Why U.S. China trade conflicts hurt India’s booming drug exports
In March this year, Prime Minister Narendra Modi banned the export of 26 drugs and pharmaceutical ingredients. He said this would ensure there were adequate supplies to meet an expected surge in demand within India, due to the spread of COVID-19.
The products, which account for a tenth of India’s drug exports, included Vitamin B12, painkiller and fever reducer paracetamol; several antibiotics such as erythromycin; and hydroxychloroquine, an anti-malaria medication, which U.S. President Donald Trump claims also works against COVID-19.
Dependence on the U.S. market
But a month later, in April, India relaxed the export restrictions on “humanitarian grounds.” Prime Minister Modi reportedly gave into pressure from the Trump Administration. The quick policy reversal reflects both the size of India’s drug exports as well it’s vulnerability to America’s interests.
India supplies about half the world’s vaccines, including over 80 percent of the antiretroviral drugs used to combat Acquired Immune Deficiency Syndrome (AIDS.) It is also the leading exporter of generic drugs, accounting for a fifth of the global supply. Generic drug exports include vitamins and medications for treating infections, diabetes, and cardiac and stomach ailments.
In the fiscal year that ended March 2020, India’s drug exports totaled $21 billion, double that from fiscal year 2012. Nearly a third of the exports go to the U.S. Since 2010, the U.S. Food and Drug Administration has approved nearly 6,000 generic drugs, made by over fifty Indian manufacturers, for sale in the U.S.
Large, rapidly growing Indian market
Given its rising population, widespread prevalence of tuberculosis, diabetes, diarrhea and other stomach diseases, and its very inadequate healthcare services, India is a big, rapidly growing market for drugs and vaccines. In 2020, for instance, Indians consumed about $20 billion of modern medicines sold by pharmaceutical companies. There is also a large market for homeopathic and other traditional medicines sold by local vendors. Overall demand for drugs is growing by more than 12% a year.
Given the size and growth of the domestic market, exporters from India have a very big advantage in scale of manufacturing. This, coupled with far lower costs for testing, labor, regulatory and other expenses, enables companies based in India to price their exports very cheaply compared to competitors based in other countries, with the exception of China.
Surprisingly, though India is a major manufacturer and there is big, expanding domestic market, consumers pay significantly higher prices in India than in the U.S. This is true for commodity type generic drugs like vitamins as well as advanced, patented drugs. For instance, Nature Made sells a bottle of 200 Vitamin B 12 tablets on Amazon India for Rs. 1,259 ($16.80,) double the price - $8.24 – on Amazon U.S., both before shipping costs.
Then, a 7-ounce tube of Aquaphor, a skin healing ointment from the German company Beiersdorf, retails in India for more than three times its U.S. price: Rs. 4,966 ($33) on Amazon India compared to $9.58 on Amazon U.S., both before shipping costs.
The suppliers in India include local companies like Cipla, Dr. Reddy’s, Sun Pharma and Biocon, as well as subsidiaries of major multi-nationals, such as Pfizer, Johnson & Johnson, Novartis and Glaxo Smith Kline. Drug manufacture is one of the few businesses in India to attract major foreign investments. Since 2000, foreign companies and funds have invested about $17 billion in the country’s pharmaceutical business. They are attracted by the size and growth in Indian and export demand, the higher prices they can charge in India as well as the ability to fully own their Indian operations.
Politicians in the U.S., U.K. and other Western countries welcome Indian generic drug supplies, because they help reduce the medical bills paid by consumers in those countries. Generic drugs are those that have come off patent and priced cheaper than those made by major branded companies who typically own the patents. For instance, an ounce of Neosporin, a popular anti-infection anti-biotic ointment made by Johnson & Johnson, sells for $8.99 on Amazon in the U.S., before shipping costs. An ounce of similar ointment by GoodSense, owned by generics maker Perrigo, retails for $4.64 also on Amazon and is promoted by the retailer as its choice in the drug category.
COVID-19 boosts demand
The search for vaccines and drugs to tackle COVID-19 is a boost for manufacturers in India, at least over the short term. On August 7, for instance, the Bill & Melinda Gates foundation said it is donating $150 million to the Serum Institute of India (SII) to manufacture 100 million doses of vaccines, currently in trial at AstraZeneca and Novavax. The vaccines, priced at $3 per dose, are expected to be available in India and 91 other low-and middle-income countries by early 2021.
The Serum Institute is the world’s largest vaccine manufacturer by volume, annually selling over 1.5 billion doses for polio, diphtheria, tetanus, hepatitis B, measles, mumps and other infectious diseases. Based in Pune, SII was founded in 1966 by a race horse breeder Cyrus Poonawalla and is part of the privately owned Poonawalla Group. His son Adar Poonawalla, in photo, is chief executive of SII.
AstraZeneca’s vaccine was developed by scientists at Oxford University. Based in Cambridge, U.K., the company has a market value of $146 billion. Novavax, based in Gaithersburg, U.S., has seen its stock climb over 3,000% this year, giving it a market value of over $8 billion.
Earlier in May, Gilead Life Sciences granted non-exclusive licenses to Cipla, Dr. Reddy's, Biocon and other manufacturers in India, to produce and sell its COVID-19 drug Remdesivir and its ingredients in 127 countries, including India. Gilead, based in Foster City, California and with a market value of $86 billion, granted similar licenses to manufacturers in Egypt and Pakistan.
India’s dependence on Chinese imports
The growing U.S. China trade conflict is potentially both good and bad for India’s drug exports. The Trump administration is aggressively seeking to reduce imports from China, including imports of drugs and ingredients. This could be an opportunity for Indian suppliers to expand sales in the U.S. But there are two major obstacles.
First, the Indian drug industry imports from China roughly 80% of the active pharmaceutical ingredients for the manufacture of drugs and vaccines, including for its exports. In fiscal year 2019, such imports from China are estimated to have been worth about $6 billion. Not surprising then that American politicians view much of the drugs imported from India as a backdoor entry for Chinese goods.
To get around this, manufacturers in India say they are seeking other sources, besides China. Also, following recent border clashes between India and China, the Indian government is eager to reduce the country’s economic ties with China. In the case of pharmaceutical ingredients, the Indian government’s short-term plan is to import them from the U.S., Italy and other Western countries.
But the costs of imports from the U.S. or Italy will be far higher than those from China. This will likely make it uneconomic, at least for some drugs made in India, to buy the materials from the U.S., manufacture the drugs in India and then export them to the U.S. The market for generics is intensely competitive and there is constant pressure from the governments, health insurance companies and employers in Western countries, to reduce prices.
The government of India’s long-term plan is to expand the manufacture of ingredients in India by offering financial and other incentives. But this requires investments far greater than the $1.3 billion announced by the government. Also, manufacturers in India will have to sharply improve their quality to meet stringent U.S. and Western European standards.
U.S. to expand domestic manufacturing of drugs
Meanwhile, demand for imported drugs and ingredients in America will likely shrink. “If we have learned anything from the global pandemic, it is that Americans are dangerously dependent on foreign supply chains for their essential medicines,” Peter Navarro, Director of the Office of Trade and Manufacturing Policy at the Trump White House, said last month.
In 2019, nearly three quarters of the pharmaceutical ingredient suppliers to the U.S. were located outside the United States, with a fifth of them based in India. About 12% of the manufacturing sites supplying drugs for the U.S. market were located in India, more than in any other foreign country including China.
In July, the Trump administration said it was considering giving a $765 million loan to Eastman Kodak to help fund its revival of a large manufacturing facility in the U.S., to replace key pharmaceutical imports. The loan to Kodak, which manufactures chemicals, has run into problems due to alleged insider trading in its stock.
Navarro says that the Republican administration is vetting at least thirty other American suppliers, who can manufacture medicines in the U.S, The policy of reducing dependence on imports, especially from China, is also supported by the Democrats. So, irrespective of which political party wins the election on November 3, in a few years, with low-cost funding, tax concessions and other government incentives, combined with restrictions on imports, there will likely be a surge in the manufacture of drugs and pharmaceutical ingredients in the U.S. This will hurt India’s exports of drugs and pharmaceutical ingredients to the U.S.
Dangerous impurities in some Indian drugs
The second major obstacle for the continuing growth of India’s drug exports is quality and safety problems. A report in February, by the law firm Debevoise & Plimpton, notes that the U.S. Congress has held multiple hearings on the safety of drugs imported from India. One hearing followed the recalls of the heartburn drug ranitidine and certain receptor blockers for treating high blood pressure such as valsartan, losartan, and irbesartan. Congress has focused on “potentially dangerous impurities” found in these drugs manufactured at sites in India - as well as in China.
For years, several manufacturing sites in India have been denied export approvals by the U.S. Food & Drug Administration (FDA) for failing quality inspections. In 2018, firms based in India accounted for 15% of the import refusals issued by the FDA for drugs and pharmaceutical ingredients. For more than five years, the average FDA score for sites inspected in India has been lower than the average around the world. As of August 2019, for instance, U.S. government inspectors found that 17% of export facilities in India were unacceptable in quality, higher than the 10% in China and 2% in the European Union.
Lobbyists for the Indian pharmaceutical industry say, without much evidence, that the FDA’s quality standards for India are stricter than elsewhere. However the FDA annually inspects only one in five foreign facilities supplying drugs to the U.S. If the inspections are expanded, as some U.S. legislators are demanding, the quality at many more manufacturing sites in India may be found to be unacceptable.
Some Indian companies, whose facilities were found unacceptable by the FDA, now export only to African and other third world countries where the inspections are more lenient. But this is a short-sighted solution since consumers in Africa, as well as in India, will boycott drugs with potentially dangerous impurities, even if the governments don’t ban them.
In Bottle of Lies, Katherine Eban investigates the generic drug boom to reveal fraud and life-threatening dangers on a global scale. This 2019 best-selling book focuses on Ranbaxy, at one time the largest drug manufacturer in India. Eban’s site displays a Ranbaxy board of directors document from 2004 which shows the company “…used fabricated quality data to get more than 200 generic drug products approved by regulators in more than 40 countries.” Last year, Malvinder and Shivinder Singh, the brothers who ran Ranbaxy, were arrested and charged with fraud in India..