to a single group, company, or country. However, in this paper I primarily address India.
• The rapid rise of India’s pharma industry has not been matched by quality production. The Indian government protects its industry at all costs, and corruption is widespread.
• Change is required in both India, which must update its laws and improve its regulator, and the US, which must better identify and punish quality infractions. Additionally, the biggest lie in the pharmaceutical market, that all generics are the same quality, must end.Executive Summary

  Thirty years ago, most medicines consumed in rich nations were made there. Today most of the ingredients and nearly half the finished products come from India and China. India and China have low costs, which have driven the three-decade change. Both nations have capable chemists and businesses that can make high-quality products, but they also have a lot of slipshod producers (not unlike the West of the mid-20th century).

  Western regulators’ difficulties in overseeing these plants, domestic regulators’ lack of interest in overseeing them, and generic companies being unable to differentiate their products (due to prescribing practices, limits on advertising, and so forth), amid the fiction that all generics are equal, mean that quality, which should be more assured, is more hit-and-miss today than before. This is not a problem limited to a single group, company, or country. However, in this paper I primarily address India.

  A pharmacologist works inside the bio safety room at Natco Research Centre in the southern Indian city of Hyderabad. Reuters.

  The rapid rise of India’s pharma industry has not been matched by a sufficient capacity to regulate legal medicine production. India is far from unique in exhibiting this problem, but it is the worst protected of the major exporting nations. Like other nations, policing medicine counterfeiting is at least attempted in principle, but unfortunately in India it is almost nonexistent in practice. Additionally, widespread corruption enables all sorts of bad actors to endanger patients by exposing them to a wide variety of inferior-quality medicines. Most worrying is increasing evidence that not all, or even the majority, of legal Indian manufacturers are operating to acceptable standards.

  Any manufacturer, even well-known Western companies, makes mistakes. But in countries with robust rule of law and effectual regulation, infractions are noticed and remedies made, either by the federal government or through the threat of private litigation. Manufacturers know that repeated negligence will lead to plant closures, massive fines, civil damages, and even bankruptcy, and so they happen rarely.

  This was certainly not the case historically. For much of the 20th century, manufacturers in the US and Europe operated with little oversight, and in response, reputable companies differentiated their brands by ensuring quality or purity, which nurtured trust, reputation, and brand loyalty. Rigorous regulation slowly followed, and an iterative process of quality production and stricter regulation has evolved. Undoubtedly this process has improved quality in the West.

  India is, in many ways, in a similar situation to the West of 60 to 70 years ago. India currently lacks regulatory oversight and exhibits legal weaknesses that encourage substandard drug producers to flourish, often crowding out better producers, which cannot compete on price with those cutting corners. While Europe and America faced this problem in the mid-20th century, at that time it was easier to differentiate products based on branding and advertising, whereas today, all “generic” products are assumed to be interchangeable, and advertising is often illegal. This means companies can often distinguish themselves only on lower price and reliable delivery.

  Additionally, the plethora of substandard products is worsened by the Indian government’s price-control policy, which drives low prices for government contracts to supply pharmaceuticals—prices so low, some manufacturers simply cannot make good-quality medicines and cover costs.

  Furthermore, some Indian producers seem to be consistently and intentionally making poorer-quality products for certain domestic and foreign markets where quality control and consumer discernment are perceived to be weak. But companies sometimes send poor-quality medicines to markets with good oversight, too, and occasionally get caught as a result. Increasingly, Western regulatory agencies are identifying failing Indian companies and sanctioning them—most infamously, the pharmaceutical company Ranbaxy paid a $500 million settlement in 2013, as the company admitted to fraud and supplying substandard medicines. Since then, dozens of other Indian companies have been reprimanded or fined by the US Food and Drug Association (FDA) or limited in their ability to export their products to the US. But the Indian government continues to deny it has a problem, to the chagrin of foreign regulators and drug producers and of increasing concern to some American physicians and patients. Perhaps most striking, India’s regulators never even bothered to investigate Ranbaxy following the US case.

  As a result, Indian regulators are increasingly isolated from the rest of the world. Indian producers may also be isolated in the future; US congressional committees are investigating drug quality, and President Donald Trump is pushing for more production in the US. But at the same time, the president wants cheaper drugs, and no producers can beat India on price.

  We may be approaching a crossroads for Indian medicines. If India does not shape up, resulting in tragedy to US patients, a US boycott of Indian drugs could devastate India’s pharmaceutical industry—the good with the bad. It may also double the price of medicines in the US and lead to shortages. It is in nearly everyone’s interest that India sort out its medicine business.

  This paper explains the problems with Indian medicines, while acknowledging the vital role they play, and then discusses some of the methods by which quality can be improved, using a mixture of carrots and sticks.

  Several options are available to fix the lack of consistent quality. The simplest is to be open about quality differences and allow the market to adapt. Allowing generic manufacturers with spotless records to advertise this fact, pointing out how their products are more reliable than their competitors, would probably drive demand by patients for those products and drive drug wholesalers and pharmacists to deliver demanded products based on such differentiation. The knock-on effects would be significant: If Indian or Chinese companies are exposed as making shoddy products, they would lose business, and some, maybe most, would change practices as a result.

  A more likely political approach would be for the US to enact legislation that prevents all Indian and Chinese products from being imported, unless they are certified to the highest standards. This means not just passing an initial FDA inspection, but passing ongoing private-sector audit requirements, with stringent penalties such as marketing prohibition if a producer fails in these audits.

  Price increases and shortages would be an inevitable result of such an approach, but whatever path is taken, there are only imperfect real-world policies with trade-offs that affect patients and entrenched interests. It is ironic that an overreliance on the cheapest sources of chemicals and finished products is caused by the near impossibility of differentiating products based on quality.

  Introduction

  The pharmaceutical industry is one of the most heavily regulated in the world, yet medicine manufacturing is often opaque, even to the very regulators charged with protecting consumers from ineffective and potentially dangerous products. Furthermore, patients and even physicians are often ignorant of the products they take or prescribe every day.

  Regulation is slow to change, often for good reasons, since business dislikes uncertainty and invests more when the rules of the game are set. But as industry has changed, its practices, notably its procurement practices, have changed so radically in the past three decades that the regulatory environment is no longer capable of overseeing consistent product quality. With no effective regulations and with opaqueness from most of the supply and distribution system, quality problems were almost inevitably going to arise.

  A key change has been geographic. India has developed a reputation of producing cheap generic drugs, making it the pharmacy to the world. It is a well-deserved reputation since Indian drugs dominate pharmacy sales in every part of the developing world and increasingly in the West.

  This paper is split into three sections. The first discusses publicly available data and stories about Indian drug-quality flaws and provides a brief analysis of legal institutions and organizations charged with addressing quality problems. The second section addresses my own efforts to assess the problem from a decade of drug procurement of Indian medicines. The third section deals with actual and potential policy responses to the problems identified in the first two sections.

Filed under: General Problems