In praise of branded generics: breaking some myths
Arguments against branded generics are built on emotions rather than facts—making them very social media friendly—but maybe not reflecting reality
It seems to have become increasingly fashionable to speak loudly—in media, public and social forums—in favour of generics, and heap dollops of criticism on brands in generics. And we know that this thinking has penetrated really deep when WhatsApp forwards—arguably the lowest common denominator of modern public opinion—abound on the perils and unfairness of branded products in medicine. Lofty comparisons are made between India and Germany and the US with little acknowledgment of the realities of India.
We believe that these arguments are built on emotions rather than facts—making them very social-media friendly—but maybe not reflecting reality.
This is an important public health discussion and it is worthwhile deconstructing the world of branded generics.
Why did India choose a branded generic path? A quick snapshot of history reveals three reasons.
The main rationale was to ensure plentiful availability of simple and complex drugs at an affordable price.
The Hobson’s choice was between fostering innovation (a product patent regime that would translate into product monopolies) and affordability, and the country plumped—in our view rightfully so—for the latter. There was a need to ensure availability of a large product basket (getting 100’s of molecules quickly re-engineered), along with a good quality product and delivery—and hence the choice to take the path of ‘private sector’ and ‘branded products’
It was also considered important for drug companies to play a role in continuing education of our medical fraternity, which was providing medical services through multiple mom-and-pop nursing homes. When we criticize branded generics, we need to ask whether the path chosen delivered what we set out to do, what the wrinkles are if any, and use our judgment and discretion to iron out these wrinkles.
Let’s take a look at what this chosen path has achieved.
Drug affordability: India remains one of the cheapest places in the world for medicines. We have a ruthlessly competitive industry that has delivered an amazing range of molecules across therapy areas.
India continues to astonish the world with its strict legal framework, ensuring availability of cutting edge molecules (even patented drugs) at a fraction of the prices charged (50-90% cheaper) in the developed world. The table above shows the price comparison of certain branded generics in different countries.
A recent study on cancer drug price comparison across geographies also shows that India has the lowest median drug price across patented and generic cancer drugs.
Significant employment creation: India has built a world-class, competitive pharmaceutical industry. There are more than 200,000 medical representatives and 50,000 managers employed in this sector.
Of the several hundred branded generics companies in the country, more than a hundred are successfully competing in export markets, the top quartile of that successfully selling even in the most regulated markets in the US. Besides the much spoken about information technology services businesses, this is one of the few knowledge-based industries that has made it on the global map. This wouldn’t be possible without the knowledge, experience and cash flow generated from the branded generic business.
Significant wealth creation: The sector has generated $30 billion of sales annually including $16 billion of exports and has created almost $100 billion of equity value.
In summary, we have a world-beating industry, cheapest drugs in the world, and tremendous availability. Tough to argue with this outcome, isn’t it?
In our next article, we move onto the wrinkles. We will take a closer look at these challenges to identify the factors that may have caused them. And do our bit to suggest potential ways to mitigate them.
Abhay Pandey and V.T. Bharadwaj are managing directors, Sequoia Capital India Advisors
Disclaimer: The funds advised by Sequoia Capital India Advisors are investors in multiple pharma companies focused on the domestic market.
Editor's Picks »
- RBI wants banks to discipline Indian corporates on working capital
- For stressed power assets resolution, patience is the virtue for banks, govt
- Exide’s valuation zooms as it claws back market share lost to Amara Raja
- Trapped in mid-cap stocks? What investors should do
- TCS share buyback shows absurdities of India’s repurchase rules