One of the reasons we avoid investing in Indian pharma companies which make formulations is because our channel checks suggest that the business model of Indian pharma companies is NOT only unviable in the long run, in the short run it leads to cutting of corners with inevitable consequences for quality – see our blog from January 2022: https://marcellus.in/blogs/
In the wake of the recent tragedy in Gambia (where it seems that 66 children have died after consuming drugs made in India), Govindraj Ethiraj and his award winning team at IndiaSpend conducted an interview on this subject with two well placed experts: Dr Rajeev Jayadevan, former president of the Kochi chapter of the Indian Medical Association, and Nakul Pasricha, CEO of Pharma Secure. Pasricha is also president of the Authentication Solution Providers’ Association (ASPA), a non-profit based in Delhi that works against counterfeiting in India, by building authentication eco-systems. (Disclaimer: the families of one of these gents is a client of Marcellus and the same person went to school with one of Marcellus’ founders.)
The entire interview is worth reading in full. The key points that we picked up are:
Firstly, the extent to which substandard drugs proliferate in India is mindblowing: “That CDSCO study you quoted was the first such comprehensive study that was done in India to measure the extent of spurious and substandard drugs. That study was conducted again, as an update, in 2015. The outcome was similar, where they found about 0.3% of drug samples to be spurious and about 3% to be substandard. However, other studies have been done, including a comprehensive study around the world by the WHO in 2018, which found one out of every 10 drugs sampled [in low- and middle-income countries] to be spurious (which they call falsified), or substandard. So, it is a tremendous problem. Other estimates are as high as 20%, or 30%. ASPA conducted our own meta study, where we just looked at reports of incidents of spurious or substandard drugs in India, and at the number of such reports across the country. That number jumped by 47% from 2020 to 2021, which is the last year for which we have data with us. So, this problem has been brewing. And it is a problem that I believe has been, at least domestically, not given the importance and the attention that it needs in order to save patients’ lives.”
Secondly, whilst we as consumers tend to think that at worst we are getting substandard drugs in India (which have less-than-ideal efficacy), the even bigger challenge is spurious drugs i.e. nakli drugs: “For our readers, I think we must break these technical terms down because ‘spurious’ is not a word that is commonly used in India, outside of technicalities. So, I’ll explain this with a simple example. Here’s an envelope that says [it contains] Rs 100. Now, suppose this envelope contains only Rs 50 instead of Rs 100, then it becomes a [Category B] ‘substandard’ product, which means the product promises to deliver Rs 100 but contains only Rs 50. Now, sometimes this envelope may contain nothing at all. Then, that is called Category A ‘spurious’, which means, the product has Rs 100 written on it, but it contains nothing. And then, the third Category C is when the Rs 100 note itself has some imperfections, it may be torn, and so on. In other words, spurious simply means that the product does not come up to the standard. It can be a completely fake, or nakli product, or it may be something that does not have all that it promises, or it has minor irregularities. CDSCO has classified this into A, B and C – A is absolutely nakli, B is the Rs 50 rupee example and C will be the torn Rs 100 note.”
Thirdly, pending investigation, it seems that the problem in Gambia was spurious Indian drugs: “…what happened in Gambia is so tragic. I believe a full investigation report is awaited, but the preliminary information is that [there were] contaminants within these cough syrups along the lines of diethylene glycol, which is a kidney toxic agent. It’s like, if I make pickles with poisoned chilli powder and sell them, I might not know that the chilli powder is poisoned until a consumer comes back to me and says, ‘I ate your pickle and I got sick’. Then an investigation is launched and I find that one of my ingredients was wrong. What happened over there is something like that…
The adverse outcomes are frequently the result of an ingredient which should not have been there in the product. If a tablet of paracetamol should contain 500 mg and delivers only 100 mg, the patient might not have a complication. The fever might not come down, but the patient is not harmed, in that sense. But if the product contains a dangerous substance, which should not be there, yes, the patient might get harmed. And that’s really what happened in Gambia.
The other situation that could happen is, let’s say medicines contain preservatives. So when I say an antibiotic tablet is spurious, it might also mean that the ingredients in it are abnormal. The normal, or active ingredient, itself might be of good quality. But the other parts, like the colouring agent, or the preservative, filler, capsule, or the cap of the pill bottle, even these have to be of good quality. Quality is distributed across multiple angles and aspects of a medication. Let’s take an injection. The injection is meant to be kept in stable form and if one of the preservatives is spurious, the person who received the injection might have a serious outcome, even death.”
Finally, if you are one of these idealistic people who expect the regulator to be looking out for you, the following would be of interest to you: “In fact, statistics I saw from one of the large pharma companies, among their presentations, said that being a drug counterfeiter can actually be more profitable and lucrative than being a heroin distributor. So that’s the kind of profit that people stand to make, and that surely may be a lure for many criminals… When I speak to drug regulators or see their presentations at conferences, there’s one common theme, which is that they are under-resourced. It is virtually impossible for any kind of drug controller, either at the national or state level, to really say, ‘Look, I’m going to go and take the responsibility to examine every drug that’s out there and ensure that it’s safe and efficacious’.”
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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
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