The Hindu Business Line : India's health-care paradox

For a country that has not been able to eradicate many preventable diseases, India has an unusually healthy pharma industry. Most globalised of all Indian industries, the pharma sector however produces and sells huge quantities of the kinds of drugs the country does not really need. It must not ignore the enormous health-care problems that afflict large sections of the population, says Paranjoy Guha Thakurta.

ONE OF the success stories of Indian manufacturing has been the way in which the drugs and pharmaceuticals industry has expanded in recent years. As a matter of fact, this is the most globalised of all Indian industries after the information technology sector. Outside the United States, India has the largest number of plants approved by the US' Food and Drug Administration that is virtually the quality standards setter for the world. India also accounts for the largest number of filings in drug master files in the US, roughly three-fourths of them for products where patents have not yet expired.

That the pharmaceuticals industry has not merely grown by leaps and bounds but also made its presence felt in the markets of developed countries may appear paradoxical to many. After all, health-care indicators are abysmal in most parts of India (barring a few pockets such as Kerala) and large numbers die on account of preventable diseases such as malaria and tuberculosis. Although polio has all but disappeared from most countries, India is among the seven nations where the disease is endemic; 85 per cent of all confirmed cases of polio in the world in 2002, according to the World Health Organisation.

India's amazing contrasts never fail to astound most foreign visitors. As a report prepared in April 2004 by US financial services bigwig Goldman Sachs observed: "India is often characterised as a country of contradictions. This idea is exemplified by the popular phrase that India accounts for close to a third of the world's software engineers and a quarter of the world's undernourished... "

The economies of the world's two most populous nation-states, China and India, are frequently compared and India comes through quite unfavourably on most counts. However, the Indian pharma industry is said to be superior in more ways than one to its counterpart in China. Even this gap is believed to be narrowing.

According to a recent report prepared by Mehta Partners, a New York-based global healthcare investments firm, India's pharma companies have "achieved worldwide acceptance for their competency... Indian pharma companies offer above-average management, achieving superior revenue growth while maintaining good margins in a highly competitive segment." With the country's economy growing at more than 6 per cent per year, there is higher spending on healthcare — of which, 70 per cent is accounted for by expenditure on pharma products. The global opportunities in the area of generic drugs are now being fully exploited not just by the top three Indian players (Ranbaxy, Dr Reddy's and Cipla) but also by a number of mid-cap companies (including Cadila, Wockhardt, Lupin, Glenmark and Unichem).

Besides generics, the manufacture of life-saving drugs at very low prices for developing countries offers "a profitable growth avenue for the super-efficient Indian companies," the report adds. Global manufacturing of complex active pharmaceutical ingredients (APIs) is shifting to India. For instance, Teva and Sandoz have already invested in manufacturing facilities in the country and on the large molecules/biologics front, Biocon is one of the top four suppliers of API statins in the world.

Research and development efforts by Indian companies "are gathering momentum, if not critical mass, and some are well positioned for contract research for western companies," the Mehta Partners report points out. It is of the view that the "negative impact" of the recognition of product patents from 2005 due to inroads by the powerful multinational corporations "may not be felt for a decade." A study by the Confederation of Indian Industry (CII) gushes that India has a "real chance" of launching new drugs developed by Indian scientists. Such a drug could be developed at a cost of only $100 million, one-tenth the international norm, because of "the high intellectual capital" of Indian scientists coupled with low costs of production. The study claims "India's huge population and the prevalence of a wide spectrum of disease conditions offer a wide patient-resource for clinical trials." Whereas clinical trials cost $300-350 million in the US, costs in India could be as low as $25 million. The "investigational new drug stage" in India is one-tenth the level in America, that is, $100-150 million.

The Mehta Partners report points to some of the downsides as well. Indian companies will have to face growing competitive pressures from the local operations of Western multinationals. Some of these giant companies would develop tactics such as "authorised generics" to limit the growth potential of Indian companies in the lucrative US market, it fears. Patent challenges have also proved costly for Indian firms. Then would come the growing challenge from China. Several Indian manufacturers of penicillin-G were forced to shut down because of competition from China.

For the first time, China has entered the statins market with an FDA-approved manufacturing site. "Thus, the competitive advantage that India had in terms of manufacturing complex molecules may be going away," the report apprehends. India used to be a net importer of pharma products in the 1970s. At present, the country exports pharma products worth more than $2 billion each year and this figure has been growing by an impressive one-third each year. Many Indian companies have, in recent years, acquired businesses in the US and in Europe. Yet, more people die on account of malaria and tuberculosis in India than all other diseases, the CII study has observed, adding that "no serious research is carried out in tropical and infectious diseases". Not surprisingly, the CII argues that price controls on pharma products over the last three decades are responsible for the current state of affairs since research is a high-risk proposition that requires large funding.

There is all-round consensus in all sections of Indian society that the country's health-care system is in a pretty pathetic state. The government used to spend more per head on health-care during the 1950s and the 1960s than it does now. India's less well-off and smaller neighbours have better health-care facilities than large parts of the country (especially the North). If Indian doctors can make it big in the US and the most developed nations, there is surely nothing wrong about the quality of education provided in the country's leading medical institutions.

The fact is that the Indian pharma industry still produces and sells huge quantities of the kinds of drugs the country does not really need: cough and cold mixtures and digestive aids. Many drugs banned in most countries used to be freely sold in India and some are still being sold; there is a plethora of even what doctors call "irrational" formulations. Until not very long ago, India would face periodic shortages of essential drugs required to check commonly-prevalent water-borne diseases. Guess which has been the largest selling "medicinal" product in India for many years? A harmless lozenge that is supposed to be cure for sore throat and cold. For such maladies, the grandmother's home remedy is probably far more effective. The emphasis should be more on prevention rather than cure: not the other way round, as it is in India. Even as this country's pharma industry earns laurels in other parts of the world, it should not ignore the enormous health-care problems that afflict large sections of this nation of more than a billion people.

(The author is Director, School of Convergence and can be contacted at paranjoy@yahoo.com.)

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