Two new studies published by the World Health Organization provide insight on the production of pharmaceutical products in India and China. According to the studies, China has a substantial local pharmaceutical manufacturing sector which the Chinese government is closely linking to its policy objective of universal health care. India, the main global provider of generic medicines is not pursuing a comparable focus on universal health care. India is increasingly faced with Chinese pharmaceutical sector competition, with China being its main provider of commoditized active pharmaceutical ingredients (APIs).
The two studies: China policies to promote local production of pharmaceutical products and protect public health; and Indian policies to promote local production of pharmaceutical products and protect public health were authored by Frederick Abbott, Edward Ball Eminent Scholar Professor of International Law at Florida State University College of Law, and consultant to the WHO. The studies benefitted from funds from the European Commission, and were commissioned by the WHO Programme on Public Health, Innovation and Intellectual Property, and the WHO Department of Essential Medicines and Health Products.
China: Focus on Universal Health
According to the study on China, “From the WHO standpoint, the single most important aspect of China’s current policy with respect to the pharmaceutical sector is its close linkage to the objective of universal health care (UHC).”
China, the study found, has a very substantial local pharmaceutical manufacturing sector and capacity. However, the rapid growth of China’s pharmaceutical manufacturing sector over the past 30 years was not accompanied by the development of a robust regulatory framework. China is now emphasising the strengthening of that framework, the author said. This includes the imposition of stringent environmental regulations that, among other consequences, is likely to reduce the number of smaller manufacturers lacking the financial resources to meet them.
According to the study, the China government is encouraging research and development in the pharmaceutical sector, focusing on biotechnology and the development of biosimilar products. Biosimilars are follow-on products that are almost identical to the original biopharmaceutical products, which cannot be reproduced identically by a generic producer.
The study found that China is undergoing major reforms involving its health sector, including the recent elimination price controls on pharmaceutical products, encouraging “transparent bidding and procurement processes.” Another major development is the shift from a model in which hospitals are financed by sales of prescription medicines, to a fee for services model. The Chinese government has been negotiating lower prices for imported originator pharmaceutical products, and also for locally-manufactured products, the author said.
The study found, “The precise model of pharmaceutical sector development followed in China is not one that is likely to be followed elsewhere,” as “China’s pharmaceutical manufacturing industry developed during a period of state control and relative isolation from international trade.” However, some elements of development of the industry could be used as examples by other developing countries, such as the fact that pharmaceutical industry development “should be closely linked to the objective of providing access to medicines to the population, including measures to contain costs.”
Also important, according to the author, is to “establish a regulatory framework that can assure the quality and safety of medicines, preferably as a precondition to industrial development.”
Financial, tax and related incentives are important elements of promoting pharmaceutical manufacturing, the study said. China has welcomed foreign direct investment which the government believes will play a useful role in the development of the local pharmaceutical sector, including through large-scale investments in R&D and transfer of technology.
India: Double Challenge, Less Focus on Universal Access
According to the study, “the success of India’s pharmaceutical industry is attributable to more than elimination of patent protection.” As an example of another reason for the industry’s success, the study mentions the Indian population of approximately 1.25 billion, which represents a large, built-in internal market. “This allowed local manufacturers to achieve economies of scale before they sought to enter export markets.”
Indian pharmaceutical manufacturers initially exported to other developing country markets, “where regulatory barriers to entry were comparatively modest.” But as they entered into the global market with more stringent regulations, Indian producers developed strict product quality standards.
The success of the Indian pharmaceutical sector relies on the integrated nature of its industry, which has included large-scale active pharmaceutical ingredient (API) production capacity, the study said. “Local sourcing of low–cost APIs, combined with efficient production of finished pharmaceutical products, created advantages.” Many factors contributed to create a pharmaceutical sector “ecosystem,” “making it highly cost-effective to produce in India.”
However, the author said, the Indian pharmaceutical industry faces challenges, and in particular Chinese competition, especially regarding commoditized APIs, “where it has overtaken India in terms of export volume.” Indian manufacturers have become dependent on imports of APIs from China, the study found, leaving Indian policy-makers grappling “with whether and how to address this shift in API production in favour of China.” Indian integrated producers continue to manufacture their own specialised APIs, and not all Indian producers share concerns about an API shift toward China, viewing the situation as a logical progression toward Indian outsourcing of lower value-added production.
The study indicates that the Indian pharmaceutical industry includes well-capitalized companies exporting to high-income countries with stringent drug regulation, and small and medium-sized manufacturers mainly producing for the local market. There are some concerns about the quality of the products manufactured by those smaller companies, the author found, in particular because of regulatory compliance issues. The Indian drug regulatory authority is substantially increasing the number of good manufacturing practices inspectors, and is cooperating in training programs with WHO and the US FDA, among others.
Indian pharmaceutical companies and government policy-makers are interested in developing new medicines that can be protected by patent and sold at higher prices than generic products, he said.
However, “Indian companies are not as heavily capitalized as major multinational originators,” and Indian investors have not been as willing to engage in venture capital R&D risk-taking as investors in some other countries. The Indian government does not subsidize R&D at levels near those of the US National Institutes of Health, viewing more important budget priorities elsewhere. On a positive note, the rapid development of India’s information technology sector may support increased manufacturing and distribution efficiencies, as well as novel R&D efforts, the study says.
According to the study, Indian companies are seeking to enter the Indian and foreign markets with biosimilar drugs, but meet regulatory barriers, including foreign restrictions based on regulatory marketing exclusivity.
Also addressed by the study is the dichotomy between India’s successful local pharmaceutical manufacturing and access to medicines for the poor population, with the country allocating “a relatively small proportion of its budget to health care in general, and to medicines procurement in particular.” Nonetheless, it is important to acknowledge the critical role that Indian generic manufacturers have played in supplying low-cost medicines throughout the developing world.
By Catherine Saez