Opinion | An alleged drug cartel awaits trial in America

Several Indian pharmaceutical companies are accused of collusion to raise generic drug prices in the US. If guilty, punish them. But the fairness of the trial will be under watch

After facing American scrutiny over quality issues, India’s pharmaceutical industry has again landed in the crosshairs of US regulatory action. Forty-four US states have together sued 20 drugmakers, seven of them Indian, for the alleged fixing of generic drug prices at levels higher than what the market would set. Israel’s Teva Pharmaceutical Industries, the world’s largest producer of generic formulations, allegedly underpins a shadowy cartel designed to exert monopolistic power in the US. Fifteen individuals have also been named in the lawsuit filed in a court in Connecticut. The complaint alleges that senior executives of the offending companies often met at trade events, conferences, dinners and even golf outings, and kept in touch via phone and email to raise prices and carve up the market among themselves. According to the charges, collusion peaked between July 2013 and January 2015, a period when prices of more than 100 generics went up sharply, some by over 1,000%. These allegations are serious and, if proven, could deal a severe blow to Indian drug exporters that count the US as a major market for off-patent drugs.

Indeed, snuffing out competition through coordinated action is a grave offence, especially in a sector as critical to consumers as healthcare. Ironically, prices in this sector are rarely put under the scanner. Medicinal pills and tablets tend to be price-insensitive: That is, demand for them tends not to fall much in response to price hikes. This is largely because they are necessities that must be taken as prescribed. In the US, a large portion of medical bills are picked up by health insurers, which also numbs people to the cost of most drugs. With patented drugs often priced exorbitantly, generics do the job for a wide spectrum of ailments. The latter are expected to be cheap since they are subject to competition. After all, several firms are in contest to meet demand for the same pill. Such market rivalry is essential in any free market to keep prices low, spur innovation and nudge companies to improve their output. Let competition die, and businesses would go about charging extortionary sumsfor low-cost products to make super-normal profits. This would not only harm consumers, but load the playing field against new entrants and, thus, hurt the entire industry. Most generic drugs were formulated long ago, have been off patent for years, and their scope for innovation is limited to cost-reduction. But lack of rivalry would kill even this. All in all, if a drug cartel does exist, it is a clear violation of American anti-trust laws.

An investigation is warranted. Collusion on such a scale ought to be punished. At the same time, the US must ensure that the probe is fair. In cases like these, justice sometimes gets swayed by public opinion, which tends to veer against companies seen as ruthless profit-making machines. A trial that is seen to be unbiased could set an example for companies operating across the world in markets that display similar characteristics. The affordability of healthcare is an issue of concern even in India, and people here would welcome some clarity on the principles of fair pricing vis-à-vis medical products. If the trial seems stilted, however, it could become yet another sore point in India-US trade relations. Therefore, it is important that the accused companies are given a good hearing. Their stocks are widely owned in the country. And many Indians will be listening.