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Following a flawed prescription
It's the ultimate feel-good story - the success of the phamaceutical industry in India. When newly independent, poor India had the highest domestic drug prices in the world;western multinational corporations (MNCs) dominated the pharma sector. India, through enlightened government policies nurtured an indigenous pharma industry from scratch, protecting it from foreign competition till it grew to become the third largest in the world in terms of volume of drug production. And in return, the industry churned out cheap and quality drugs to meet virtually all of the country's demands.
Unfortunately, the Indian pharma industry's story does not seem to be on a happily-ever-after trajectory. In the last three years, several large Indian companies have either sold out to - or entered into tie-ups with - multinationals. In countries that have their own manufacturing base, like India, MNCs are forced to compete with local manufacturers, and their prices tend to be much lower. But this deterrent threat would be nullified if Indian companies get swallowed up by the MNCs.
STARTING FROM SCRATCH
The Indian government's efforts to develop an indigenous drug industry started setting up of public sector undertakings (PSUs) in the late '50s and '60s followed by the Indian Patent Act of 1970, which allowed patenting of a process but not the end product. This allowed Indian companies to use a different process to manufacture existing drugs, even patented ones. To further strengthen the pharma sector, the Drug Policy of 1978 gave preferential treatment to Indian companies and restricted foreign equity to 40 per cent. Soon, the MNC share of the pharma market fell from 75 per cent to 25 per cent. Indian companies grew in strength by manufacturing drugs that came into the US or European markets within a few years at a fraction of the price. India was well on its way to becoming the pharmacy of the developing world.
Indian pharma, from being worth just $2 million in 1948, is now projected to cross $20 billion by 2015. Over 80 per cent of the country's drug needs and 65 per cent of the country's pharma exports are met by indigenous companies, according to the Indian Drug Manufacturers' Association (IDMA). The Indian pharma sector now ranks third in terms of volume of production (9. 3 per cent of the global output) and 14th in terms of value (1. 5 per cent of the global market). India is projected to be the 10th largest market by 2015 with an absolute growth of 14 per cent according to a recent McKinsey report on the sector.
UNRAVELING OF INDIAN PHARMA
India's flourishing phama sector, derided for long as 'a copycat industry' by the world, was highly regulated till market liberalisation in the 1990s. The protection afforded to the Indian industry was gradually rolled back through successive policy changes starting with the withdrawal of preferential treatment for public sector undertakings and private Indian companies. Simultaneously, the drug price control mechanism was diluted by pruning the 354 drugs on the price control list to just 74, which constituted just 20 per cent of the drugs in the market. And finally, India had to amend its Indian Patent Act by 2005 to allow product patents when it signed the agreement on Trade Related Intellectual Property Rights on joining the World Trade Organisation in 1995. Indian companies could no longer manufacture patented drugs with the same impunity with which they did so before. And finally, foreign direct investment (FDI) restrictions in the sector were lifted and investment up to 100 per cent in the pharmaceutical sector is now on the automatic route.
The repercussions of these wide-ranging changes in India's drug policy are already being felt as companies shift to producing more profitable drugs and irrational drugs, which are mostly combinations of drugs that have little or no rationale, or therapeutic use. Irrational drugs are estimated to constitute 50 per cent of India's drug consumption, which should be of little surprise considering how aggressively they are promoted. In this, the industry is aided by doctors who are given inducements by companies to prescribe their products even if cheaper, rational, and more effective alternatives exist. While regulation to tackle corruption among doctors has been tightened, there is no legislation to curb the pharma companies from indulging in illegal marketing practices.
CHEAPEST DRUGS, LEAST ACCESS
The victims of the industry's malpractices are the patients who bear the brunt of rising drug prices. India might be hailed as the producer of some of the cheapest drugs in the world, yet 65 per cent of its own people do not have access to essential medicines. About 75-80 per cent of the country's total health expenditure is borne by people on their own with the government spending less than a quarter, among the bottom five in the world. Of the total health expenditure, nearly 80 per cent is on medicines, showing just how heavy a burden drug prices are on India's citizens.
According to a recent paper prepared by the Department of Industrial Policy and Promotion (DIPP), pharma exports have risen 29 per cent against the industry growth rate of 8 per cent. "The emphasis on export has resulted in lower growth of domestic consumption, " noted DIPP adding that falling domestic sales and high profits suggested worsening access to drugs and steep prices. In the age of patents, most Indian companies, which lack strong R&D capabilities, are looking to make up for it through tie-ups with MNCs to enhance their portfolios and to get access to richer markets globally. According to the Associated Chambers of Commerce and Industry of India, the importance of exports has grown dramatically over the last 5 years as it constitutes a major revenue source for companies like Ranbaxy, Cipla and Dr Reddy's due to declining profit margins and extreme price competition in the domestic market. After all, India's annual per capita consumption of pharmaceuticals is among the lowest in the world, approximately $4. 50 per person compared with $687 in the US or $53 in China.
The catch in mergers and acquisitions is that the Indian companies are the "junior partners", subservient to the interests of big pharma firms. For instance, two Indian generic manufacturers, Sun Pharma and Dr Reddy's, had an agreement with Novartis to delay the introduction of a variant of an Alzheimer's drug in return for dropping patent litigation against them.
G Wakankar, executive director of IDMA, says that though there is no immediate cause for concern, long-term threats due to increasing MNC domination are real, and suggests, "The government must closely monitor to see if increase in foreign equity in the sector is reaching levels high enough to warrant their stepping in to limit FDI. "
Even as the domestic industry begins to feel the heat of an unprotected market, public health experts are examining why drug prices in India are higher than in Sri Lanka, which imports most of its drugs. The MNC takeover raises the spectre of an MNC-dominated pharma sector selling drugs at unaffordable prices, a throwback to the scenario just after Independence, which the government painstakingly changed over four decades. Are we setting the clock back on the country's health security?
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