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Misleading Reporting: Indian Pharma Company APIs are NOT Banned in the US

Today Vidya Krishnan of the Hindu decided to write a story. This was a story that apparently caused some random panic among stocks of the pharma variety because OMG THE US GOVERNMENT HAS BANNED INDIAN API IMPORTS!

The article started out like this:

In a move that will further inflate prices of drugs in the United States — already a burning issue in the current presidential campaign — the U.S. government has made it mandatory for Active Pharmaceutical Ingredients (APIs) to be manufactured locally. At present, nearly 80 per cent of drug raw material requirement is met by India or China.

You see why the market has panicked on seeing such a headline? My goodness if all API imports are banned, then that’s pretty much where all Indian pharma companies will die. Vidya Krishnan later defended this article saying it was only about US Government Procurement of drugs, which is a much smaller market, and that it was still a story because hey Nirmala Sitharaman (India’s commerce minister) was ready to take this to a bilateral talk.

Not a bitter pill

The problem was:

  • People thought this was about all APIs coming into the US
  • Ms. Krishnan says “clearly” this was only about government procurement in the US
  • Oh, there was a full paragraph about it, she says

Way down below, in an obscure part before the ending, she says:

It is worth noting that Indian companies are not allowed to quote for government contracts in the U.S. since India is not a signatory to the WTO’s government procurement agreement. But this change will affect companies which have subsidiaries in the U.S. that procure APIs from their Indian counterparts and make the finished product in the U.S.

Further, the decision would impact availability of affordable generics in the United States, said DG Shah, secretary-general, Indian Pharmaceutical Alliance (IPA)

So it’s apparent to us market players at least that the upper paragraph and headline was clearly rumour-mongering, and caused more damage than it should have. From now on, let’s do ourselves a favour and treat such articles – from Ms. Krishnan and perhaps the Hindu – with less seriousness.

Is There A Story?

Now there is a small story, but it could have been worded better. The concept is:

  • Already there are rules that if you sell to the US government, you have to be a domestic entity
  • But apparently Indian companies would create US subsidiaries that were “domestic”
  • And send them the API which would be mixed, made into tablets etc and sold
  • They would sell to the US in general, and this was also done by US companies that imported API from Indian companies
  • The US Customs and Border Protection note has apparently ruled recently that a drug, Acyclovir, was actually made in India (even though it went through some processes in the US) and therefore could not be sold to the government
  • The US government procurement is not quite as large, and this is NOT an overall US import restriction
  • The US government has always has a “Buy American” policy and has previously also ruled against drugs exactly on this basis (that the API was manufactured outside the US)

Let’s see the ruling: (This was November 5, 2015, so nothing happened recently either)

In HQ H233356 dated December 26, 2012, mefenamic acid imported from India was blended with excipients and packaged into dosage form in the United States. Based on prior rulings, we found that the specific processing consisting of blending the active ingredients with inactive ingredients in a tumbler and then encapsulating and packaging the product did not substantially transform the mefenamic acid because its chemical character remained the same. As such, we found that the country of origin of the Ponstel (mefenamic acid) capsules was India, where the mefanamic acid was manufactured.

In this case, the processing performed in the U.S. does not result in a change in the medicinal use of the finished product and the active ingredient. The Acyclovir retains its chemical and physical properties and is merely put into a dosage form and is packaged for sale. The active ingredient does not undergo a change in name, character or use. Therefore, in accordance with our prior rulings, we find that no substantial transformation occurs in U.S., and for purposes of government procurement, the Acyclovir tablets would be considered a product where the active ingredient was produced, which would be China and India.

The story is not such a big story – firstly, it’s well known the US government doesn’t procure from Indian companies and secondly, they have done this earlier: called only API wrappers (where the API is sourced from India or China) as non-domestic and therefore inapplicable for govt procurement. There’s no “news” in this, at this moment.

However, this may be something we could protest – as the US does often when we deny their companies certain access etc. – and that’s fair.

Reactions

A good point made by Surajit Pal of Prabhudas Lilladher (see video) was that this will increase the cost of Medicare and Medicaid in the US. And they doubt the extent of implication in the article; obviously it was only exaggerating the impact of what was done.

The MD Of Biocon also sounded really unhappy, but she obviously was told that the news was that ALL APIs would be banned by the US, which again is nonsense.

Vidya Krishnan reacted with a five tweet series about why she was right. As a journalist, she’s fine. As a person who writes English professionally to convey a clear and precise message, she is not. This was not clearly about government procurement (that should have been in the opening paragraph) and did not clearly state that such incidents have happened in the past too, and that the “Buy American” have kept Indian based APIs out for ages. In regular times, we’d ignore something like this – but this made a lot of people really really antsy, and was probably one of the reasons pharma companies tanked today.

Our View: What Else? Question everything.

  • Raghav Rajaraman says:

    Tons of credit to you for raising this issue.
    2 points :
    1) In addition to plain old rumour-mongering, there could be another issue here.
    There is a strong motive for Pharmexcil and IPA to plant this article in the papers. As lobby-types, their motive is to “play victim” wherever possible and build public opinion in their favour to pressure the government. I would not be surprised if they PAID this journalist to write this colourful “story” based on their information. ie *According to “sources”*
    The minister’s quote which the journalist claims as the “story”, is also probably fed to her by Pharmexcil or IPA, probably based on a reply they received from the ministry to their letters. The journalist never mentioned where she heard the minister saying this.
    The journalist’s motive is the usual: a little bit of rumour-mongering to write the story in as colourful terms as possible, because she thinks that she is protected under freedom of media.
    We cannot presume that the journalist got paid for writing this, and whether she is guilty of that.
    But even if she did not get paid, we can still implicate her under existing laws: No, there is no need to curb freedom of media when you do this.
    Just because she thinks she has immunity under freedom of media, does not mean you cannot apply other laws to try her actions.
    For example, one can easily implicate her under consumer protection laws.
    Think of the “News” as the “Product” produced by the Media (“The business”) and the headlines and introductory paragraphs as the “Product Wrapper”.
    If a product wrapper advertises false or misleading information, then that is not protected under freedom of speech related laws. We should not even call it “speech”.
    As a hypothetical example, a Nestle cannot justify wrong ingredients listed on a KitKat wrapper or their misleading advertisements, because they had freedom of speech.
    This false article is not a freedom of media or freedom of speech issue, it is a consumer protection issue.
    Thankfully, it is not easy for the government to try the Media to curb their freedom. But if the consumers are harmed, the consumers can still try Media persons in consumer courts.
    Media persons are not supremely immune.
    You’ll find that most misinformation by Media falls under the issue of consumer protection.
    2)
    The US government probably could not be faulted in sourcing locally, if it is for their “own use”. It is their own free decision, and they are not forcing anybody else do anything discriminatory.
    The nuanced thing here is that the US government-the legislative branch cannot make discriminatory laws such that they dictate any entities (private or public) what to do. That’s encroachment on their freedom. By the same token, but the US government- the executive branch is like any other entity, just their constituency is different (it’s the people instead of shareholders.) And it is always free to source from wherever they want to for their *own use*, just like any other private company or a person is free to source from anywhere, if they see that, that decision helps their constituency (the people- or the shareholders respectively)
    Eg. A legislative branch cannot dictate people if they must be vegetarian, but an independent entity (which the executive branch is) or a private person is free to be vegetarian if they think it is more healthy for themselves. It’s for their own constituency’s health anyways, so it’s their own choice.
    As for the rising idiocy in journalism these days, good luck!

  • Ashish says:

    What a dumb Journo. Anyways she had created enough panic in the markets for many stocks to lose ground in 2 days.

  • Ragotham Hayagreevan says:

    Well done, Deepak. Of late, there is a visible trend in the media to highlight anything negative, and hence we need a new stream of media players, who highlight positive news and do not thrive on merely creating hype around negative news. This would help to energise the way the common man and youth think, and lead to greater productivity and healthier minds.

  • Sanjeev B says:

    Totally agree with you Ragotham. There is so much good and positive work that happens every day that’s pathbreaking or touching the lives of many people, yet very little of this gets reported or shared.