Will US tariffs succeed in lifting the veil on India's drug safety problem?

By Mihir S Sharma

 

India’s exporters are bracing for President Donald Trump’s tariffs. Some are confident that whatever is announced on Wednesday will not hurt them; others are genuinely uncertain how to manage if they can’t export to the US.

 

The pharmaceutical industry — which is well known globally for churning out generic drugs that are the backbone of many countries’ health systems — should be particularly worried. Over 30 per cent of Indian pharma exports go to the US, and it provides an even larger proportion of earnings. 

 

Trump has promised, in the past, that levies on pharma imports would begin at 25 per cent, similar to what he imposed on cars recently. But the president seems to have walked that back more recently, perhaps because the administration is uncertain of the consequences of a sharp rise in the price of off-patent drugs.

 

A spike of that sort might well cause even more of an uproar than an increase in the price of cars in a nation where health care is already unaffordable and out of reach for many citizens. By some estimates, generic and biosimilar drugs account for 90 per cent of prescriptions filled in the US, although they represent barely over a percentage point of total health care spending. Indian-made medicines satisfy about 40 per cent of US demand for off-patent formulations. This is one of the few ways in which American patients get a good deal. It’s possible, therefore, that pharma might be excluded from the first batch of tariffs entirely.

 

But Indian pharma should view that only as a temporary reprieve. Trump will eventually get around to the sector. Worse, the US — and then the world — might be driven by new trade barriers to discover alternatives to India’s pill factories. As a consequence, they may also recognize the poor quality of the products these factories have been selling them.

 

India’s generics manufacturers have been coasting for far too long. Their reputation has survived mainly because patients, and their doctors, haven’t been taking a close look at these medicines’ records. 

 

Every now and then a horrifying story cuts through the noise.  The US Centers for Disease Control and Prevention discovered that a mysterious outbreak of blindness was caused by antibiotic-resistant bacteria in over-the-counter eyedrops exported from India. And outside America, more than 150 children died in countries as far apart as Uzbekistan and Gambia after they were given cough syrup imported from an Indian factory. The medicine was contaminated with diethylene glycol, which causes kidney failure.

 

The Indian Pharmaceutical Association is defensive of its members’ reputations. It responded swiftly, for example, to a study published a few weeks ago in an academic journal that concluded Indian-made generic medicines were associated with a 54 per cent greater risk of “serious adverse events” than their domestic equivalents.

 

Yet we have had evidence for a long while that quality standards and corporate governance in the pharmaceutical sector simply aren’t up to par. Leaks and whistleblowers over the past two decades have made that clear. One of those whistleblowers, Dinesh Thakur, even had his story turned into a TV show last year.

 

The Indian drugs regulator is understaffed and inefficient. Responsibility for ensuring that the sector’s export-oriented factories meet high standards devolves upon the US Food and Drug Administration. But the FDA was already behind on its inspections in 2019 — and, since the pandemic hit, seems to have given up on filling its backlog. More than 340 plants in India and China that export to the US have not been inspected by the FDA in more than five years. And, as Thakur has chronicled, sometimes companies set out to deliberately deceive the inspectors.

 

Easy money in the US and elsewhere has kept Indian generics factories in business. But it has also meant that the industry has few incentives to clean up its act. The combination of uninformed patients, apathetic medical professionals, and overwhelmed regulators has proved toxic.

 

Some in the industry are already calling for targeted tax breaks or subsidies to help them deal with any new duties. But that would only paper over the cracks. Indian pharma’s business model is already broken; tariffs would only emphasize how much it needs reform.

 

Generics producers need to start demonstrating that they are truly irreplaceable for the world —  and they can begin by focusing on quality, not shortcuts to profit. New Delhi should invest in more and better regulation so that these improvements can be demonstrated to the world. Indians — who, after all, depend upon these factories more than anyone — will thank them for it  (Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)