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.
- 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.
- 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
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
