Move to ban branded generic drugs imprudent

Kiran Mazumdar-Shaw, CMD, Biocon

In an article published recently, I welcomed India’s progress towards a Universal Health Policy that aims to ensure essential medicines for all through a generics-only state procurement regime. With robust IT supply chain systems and stringent quality control processes – as exemplified by Tamil Nadu – this can benefit millions of Indians often deprived of life-saving drugs owing to the high cost.

However, public health missions must not be confused with the open market.

The recent directive to impose a ban on branded generics is, to put it mildly, utterly ill-considered. While states can ensure quality in public health systems, regulation for drugs sold in the open market is derelict. On pharmacy shelves, jostling for space with established brands from respected companies are questionable products from zero-overhead marketers. Painting them all with the same generics brush will deprive the patient of the quality assured by reputed brands. 

Devaluing Indian Pharma

It is not just the health of patients that the government is putting at risk with this policy; it is also playing with the very life of the entire Indian pharmaceuticals sector. This US $20 billion industry has over 5000 small, medium and large manufacturers generating employment for hundreds of thousands of people. Growing at 17 percent per annum, we top the world in the export of generic drugs and rank third globally in pharmaceutical manufacturing by volume.

Driven primarily by branded generics, the pharmaceuticals sector has built enormous brand value that directly translates to its robust market capitalization. The BSE Healthcare (BSEHC) index of 17 leading companies outperformed the Sensex to touch Rs. 295,724 crore in market cap at the end of September 2012. This impressive sectoral performance is reflected in the high valuations buyers have willingly paid for companies such as Ranbaxy, Piramal Healthcare and Paras Pharma sold at 4, 9 and 8 times their annual sales, respectively. A ban on branded generics will not only bleed investor net worth but also destroy value for the pharmaceutical industry.

Despite margins under pressure owing to an uneven playing field in the face of imports, rising costs and competition, the Indian pharma sector has been forging ahead. Innovation-led R&D is increasingly driving the discovery of affordable breakthrough drugs for life-threatening diseases. A critical component of India’s struggling economy, this sector is now under threat from a government that should be nurturing it.

Deplorably, such attempts on branded generics will further impact margins, erode profitability and deplete the funds available for research. The cascading effect downstream will be that pipelines for newer and cheaper drugs dry up, denying patients access to better and more cost-effective medication.

Way Forward

While it is true that drug prices have risen in the recent past, it is also true that fierce competition in the market place has contained and even driven down drug prices. The recently-announced National List of Essential Medicines (NLEM) has 348 key drugs. With a weighted average price discovery mechanism, this list aims to cap the prices of the drugs that cover the major part of India’s disease burden.

I would like to sound a note of caution here. Of the 74 drugs covered earlier by the Drug Price Control Order (DPCO) only 47 are being produced. This highlights the danger of going overboard with price control. If a product ceases to be profitable, no business can sustain its supply. The pharma industry is no exception to the laws of business. Thus there is the grave danger of essential drugs disappearing from the market if it makes no economic sense for companies to produce them.

The move to generics in developed nations is being enabled by across-the-board quality assurance through effective regulatory implementation. Without such regulation, as is the case in India, any move to ban branded generics in the retail market is a dangerous gamble. It is fraught with the risks of sub-standard medicines flooding the market, value erosion of the pharma industry, impact on R&D for better and cheaper drugs, and an adverse effect on the Indian economy. Unless this ban is revoked, the unforgivable casualty will be the patients who will ultimately suffer.           

Postscript

Soon after I wrote this article, the government announced that while it will approve a drug under its generic name, companies can still market branded generics. If such a system is put in place, the pharma industry will need to undertake an entirely unnecessary process to register the branded generic after getting approval for the generic version. This is an exercise in futile duplication; there is no need to deviate from the present process that accords approval to both branded and unbranded generics at one go. The uncertainty generated by such declarations – including the possibility that this may be the first step toward a blanket ban as previously implied – and the needless bureaucracy they create are added bottlenecks for the pharma industry, further eroding its value.