Can Uniform Safety, Health and Effluent and Manufacturing Standards Create Process Technology Innovation and Competition in Pharmaceuticals?

Global warming, ecological damage, economic health, jobs, healthcare, cost of drugs and their affordability have become pulling and pushing issues for every country. I believe played right all of these concerns could be used to innovate, compete and can bring jobs back to the countries that have lost them. They can also create additional jobs in the countries that were willing to invest in innovative technologies. There can be tug of war but the fundamental question going forward is what kind of economic, social, environmental and moral legacy we want to leave. I am using Fine/specialty chemicals [pharmaceuticals are a subset] as the basis for my discussion. If we can do well in this reconfiguration, drug affordability and pharma revenues would improve. 

Since early seventies, when environmental protection laws were promulgated in the United States and other developed countries, many of the fine and specialty chemical operations [pharmaceuticals are the disease curing fine/specialty chemicals] started to migrate to then developing countries that had and still have comparatively lax environmental, health and safety laws. Bhopal ⁽¹⁾ incident should be a reminder of these laxities.

I believe companies in the developed countries did not make a concerted effort to develop better and environmentally sustainable processes to retain jobs and operations in their countries ⁽²⁾. They were also price pressured by the companies from the developing countries. Ones who did innovate and developed better technologies benefitted financially to their credit.

Another change that accelerated move of fine/specialty chemical production to the developing countries was the need of the products that were used in the developed countries. Companies from the developed countries saw a business opportunity and production was moved. With lax regulations of the developing countries, it was cheaper to produce these products using proven processes. Many thought that such business strategies were farsighted at the time but the downside effects might not have been considered. Companies were giving away many aspects of intellectual property, which the developed countries had worked hard to develop. They also had to contend with unfamiliar business practices of the developing countries. Sometimes they posed challenges.

Local businesses in the developing countries capitalized and succeeded on the opportunities and expanded in producing active pharmaceutical ingredients and their formulations. Brands also capitalized. Generic producers in the developed countries were caught flat-footed.

Mid nineteen nineties brought changes due to World Trade Organization [WTO] agreements. They led to significant increase in imports of generic pharmaceuticals as well as fine/specialty chemicals to the developed countries. Stringency and laxity of environmental laws in the developed and developing countries respectively influenced decision-making. Culmination of the above was that the developed countries tilted the manufacturing landscape towards the companies from the developing countries. It might be time to rethink this landscape.

Current pharma supply chain landscape of the developed countries suggests that better than 50% of the drugs are coming from India and China. With globalization this is accepted and nothing wrong is considered with this scenario. However, strategic concerns have been raised. Recently the United States Department of Commerce has identified healthcare-related products where US have become reliant on other countries for certain critical items. This report ⁽³⁾ recommends “U.S. industry should make renewed efforts to ensure supply chain resiliency by developing and maintaining multiple suppliers for critical components, materials, and finished products. These efforts could include development of new business strategies that give priority to domestic sources of supply, thereby reducing dependence on critical components and materials from suppliers based outside the United States. Additional steps should also be made to monitor the potential for supply disruptions before they occur.”

Some might recall the Heparin crisis. It led to increased FDA inspections ⁽⁴⁾ facilities in the developing country. We are seeing increased FDA citations. Developed country regulators are working with different governments to bring everyone on the same page but everyone is still not there. 

It is my belief that the following also resulted in lack of technology innovation in the developed countries and that led to the shift in jobs and businesses.

1. Companies stayed with the mentality of treating API as fine/specialty chemicals and a local product. Their value as a global product was not realized. Had it been realized they would have seen the global opportunity. Value of economies of scale could have led to process technology innovation along with business model reconfiguration. Better technologies could have lowered manufacturing costs and kept drug manufacturing in the developed countries.  
   
   
2. Companies stayed with and still practice manufacturing with after the fact product quality testing vs. produce quality products from the get go. This could have saved companies as much as 40% of the manufacturing cost resulting is higher profits. Again, better and innovative processes could have kept manufacturing in the developed countries.
   
   

In summation, developing countries capitalized on the opportunity and are fulfilling the pharmaceutical needs of the developed countries. Companies in the developed countries were and are delighted with the ensuing landscape of higher profits from lower cost imported products. Complacency sat in the developed countries and it is taken for granted that all generics will come from India, China and other countries. 

Can the Current Landscape be changed?

The current quasi-fervor of anti-globalization and protecting or bringing jobs back to the developed countries presents an opportunity to reconfigure the global pharmaceutical business, for that matter landscape of many other industries. “Global” could be considered an outreach but anything is possible in the changing political climate.

We are very well aware of the fact that the companies have to meet importing country’s product performance and quality requirements. Exporters have mostly done a good job of complying with such requirements. If they don’t, products are recalled and/or intercepted or banned from imports. Exporters are relied on their certifications and also expected to follow established good manufacturing practices. Even with that at times products slip through.

Pesticides, automobiles, fabrics and food etc. have to meet standards laid out by the importing country. Non-compliance can result in high financial losses. With protectionist sentiment on rise, trade policies are coming under worldwide scrutiny. With pharmaceutical prices on rise year or year, many a times without rationale, we should not be surprised if the current practices are put under the microscope sooner than later. We should note that pharmaceutical revenues are rising more due to price increases and high priced drugs for limited population rather than from affordable new drugs being discovered and offered to masses. If pharma companies can make drugs affordable and everyone on the planet is willing to spend a single penny per day per year pharma revenue will increase by about $26 billion per year.  

Companies in the developing countries don’t have to practice health, safety and environmental regulations of the developed countries. They might be complying with the local standards. They are generally less rigorous compared to the standards of the developed countries. Differences, as stated earlier, unlevel the playing field. 

It is well known that compared to other products pharmaceuticals have to meet much higher quality standards because less than quality products can result in lost of life. Pharmaceutical producers have to produce products following good manufacturing practices laid out by the importing countries. Constant vigilance and inspections have become necessary. Due to increased quality and procedural excursions, regulators in the developed countries are stretched. 

Playing field has to be leveled. My conjecture is that a leveled field will create competition because everyone will have to play by the same rules. There will be considerable resistance from the developing countries. Task is and will not be easy, but is doable. European Fine Chemicals Group ⁽⁵⁾ made a concerted effort to control quality of the pharmaceutical active ingredients.  

Establishing uniform global effluent, safety and health standards for the industries that produce and use chemicals (pharmaceuticals are chemicals) and petrochemicals should level the playing field. Current methods that are considered the best could be used as a starting point. This might not sit well with many countries because many companies will have to invest to revamp their operations. A discussion is necessary and it has to be hardnosed.

If agreements are not reached, countries could limit trade with non-complying countries and create jobs in their own countries. It is possible that the buyers could ask the producing plants to match effluent standards of the importing country or countries. A compliance phase-in time period e.g. five years could be established. Threat of potential loss of business will also lead to innovation and competition. Drug shortages could be a side effect.

Companies that have the most innovative culture, thinking and engineering talent will commercialize processes and methods that will make drugs affordable to 7.2 billion and growing inhabitants of the planet. Consolidation could take place. Benefit of economies of scale will result in better processes, in turn higher profits and revenues. Best will thrive.

The following could be part of the discussion. Companies that have registered offices or have an operating office/plant in the developed countries or elsewhere should meet effluent standards of the developed country that consumes their products. Every product would have to meet uniform safety, health, environmental and manufacturing standards. Example: If a company has its corporate office is in UK, India, China etc. sells products in US but produces API or formulated products in any developing or developed country or countries will have to meet safety, health, effluent and manufacturing standards of the United States. As stated earlier a time limit of five years could be used to revamp their operations. Most competitive and innovative will incorporate better technologies and methods and stay in business.  

Why propose uniform safety, effluent, health and product performance standards? Every industry especially pharma producers will have an even playing field. Best of the best technologies will produce quality products from the get go at the lowest cost. Global population will benefit. Companies that will have the best and most efficient methods to develop and commercialize products will produce medicines that are affordable to all. Drugs that are marginally better than the existing drugs will have to compete in the market place. Drug R&D would be streamlined.

Large buyers i.e. national healthcare buyers, Pharmacy Benefit Mangers (PBM) or any other buyers could also start a compliance discussion with their suppliers. Companies from the developing countries could take the lead and their success as we have seen in IT businesses could be a game changer. Governments and politics will intervene. They would have to kept out of the discussion.

Consensus even to start a discussion about uniform global health, safety and environmental when proposed could cause significant consternation and would be a challenge to many companies and countries. Developing countries will fight tooth and nail but they could win if they channel their energies and intellect it the right direction. Leveled playing field could be a global win and we will leave a better legacy. Drugs would become affordable to over 5 billion people. We will also lower impact toxins on mammalian, aquatic and avian inhabitants and our environment ^(6,7). Concerted effort will have to be made. Failure in establishing and complying with uniform safety, health and environmental regulations should not be an option. Under the current fervor to protect/regain jobs things could get unpleasant, if the global community fails to establish a uniform playing field.

It is my expectation that by having uniform drug quality, health and safety standards best of the companies will capitalize on economies of scale, as many might drop out, and have the best technologies that will produce products that are as much as 35-45% lower in cost and giving the producing companies the necessary profit margins and revenues from much higher patient base.

Girish Malhotra, PE
EPCOT International

1.     Bhopal: The World's Worst Industrial Disaster, 30 Years Later, Accessed January 8, 2017

2.     Malhotra, Girish: Why Have the Fine and Specialty Chemical Sectors Been Moving from Developed Countries?, Profitability through Simplicity, February 9, 2009, Accessed January 6, 2016

3.     Reliance on foreign sourcing in the healthcare and public health (HPH) sector: pharmaceuticals, medical devices, and surgical equipment, U.S. Department of Commerce Bureau of Industry and Security Office of Technology Evaluation December 2011, Accessed December 1, 2016

4.     Heparin crisis 2008: a tipping point for increased FDA enforcement in the pharma sector? Accessed December 13, 2016

5.     Mission Accomplished: Patients are Safer and the Playing Field is less flawed, Accessed December 14, 2016

6.     Malhotra, Girish: Pharmaceuticals, Their Manufacturing Methods, Ecotoxicology, and Human Life Relationship, Pharmaceutical Processing, November 2007, Accessed December 1, 2016

7.     Fent, Karl, Weston, Anna A., Caminada, Daniel, Ecotoxicology of human pharmaceuticals, Aquatic Toxicology 76 (2006) 122–159, Accessed December 14, 2016