By Ian Bhullar
Jul. 6 – A new drug distribution program in India is likely to benefit the country’s poor, but may have unfortunate consequences for large pharmaceutical companies.
Under the exciting new plan, authorities in India are planning to spend US$5.4 billion to provide the country’s population with free medicine, Reuters reported on Thursday. The new scheme, to be fully implemented over the next two years, is expected to increase the provision of free medicines to 52 percent of the population, from less than a quarter under an existing set of programs.
Under the new scheme, public doctors across the country are expected to spend 95 percent of a new budget on generic drugs listed in a government register. If more than 5 percent is spent on drugs outside of this list – including branded drugs – then the responsible doctor can be punished.
Drugs can be prescribed to all comers, although many consumers are likely to continue to use private medical institutions prescribing branded goods.
For large international drug manufacturers like Pfizer, GlaxoSmithKline and Merck, the move threatens opportunities in one of the world’s fastest growing markets. About INR482 billion is spent on wholesale drugs per year in India. Drugs covered under the new policy account for about 60 percent of this.
“Without a doubt, it is a considerable blow to an already beleaguered industry, recently the subject of several disadvantageous decisions in India,” said Chris Stirling, KPMG European head of Chemicals and Pharmaceuticals.
In March, the Indian government issued a compulsory license to a domestic company, Natco Pharma, to produce a generic version of Bayer’s cancer drug Nexavar. The U.S. House of Representatives and the U.S. Patent and Trademark Office have threatened WTO dispute action to protect Nexavar’s patent.
India’s Commerce and Industry Minister, Anand Sharma, has also recently stated that the ministry is “actively considering” a INR20 billion (INR2,000 crore) fund for research and development in the pharmaceutical industry. This is likely to be a major boost to India’s generic manufacturers.
India is not alone in creating policies that are disadvantageous to pharmaceutical brands. China has recently given powers to authorities to enable domestic drug makers to manufacture cheap copies of patented drugs.
However, this may not be as dramatic a hit to global manufacturers as commentators suggest. Generics already account for approximately 90 percent of the value of drug sales in developing countries. Indeed, most sales in emerging markets originate in branded generics: off-patent drugs that are still priced relatively highly.
Others argue that instead of inhibiting the pharmaceuticals industry, the move will bring new consumers into the market. Reuters reports that Indian makers of generic drugs such as Dr. Reddy’s and Cipla are most likely to accrue benefits from the government’s program.
“I think this will hasten overall growth of the pharmaceutical industry, as poor patients who could not afford will now have access to essential medicines,” Tapan Ray, director general of the Organization of Pharmaceutical Producers of India, tells Reuters.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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