Jeffrey Towson

Beida business professor Jeffrey Towson gives on his weblog reasons why China’s drug scandals will be larger than any of its past food scandals. Morbidity is larger. Drug scandals are harder to detect and the profitability of the fake drug industry is higher. More troublesome: the industry is going global.

Jeffrey Towson:


#4 Unlike most food scandals, drug scandals are a global problem.

If you are taking a pill in the US, part of it probably came from China. Over 80% of the world’s active pharmaceutical ingredients are now made in China and India (but mostly in China). So these drug problems have global reach.

The most famous example of this was the 2008 Heparin scandal. Tainted Heparin from China ended up killing over 240 Americans. As a result, 34 China facilities (via Baxter International) were banned from exporting.

And it gets more complicated. A lot of these quality problems are actually in the chemistry, as opposed to just in the final drug or in the active pharmaceutical ingredient. In 2012, police in China detained +60 people who were making chromium-tainted gel capsules with industrial waste. The police seized over 77 million gel capsules and shut down 80 production lines. Think about those numbers for a moment. 77M capsules and 80 production lines.

But the biggest “global” aspect of this problem is likely in other developing economies. Fake drugs are everywhere in SE Asia and Africa. And many are coming from China. The morbidity and mortality resulting from this is hard to overstate. For example, the Wellcome Trust estimated that one-third of the malaria drugs in Uganda may be fake or substandard.

Final Point: Pharmaceuticals in China are going to grow. But absent improvements, drug scandals could also become much bigger as well.

Healthcare spending today in China is about 6% of GDP, up from 4-5% a few years ago. It is likely on its way to 12-13%. And China’s pharmaceutical market, already big at $108B (2015), is growing along with this. All of this is good news. It follows naturally from growing domestic demand (aging + increasing wealth + more chronic disease) and a continued movement of pharmaceutical production to China.

So this is a big market that is growing fast and developing in sophistication. But it logically follows that any future quality problems will also be larger in scale. That is worrisome.

More at Jeffrey Towson’s weblog.

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