MULTINATIONALS IN DRUG INDUSTRY: A RETROSPECT OF THE HATHI COMMITTEE REPORT

On June 12th this year the Bangladesh Government promulgated an ordinance
that prohibited the sale of over 1700 drugs. The drugs banned fell into 3 categories:

  1. Those deemed harmful and to be banned immediately by September

  2. Those requiring reformulation in accordance with new criteria and

  3. Those classed as being useless or of little therapeutic value, which are to be removed from the market at the end of 9 months.
The decision was based on the report of an expert committee appointed by the Government of Bangladesh to evaluate the drugs currently in the market and to formulate a new drug-policy replacing the old one of 1940. The drug sales in Bangladesh are worth overS100 million a year and 75% of this is shared by 8 Multinational Corporations (MNC). (Pfizer dominates the market with over $ 10 million sales in 1981). This new drug policy has been a significant blow to the exploitative drug market in Bangladesh and the multinational! drug corporations are bringing a considerable amount of pressure on the Bangladesh Government in an attempt to revoke the ban. The U.S. Government has urged the Bangladesh Government to reconsider its new drug policy and the U.S. State Department has admitted that this was in response to a request from the Pharmaceutical Manufacturers Association of USA. The Pharmaceutical Manufacturers Association has argued that blocking the flow of drugs from its member companies could open the market in Bangladesh to potentially 'impure' drugs from other sources. This should be viewed in the light of the fact that 70% of the drugs in the banned list are either banned in USA, or considered worthless that is, described as being 'therapeutically useless' by the Federal Drug Administration of USA1 and the British National Formulary. The Bangladesh Government has already made some concessions in the face of mounting pressure and, in July 1982, it appointed a panel of military doctors to 'review' the ban.

Multinationals in the Indian Drug Industry.

The foreign investment policy of the Government of India was extremely 'liberal' right from its inception in 1949. This was being justified by the argument that such a policy would:


  1. provide the technology for the production of basic essential goods

  2. attract foreign investors and thus bring in foreign capital and

  3. stimulate the transfer and growth of advanced technology in various industrial sectors. As a result, the first 25 years after independence saw the phenomenal growth of foreign companies in the Indian drug industry. The colossal profits repatriated by foreign companies and the inability of the Government to control drug prices were subject to heavy criticism in the Parliament and there was a demand for a thorough reform of the Indian drug industry. Hence, in 1974, the Government appointed a committee headed by Shri. Jaisukhlal Hathi to study various aspects of the Indian drugs and pharmaceutical industry

The Hathi Committee pointed out in its report that the Indian drug industry was heavily dominated by the Multinational Corporations (MNC). In 1973 they accounted for about 80% of the total drug market in India and held 85 - 90% of all drug patents. However, 80 - 90% of the production of several MNC consisted of simple household remedies like cough syrups, formulations with vitamins, tonics, etc. On the other hand, about 90% of the basic drugs manufactured in the country were from the Indian sector (including small scale industries). In the case of many basic drugs MNC, production was well below the licensed capacity. However, the production by MNC of non-essential drugs like tonics and vitamins often far exceeded the licensed capacity. In many cases where MNC did market basic or life-saving drugs, it was merely the packaging of the basic drugs imported from their own principals or subsidiaries, or the importation of the intermediate or penultimate product from abroad with just the last stages being completed in India.

MNC spent a bare 1% of their annual turnover in R&D, in contrast to 12-15% spent on R&D in industrialized Western countries.. This figure includes money spent on marketing-research and also sometimes the money spent on quality control. Of the 'new' drugs introduced by the MNC in the market 87% were imitation drugs (such as the sale of an already marketed drug under a new brand name by a different company) and 10% were improvements on the existing products only about 3% represented new drugs as such, i.e., containing new active ingredients. The Hathi Committee also noted that the MNC actively discouraged research by their Indian subsidiaries.

MNC were repatriating colossal amounts of foreign exchange by way of royalties, technical fees and dividends, often after paltry initial investment. Additional remittances were also made in the form of purchases of basic drugs and intermediates at prices dictated by their foreign principals. 'These prices', the Hathi Committee notes bear no relation to either the cost of production or the international prices of the products.

Thus the MNC were making no significant contribution to the production of basic essential drugs and in fact chose to concentrate in the area of. low technology, low priority consumer goods and formulations. Their contribution was negligible in terms of introducing new basic drugs. All the MNC were enjoying a privileged treatment under FERA (Foreign Exchange Regulation Act).

It was in this context that the Hathi Committee made the following major recommendations about the drug industry

  1. The MNC should be directed to reduce their foreign equity immediately to 40% and in course of time, to 26% . Those foreign companies that were marketing
    Imported basic drugs should be directed to commence production of basic drugs
    by themselves. Further, any raw materials or intermediates required from abroad
    should be imported and distributed by the Government through a proposed 'National
    Drug Authority'.


  2. The Committee decided that there was a strong case for restricting the sale by generic name alone instead of by the brand name. However it was considered
    'inadvisable' to achieve this transition immediately. Hence, it proposed that as a start,the sale of 13 drugs could be restricted to sale by generic name. It was also suggestedthat the generic name could be displayed prominently on all drugs sold with the brandnames also marked less, conspicuously, if necessary.


  3. The Committee noted that, there were several thousands of drugs marketed in India, a vast majority of which were formulations sold by brand names. It drew up a list of 117 drugs, which were considered sufficient to meet the essential drug requirements of the country and suggested that the Government should concentrate on the production and distribution of these drugs.

New drug policy of 1978 and the current position

For about 3 years after Hathi Committee submitted its report, the Government did
not initiate any action on its recommendations. It was in 1978 that the Government announced its new drug policy and the following is a summary of some of the features of this policy and its current status.

  1. A list of 5 drugs was drawn up (out of the 13 recommended by the Hathi Committee) which could no longer be sold under brand names. However, the official notification to implement this policy was issued only in January 1981. Hoechst and Pfizer, two of the 'affected' MNC, went to the Delhi High Court and obtained a stay order. At present the Government is still debating whether this stay order should be contested.

  2. MNC continued to produce several non-essential drugs far in excess of the licensed capacity. In 1978, the Government decided that in such cases the capacities had to be 'regularized' and it was declared that the new licensed capacity would be fixed as the maximum production achieved in any one year during the 3 years preceding 1977. This effectively condoned and in fact provided legal approval for the unauthorized excess production. The MNC drug lobby which tried to extract further concessions has been demanding that the 'regularization' should be at the level of production achieved in 1980. The Government has bowed to this demand and recently, in 1981, the Government has decided to regularize all capacities liberally' as of September 1981. Significantly, there has been no attempt on the part of the Government to force drug companies to produce at least the licensed capacity of essential drugs many of which are produced in quantities well below the licensed capacity.

  3. Foreign companies were directed to reduce their foreign equity to 40%. But they were eligible to retain more than 40% foreign equity if they produced 'high technology' basic drugs or intermediates for the production of high technology basic drugs. To identify companies eligible for this concession, the Government appointed a High Technology Committee which submitted its report in 1979, The criteria for eligibility have been so broadly defined that almost any drug company can claim itself to be one employing 'High Technology'. For example, some of the criteria used are use of toxic materials in production, use of different kinds of sophisticated purification and separation techniques, etc. Based on such criteria the Government has permitted Hoechst, a leading MNC to manufacture drugs which are already being produced in the small scale sector. The Government has not only ignored the report of the 'High Technology Committee' but also stated recently that 'The need and scope for review of The findings of the Committee will be considered in the light of representations Received from individual companies concerned'. This is only likely to enlarge the list of companies eligible for concessional treatment.

  4. The Drug Price Control Order of 1979 has resulted in a number of foreign companies reducing the production of vital drugs whose prices have been fixed by the orders . Simultaneously, the production and prices of drugs not covered by the Drug Price Control Order have increased constantly. In fact diversification of production into areas of low technology, low priority consumer goods has been one of the routine responses of the MNC to any drug price control order. Thus, even earlier, Warner Hindustan had commenced production of chicklet chewing gum and Johnson & Johnson had started producing baby shampoo and baby powder.

The magnitude of the problem

To-day, nearly 7 years after the Hathi Committee produced its report, none of its major recommendations have been translated into practice. The feeble attempts towards a reform, represented by the Drug Policy of 1978 have been largely ineffective, thanks to subsequent reversal of policy by the Government itself and due to the manipulation of legal loop holes by MNC. Recent years have in fact seen a further deterioration of the situation with steep increases in drug prices and the dumping of hundreds of harmful drugs banned for use abroad, into India and several Third World countries. The Third World countries have not succeeded in their attempts to control their drug industries and make them truly responsive to their people's needs. A striking recent example is the "case of Sri Lanka. The Sri Lanka Government in 1971 set up a State Pharmaceutical Corporation (SPC) and implemented a new drug policy. The number of marketed drugs was slashed from 2100 to 600 and brand names were almost entirely (though 'not totally) abolished. The State Pharmaceutical Corporation took over the import of drugs and achieved 40% savings in just the first 6 months alone. When one
of the multinationals, Pfizer, refused to fall in line with the new drug policy, it was x.. threatened with nationalization. The United States ambassador intervened with the,(Government of Sri Lanka and, in turn, threatened to withdraw the U.S. aid. As a result, the Chairman of the State Pharmaceutical Corporation was asked to 'continue negotiating' with Pfizer and no action was taken against it. Later, when there was an epidemic of cholera, Pfizer was asked to make Tetracycline tablets but it delayed it for so long that the state' had to purchase it from abroad at an enormous expense.
Finally, the new government in 1977 once again allowed the private sector to import drugs and effectively neutralized the benefits of State Pharmaceutical Corporation.

Third World countries have also failed to support each other in their efforts to fight MNC. For example, India and other Third World countries have been silent on the recent Bangladesh ban order. Even the World Health Organization has maintained a silence at the current efforts of Bangladesh government to Translate it’s (Who’s) own recommendations into action.Past efforts have shown that the MNC can bring several sorts of pressure to bear upon even the most Committed Government. They can use threats and persuasions from abroad, get their home Governments, to support them, restrict future investments and ,above, all, use their powerful alliance with local doctors who are used to a powerful drug promotion system. In fact, the doctors and the local elite have accepted radical reforms only in response to popular movements or mass pressure, such as that which had installed a socialist Government in Sri Lanka in the election of 1970.1 In the case of Bangladesh the demand for reform was spearheaded by the Gonoshasthya Kendra (Peoples' Health Centre), which in 1981 set up Gonoshasthya Pharmaceuticals Ltd. (GPL) and started production, of 2 of the 32 essential drugs, and by 1982, of 6 more drugs. GPL could sell these drugs at 50-65% of the prices charged by the MNC and still make a profit of 10-15%. The MNC responded by forming a cartel to undercut the GPL in its efforts to secure contracts to supply essential drugs to Government hospitals and clinics. By its new drug policy the Bangladesh Government has provided strong support to the Peoples' Health Centre and GPL. The policy contains provisions to protect local manufacturers and instructs MNC to "concentrate their efforts and resources, on those items not easily produced by smaller national companies'.

The Third World people are faced with a situation where, all the studies by their own Governments as well as the WHO, clearly point to a need for a drastic change in the drug industry. Nevertheless, the MNC stilt continue to impose on the Third World a pattern of drug production and consumption that is irrational, irrelevant and harmful. Any serious attempt at remedying this situation will have to address itself to the question as to what exactly is making us so totally dependent on the MNC, in the first place. One is then likely to be led to the discovery that the root of the problem lies in the fact of our having based the entire health-care system on the capital intensive, high-technology, chemical-based modern Western approach towards medicine and health-care. As long as we are obsessed with such an approach, it is unlikely that we will ever be able to free ourselves completely from the tentacles of the MNC. And that could be realized only when we take a completely different approach to the entire philosophy and practice of medicine and health-care delivery—an' approach that may have to learn much from our traditional systems of medicine. Even though this may be the only long-term solution to the menace of the MNC, a definite need nevertheless exists to initiate some immediate steps to curb the loot of health and wealth of our people by the MNC. Firstly, legislative action is crucial and needs to be fought for. However, this alone will not be effective, unless it is backed by a Peoples' Movement that can launch an educational campaign among the consumers and, more so, the doctors.


—Madras Group
Note:

* Basic drugs' is used to refer ro essential drugs, such as those used in the treatment of Leprosy, Malaria, Tuberculosis etc. 'Formulations' are those such as cough syrups, vitamin tonics,, mineral tonics, digestion aids, etc. These are not essential drugs and in fact a vast majority of these are of little or no theraputic value.

* For example, the production of Dapsone, a drug used in the treatment of leprosy, was less than 50% of the licensed capacity in 1976-77 and this drug was unavailable in the market over a 6 month period due to shortage

* Between 1952 and 1965, 364 'Permission Letters were issued to 15 leading foreign units. Only 4 of them were for basic drugs and the remaining were for formulations which included ointments, cough mixtures, etc.

* Brand name is the commercial name under which a drug is sold, while generic name is the common chemical name of the active ingredient in any drug. For example, a variety of headache 'remedies' such as Aspro, Aspirin, Anacin etc., have Aspirin as the active ingredient; thus Aspirin is the generic name of alt these drugs. When a single active ingredient is marketed under a number of brand names, it increases the price of the drug considerably! Each company spends a fortune in trying to promote its own brand , among doctors and consumers. It has been estimated that MNC spend about 17% of their turnover in marketing and advertisement (approximately 17 times the amount spent on 'Research'). In India, there is one medical representative for every 4 doctors while in most Western countries there is one medical representative for every 15-30 doctors. Doctors are 'encouraged' to prescribe specific brands by a variety of means such as giving commissions, gifts, handing out of free samples, etc. Hence, the sale of drugs by brand names was considered not in the best national interest and one that causes confusion among s doctors and consumers.

* A World Health Organization expert Committee in 1977 (and again in 1979)recommended that about 200 drugs are sufficient to meet the drug needs of the developing countries and suggested that it is advisable to market these drugs under their generic names.

* For example, the produciion of the anti-tube/cular drug PAS has declined from 482 tonnes in 1979-80 to 405 tonnes in'1 980-81 due to under utilization of capacity. The demand for the drug continues to be much in excess of 482 tonnes

* The production of the anti-malarial drug Amcdiaquin, anti-tubercular drug Thiacetazone and the anti-filarial drug DEC have all shown a decline in the year 1980-81 in comparison with the year 1979-80. One foreign drug company has closed down an entire department making a group of 6 formulations used in the treatment of TBf citing continued losses.


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