Colonial instincts, wrong perceptions of medicines from Asia. Part 1: major home markets

For over 50 years, our medicines supply has been without major worries. They were always there, and the variety became bigger all the time. Costs mounted, but government and insurance companies took care of an ever growing host of opportunities.

This model shows cracks in the past 10 to 15 years. In order to save costs, governments ‘economize’ on health care spending. In fact, a wrong choice of words: health care spending keeps on growing each year, but still this cannot keep up pace with our desires. Politics would seem to be able to learn from smart PR of health care insurance companies ‘just look at what we increasingly cover’. Moreover, we source our medicines ever more from Asian countries, there they can be produced much cheaper because of low wages. Therefore, we relocated our factories there, so the story runs; and now we increasingly face unexpected results. World trade is off-balance ever since containership Evergreen blocked the Suez canal in 2021. Our medicines supply from pharmacists, always very dependable, has become less dependable from time to time. Since then, geopolitical developments just complicated and worsened the situation.

This is a well-known line of storytelling. But there is a lot to be challenged in that story. The 50 years of experience in world-wide industrial chemistry, for production of the active ingredients of our medicines, show an entirely different dynamics. This may not supply us with a panacea for our problems, but on the other hand: better understanding of the past may contribute to a better future strategy.

Supply of medicines in Asia, a short history

Until the ‘60s of the past century, medicines supply was hardly organized. They weren’t there for major strata of the population, or people were dependent on traditional, non-Western substances. Even though many of them were effectful. People well-off could buy pre-packed, formulated medicines like we know from our apothecaries. Prices were sky-high, and our earnings very well.

Infections formed a major problem, until far into the past century. In the First World War, more fatalities occurred due to infections than due to enemy fire. There was an immense social pressure for the availability of good and cheap medicines. In 1935 the first real answer popped up, the sulfonamides of the German company IG Farben (the precursor to Bayer, BASF and Hoechst). From WWII onwards, penicillins and later cephalosporins take over that important role in the Western world. From 1980 onwards, most sulfas have disappeared from Western markets, with the exception of some products. But in the meantime, they had found their way, particularly into India and China. They were and are cheap, have a good effect and can be produced using relatively simple chemical techniques, both on large and small-scale. The number of producers, both in China and India, went into the dozens. No major names or factories, but this was responsible for the advent of an industrial branch that could handle medicinal chemistry. They also exported their produce, but this trade stayed small, as at the same time semisynthetic Pens and Cefs developed.

Pens and Cefs conquer the world

The semisynthetic penicillins, mainly Ampicillin and Amoxicillin (still in volume by far the biggest antibiotic) take over Western markets from the ‘60s onwards. The Asian countries stay behind for two reasons. Importing ready-made formulated products is much too expensive, because of European and American hegemony. And producing these substances in Asia is problematic because of the difficult fermentative preparation (yeast culture) of the key ingredient Pen G. India and China have no historic strengths in fermentation, certainly not in handling the notoriously difficult preparations on the penicillium yeast. Japan does have a tradition in that field; therefore it is the first Asian country with a Pen and Cef production of its own. The first fermentations were as early as WWII.

This state of affairs changed, when industrial preparation came up of the key resources 6-APA (6-aminopenillanic acid) and 7-ADCA (7-desacetoxycefalosporanic acid), with Gist-Brocades as the main player. It’s true, the foundation for these products is the same difficult fermentation mentioned earlier, but these products are more stable and non-perishable. They came from outside the field of the pharmaceutical industry, and hence with a much more competitive pricing. India reverted on a large scale to importing 6-APA, and later also 7-ADCA; as well as the import of synthetic building blocks D(-)fenylglycine en D(-)p-hydroxyfenylglycine (both having DSM Andeno as the main supplier) for the major Pens and Cefs of the second half of the past century. China didn’t follow suit, partly because of political reasons (Mao), and of suspicion of allergies caused by penicillins. But the production of sulphas stayed high in both countries. They were nicknamed ‘penicillins for the poor’.

Major domestic markets

Essential for understanding the size of the markets of these fundamental medicines is the number of people that have access to these products; by an insurance policy, a good infrastructure and/or their financial position. The table gives an impression of the number of people (in millions) that had or have access to these medicines.

Simply the size of these huge domestic markets renders local production attractive, in countries like India and China. These products don’t even need to be exported. Real large-scale production like in petro or bulk chemistry will not be required. The appropriate fine chemical knowledge actually lends itself particularly to small-scale productions, these don’t need to be very efficient, particularly not when the resources can be sourced locally as well. Remember that volumes, particularly in the ‘80s, are small. One can produce a lot of pills from a few thousand kilograms of a sulpha or a penicillin. Of course quality is important. But in many of these productions, it is not very difficult to remove any impurities by (re)crystallization. Competition and quality requirements will come from the large number of producers, rather than from national laws. Consequently, in India or China one might expect a profitable production of several medicines in each province.

Developments at DSM/Gist-Brocades as an example

Around 1980, we in the Netherlands had a lot of customers from India. These were mainly interested in the key resources for the major contemporary antibiotics, particularly for Ampicillin, Amoxicillin and the fully synthetic Trimetoprim (that was used extensively for the treatment of bladder inflammation in combination with sulphamethoxazole). China wasn’t in the picture yet, because of its closed economy and the consequences of Mao’s ‘Great Leap Forward’. Later, key ingredients of the major cephalosporins like Cefalexin, Cefadroxil and Cefradine were added to that. Countries like Pakistan, Iran, Bangladesh, Thailand and the Philippines started productions fpr their home markets. India was the leader of the pack, attempting to 1) further backwards integration for all synthetic products, 2) ultimately a home production of PenG (or Pen V) and 3) the buildup of an export position.  Western suppliers tried to evade this process, or at least postpone it.

Illustrative are developments at DSM Andeno in Venlo around 1985. Our Indian clients knew very well that the best knowledge for the products they bought was present with us as well. There was a large number of proposals to enter into local production in India with them. All we had to do, was supplying our knowledge to a 50/50 joint venture to be erected. Financing and execution would come from them. It became my job to postpone this process as long as possible, without losing any clients. We succeeded in keeping up this picture by saying that we would come to India ourselves as soon as the market there would be ripe, according to us. And by using paperwork with an unsuspected Indian partner and the Indian authorities for an appropriate start, suggesting that we were coming indeed.

The Indian tam-tam followed us very closely. A number of our clients approached particularly Indian competitors of ours. After a couple of years, I had to inform the board that we would have really to enter into a joint venture, in order to safeguard sales and profit in India. The discussion in the boardroom went more or less as follows: ‘We now earn 25 cents per kilogram on sales to India. In a JV, that will be reduced to 10 cents, that we will have to share with an Indian partner. But now, we can still join them for free. If we don’t jump on the bandwagon now, they will go ahead with other process suppliers, producing our products on their own. Then, we will lose the Indian market ; or alternatively, we will have to buy ourselves at the table again by spending a few millions.’ The latter option happened.

About the same discussion took place at Gist Brocades in Delft. In order to keep the major sales of their 6-APA and 7-ADCA in India, they needed to cooperate with their biggest clients. After the merger of DSM and Gist Brocades, the Dutch interests in India only grew, which would require local presence: ‘if you cannot beat them join them’. In other words: Do not shift production from the Netherlands to India because there wages are much lower, but cooperate in JVs with the major customers, the key ingredients are being sourced in the Netherlands and keep profits as much as possible in the Netherlands. Up to the point where the Indian partners become so strong that profits in the Netherlands are coming under pressure, and the option to do something different will present itself. That process starts in 2005 by closing down production in the Netherlands, and finds its closure in selling joint ventures in India, China and elsewhere. A position of co-developer of penicillin (Gist 1944), becoming world market leader from 1980 to 2010, has come to an end. With a lot of health gain for humanity!

Interesting? Then also read:
Chemistry vs. bacteria, # 71. The future of pharma in 3 acts, no.3. Towards a holistic approach
Chemistry vs. bacteria, # 65. Limits to human power
Can we engineer life? 2.1 From evolution to revolution