Multi-Disciplinary Reading – Book Reviews

China RX, Janardhan Prasad Singh, 2018 - A bit old but covers a lot of ground from the history of how China gained a foothold in the world market for drugs, APIs, KSMs in the mid to late 90s, FDA’s evolution from the 2000s to 2010s, how politics affects the agency, the key trigger of Clinton administration’s legislation allowing permanent normal trade relations with China and how capitalism and low cost decisions led to lower quality and ballooning trade deficits

My notes -

• Antibiotics, chemotherapies, antidepressants, HIV/AIDS drugs, medicines for Alzheimer’s and Parkinsons and KSMs for several prescription drugs and OTC drugs are made in China

• If China stopped exporting ingredients for key life-saving medicines, within months world’s pharmacies would be empty, surgeries canceled and cancer treatments halted and infections would spread

• Last penicillin fermentation plant in US closed in 2004. China is now the dominant player in peniciliin, ciprofloxacin etc

• China stopped rare metal exports to Japan in 2010 which affected Toyota’s hybrids and didn’t end embargo until the captain of the fishing boat that collided with Japanese coast guard was released (There is precedence to such behaviour, rationality in the fear)

• Contamination in batches of Heparin, a blood thinner used in dialysis, surgery and to prevent blood clots caused 81 death and 785 serious injuries - Baxter controlled 50% of the market and the contamination happened in a Chinese plant which was outsourced production of intermediates

• SPL, Baxter’s partner was making Heparin API in US until 90s but built a plant in China in a JV with local firm to save costs. The RM started from intestines of pigs. When blue-ear disease affected pig population, a cheap substitute that cost $9/pound (real product $900/pound) was intentionally used to cut costs. Chinese officials denied its companies were responsible and passed the buck to Baxter’s Cherry Hill plant

• Birth control pill Lenovest, Nevirapine (HIV/AIDS drug), Donepazil (Alzheimer’s), Risperidone (BPD/Schizophrenia), Amlodipine besylate (High BP), Losartan potassium (High BP), Wellbutrin (Antidepressant), Levetiracetam (Epilepsy/seizures), Doxycyciline, clindamycin, Imbruvica (lymphoma/leukemia), gemcitabine (breast/lung cancer), vancomycin (antibiotic) - some of the important drugs from China (it is impossible to trace origin of API on the branded drug as patient, as per author - as companies obfuscate place of business)

• 89% of prescriptions filled in US are generics - China undercuts others on price and drives them out of the market

• In 90s, US/EU/JP manufactured 90% of global supply of KSMs for medicines and vitamins. India manufactures lot of generics today but is dependent on China for KSMs

• Aspirin, Paracetamol APIs (acetylsalicylic acid, acetaminophen) were made in US plants in the 90s but were unable to compete with Chinese and had to shutter during the last 90s and early 2000s (some 100 yr old businesses) - sometimes at 2/3rds the cost of competitors, even in India

• Transparency in Drug Labelling Act introduced in 2008 would have solved the labelling problem (Chinese API, irrespective of who markets it would be “Product of China”) but it never became law and the legislation was killed

• 80% of APIs come from China and India but it hides the fact that India is dependent on China for most fermented KSMs (say for doxycycline, cephalosporin, metformin etc)

• More than half of the 4000 odd APIs depend on China - and where China controls an API, they control bulk of the KSM where there is barely anyone else

• China dumped 7-ACA and led to closure of Novartis plant in Frankfurt, Germany (Needed for cephalosporins. Orchid is setting up plant for 7-ACA in Jammu). Chinese product used gutter oil fetched from restaurant grease taps, pans and sewage drains instead of expensive soybean oil

• Inspections of plants in China were optional at the time - FDA officials simply chose to inspect EU plants which were also optional, instead of China (since they liked visiting Europe?)

• Bush administration severely restricted FDA from issuing warning letters and import alerts (the spate of FDA inspection and issues post 2010 shows this is very much politically driven as well)

• Noncompliance with US standards is a deliberate competitive strategy (to compete with China, Indian generics also perhaps took shortcuts in the 2000s)

• The average cost of inspecting a facility in another country is $52,000 compared to $23,000 for US

• When Clinton administration passed legislation to give China permanent normal trade relations in 2000 - it was sold as a way for US companies to sell unhinged in China (we all know how this actually turned out) - US had $114b trade deficit with China as a result in 2003 - it had no trade deficit with any country in its first 200 yrs!

• In 2006, of the 714 plants in China making APIs and finished dosages, the agency inspected only 15 a year

• FDA’s budget was $2.5b in 2007 - to inspected $1trillion worth of food, drugs and other products - a pittance. Meanwhile FDA employees declined from 9167 in ‘94 to 7856 in ‘07

• 2007 had toothpaste contamination from China with diethylene glycol (antifreeze) instead of pharma grade glycerin (pricey). Cat and dog food had melamine contamination causing deaths of 4000 dogs and cats and 50k more sickened

• FDA could do nothing about the melamine contamination which entered human food chain as well - Chinese officials insisted America control its media and members of Congress instead. With no extradition treaty with US, though two Chinese nationals were indicted, nothing could be done

• In 2007 first FDA offices were opened outside US in Beijing, Shanghai and Guangzhou. In 2009, FDA planed 9 Chinese companies on import alert. By 2010 46 plants inspected and 2010 88.

• FDASIA of 2012 gave more teeth to FDA - in terms of funding also ability to blanket ban products of non-cooperating companies (confiscated and destroyed, instead of returned - so they may not come through another port)

• Vitamin C (ascorbic acid) - China controls 60% of the world market (90s, Merck, Roche, BASF, Takeda were making but all were undercut by Chinese firms leading to closure of factories). Collusion and artificial shortages caused increases in prices in 2001 (Roche did same thing in 90s and paid $500m fine) - though penalised, Chinese firms played the sovereign card and escaped fines (claimed it was the govt. that made them raise and their laws allowed them to do that)

• Same Vit-C method was played in peniciliin as well by the chinese - dumping API for cheap between 2004-2006 (Pfizer, BMS shutdown its plant, unable to compete. Indian plants were shutdown as well)

• Shuanghui International’s purchase of Smithfield - biggest acquisition of an American firm by a Chinese company - gave control of ham, sausages and bacon directly to CCP which controlled the company (also Heparin)

• Before 2000 drug shortages in the US were rare but its the norm now. Main reason is purchasing managers being evaluated on cost instead of supply-chain sustainability. This causes suppliers to cut corners somewhere - either not investing to improve facilities, compliance or quality or simply shutdown when unviable, causing shortages

• The pharma industry needs long-term thinking, but the capitalist model isn’t designed to do that making it a recipe for disaster (competing on cost alone might become a thing of the past in the near future)

• When Chinese govt shutdown polluting factories, doxycyline shortages ensued pumping prices up from $20 to $399 for 120 tablets at Walmart (Drug cartels are illegal in the US but is the norm with China where cartels hide behind govt. edicts)

• Companies cut research jobs in US and opened R&D and CROs in China and expanded there (Merck, J&J, Pfizer). Research divisions that created/made penicillin, lipitor etc. were axed overnight

• The depth of the antibiotic pipeline is thus so shallow that given rapidity of AMR (anti-microbial resistance), we will struggle to keep up (companies have shied away from investing in antibiotics as it doesn’t generate long-term customers)

• China today is seen as a source for innovative healthcare research. Pfizer has funded drug discovery at Shanghai Institute of Bio-Sci. (R&D, academic research have all now moved to China). A bench Chemist would cost $50k in China and $250k in US. “Made in China” is fast evolving into “Designed in China”

• China will be a large market for drugs with 280m affluent customers outpacing US’s 260m over age of 18. China’s regulation compel Western companies to transfer technology to China for privilege of selling drugs in China (win-win in China means China wins twice :-))

• IP theft is common in China. WuXi employee stole Merck owned patents and put them up on the internet

• China trap - China thinks long-term. America thinks short-term. China plays Chess. America plays checkers

• China wasn’t allowed to sell Chicken in US but it lobbied US beef industry to allow Chinese chicken exports to US in exchange for access to its market for beef (US chicken farmers lost in the process). China is adept at playing special interests against one another

• Encourage your enemy to expend his energy in futile quests while you conserve your strength for an attack with energy and purpose when the enemy is confused and exhausted (ancient Chinese saying)

• By 2015, US cuml. trade deficit with China was at $3.6 trillion - the hope that China would buy more from US just didn’t come to pass

• Chinese subsidiary in the US for marketing and distribution seldom has any assets and won’t take liability. Cheap product at “china price” comes at a real cost

• The pharma industry exerts substantial control over FDA and manages to keep problems out of public view

• Generic Budeprion XL was supposed to be an extended release pill like Wellbutrin XL but it leased 34% of API in 2 hrs instead of 8% of innovator (these things don’t get tested in generics)

• China is not a designated country for purchase of medicines for US defence. Still 31 prescription drugs are procured from there for lack of alternatives - from antibiotics, donepazil, gentamicin, etc

• India’s military is dependent on China for 90% of its API/KSM needed for 15 essential drugs - mostly amoxicilin, ampicillin, ciprofloxacin, levofloxacin, metformin etc.

• In rare earths US was producing most of it between ‘50-’80 but China today control 97% of world supply using same undercutting

• China has gained access to sensitive intellectual property while manufacturing or research or undermined IP and has made merry with it - from Disney (Wanda theme park), Google, Siemens (60 passenger train contract was curtailed to just 3, with rest manufactured by Chinese firms with same tech), Apple (Baili 100C, iPhone trademark), J&J (OneTouch glucose monitoring), TANG Energy (AVIC)

Historical context is important for understanding long-term structural tailwinds. The book gives good context for what’s happening in the US with the BIOSECURE act. US has committed a massive blunder in 2000 which it has no option now but to reverse and these are major geopolitical decisions that cause serious tailwinds if you watch out for it. 8/10