US & EU lobby for greater regulation against import from India & China

Two powerful trade associations on two sides of the Atlantic – the European Fine Chemicals Group (EFCG), under the umbrella of CEFIC, and the US-based, Synthetic Organic Chemical Manufacturers Association (SOCMA), have joined hands to lobby in their respective countries for wider, stricter and more regular inspections of active pharmaceutical ingredient (API) manufacturing facilities in all countries outside of their geographies, but especially in China and India – the two that account for a major proportion of API supplies into the two largest markets.

The EFCG has been leading this initiative for some time now, for obvious reasons, with little as yet to show for its efforts. Western Europe’s position as the leading supplier of APIs into the developed markets has been now taken by India and China in a dramatic change that seems to have taken everyone – the industry in Europe and, especially, the regulators – by surprise. Twenty years ago, US and European API producers met 90% of the demand for APIs in the two regions, but have since seen their share erode swiftly to less than 20%. In some generic APIs – where price is everything – their share is even less, and in some cases, virtually none. According to Mr. Guy Villax, CEO, Hovione, a Portugal-headquartered API producer, and Chairman, Pharmaceuticals Business Group, EFCG, there are currently no producers in Europe today of the APIs that form the basis for the first line of defense by general practitioners against commonplace diseases.

The current situation in EU & US

It is EFCG’s case that there is as yet no pan-European body that effectively regulates and monitors whether APIs entering into Europe from overseas are manufactured in compliance with current Good Manufacturing Practice (cGMP) norms. These norms are mandatory for European producers and, according to Mr. Villax, compliance imposes costs which can be as much as 25% of the cost of the API.

The situation in the US is, however, a little different. While APIs that enter the prescription drug market are inspected by the much acclaimed US-FDA, in what the industry regards as the ‘gold standard’ of inspections, the market for over-the-counter (OTC) products, according to SOCMA, is a free-for-all, with no standards of manufacture imposed or checked on suppliers of APIs. In the case of prescription drugs too, SOCMA feels the emphasis is on ‘pre-approval’ inspections, rather than inspections to check compliance with regulations and GMP. The trade body also feels that unlike companies in the US who get about a one week advance warning on inspections, companies overseas get anywhere from a month onwards – adequate time to cover up any inadequacies.

The two trade bodies have also raised the bogey of patient safety and national security in their plea to their respective regulatory bodies. They have, in their joint statement, referred to the problems the Nigerian regulatory authorities had recently with some Indian supplies of spurious formulated products and claimed these companies still continue to supply APIs to EU, possibly putting the health of their populations in jeopardy. They have also claimed the eclipse of the local API manufacturing industry leaves the countries wide open to acute shortages of

medicines in the event of spike in demand following a calamity, such as a terrorist attack with biological or chemical weapons, or a major epidemic.

The case that the two trade bodies have made out is easy to understand, given the difficulties their members now face with the emergence of India and China as the leading producers of APIs, in particular, and fine chemicals, in general. There is some amount of exaggeration of the fears, but that is only to be expected. What action will be forthcoming from the regulators is as yet uncertain, and will certainly not happen overnight. The pressure to contain healthcare costs across the developed world is only intensifying, as is the move towards generics. For all of these reasons, there is little option for the global API buyers to have an Asian strategy in their supply chains, which are now amazingly complex and span several countries.

But that is no reason for India and China to be complacent about the moves afoot.

The Indian API industry

In India, as in China, there are API producers of all kinds of pedigree – a fact that both SOCMA and EFCG recognize. On the top of the heap in India, for instance, are 80-odd API producers who have plants inspected by the US-FDA and APIs approved for sale into the demanding US market. None of them will have any issue with additional compliance; indeed some of them may even welcome these steps, as it will also provide them a ‘level playing field’ as well, and keep out ‘unhealthy’ competition, which inevitably pushes down prices. Undoubtedly, they will have to bear additional costs for complying with a larger number of inspections, but this ‘creamy layer’ can live with that.

At the other end of the Indian API manufacturing spectrum are the hundreds of units that sell largely in the domestic market and care very little about how the Europeans and the Americans want to regulate the entry of APIs into their countries.

Somewhere in the middle, are about a couple of hundred API suppliers – largely SMEs – who have the aspirations and the ability to reach international markets. These are the ones who will be most severely impacted, if stricter inspections become the norm. These companies will do well to anticipate the changes coming and begin the internal processes that will lead to their compliance with the global norms of manufacturing – especially as regards to safety, health, environmental impact, systems and documentation. Not all of this lot of API producers in India will qualify and be permitted to play the international turf, but that is an inevitable consequence of doing business in a competitive and changing business environment.

The questions that are being raised overseas on compliance with cGMP standards in manufacture also bring on an important question: ‘Should Indian regulators insist on cGMP norms for manufacture of APIs for sale in India?’ The rules under ‘Schedule M’ are already in place and industry sources say they are on par with international norms. While compliance is mandatory from the beginning of this year, there is undoubtedly laxity in implementation. Over time, however, the screws will tighten in India, as well, and Indian industry will again do well to stay ahead of this compulsion and act in a pro-active, rather than reactive manner that it has now been doing.

The progressive among the Indian API producers – and their numbers are growing – are confident they will be able to tackle head-on any of the regulatory challenges that is thrown at them. India’s ascendancy to the leading position amongst Asian suppliers of APIs – significantly ahead of its traditional rival, China – has been a well-planned strategic move that is beginning to pay rich dividend, with some of the major companies now commanding impressive – some would say stretched – evaluations in the Indian capital markets. Many of these companies have moved up the value chain – into formulations, providing custom services in chemical synthesis, drug discovery and clinical trials.

India is now an important component of the international pharmaceutical industry and will be able to handle the challenges the western world throws at it.