To: Executive Director, World Health Organization

From: Joseph Sample, Policy Analyst

Date: February 5, 2009
Re: Counterfeit Drugs in India

Note: The data, analysis, and recommendations here derive almost in their entirety from
“The Deadly World of Fake Drugs,” by Roger Bate, appearing in Foreign Policy 168.

Executive Summary
You have asked me for policy recommendations concerning the recent surge in the
manufacture and dissemination of counterfeit drugs. As a case study for problems
endemic elsewhere, this memo will focus on the counterfeit drug trade in India, which,
along with China, is the focus of most current illegal activity. This memo explores some
of the causes and contributing factors of the counterfeit drug trade in India, outlines the
major stakeholders, and concludes by recommending that the international community
impose stricter standards on India, as well as work with NGOs to find alternative means
of procuring cheap drugs.

Background
During the past decade, trafficking in counterfeit drugs has become one of India's fastest-
growing criminal enterprises. Estimates hold that more than 30 percent of medicines on
sale in parts of Africa, Asia, and Latin America are fakes. By 2010, the global turnover
for phony pharmaceuticals is projected to be $75 billion, a 90 percent increase since
2005. There are two primary culprits, China and India: between 60 to 80 percent of all
fake drugs come from these two countries alone.

For much of the past decade, lifestyle drugs--erectile dysfunction medicines, painkillers,
and anti-anxiety medicines like Valium--were the most common knockoffs, particularly
in rich countries. But in the past few years, counterfeiters have moved into far more life-
threatening fake pharmacology, manufacturing drugs used to treat cancer, HIV/AIDS,
and serious heart conditions. As many as 1 million people a year die as a result of taking
these fakes, most of them in the developing world, but an increasing number in wealthy
countries, too. In the past year, at least 95 Americans died from allergic reactions linked
to counterfeit heparin, a medicine used to prevent blood clots.

Analysis
CONTRIBUTING FACTORS
The following factors increase the viability and profitability of the counterfeit drug trade:

• Lack of quality oversight and enforcement. Hampered by a lack of resources,

most developing countries find the problem overwhelming. In India's case, the
troubles stem partly from toothless laws. Counterfeiting was not even successfully
prosecuted as a criminal offense until last year, and today there is scant
enforcement. In a small sign of progress, the Indian cabinet approved a bill in July
that increases counterfeiting fines from $250 to $25,000 and jail sentences from 5
to 10 years for the worst offenders. But much more needs to be done.
 • High profit margins. The price of genuine drugs is high, which pushes the profit
margin on fakes even higher, and the global market of potential customers is
enormous.
• Difficulty of detection. Fakes can be difficult to detect. A patient will likely
attribute ineffective drugs to the severity of an illness, not to the quality of the
medicine. Policies designed to promote domestic generic-drug producers may also
permit lower quality controls on exported drugs, creating an opportunity for
counterfeiters to sneak their supply into the market. Further, the complexity of
the drug supply chain and the pains forgers take to conceal their origins make it
extremely difficult to pinpoint the hubs of international drug counterfeiting.

KEY STAKEHOLDERS
• Indian Government
The Indian government strongly denies that it has a problem. Government figures
claim that counterfeit medicines account for 0.4 percent of legal drugs on the
market there. Experts place it as high as 30 percent. Even when drug authorities
in other countries do the necessary detective work, banning Indian firms
producing counterfeits from shipping drugs to their countries, the Indian
government often allows those firms to continue operating. The primary reason is
corruption, which is rampant. Local police are bribed to look the other way, as
are regional and higher-ranking government officials. The well-meaning officials
who are aware of the issue are simply overwhelmed with caseload—one local
official typically works from 7 in the morning until midnight or after.

• Doctors/Hospitals
As with the government, corruption in the medical profession is also a problem.
Some doctors commonly—and knowingly—direct patients to vendors who sell
counterfeits, receiving kickbacks for their services.

• Suppliers
Indian counterfeiters come in all shapes and sizes. Some counterfeiters work for
legitimate pharmaceutical firms; rogue employees stay after hours to substitute
substandard ingredients and then sell the drugs to criminal networks. Other
counterfeiting rings are based in rural villages or slums, with ingredients shoveled
into concrete mixers and blended to produce medicines sold on the street. These
poor workers typically have no idea they are doing illegal work. Larger, more
sophisticated manufacturers sell their products not only in India but increasingly
abroad.

• Pharmaceutical Companies
On the one hand, Western pharmaceutical companies would seem to have an
interest in anticounterfeiting efforts, eager to protect their brands. But going after
counterfeiters too hard--or too publicly--can be a double-edged sword. If the
public believes a drug is being widely faked, sales of the genuine drug may suffer.
Thus many pharmaceuticals have been reluctant to pursue fakes, particularly in
 developing countries. Like governments protecting substandard businesses,
pharmaceuticals often have reason to remain quiet.

• NGOs
Well-intentioned NGOs distributing drugs in developing countries may also
contribute to the problem. To save money and treat more patients, they often
purchase copy drugs from China and India that have not been tested. Desperate to
get lifesaving medicines to the world's poor, humanitarian groups are left with a
difficult choice: expensive, safe drugs that treat fewer patients, or cheaper drugs
that might not work and might even kill.

• International Community
The international community thus far as been reluctant to pursue the issue
seriously, too afraid to engage a politically sensitive issue. The WHO has been
vocal about combating fakes, but even it hesitates to embarrass member countries
who allow fake drugs to enter the market.

Options
1. Lower profit margins.
It is widely believed that if pharmaceutical companies would lower their prices on drugs,
counterfeiters would have less incentive to make fakes, due to smaller profit margins.
Under this option, WHO would help facilitate a deal between pharmaceutical companies
and the Indian government on some form of advance market commitment, in which
governments guaranteed the purchase of a certain amount of the drug in exchange for a
lower price.

Unfortunately, while lower drug prices would certainly help the developing world in
many ways, this would do little to eliminate the counterfeit drug trade. Counterfeiters
can accept tiny margins on each product sold--as long as they move millions of pieces of
merchandise. The counterfeiter may only make a cent in profit on each pill, but if he
manufactures millions, he does very well. Thus despite lower costs of genuine drugs--no
matter how cheap—counterfeiting will always be worth their time.

2. More government oversight and drug testing.

With this option, WHO would adopt a harsher stance toward India, calling the
government out on its dysfunction and encouraging the developing world to do the same.
If India cooperates, WHO would assist in operations pursuing the major sources of the
product. Regardless of Indian cooperation, drug testing at all export locations receiving
Indian produced drugs would be increased. New technologies are making random quality
testing easier and faster. Hand-held spectrometers can assess drug potency in a matter of
seconds. If more of these devices are made available to customs agents, imported fakes
can be found rapidly and destroyed.

3. Education and outreach.

Under this plan, WHO would attempt to eliminate the demand for counterfeit drugs by
offering educational seminars to doctors and hospitals, and printing pamphlets for
distribution to locals by NGOs. Such efforts would be meant not only to teach Indians
about the extent of the problem and the need for buying drugs from legitimate sources,
but also to educate those poor workers who unwittingly make the drugs that cause so
much harm.

These are laudable goals, but execution may be difficult and require exorbitant costs.
The cheapest means of disseminating information—pamphlets—is also the least likely to
succeed, given that most Indians affected by or contributing to the problem are illiterate.
Further, even trained professionals, without expensive spectrometers, have difficulty
telling a genuine drug from a fake. Even certified pharmacists often unknowingly sell
counterfeit drugs.

4. Stop the purchase of counterfeit drugs by NGOs

NGOs must be encouraged to no longer purchase drugs from India or China that have not
first undergone rigorous testing. This is a difficult choice, but must be made—for
everyone’s sake. Often fake drugs have just enough of the active drug ingredient in them
to pass rudimentary inspections. But at that strength, the pill will do little to help the
patient and is likely just enough to allow the bug to become resistant to future drug
treatments. This could mean the eventual collapse of the entire medical treatment regime
in a given region—an outcome no NGO would condone.

Recommendations
I recommend that WHO adopt measures outlined in options 2 and 4. As for option 2,
before adopting a harsher take on the Indian government, WHO should first do
everything in its power to persuade the government to cooperate. The Indian government
has recently sought assistance in dealing with its burgeoning avian flu epidemic—a
problem much more widely recognized in the country. By agreeing to provide more
training and monetary support for avian flu, WHO might in exchange demand more
cooperation in its anticounterfeiting efforts. As for option 4, WHO should assist NGOs
in obtaining more affordable prices on drugs by working with pharmaceuticals and the
Indian government to agree on alternative market commitments, as explained in option 1.

Conclusion
As the fake-drug sector continues to grow in speed and sophistication, the global situation
will get worse before it gets better. Russia's counterfeit drug industry is growing rapidly.
The same is true in Argentina and Brazil. Unfortunately, many observers believe it may
take large-scale casualties for real action on this issue to occur. As one British drug-
security expert has explained, "Action against al Qaeda really only took off after
September 11." The world cannot afford to wait for such a similar calamity. WHO must
act now.