A Drug Market Wrecked By Government

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One type of consumption is unfortunately on the uptick. Tuberculosis, which was known as consumption for much of its history, kills over one million people a year. And while gains were made over the past decade, drug shortages are threatening those gains and driving resistant strains of the disease.

The U.S. Centers for Disease Control announced a domestic shortage of the important TB drug isoniazid last fall. In January 79% of health departments had trouble sourcing the product, 15% had none at all, according to a survey of the US National Tuberculosis Controllers Association. And this spring diagnoses in U.S. were slowed because of a shortage of the rapid diagnosis test, tubersol.

This situation is worse in emerging markets, and outright disastrous in India, where 300,000 died from TB in 2011. The Indian government funds free distribution of medicines at 13,000 treatment centers, but shortages are routine in these clinics because government often vacillates over drug suppliers. Most people seek treatment over the counter from private pharmacies across the country, where quality is inconsistent. More than 3,600 patients are now being treated for multi-drug resistant TB in Mumbai, the business capital, up from a couple of hundred three years ago. These patients are effectively treated like solitary prisoners during two years of treatment to prevent them spreading some of the worst drug-resistant strains in the world.

It is tragic as well as ironic that India's TB treatment is failing, because India is often described as the pharmacy to the developing world, with hundreds of mid-sized generic manufacturers supplying well over half of TB drugs to the world's poor. But while India has built its pharmaceutical industry into a $15 billion export goliath, it has neglected domestic healthcare and underinvested for decades. One official told me that health ministers' demands are always trumped by those of other ministerial departments. India's medicine regulator is also known to be highly corrupt - the Indian Parliament has reported on routine corruption, including approving untested medicines, in the past year.

So with limited budgets, the Indian health department uses its monopsony power to drive drug prices ever lower to ensure it hits treatment targets. This has a pernicious spillover effect, insofar as many of the legitimate companies won't even bother to make a bid for a contract that results in a loss. J.P Parswani, CEO of Cadila Pharmaceuticals Ltd, an Indian TB drug maker, told the Wall Street Journal last week that making TB drugs "is not a commercially interesting market...Prices are always under pressure."

The only way to reduce costs further is to cut corners - and many Indian manufacturers likely do. In fact, there is mounting evidence that some of the Indian public market and even more of the private market is supplied by low-cost domestic drug producers that make poor quality medicines. Even criminal enterprises making useless fakes are active in this market.

My own research team recently published a paper in the International Journal of Tuberculosis and Lung Disease, showing that 9% of TB drugs bought in private pharmacies across India and Africa failed basic quality control. While larger Indian manufacturers made a few of the failing products, overwhelmingly it was small scale producers of India and Africa that made the bulk of the problem drugs.

The Indian government's neglect is likely driving decent producers out of the market. Private and publicly funded western donors have stepped in to meet this demand, but they can only treat tens of thousands of patients at best - not the millions in need. Furthermore, since western companies make no profit on drugs sold in these markets - and get almost no positive publicity when they do - it is of no surprise that in the past few decades only one new TB medicine has been developed.

It is also worth noting that this problem is not confined to TB medicines, but also applies to the vaccines market, which is far larger and more important from a public health perspective. Only vaccines for western markets create enough of a profit for innovative companies to stay engaged. This blinkered focus on cheaper medical products is driving some of the best producers from the market. The resurgence of diseases like diphtheria and pertussis is the inevitable result.

It is a paradox that the price of the most important medicines today are pushed so low by governments to ensure access, at the expense of quality. Until that is understood - and reformed - public health efforts will continue to be plagued by shortages, inferior products, resistant strains and disease epidemics.

Roger Bate is a resident scholar at the American Enterprise Institute, and the author of "Phake: The Deadly World of Falsified and Substandard Medicines." He is writing a book on the costs and benefits of free trade zones. 

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