Monday, January 26, 2009

The Outsourcing of Drug Supply: Market Failure

I would have thought that this article by Gardiner Harris would have stirred up more of a fuss:

It contains this interesting quote from one of India's top generic drug manufacturers: “If tomorrow China stopped supplying pharmaceutical ingredients, the worldwide pharmaceutical industry would collapse.” The article adds that if America were to decide tomorrow that it is a top national priority to be able to make our own supply of penicillin, it would take at least two years before the first fermentation apparatus could come on line.

The fact that the rest of the world has become totally dependent on China for the ingredients needed to make almost all drugs represents a smart business move by Chinese leaders over the past two decades. It also represents the irony that the reason it costs so much more to make drugs in the US and Europe--making outsourcing financially attractive--is because plants in those nations are so thoroughly regulated and inspected.

A part of the reason Harris's article comes as news is that the pharmaceutical industry has always treated its supply sources as part of its web of business secrets, and has generally been very unwilling to come clean on just where it gets its materials.

As my wife astutely commented when I mentioned this article to her, it shows how much of a joke it has been that people are worried about Americans buying drugs from Canada, where supposedly quality might be a problem and we could end up with counterfeit drugs. Given that both America and Canada in the end get all their drugs from China anyway...

Jokes aside, and not to engage in anti-Chinese sentiment (I gave some lectures in Beijing in December and people treated me very nicely and fed me excellent food), but let's for a minute make the assumption that it is not good public policy for us to be completely dependent on one other nation for our pharmaceutical supply. It then seems to follow that just in case there is a person, in these post-subprime-mortgage-financial-meltdown days, who honestly still believes that the "free market" is ideally self-regulating and always produces the maximum good for humanity when left alone, that we seem to have yet another example of "market failure," with which the road of the drug industry in recent years has been thickly strewn.

1 comment:

Anonymous said...

Good blog.

I don't necessarily disagree with your conclusion here about the risks of dependency on a foreign country for medicine, just some of the logic you use to get there...

My company doesn't use any APIs made in China, and will tell that to anyone who calls us. I'm not saying that's good or bad, and I'm not saying that if you called you would learn where every inactive excipient came from. I just mention it because you might overestimate what you called the "web of secrets."

Also, the primary concerns about reimportation doesn't stem from legally produced drugs in other countries. It's about 1) reducing the risk of counterfeit drugs (which may contain no active ingredient, less active ingredient than purported by the counterfeit packaging, or an alternate ingredient) and 2) preserving differential pricing. For a good article on differential pricing (which is not related to APIs produced in China) consider reading "At what price" by Patricia Danzon in Nature 2007.