When the Indian Council of Medical Research invited bids for the supply of rapid antibody test kits on March 25, it made an elementary mistake: it did not ask the bidding companies to produce an import licence.

As a result, companies without a licence to import the kits submitted bids – and won. These distributing companies in turn subcontracted the order to an importer. This had a cascading effect on the price of the kits, with both the importer and the distributors factoring in a profit margin.

After a legal dispute between them ended in Delhi High Court, the scale of the profit margins was revealed: a test kit imported from China at the price of Rs 245 was sold to the distributor for Rs 420, who further sold it to the Indian government at Rs 600 – 145% higher than the import price.

In contrast, Chhattisgarh purchased antibody test kits directly from a South Korean manufacturing company for Rs 377 per kit.

With coronavirus cases steadily rising in India, the Delhi High Court order on April 24 put the spotlight on the pricing of the ICMR’s antibody test kit purchases, creating a furore. This forced the health ministry to issue a clarification on Monday. It said the ICMR order had been cancelled because the kits were found to be “under-performing” in field tests and the government “does not stand to lose a single rupee” since no advance payment had been made to the suppliers.

But former health officials point to the basic error made by the ICMR while placing the order. “Never buy from distributors,” said K Sujatha Rao, former Union health secretary. “Buying directly from manufacturers is the best practice followed by the government of India and all well-governed states.”

Said T Sundararaman, former director of the National Health Systems Resource Centre, an advisory body of the Union Ministry of Health and Family Welfare: “Intermediaries can be a source of high degree of fiduciary [financial risk.”

The ICMR was not short of options, evidently: two companies with valid import licences for antibody kits with the required certification told Scroll.in they had bid for the ICMR order. Both said they had quoted a price less than Rs 600 per kit. They said they were rejected without any reasons given.

Subsequently, the Indian Council of Medical Research has itself modified its purchase modalities. On April 11, when it invited bids for 45 lakh antibody test kits, it made possession of an import licence a pre-condition for those submitting bids. The results of this process are not in the public domain, since ICMR did not follow a tendering protocol. It is not clear whether the price fetched during this round was lower than the previous round. Questions emailed to the ICMR went unanswered.

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As it happened

The ICMR is a government research organisation at the helm of India’s response to the coronavirus pandemic. On March 25, it invited quotations for 10 lakh rapid antibody test kits from “any manufacturer with Indian based supplier”.

At that time, ICMR scientist Nivedita Gupta told Scroll.in that the rapid antibody kits would be used for large-scale surveys to map the spread of the coronavirus in India. She emphasised that the kits were not intended for diagnostic purposes.

Two days later, on March 27, the ICMR placed an order valued at Rs 30 crore with Aark Pharmaceuticals, a company based in Delhi, to supply kits manufactured by a Chinese company called Guangzhou Wondfo Biotech for Rs 600 per kit.

But Aark Pharmaceuticals did not have an import licence – or an agreement with Wondfo. As the Delhi High Court order revealed, the kits were imported from China by Matrix Private Limited, a company based in Chennai.

Aark Pharmaceuticals did not have any direct commercial arrangement with Matrix either, its co-owner Sanjeev Kansal told Scroll.in. “We are the Delhi distributors of Rare Metabolics Life Sciences Private Limited, which is the all-India distributor for Matrix,” he said.

Rare Metabolics Life Sciences Private Limited is a small company with a net worth of Rs 22.06 lakh and turnover of Rs 6.19 crore at the end of March 2019, financial statements submitted to the Registrar of Companies show.

A spokesperson for Matrix confirmed that the company had an agreement with Rare Metabolics Life Sciences Private Limited for “distribution purposes”, but declined further comment.

Kripa Shanker Gupta, the director of Rare Metabolics, said his company had entered into the agreement with Matrix as early as March 1, anticipating demand for rapid antibody test kits. “Because Matrix had an agreement with Wondfo for import of their kits, so on that basis we signed an agreement,” he said.

But why didn’t Rare Metabolics directly bid for the ICMR order? Why did it involve Aark Pharmaceuticals?

Gupta did not respond. Sanjeev Kansal of Aark Pharmaceuticals said: “Because we are Delhi-based and so is ICMR.” This explanation does not make sense: Rare Metabolics is also based in Delhi.

Cost escalation

Regardless, this chain of transactions led to cost escalation: Matrix bought antibody test kits from Wondfo Biotech at Rs 245 per kit and sold them to Rare Metabolics Life Sciences Private Limited for Rs 420 per kit. Aark Pharmaceuticals supplied ICMR at an even higher price of Rs 600 per kit.

In other words: the kits imported at the cost of Rs 12.25 crore were being sold to the Indian government at more than Rs 30 crore.

These price dynamics were revealed because the companies had a falling out. After Matrix signed an agreement to supply 50,000 test kits to the Tamil Nadu government through another distributor, Rare Metabolics filed a petition in the Delhi High Court along with Aark Pharmaceuticals, asserting that it was the “exclusive distributor” of the antibody test kits imported by Matrix. The lawyer for Matrix pointed out that Rare Metabolics and Aark Pharmaceuticals stood to make a profit on these kits “despite no value addition to the imported medical material.”

Till April 17, the companies had delivered 2.76 lakh kits to the ICMR. The delivery of 2.34 lakh kits was still pending.

The case took an unexpected turn with the court asking Matrix to supply the remaining kits to ICMR at a reduced cost of Rs 400, noting that kits “should be made available urgently at the lowest cost, for carrying out extensive tests throughout the country”.

Blood samples are prepared for antibody testing for the coronavirus at a laboratory in Berlin, Germany, March 26, 2020, as the spread of the coronavirus disease continues. Photo: Reuters

The government’s clarification

After the Delhi High Court created headlines, the health ministry issued a clarification on Monday. “This procurement is being undertaken when globally there is huge demand for these test kits and various countries are applying their full might, monetary and diplomatic, to acquire them,” the ministry said.

The ministry said the ICMR had identified the antibody kits of two companies, the US-based Biomedomics and China-based Wondfo, as suitable for procurement. “Both had the requisite international certifications,” the ministry said.

Without explaining why Biomedomics dropped off the list, the ministry note went on to say that the ICMR attempted to “procure the kits directly from Wondfo company in China”, but the quotation had several problems. The ICMR would have had to make 100% advance payment “without any guarantees” and “without any commitment on logistics issues”.

“Hence, it was decided to go Wondfo’s exclusive distributor for India for the kit who quoted an all inclusive price for FOB [logistics without any clause for advance,” the ministry said.

However, in a clear contradiction, the same note says the ICMR received four bids for Wondfo kits. “The corresponding quotes received were Rs 1,204, Rs 1,200, Rs 844 and Rs 600. Accordingly, bid offer of Rs 600 was considered as L-1 [lowest bidder.”

If there was one “exclusive” distributor for Wondfo, how come there were four bids? The ICMR did not respond to Scroll.in’s queries seeking clarity.

Lack of transparency

Other companies that have licences to supply antibody kits with international certification claim that the ICMR has not been transparent in its selection.

Why did only two kits qualify for the procurement, they ask.

The ministry said the kits of Biomedomics and Wondfo were “identified for procurement” based on technical parameters of “sensitivity and specificity”. But it did not state whether any validation tests were conducted to determine this. Given the time frame – the bids were solicited on March 25 and the purchase order was signed on March 27 – this appears unlikely. The ICMR did not respond to Scroll.in’s queries, seeking clarification on the matter.

Notably, it was only on April 16 that the ICMR released a list of 23 batches of rapid kits of 14 companies that had been validated by the National Institute of Virology in Pune.

“It is not clear on what basis the ICMR rejected the other bids,” said Vijendra Jaiswal, service manager of a Delhi-based company, Sowar Private Limited, which has a collaboration with a Chinese kit-making company called Getein Biotech Inc. “We submitted our quotation with all required documents by accepting all the terms and conditions as ICMR needs. However, our quotation was rejected without giving any reason.”

The Chennai-based Trivitron Healthcare Limited submitted quotations for the kits of three Chinese manufacturers, all of which had the Conformitè Europëenne certification, the European Union’s quality benchmark also known as European CE.

GSK Velu, the chairman and managing director of Trivitron Healthcare, said the price quoted for each of these kits was less than Rs 600 per kit. “But [we] did not receive any orders from ICMR,” he said.

Both Sowar Private Limited and Trivitron Healthcare have import licences from the Drug Controller General of India.

Lack of expertise

In its clarification note on the pricing fiasco, the health ministry said: “It needs to be also remembered that this was the first ever effort by any Indian agency to procure such kits and the rate quoted by the bidders was the only reference point.”

But those familiar with medical supply chains questioned the government’s decision to make the ICMR the purchase agency for test kits.

“The ICMR is a research organisation,” said Sujatha Rao, the former Union health secretary. “It has neither the capacity nor experience to do large scale procurements.”

Perhaps in recognition of this, on April 13, the ICMR invited bids from public sector companies to be engaged as its “procurement agency”.