Balance sheets must not determine the relevance of State-owned production facilities, especially if they are involved in producing medical supplies. This is because health is too valuable to be left to market forces of supply and demand.
Within a couple of weeks of the Covid-19 crisis, we have seen shortages of several products in the global market. Though the overall demand has come down due to poor market sentiments, consumer anxiety and lesser spending power, the drop in supplies has fast outpaced the drop in demand.
Several consumer goods and electronics have been badly affected — but the real issue is the shortage of medical supplies and essential drugs.
The fight against Covid-19 has been plagued with short supplies of surgical gowns, sterile gloves, hand sanitizers, surgical face masks and N95 respirators. Many of these are considered essential to break the chain of infection and prevent the transmission of disease.
A grave situation
More alarming is the fear of shortage of essential medicines. The news that India has restricted the export of 26 drugs, including Paracetamol, some vitamins and antibiotics such as Erythromycin, was met with a high degree of concern in most health systems of high-income countries. The real reason for this export restriction was that the Active Pharmaceutical Ingredients (APIs) of many of these medicines are produced in China; and this production has been impacted by the Covid-19 outbreak in China.
It is expected that if the Chinese factories are not functional by the end of March, the production of several other drugs are going to get affected, and supplies to multiple markets will be disrupted.
If there is a disruption in the supply of APIs from China, the entire system can collapse within weeks. Some generic manufacturers may have stockpiled ingredients to account for the low supply during the Chinese New Year celebrations, but once it’s exhausted, we may be looking at a very grave situation.
Spreading the net
We cannot afford to have supply chain disruptions and market failures when the world is going through a pandemic. Not just novel infectious agents, the increasing frequency of extreme climatic events associated with climate change can also cause similar problems in supplies of essential products.
The possible ways to strengthen supply chains are to bring in supply chain experts, diversification of procurement, strategic stockpiling and even dilution of intellectual property regulations (IPRs) for products with public health importance. Equally important is the public sector or not-for-profit institutions retaining control over the production process of strategic goods, especially in the healthcare sector.
In its report submitted to the United Nations Secretary-General in April, the Inter-Agency Coordination Group on Antimicrobial Resistance (IACG-AMR), which looked at ways to synergise the global response to contain a supply chain disruption, recommended that “some governments or regional entities may consider establishing production facilities or contracting manufacturers to help mitigate shortages of antibiotics”.
Good old PSUs
It was essentially an acknowledgement of market failure and showed the need to have alternative production models to complement the market forces. This is not about replacing the pharmaceutical production systems in place; rather, it’s about maintaining strategic manufacturing capacity to hedge against market failures. It’s an acceptance of the fact that health is too valuable to be left to market forces of supply and demand.
The importance of such production systems are being felt now too. Responding to the acute shortage of alcohol-based hand sanitizers, the Government of Kerala turned to the Kerala State Drugs & Pharmaceuticals, a public sector company. In a matter of few days, the company brought out hand sanitizers at less than one-fourth the market price. Kerala’s jail department repurposed its tailoring facilities to produce bulk quantities of surgical masks for healthcare workers. These initiatives may never be enough to satisfy the entire demand, but it surely offers hope. The recent announcement that New York is bringing out its own hand sanitizer to compensate for shortages is indeed welcome news from a country which has always prided in its market moorings.
Now there are several such initiatives exploring alternate production models to protect against the pharmaceutical industry and drug shortages.
Civica Rx was founded in 2018; and now boasts of 45 major health systems and over 1,200 hospitals in the United States. It is a not-for-profit generics manufacturer which has now a portfolio of 18 drugs — from opiod analgesics to higher antibiotics such as Vancomycin. Low Cost Standard Therapeutics (LOCOST) and Comprehensive Medical Services India (CMSI) are two similar organisations in India, which are engaged in pharmaceutical manufacturing.
In the last three decades both LOCOST and CMSI have established high quality production facilities for several essential medicines, and their retail prices are often 90 percent lower than the most selling brands of the same molecule. Though the popularity of these medicines has been quite sub-optimal in India due to lack of an effective marketing mechanism and low margins available to retailers, these organisations have been crucial in the survival of several charitable hospitals across India.
Too vital to fail
India has also been home to several experiments for State-owned pharmaceutical manufacturing facilities. In addition to the Kerala State Drugs & Pharmaceuticals, various state governments have established similar companies. The inefficiencies of the governmental systems effectively killed most of them, though some are still functional. The relevance of these companies and the collective expertise that it had acquired over years comes to light only at the time of drug shortages, like the one we are facing now. The governments of the day did not treat these companies as strategic assets, as defence or aerospace; and balance sheets decided their fate.
This is not an argument that public sector should or could replace the private pharmaceutical manufacturers. The innovative spirit of the private firms and their cost efficiencies cannot be matched by government agencies in most regional contexts. However, when we leave everything to market forces, we are exposing our health systems to market failure.
The health sector is very different from the market for toilet paper, and it is not a perfect market in any way. Therefore, the public sector should prepare for market failures and supply chain disruptions. The only way to do that seems to be retaining some control over the production process.Philip Mathew is Associate Professor of Community Medicine, PIMS & RC, Kerala, and Doctoral Researcher, Karolinska Institutet, Sweden. He is also a public health consultant for ReAct, an international network on antibiotic resistance. Views are personal.