Pay to be policed

India's pharmaceutical exporters face new US fees

The United States federal government and the country’s generic (out of patent) drug industry are reportedly close to an agreement under which the latter will pay $300 million in annual fees for the Food and Drug Administration (FDA) to inspect at least once in two years overseas plants from where active pharmaceutical ingredients (APIs) for generic drugs sold in the US are imported. This is important for two reasons. One, 75 per cent of all prescription medicines sold in the US are generics and 80 per cent of the APIs used in all medicines are imported, mostly from India and China. Two, the cost-cutting healthcare reforms that the Obama administration has initiated would entail greater use of generic drugs. The new funding mechanism should speed up the approval process for marketing new products. The new fees are part of a package that also covers branded drugs and medical devices. Both the industry and the regulator have agreed on this financial proposal, so the US Congress is expected to pass it quickly.

 

Interestingly, the Indian pharmaceutical industry, which has a large number of FDA-approved production facilities and is the foremost exporter of quality generics to the US, has not been told about this proposal yet. Clearly, there is a huge lack of clarity. It is in the dark about the details of the fee structure. Will it be per inspection or per product? It also does not know how the fees will be shared between US manufacturing and importing interests and Indian manufacturer-exporters. Sources indicate that they will be happy to bear their share of the burden if it is done equitably. Otherwise, the fees will amount to a new non-tariff barrier. They can also be used as a weapon in intellectual property disputes. One US manufacturer speaks of the need to keep “falsified” drugs out. What on earth is this animal? Is it patent infringement or substandard and/or spurious medicines? There is a world of difference between the two.

Ideally, India should actively strive to build its own regulatory mechanism to ensure its pharmaceutical companies follow good manufacturing practices — which are as good as the best in the world. The whole Indian pharmaceutical story rests on the claim to marry high quality with low cost. But before it can be made possible, if the regulator of the number one importer makes its inspection and certification of Indian facilities more rigorous then it should be welcomed. The more better practices are mandated, the greater will be the spread of such a culture, which will also benefit Indian consumers. The process is akin to the role played by research and development facilities set up in India by global firms. The fruit of the effort is booked in a country where the company is incorporated, but India gains through the spread of skills and best practices. Finally, it is odd that an individual US industry must pay for the cost of policing it when the US treasury should pay for what needs to be done to protect its consumers. As stated earlier, this can lead to a cozy relationship between the industry and the regulator.