Exports of medicines from India and China haven’t taken place because the Western world invited them to do so. To the contrary, there were many visible and invisible obstacles. The countries have had to find their way, separately.
The step towards pharmaceutical end products. Written in capitals
It would seem that export of end products wasn’t such a deal, reasoned from the sulphas. The products are relatively simple and robust molecules, that can be purified simply, if so desired. Back then, international quality standards for these old and extensively proved medicines weren’t like those in use now. Therefore, India and China might export. But Western markets had almost dried down. As for China, the self-imposed political isolation added to this. But for Pens and Cefs, this was different. Western countries didn’t exactly encourage India to sell its products on those large and growing Western markets. Even though their prices would have been competitive from the start, and patent restrictions were hardly in place. The quality of their products had been proven extensively on their internal market. Indian complaints were: ‘You place a big gate of capital letters around us that render difficult any exports: FDA, GMP, GLP, TQ, TOSCA etc.’ They regarded regulation as a means to protect the productions of their own, and frustrate Indian ambitions.
Moreover, often in license agreements between Indian and Western partners it was formulated that the agreement would not be used for exports from India. As a consequence, the first Indian exports went to countries with weak regulations, like in Africa. Even though that carries with it disadvantages: the margins were small, and this worked as an invitation to send qualitatively less performing batches to Africa. A practice that we will also see in the Ranbaxy scandal.
Two developments still get Indian exports going. The Indians succeed in acquiring FDA approvements and make themselves familiar with GMP and GLP practices; whereas in the Western world, there raged major rows and heated political debates in the battle between fully safe medicines and limitation of the ever rising costs of health protection. The sky-high prices for modern medicines protected by a patent push basic and generic medicines ever further into the sideline. A gap into which India positioned itself with great joy. We didn’t have to invite them. They were waiting already.
How good (and bad) the Indian practice can be, has been described fascinatingly in the book ‘Bottle of Lies, the inside story of the generic drug boom’, of Katherine Eban. It highlights sharply the battle within the FDA between quality and safety of medicines versus cost cutting. And of course, the very evil practices of Ranbaxy with a fully doubly performed quality control. One in which everything of their own production was being measured and administrated. As it should be. And a second identical organization that was supplied with the pills (but with the batch numbers of their own production) of Western A-pharmacists. Representatives of Ranbaxy bought the pills at apothecaries in New York, London, Paris or Amsterdam. Furthermore, the book shows that the batches with the lowest quality were being shipped to Africa, the intermediate quality to the home market and the best ones to customers wanting FDA approval.
China, a story of its own
In 1985, a Chinese enterprise asked us, Andeno, for a tender for 3,4,5-trimethoxybenzaldehyde, the key molecule for the preparation of Trimethroprim. We had just opened up an enlargement of our production and dreamt of further enlargement if all those Chinese would buy as well. It was in the era of the first openings of the Chinese economy to the rest of the world. We didn’t know anything about the Chinese market! In cooperation with trade unit Develing Far East in Bunschoten, we planned a roundtrip along 10 to 20 Chinese chemical and pharma companies. Our preparation was minimal: our experiences in India, talks with representatives of the Chinese embassy in The Hague and talks with the Belgian company Jansen Pharmaceutica. At the time, they were one of the few companies in Europe with production and marketing of medicines in China. Their factory is located in the old Chinese capital Xian.
The roundtrip was unique, and conditions incomparable to those of the present day. In each 24 hours, we had a maximum of 2 hours business contacts. Our interpreter/guide of Develing Shanghai had never been outside this town, nor had we any experience in China. And yet, the results were far-reaching. The contacts were open and productive, for they planned to do business with the rest of the world. But then, we didn’t contact (potential) buyers, but over ten competitors! Producers of Trimethoprim and sulphas with sometimes very primitive processes. Like the production of gallic acid from oak apples by boiling these in water in which rice had been cooked. It sounds primitively, but the enzymes in the boiled water speed up hydrolysis of the gallic esters, producing gallic acid. After etherisation, they used an outdated Rosenmund reduction to reduce the acid to an aldehyde. The end product Trimethoprim is obtained by condensation with guanidine. Other producers start with p-cresol that is transformed to lilac aldehyde through bromation of both the side chain and the nucleus, followed by hydrolysis and nucleophilic aromatic substitution. After methylation of the para hydroxy function follows condensation with guanidine. It was hard to obtain figures about sales and production volumes, but these amounted to 30 to 40% of the global market.
A very considerable competitor in the making
We started this episode with the invitation for an offer; this wasn’t meant to buy anything from us, but as a first orientation on the world market. The Chinese government had started a small-scale experiment: producers could export a small percentage, 5 to 10% of their production. Of the dollars they imported into the country, they could keep half and spend them abroad as they would judge fit. A lucrative business. For after all, the costs for their export had been covered in full by their much larger domestic sales. They would be able to dump.
This was exactly what many thought, for soon we met them in international markets at prices up to 40% under usual market prices. But the real costs of production in China at that time were probably less than half of ours. Everything came from local sources, and wages were less than 10% of ours. As a first product, China exported the most important intermediate, 3,4,5-trimethoxybenzaldehyde (our product). For that, quality requirements (like for a medical end product or a formulated and packed medicine) don’t apply. The end of production in Venlo had been set into motion; and not at all because we were in de business of constructing a factory in China. The Chinese didn’t buy one single kilogram from us.
The Chinese export machine
A state economy, like in China, shows a completely different dynamic than the free and most of all chaotic Indian society. The Chinese had spread pharmaceutical industry over the country. In case of a war with a major neighbouring country, supply of basic medicines should stay alive. As the economy opened up in the ‘80s, two major forces came into play. Chinese entrepreneurs were allowed to focus on exports (see above) and almost every Western company wanted to sell in China. ‘If all Chinese would buy a piece of Sunlight soap, we will be rich tomorrow,’ they said at Unilever. In China, the drive for knowledge and earning money was gigantic. So allow them to come here with their knowledge if they would like to sell us something in order to earn money. We will show them that we will be able to accommodate and improve their knowledge very fast. And our major home market will enable us to realise big scale advantages, to be used in building up an interesting export position.
In relationship to this, two quotes. The first from my roundtrip report China 1988 (each year, I made a roundtrip): ‘China will become the Japan of the century to come, but then 10x worse.’ The second one is from Henry Kissinger, in his preparation for Nixon’s visit to China. He poses the American courtesy question to Zhou Enlai: ‘What is the origin of the Chinese population?’ His host is embarrassed and says, we will pose that question to Mao tomorrow. Mao is a bit less shy and says in as many words: ‘What a stupid question. The Chinese always were there.’ That historical consciousness and self-confidence has taken the Chinese to where they are now. Our knowledge having been stolen? Crocodile tears! We wanted to reap money from their major markets; and they allowed us, on the condition that we shared our knowledge with them.
DSM Gist activities also ended in China, by the same mechanism. Duplication of our Spanish factory for Cephalexin in the Chinese city of Zibo is a first example. The transfer of technology when the Chinese visited us was a special event, given all language problems; but construction and startup in Zibo went along without a single mistake. I never saw the likes of it in other international technology transfers. And within a year, our Chinese JV beats the results of the Barcelona factory. In 2018, DSM finishes its antibiotic activities and sells its 50% share in Sinochem for €275 million.
In short: India and China earned their position in the world through skills and knowledge of their own!
Interesting? Then also read:
Micro technology
The dangers of resistance to antibiotics
Precision fermentation