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Inflicting bitter medicine

Inflicting bitter medicine
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First Published: Mon, Jan 03 2011. 09 01 PM IST
Updated: Mon, Jan 03 2011. 09 01 PM IST
Healthcare for the largest number of citizens within their means ought to be the primary goal of good public policy on the subject. Adequately priced medicines are part and parcel of this goal. It is heartening to note that the government of India takes this task seriously, as a Mint story on the government’s efforts to ensure affordable medicines reported on Monday.
The story detailed how the government is deliberating a proposal on limiting foreign direct investment (FDI) in the pharmaceutical sector from the 100% now to 49%. This comes after serious concerns being raised over acquisition of Indian companies in the sector by foreign firms. Recent examples include Ranbaxy Labs being acquired by Daiichi Sankyo Co. Ltd of Japan, the purchase of Piramal Healthcare Ltd’s domestic drug formulation business by US firm Abbott Laboratories among other such examples.
The key concern here for policymakers is the adequate supply of medicines at the right price. Concerns abound whether limiting FDI in the sector and preventing the takeover of Indian companies can meet this goal without creating long-term damage in the sector. There are other options, apart from tinkering with ownership that can attain the desired policy goals.
For example, the government could enlarge the scope of pricing decisions by the National Pharmaceutical Pricing Authority (NPPA) from what it currently does. While NPPA deals with the pricing of bulk drugs formulations and tinkering in retail markets is not always a good idea, what is there to prevent the government from taking the right steps at the retail level if the situation so demands? There have been other proposals to ensure availability and right pricing, such as compulsory licensing. When all such measures are combined, there is little doubt about the government’s ability to exercise control.
What investment and ownership restrictions do, however, is something far more pernicious. For one, they have the potential to prevent technology and intellectual property rights transfers to Indian shores from abroad. Why would foreign pharmaceutical firms share their new molecules with domestic firms, unless the latter pay hefty money or if the foreign entity has an investment stake in the local company? Drug discovery is an expensive business that isolated local firms can seldom afford. The policy, if it sees daybreak, may end up being a bitter medicine.
Should foreign firms be restricted from buying up Indian pharma companies? Tell us at views@lievmint.com
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First Published: Mon, Jan 03 2011. 09 01 PM IST