India’s Fake Drug Trials Threaten Wider Trade Deal

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The office of Ranbaxy Laboratories at Gurgaon, on the outskirts of New Delhi, in June 2013. Ranbaxy, then India’s largest generic manufacturer, pleaded guilty in May 2013 to selling adulterated drugs in the U.S. and paid the U.S. government $500 million in penalties and fines. Adnan Abidi/Reuters

This article first appeared on the American Enterprise Institute site.

On January 11, Indian and EU officials began trying to salvage a wide-ranging trade agreement. Talks stalled last fall when India walked out due to EU bans on hundreds of Indian-approved medicines. EU regulators found GVK Biosciences was manipulating data from clinical trials conducted for approval of generic drugs.

As a result, the EU canceled the marketing authorizations it granted to several drug manufacturers. The Indian government retaliated by calling off trade talks, saying the bans were unfounded. This was not the first time that Indian interests had clashed with Western pharma regulators.

In May 2013, Ranbaxy, then India’s largest generic manufacturer, pleaded guilty to selling adulterated drugs in the U.S. and paid the U.S. government $500 million in penalties and fines.

At the end of last year, the FDA issued a warning letter to Dr. Reddy’s Laboratories, the second largest generic drug manufacturer in India, supplying medicines to U.S. to treat hypertension, pain, diabetes and myriad infections. The FDA said that the company destroyed records of failing tests and kept only those that showed their products passing.

This is very similar to what Volkswagen, the German carmaker, is accused of doing. But while the German automaker may be an unfortunate exception in its industry, most of India’s pharma makers appear guilty. In between the Ranbaxy and Reddy cases, over 40 other instances of data fraud citations against manufacturing facilities in India have occurred. Rigging testing procedures seems to be systemic among many Indian generic manufacturers.

Such corner cutting lowers costs, but failure to comply has caused a significant downward pressure on these companies’ revenue and profitability. The cost of remediation and compliance may be 5 percent of their revenues. Therefore, a new strategy seems to have emerged where the Indian pharma industry, and its willing partner the Indian government, seems to want to push India’s lower standards on emerging economies as a way to compensate loss in revenue from Western markets.

The Indian government is lobbying what it calls “unregulated markets” to accept Indian standards for its local markets. These “unregulated markets” are countries in Southeast Asia, Africa and the Middle East that at least on paper maintain higher standards.

While this will harm patients in poor nations, Westerners are not immune. In today’s globalized world, boundaries are porous and it is very easy for both diseases and medicines to cross international boundaries. All it took was one patient to board a flight from Liberia for the first Ebola case to reach the U.S. And today India is ground zero for antibiotic resistance. If the Indian government convinces emerging markets to accept Indian standards for quality, it opens the door for their import via on-line pharmacies and other underground channels into the EU and U.S. markets.

Western officials should take notice of this and take proactive measures to educate these “unregulated markets” on the risk that substandard medicines pose to public health.

But Western officials will no doubt have to be careful in their statements and their meetings with Indian officials because they also have to deal with an inconvenient truth. The EU and U.S. cannot do without Indian ingredients and Indian final products.

Probably every major drug manufacturer in the world sources from India and soaring health costs mean cheaply made Indian generics are important for every market.

Western officials should push to harmonize the definition of what constitutes “adulterated” medicine. The classification for what India calls medicine of “Non Standard Quality” is inconsistent with globally accepted standards.

Establishing common standards, and giving FDA and European regulators a stronger legal framework to conduct criminal investigations on Indian soil against erring Indian drug manufacturers will help in better enforcement.

Indian companies have the competence and have demonstrated that they can in fact make good cheap generics. Yet, with largely nonexistent domestic regulators, and a Commerce Department that acts as the publicity department for Indian generics, they continue to falter after being singled out for consistent wrongdoing by western regulators. It appears that they have accepted the damage to their reputation, but it would be foolish for us to accept the risk to our public health if this continues.

As a first step EU regulators must not weaken their position in the negotiations. It is Indian companies’ fault that their products are banned from the EU and U.S. It is up to the Indian government to come back to the negotiating table with no agenda. Public health demands it.

This piece is co-authored by Dinesh Thakur, CEO of Medassure and the whistleblower in the Ranbaxy case. Roger Bate is a scholar at the American Enterprise Institute.