US price-fixing case: Indian drug companies can ill afford this reputation dent

It is just the tip of the iceberg, Connecticut Attorney General George Jepsen had said when a handful of drug-makers were hauled to Court last December for alleged involvement in price collusion in the US.

Close to a year on, that cautionary statement has come true. Or as a recent announcement from his office explains, the original complaint against six companies and practices involving two drugs now stands expanded to include 18 companies, two executives and 15 drugs.

But a disturbing revelation from this three-year plus investigation is that seven of the 17 companies named are from India. And so are the two executives named in the suit, Rajiv Malik, President and Executive Director of global generic drugsmaker Mylan, and Satish Mehta, Chief Executive and Managing Director of Pune-based Emcure Pharmaceuticals (parent company of Heritage Pharmaceuticals that is already in the dock). On their part, the companies have said they would defend their representatives.

Financial impact Industry watchers say that revelations from the US investigations may appear worse than they actually are, especially in terms of a financial impact on business.

Unfortunately though, the latest price fixing allegations could well be viewed along with the fact that some Indian drug companies are already under the regulatory scanner of the US Food and Drug Administration (FDA), albeit for other reasons. And these range from setting right manufacturing practices to protecting the integrity of data generated.

Some industry experts even make connections between medicine shortages that resulted from this FDA action and the price increase.

But these explanations notwithstanding, the uncomfortable truth for Indian drugmakers is that they can ill afford to take a dent to their image as a supplier of inexpensive, quality generic medicines across the world. Not given the intense industry competition and protectionist statements from governments.

Business vs image “It looks worse than it actually is in a business sense,” says Mark Pohl, an attorney with Pharmaceutical Patent Attorneys (New Jersey), a law firm that represents drug-makers. However, he doubts, these developments would dent the image of Indian companies, “Because American consumers don't actually know who makes their generic drugs. Nor do they care. All they look at is the price,” he says, responding to a BusinessLine query.

Subrata Ray, ICRA Group head (Corporate Sector Ratings) further points out that since Indian drug-makers are not major players in the speciality medicines segment, they may not take a major business hit. However, given the big Indian players that now find mention in the multi-State petition, it could dent the image of local drug companies, he agrees.

Ray points to another fallout of these investigations. Many Indian drug-makers are aspiring for a larger play in the speciality medicines segment. And the recent investigations involving drug companies in the US could bring down the valuation of companies in this segment setting it up for acquisitions, he says.

Industry-watchers in India and overseas observe that investigations may find it difficult to substantiate and prove for instance that companies worked like a cartel to fix prices.

But a shadow looms over the companies on the penalties they would have to cough up, if a collusion is indeed established. And that will be a bitter pill at many levels for individual drugmakers and the larger industry, leading to a further eroding of trust with consumers.

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