Indian Pharma’s Day of Reckoning

The pharmaceutical industry is often thought of as tired and old because of its risk-averse nature. Hardly anything exciting or ‘game-changing’ happens in it. However, it appears that around the bend lies a stormy time that will test the mettle of its leaders.

Over the last few days at least three very important developments took place that can possibly have far-reaching implications. How industry captains respond to these will set the tone for the way its future will be shaped.

Cost-based pricing controls for medicines
It was reported in a section of the media last week that the department of pharmaceuticals (DoP) and the Health Ministry had struck down a recommendation to introduce market-based pricing in favour of a policy that, it feels, can reduce out-of-pocket expenses by Indians on medicines. Market-based pricing involves the pricing of drugs on the basis of the top three brands in each segment. Market leading brands, while not always the costliest, at least operate in a range that allows the marketing of that product to be reasonable profitable.

However, the DoP recommendation to opt for a cost-based pricing control means that companies will have to declare their cost structures to the government and will be allowed a nominal mark-up as decided by the DoP. This is definitely not expected to be a market-friendly practice and if applied across a wide range products will put severe pressure on the margins of companies. The matter comes up in court today i.e., 13 March.

Compulsory license
Another major development, a first in India, was the Indian Patent Office’s decision to grant India’s first compulsory license to Natco Pharma Ltd., an Indian generics manufacturer that had challenged Bayer Healthcare AG’s patent to exlusively sell Nexavar (sorafenib) in India.

With this license Natco will now make a copy of sorafenib available to patients in India at the price of Rs. 8,800 per month as compared to Bayer’s price of Rs. 2.8 lakhs per month that allowed access to only 2% of patients who suffer from liver and kidney cancer and can benefit from it. On the face of it, this appears to be a great reduction in price and Natco’s argument was that Nexavar’s copy can now be purchased by far more people.

Only time will tell if patients make a beeline for drug stores because the medicine now costs only Rs. 8,800 per month. I sincerely hope it does, but I seriously doubt it. Rs. 8,800 per month, while a far cry from the original price, is still out of bounds to a large majority of the population. Price reduction alone does not ensure acess. Surely, the government must have learnt some lessons from it dabbling in ensuring free medicines through the Jan Aushadi scheme.

From an industry perspective, the ruling will undoubtedly put the “MNC lobby” on the defensive and we will, in due course, see statements expressing ‘disappointment’ and insisting that the ruling will set back the ‘introduction of innovative medicines to the Indian population’.

Source of low cost, high quality medicines
The other (unconfirmed) development was an announcement on CNBC TV18 news that the global deal between Pfizer and Biocon to commercialize Biocon’s portfolio of insulin across the world, is likely to be called off. While this may still be speculative as I write this post, it does not augur well for the Indian industry.

India had positioned itself as a leading manufacturing source of low cost, high quality medicines – even complex biological drugs known as biosimilars – that could meet the most stringent global quality standards and therefore be commercialized in the developed world. The biggest companies in the world sought out Indian manufacturers and struck multi-million dollar deals with them. And now, when Pfizer, the world’s largest drug company faces such unpleasantness, it is likely to set off a major rethink in the top echelons of the global industry.

At a time when the global markets are shifting towards cheap generic medicines, with aspersions being cast on its manufacturing capability, India seems to have botched up the chance to position itself as the country of choice for such sourcing. The CRAMS opportunity lost will have long term implications for the industry.

While the debate on whether price of medicine is important or the value that the innovation brings to human life will rage on, what is surprising is that no side has proposed sweeping changes to existing policy nor sought government intervention to alleviate the suffering of the people without access to basic health care.

On its part, the government seems to be working in a manner that is counter-intuitive. Instead of leveraging the strength of its industry that lies in securing Contract Research And Manufacturing Services (CRAMS), the government seems bent on denting its profitability. Instead of using diplomacy to ensure that global powers seek to source from India, the government seems intent on turning them away through protectionist policies such as issuing compulsory licenses. Instead of bringing in policy reforms that incentivize building local R&D capability, the government seems to have found an easy short-cut of “let ‘em R&D, we will simply sue ‘em”.

By neither creating a conducive environment for its local industry nor using diplomatic channels to lure investment through FDI, encouraging technology transfer and striking deals for the local manufacturing of high cost medicines to create positive externalities, the government’s dog-in-the-manger attitude does not bode well for the Indian patient at large.

This is the time the private sector must step into the vacuum decisively. The leadership of the doyens of the industry will be called upon if India must take a few strong steps towards providing health for all.

2 thoughts on “Indian Pharma’s Day of Reckoning

  1. Hey Salil,

    Yet another good post. India as a country has taken a lot of steps backward in the past few years. We have been hit really hard by all the indecision-making of the polity coupled with some regressive policy measures that have severely dampened the market sentiments.

    It is sad to note that India is fast losing out on its CRAMS competencies at a time when China is pushing hard to grab that share of the market. At a time when global organizations do not think much before taking the decision of changing its sourcing location, this can impact the Indian CRAMS market very badly.

    Healthcare for mass is a shame and the way policies are being implemented always raises a lot of questions on the integrity of the politicians and babus.

    All in all, it is a bad time for the industry… One one hand, corporatisation of healthcare (read hospitals) is putting immense pressure on the margins of products and on the other hand, policy makers are making life tougher for the innovator companies.



  2. Balanced caution Salil. Good comments for the doyens to consider.It is one more case of politics affecting policy.
    I seem to ve read it earlier or so it seems.


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