Coronavirus calls for pharma rethink

If health security is viewed as an integral part of national and global security, pharma manufacturers must not be left dependent on a tenuous supply chain for APIs.

  • By Sakthivel Selvaraj & K Srinath Reddy

The COVID-19 pandemic has gone way past the SARS epidemic of 2003, or the MERS outbreak of 2012, in terms of number of positive cases, and lives claimed. The highly infectious virus spreads rapidly, resulting in a wide spectrum of clinical presentations, from mostly mild to severe. While the country is battling to put in place mechanisms to control viral transmission, other emerging risks are equally worrisome.

These relate to shortages and price hikes of key essential medicines in the face of lockdown of three Chinese provinces. The provinces of Hubei (Wuhan, its capital, is the epidemic’s initial epicentre), Jiangsu, and Shandong are key suppliers of active pharmaceutical ingredients (APIs) to India’s drug firms, which make finished products from them.

From being reasonably self-reliant—both in drug formulation and API production—in the early 1990s, India has become mostly import-dependent in API. Last year, India imported roughly `50,000 crore worth of APIs, and other intermediaries that go into production of finished formulations. About `31,740 crore worth of these were from China alone, accounting for two-third of API imports. Of the top 20 imported APIs, amounting to `3,610 crore, 68% were from China. For production of several medicines, import intensity from China is alarmingly high. In case of streptomycin, used in treating tuberculosis (TB) and other infections, nearly all imports are from China. In case of penicillin, another critical antibiotic, 90% of imports are from China. And, 70% of rifampicin API (used for TB treatment), 63% of erythromycin API (an antibiotic used especially for respiratory infections), 82% of glutamic acid and its salts (treatment for nerve disorders), 80% of aniline and its salts (for antioxidant formulations), are imported from China.

The lockdown in Wuhan and other neighbouring provinces stopped or delayed API shipments to India. China has now declared that the epidemic is under control and Wuhan is re-opening. If the shutdown is followed by a prolonged slowdown, India’s drug makers will find it difficult to produce finished formulations, as current inventories will be depleted in a month or two. Traders importing these intermediates are already engaged in speculative price hikes. Consequently, more than 200 countries importing medicines worth over `1,03,059 crore from India will be hit hard, if API supplies are constricted.

Our continued reliance on China and other countries has increased in the last two and a half decades. Our manufacturers found it cheaper to import from China, and our policymakers saw that as a benefit of globalisation. Compared to China, India enjoys an advantage in terms of wages, which account for a sizeable share of production costs. However, China mastered the art of efficiently utilising large infrastructure to reap economies of scale. Its manufacturing industries also benefitted from subsidised electricity, water, and other supplies, provision of backward and forward linkages to sourcing of chemical supplies, and tax incentives. This capacity build-up received full support from the government.

Despite India’s advantage on wages, which are one-fifth the wage levels in China, our switch to a market-driven model of development, even in this vital sector, led to a progressively declining public sector capacity. This has compromised the health security of Indians, and the world.

In a stable world, which sticks to the script of predictably peaceful development, dependence on China for APIs would be a sensible bet. However, the instability that often unfolds at short intervals—Beijing Olympics, SARS virus epidemic, Doklam stand-off, and now the ongoing Covid-19 epidemic—demonstrates the danger of such dependence. What happens if China is subjected to economic sanctions by the US, as frequently threatened by the present administration? We cannot import from China then, even if we wish to and need to.

If health security is viewed as an integral part of national and global security, as indeed it must be, our pharmaceutical manufacturers must not be left dependent on this tenuous supply chain. Both India, and the world will suffer as a consequence. The pharmaceutical sector, so vital to healthcare, should not be treated as any other commodity. India’s public sector drug manufacturing, which contributed immensely to our domestic needs, and was the cradle from which many of our private pharmaceutical giants have emerged, is in dire danger of extinction.

Unless India protects and promotes its domestic pharmaceutical manufacturing capacity, our comparative advantage in global markets may be lost. China is soon likely to compete hard with India on finished pharmaceutical products as well. If those prices fall, Indian companies will no longer be interested in producing, but would be content to market the Chinese products through their distribution networks. This strategy will be shown as a win-win situation for both companies, which will import profitably, as well as consumers, for whom it will be cheaper to buy. Such developments may compromise our pharmaceutical security, if there are disruptions.

India must realise the imperative of investing in health, and securing the pharmaceutical sector from strategic risk. While fiscal and financial incentives, and infrastructure must be made available to domestic pharmaceutical companies, the strategy must focus on medium and small industries. Incentivising the large domestic companies will be less of a priority as most of their market lies outside the country. For domestic drug security to be promoted, medium and small industries must be provided fiscal, and non-fiscal incentives. Quality assurance measures must also be rigorously pushed.

Even as we incentivise domestic private sector manufacturers, the danger of their acquisition by multi-national manufacturers lurks. Their policies may not, then, prioritise India’s pharmaceutical security. A sustained momentum can be ensured only by reviving public sector pharmaceutical companies, as sufficient infrastructure already exists. By investing in state-of-art technology, and professionally administered, autonomous public sector companies, such revival can go a long way in addressing several challenges. Not only can self-sufficiency in API production be restored but also continuous supply of key essential medicines to government ensured, besides responding to the need for compulsory licensing of new patented medicines when necessary.

(Authors are affiliated to the Public Health Foundation of India. Views are personal)

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