Pandemics, supply disruptions could turn into security threats

Originating in China in the 1850s, spread by fleas during a mining boom in Yunan, and moving to India via Hong Kong, the bubonic plague claimed at least 15 million lives, and perhaps catalysed the Parthay and Taiping rebellions. India faced the most substantial casualties – some 10 million -- and the epidemic was used as an excuse for repressive policies that sparked a minor revolt against the British. The pandemic was considered still virulent until about 1960.

As the coronavirus advances through China and jolts the rest of the world, the pharmaceutical industry is on vigil over the security of its global supply chain. Over the past decade, China has established its numero uno position in the global market for active pharmaceutical ingredients (APIs), the elementary units found in each drug. In 2018-19, China accounted for 67.56% of total imports of bulk drugs and drug intermediates into India, at about $2.4 billion. They consist of the fermentation process-based drugs such as crucial antibiotics -- penicillin, amoxicillin, ampicillin, tetracycline, cephalosporins -- and essential vitamin and hormonal pills.

Why India fell behind?

The 1970s were momentous for the growth of the Indian pharmaceutical industry. To help compete with multinational companies, the government revised its patent law to focus on process and shortened the life of patents. Through the 1990s, Indian chemists were able to reverse engineer manufacturing processes, hold domestic prices and compete, to eventually hold 20% of the market share in exports.

China, however, became a formidable competitor and overtook India in API manufacturing as Chinese companies enjoyed subsidised infrastructure and low-interest credit. In the 1980s, India was one of the world’s largest producers of semi-synthetic penicillin; the Chinese strategically reduced the cost of Penicillin G by over 80%, which led to the closure of some of the largest bulk drug plants for antibiotics like Gujarat Lyka Organics and Kopran. Over time, India shifted focus to formulated drugs and turned to imports for APIs. Penicillin, a revolutionary antibiotic discovered 80 years ago, is now in scarce supply.

Chokepoint with COVID-19

The coronavirus (COVID-19) has triggered alarm bells as the Chinese lockdown disrupts supply chains across industries. Countries like India, the US, Nigeria and the EU are admitting the dangers of allowing China a monopoly in the manufacturing of essential raw materials. The Federation of Indian Chambers of Commerce & Industry (FICCI) has recommended incentivising manufacturers to tackle the disruptions and position India as an alternative source to China. The disruption has already increased prices of basic drugs like Paracetamol by 40% and some antibiotics by 70%. In a country where 75% of the out-of-pocket expenditure for healthcare by people is for medicines, this could deeply impact the healthcare choices available to the poor.

Risk and opportunity

The biggest challenge to Indian manufacturers to produce APIs is low capacity utilisation, pegged at 30-40% compared to their Chinese counterparts at 65%. Studies show that India can competitively produce APIs with a 3% variance for labour cost, but Chinese exporters have the capacity to obtain low-interest credit and invest in high-capacity infrastructure. These two factors create the cost arbitrage, because Chinese plants can be set up in one year whereas, in India, it takes 3-4 years.

A strategic initiative to consider would be to revive public sector drug manufacturers and further their capacity to produce API and formulations. Hindustan Antibiotics Limited and IDPL used to play a key role in ensuring uninterrupted supply of basic raw materials but withered due to lack of State support.

Green challenges, drug resistance

The pharma industry emits 48,550 kilograms of carbon dioxide-equivalent per million dollars of output, which is about 55% more than what the automotive industry does. Significant amounts of pharmaceutical waste are entering waterways near drug manufacturing facilities, resulting in the development of multi-drug resistant pathogens. In November 2016, German scientists found that all of the specimens collected from sites around the bulk drug manufacturing facilities in Hyderabad and nearby villages, known as the Patancheru-Bollaram zone, were contaminated with antimicrobials. They also found 95% contained worryingly high levels of bacteria and fungi resistant to antibiotic drugs. These discharges have polluted river sediment surface, ground and drinking water.

The government has to provide more support to establish an ecosystem conducive to API manufacture. Bioremediation is a technology that can treat environmental pollution using microbes, plants or their by-products. It helps in removing xenobiotic and recalcitrant pollutants through physical and chemical methods. The government could well absorb the price differential to boost capacity utilisation of Indian plants.

In today’s globalised society, emerging diseases and their pandemic potential pose a great national security threat. Preparedness, not prevention, is the solution to this escalating problem.

(The writer is Founder-President, Synergia Foundation, Bengaluru, and an adviser to Medicines Sans Frontier)