India bans hydroxychloroquine exports, but initially allows exceptions
India is the world’s largest manufacturer of generic drugs. It accounts for approximately 20 percent of the world’s generic drug supply,1 and accounted for almost 25 percent of U.S. imports in 2018, according to the U.S. Food and Drug Administration (FDA).2
India is also home to some of the largest hydroxychloroquine (HC) manufacturers in the world.3 On March 25, 2020, following the export restrictions that it imposed on 26 other pharmaceutical products on March 3, 2020, India banned HC exports to protect its domestic supplies in the face of growing COVID-19 challenges.4
HC’s potential as a COVID-19 treatment leads to global supply pressures
HC is an antimalarial drug that was first synthesized in the mid-1940s and that was approved in the United States in 1956 for the treatment of lupus and rheumatoid arthritis.5 HC has received significant global attention lately following a small study in France which indicated that HC (in combination with azithromycin) might assist in reducing the duration and/or severity of COVID-19 in less severe cases.6 As a result of that study, the FDA, similar to regulators in several other countries, recently authorized HC’s emergency use as a COVID-19 treatment for certain hospitalized patients.7
HC’s potential for battling COVID-19 has resulted in a run on global HC supplies.8 In fact, global HC supplies have become so pressured that some U.S. states have begun enacting regulations to address HC shortages for existing lupus and rheumatoid arthritis patients.9
India eliminates any exceptions to the March 25 HC export ban
The initial HC export ban that India announced on March 25 was not absolute and permitted HC exports to continue: (1) to fulfill existing contracts where the buyer had made advance payment arrangements; (2) if made from special economic zones in certain circumstances; and (3) if made with government approval for humanitarian reasons.10 Consequently, while India’s initial export ban was significant, it was not absolute, and it allowed limited commercial exports to continue, particularly from economic free zones.
On April 4, 2020, however, India withdrew the three exceptions to the HC export ban that it had previously allowed and rendered “[t]he export of [any] hydroxychloroquine and formulations made from hydroxychloroquine . . . prohibited, without any exception.”11 In addition to rescinding humanitarian shipments and those from free zones, the current ban includes any shipments that were to be made “against full advance payment,” and therefore includes contracts for which foreign buyers had already arranged payment.12
Restrictions on HC shipments for which payment was already arranged are likely to spawn international arbitration claims
While the global impact of India’s total ban on HC exports remains to be seen, particularly since companies have taken steps to ramp up HC production outside of India,13 one fact seems indisputable – international commercial arbitration claims are likely to arise (at a minimum) from contracts for which payment was already arranged, but which will not be fulfilled (at least while the current ban remains in place). Whether those claims involve breach of contract, force majeure, indemnity, lost profits, or other contentions, it is unavoidable that international commercial arbitration claims will follow.14
Investment treaty rights could be implicated
In addition to private international commercial arbitration claims that will likely follow India’s most recent pronouncement, India’s ban will further increase the possibility of future investment treaty claims. In short, while the ability to assert investment treaty claims is a highly complicated matter that will depend upon a number of different considerations, government action of the type that India has initiated could lead to such claims in the future.
Steps that life sciences companies should take now
There are a number of steps that life sciences companies should take now to protect their immediate commercial interests in response to India’s export ban.
First, companies that have pre-paid contracts with Indian HC suppliers that will not be fulfilled on time because of India’s total export ban must closely review the contracts’ breach, force majeure, notice, dispute resolution, governing law and indemnity provisions to determine the company’s rights and obligations. All of the aforementioned contractual provisions may be subject to strict contractual time limitations, and must therefore be considered now. In the course of reviewing those contracts, companies should consider any ramifications non-performance will have on additional commercial parties.
Second, life sciences companies should consider any contracts they have to supply HC-based products and how the ban might impact those contracts. They should also consider any steps they can take to mitigate losses that might arise from those contracts.
Third, life sciences companies should keep in mind that India’s April 4 announcement is only one of several that India has made over the last month (others include announcements on other pharmaceutical products and medical supplies), and that further government action could be taken, particularly as the COVID-19 pandemic becomes more pronounced in India. Life sciences companies should therefore review all of their contracts involving India to assess their rights and obligations, most immediately under the force majeure, governing law, indemnity and dispute resolution provisions.
Fourth, life sciences companies should manage the risk that all of their cross-border contracts currently present by examining all of those contracts – regardless of jurisdiction – and assigning each of them a commercial risk classification. Companies should then assess their rights and obligations under all high-risk contracts.
Lastly, life sciences companies should investigate whether they might be able to claim rights under a bilateral or multilateral investment treaty in the future, and should begin to position for such potential claims if they become available.
- “India Restricts Exports of Common Drugs on Fear of Coronavirus Shortages,” Fortune (March 3, 2020); “India Restricts Exports of Common Drugs on Fear of Coronavirus Shortages,” Bloomberg (March 2020).
- “Coronavirus: Drug Shortage Fears as India Limits Exports,” BBC News (March 4, 2020).
- “India Bans Export of Malaria Drug Trump Touted as Coronavirus Treatment,” Fortune (March 25, 2020).
- “India Bans Export of Hydroxychloroquine,” Pharma Manufacturing (March 25, 2020).
- “Drug Spotlight on Hydroxychloroquine,” National Resource Center on Lupus, available at Drug Spotlight on Hydroxychloroquine; “India Bans Export of Malaria Drug Trump Touted as Coronavirus Treatment,” Fortune (March 25, 2020).
- “Novartis, Mylan and Teva to Supply Tens of Millions of Chloroquine Tablets to Fight Covid-19,” FiercePharma (March 20, 2020).
- FDA Fact Sheet for Patients and Parent/Caregivers on Emergency Use Authorization (EUA) of Hydroxychloroquine Sulfate for Treatment of Covid-19 in Certain Hospitalized Patients.
- “India Bans Export of Malaria Drug Trump Touted as Coronavirus Treatment,” Fortune (March 25, 2020).
- “States Try to Stop Hoarding of Possible Coronavirus Treatments,” CNN (March 23, 2020).
- Notification No. 54/2015-2020, Indian Ministry of Commerce & Trade (March 25, 2020).
- Notification No. 01/2015-2020, Indian Ministry of Commerce & Trade (April 4, 2020).
- Id.
- “Mylan Ramps Up U.S. Manufacturing of Hydroxychloroquine Sulfate Tablets to Meet Potential COVID-19 Patient Needs,” Mylan Newsroom (March 19, 2020).
- It is also worth noting that claims could well arise in the future under provisions for suspended performance caused by force majeure, because demand and pricing considerations could limit the commercial desirability of existing contracts once those force majeure conditions dissipate.
Client Alert 2020-209
