Indian drugmakers, government at odds on medicine prices

At stake in the struggle between the country's government and its pharma sector are a market worth billions of dollars, and human lives.

There is greater pressure on the Indian government to bring down prices to win over voters for the general election in May. Dhiraj Singh / Bloomberg News

The prices of a number of drugs made by global pharmaceutical companies are unaffordable to many people in India, where more than two-thirds of the population live on less than US$2 a day.

In reaction, the central government – impelled by the upcoming general election – is considering reducing prices by allowing knock-off versions of certain life-saving drugs.

The big drugmakers, however, are pushing back and have reportedly pressured the Obama administration to prevent India from allowing companies to produce cheaper versions of patent medicines.

At stake are human lives and a market worth many billions of dollars.

“It’s a very critical issue in the sense that you have companies like Novartis and others who are pricing cancer products, which are life-saving products, at very obnoxious rates,” says Rahul Sharma, a pharma analyst at Karvy Stock Broking. “For a country like India where the population is large and the per capita income is not as high, affordability does raise the question. The government needs to intervene and see that medicines are provided to people who are in need, who have cancer or Aids.”

India’s government issued its first “compulsory licence” for a patented drug in March 2012. This allowed Natco Pharma, an Indian company, to manufacture and sell a Bayer cancer drug, Nexavar, or sorafenib tosylate, in exchange for paying a royalty fee to the German pharmaceutical company. This enabled Natco to reduce the cost of the kidney and cancer medicine for patients by 97 per cent. An appeal by Bayer to have the decision overthrown failed last year.

And last April, India’s supreme court rejected a demand from the Swiss drug maker Novartis for a patent on Glivec, which is used to treat chronic myeloid leukaemia. The court ruled that the drug failed to meet the criteria for being considered a new invention.

Roche Holding, another Swiss company, in August gave up on trying to secure a patent in India for its breast cancer drug Herceptin.

The Reuters news agency, citing anonymous senior government officials as sources, has reported that an Indian government committee was reviewing drugs for cancer, hepatitis, HIV and diabetes to determine whether compulsory licences should be issued to permit low-cost generic versions of the medicines.

With a general election due to take place by May, there is even greater pressure on the government to bring down prices to win over voters.

“Of course it is a threat [to global firms],” says Sujay Shetty, a partner and the pharma leader at the consultancy PwC India. “In India affordability will be a concern. It’s election season. I’m not sure if that [the Bayer case] is the start of a trend. It is not to say that compulsory licences won’t happen again. At the moment we have not read on how real that threat is.”

India’s patent office last October rejected an application for a compulsory licence by BDR Pharmaceuticals, based in Mumbai, to produce a low-cost generic version of Bristol-Myers Squibb’s cancer treatment drug, Dasatinib.

Although global firms are keen to tap the Indian market, they are concerned about their intellectual property rights in the country and the potential impact on their investments.

The value of India’s pharmaceutical market could reach US$55 billion (Dh202.01bn) by 2020, according to a projection by McKinsey. Certain factors could hamper this, the consultancy warns, however. “Pricing controls and an economic slowdown can wean away investments and significantly depress the market, allowing it to reach only $35bn by 2020,” McKinsey added.

India’s industry used sophisticated reverse engineering skills to produce copies of patented western drugs until 2005, when the government introduced product patent protection to comply with the World Trade Organization’s requirements. India is a major exporter of generic drugs to a number of countries including the United States and Japan.

There have been a number of acquisitions of Indian pharmaceutical companies in recent years by multinationals looking to tap the domestic market. But this also raised concerns that foreign companies would push more expensive patented products.

Mr Shetty says that the domestic pharma industry is worth about $12bn to $14bn.

India’s pharma industry “enjoyed pretty good years of growth until the last year when it was a bit slow”, he says. “What caused the dip? I think a number of things around regulatory issues. First and foremost the economic situation in the country – there was a slowdown macro-economically and that had an impact. The second thing was the pricing policy that the government introduced to cap the prices of 350-odd drugs.”

He said the price cap has yet to be fully felt in the market because of the time needed for implementation. But this year, he said, trade could suffer.

Still, he says, growth numbers for the sector have been quite positive over the past few months.

“Next year [April 2014 to March 2015], we can see growth again but cautious growth. It can go from a conservative 10 [per cent growth] to 14, but I think 10 or 11 is more likely given the election.”

Growth is forecast to continue in the coming years with demand for medicines set to increase because of a number of factors, including rising middle-class incomes, which are leading to unhealthier lifestyles – greater consumption of fast food, for example.

“The wealthier people get, the more they can afford treatment and healthcare,” Mr Shetty says.

“Because of economic growth, you’ve got more outbreaks of chronic or what are known as lifestyle diseases. Many more people are affected by obesity and diabetes.”

With the invisible hand of the marketplace attached to increasingly sickly bodies, business will keep a close watch on Delhi in order to discern its intent.

Mr Shetty says, “There are lot of regulatory ad-hoc moves that came from Delhi which caused confusion, consternation, apprehension in equal measures. Going forward that’s the concern of many players in the market, to watch the government closely, to watch the elections closely, to see with how heavy a hand the government is going to run the pharma industry.”