Home >Opinion >A $300 billion reason India’s drug price cap will stay

Global pharmaceutical companies have bemoaned for years India’s capricious policies on prices and patents. Now the government needs billions of dollars for its “Make in India" program, why can’t the industry get a fairer deal?

When it comes to intellectual property, it’s now understood—and grudgingly accepted—that India’s use of compulsory licensing won’t go away. Ever since New Delhi used this tool to force Bayer AG to allow a low-priced local copy of its expensive cancer treatment, there’s been popular support for the idea of banning profiteering at the expense of lives.

As long as that nuclear option was used rarely, and only to address real public-health concerns, Big Pharma could live with it.

But pricing problems go beyond patents. In 2013, the list of essential medicines where the regulator has the right to cap prices was expanded five-fold. That led to some weird situations. Condoms were set at a maximum of Rs6.56 apiece, 11 US cents at the time, and raised a year later to 13 cents. Reckitt Benckiser Group Plc’s legal challenge—that its Durex contraceptives are devices, not drugs—is being heard by India’s Supreme Court.

Meanwhile, the National Pharmaceutical Pricing Authority (NPPA), the regulator, has been advised by an expert committee that “exotic" condoms—fruit-flavoured ones, for example—could be priced above the regular variety, according to a Mint report last month.

If that seems frivolous, the regulator’s bruising attempts last year to curb prices of heart stents and knee implants have graver implications. After India moved to cut the price of such implants by as much as 70% in August, Johnson & Johnson’s non-US revenue growth from knee devices declined 9.5% in constant-currency terms in the third quarter, according to the data compiled by Bloomberg Intelligence.

All this suggests the industry would have welcomed a new pharmaceuticals policy, especially one that reined in the powerful and largely independent regulator.

That body invoked emergency powers to lower knee-implant prices when the product wasn’t even on the list of essential medicine. A draft policy circulated last summer sought to curb this special power, requiring the authority to obtain government permission.

Yet, as Bloomberg reporters Ari Altstedter and Abhit Roy Chowdhury noted on Friday, the draft policy has gone back to the drawing board. No action is expected before the general election in 2019.

Chalk up the delay as a success for the domestic drugmakers’ lobby. To make common medicines more affordable in a country where most drugs are bought out of patients’ pockets, the new policy would have disallowed branded generics. The manufacturer would have stamped its name on the packaging for identification, but otherwise a strip of amoxicillin tablets would say just that.

But being able to brand a generic drug makes it possible to charge 96% more than for no-name formulations. That premium lets firms maintain an army of medical representatives who can persuade doctors to prescribe their pills. It’s a minefield of unethical practices, but giving it up would be expensive.

Indian drugmakers such as Cipla Ltd, Cadila Healthcare Ltd and Torrent Pharmaceuticals Ltd rely heavily on branded formulations, and would have been among the firms most at risk from regulatory changes, says JPMorgan Chase & Co.

Even Sun Pharmaceutical Industries Ltd, India’s biggest drugmaker, is betting on increased use of branded generics in emerging markets. By 2021, it estimates such products will account for one-fifth of the $1.5 trillion a year spent on medicines worldwide. That’s $300 billion—or almost $100 billion more than at present.

To the extent a ban on branding of generics could have prompted more developing countries to follow suit, India’s policy would have been a drag on profits. And at a bad time: There’s pressure on domestic companies to clean up their act. As many as 44 drug-manufacturing facilities in India, which makes 40% of the generic drugs taken by Americans, are banned from sending products to the US.

A growing list of price controls, from condoms to stents, gives the global industry good reason to complain about India. But for the local firms, replacing the status quo with something that endangers a $300 billion opportunity isn’t worth the risk. Bloomberg Gadfly

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