Public health vs pharma health

You have to only walk through your nearest Government hospital to get a glimpse into the state of the country’s health.

People spill out of doctors’ cabins into the corridors, sitting, even sleeping in the queue, waiting for a few minutes with a doctor. Families of patients sometimes camp for days right outside the hospital, with no money to rent a place to stay. This is the picture in your metros and it only gets more desperate as you move out of the city.

Despite its ills, though, the Government hospital continues to draw patients with modest means — not just for its fine doctors, but because a private facility is way too expensive.

Against this public health backdrop, the Government grapples with charting a course for foreign investment in the country’s Rs 1.2 lakh crore pharmaceuticals sector.

It is no easy task as the Government needs to balance the growth of the domestic industry with the health of its citizens, a large chunk of whom are barely able to eke out enough to support their families. And into this reality, comes the added task of enhancing local opportunities to attract foreign companies to park funds and do business in India.

There is a contentious, ongoing debate on the best path for the country to follow to achieve these objectives. A debate that started in 2010, when Government saw more than six drug companies sell out entirely or in part to foreign owners, in just five years.

Questions emerged on whether such buyouts would strike at the heart of India’s health security. Would the combative nature of local, generic drug-makers gradually change to fall in line with foreign owners’ orientation towards bringing in more expensive, patented medicines? Was it time the nation took a historic step to declare health a strategic sector to ensure that medicines don’t get priced out of the reach of ordinary people?

Generics rising

The local pharmaceutical landscape has changed, and dramatically. The Patents Act was amended in 2005, allowing innovators to get 20 years’ protection on inventive products. The spate of buyouts of local operations by foreign owners added a fresh complication.

While it is early days to take a call on their impact on the local consumer or industry, a recent parliamentary panel report takes a critical view.

In the last 12 years, the report says, 52 per cent of the FDI (foreign direct investment) in drugs and the pharmaceutical sector was for acquiring stakes in domestic pharma companies. And less than 3 per cent of the Rs 18,678 crore FDI in the sector, in the last three years, was for research and development, the report points out.

It was the global economic slowdown in 2008 that queered the battle-ground between innovators and generic drug-makers, as governments were forced to bow their heads to rising healthcare costs. Also rising up the popularity chart were the less expensive generic medicines, as governments began sourcing them for public health programmes.

According to the FDA, in 2010 alone, the use of FDA-approved generics saved $158 billion, an average of $3 billion every week, of US government expenditure on public health, the panel report observes. Naturally, innovator companies, bringing out expensive proprietary medicine, began seeing the wisdom of having a generic arm to make less expensive medicine.

The scene shifts right back to India. Daiichi Sankyo got its generic source in Ranbaxy through a $4.6 billion buy-out in 2008; Abbott has its generic unit from a $3.7 billion deal in 2010 when the erstwhile Piramal Healthcare sold its domestic medicines business; and Sanofi locked into vaccines-supplier Shantha Biotech for $783 million in 2009.

Finally, the Commerce Ministry red-flagged the issue and after much inter-ministerial discussion, the Government put foreign buyouts of existing domestic businesses under its watch, while fresh investments in greenfield operations were to continue through the automatic route.

Attempts are now on to fine-tune this process further, with investments in vaccine or cancer drug-making operations to come under greater scrutiny. Triggering this move is the concern whether local companies, bought out by a foreign player, will show the same commitment to supply drugs at a relatively low price. Or, will they be inclined to, for instance, contest a flimsy patent application of an innovator company?

Regulatory toolkit

The parliamentary panel report, citing available data, points out that there is no indication that medicine prices have increased after a local drug company was bought by a foreign company.

But crystal-ball gazing about the impact on the nation’s health may be too risky — hence, it is necessary for the Government to sharpen its regulatory tools and keep them on so as to maintain a grip on the prices of medicines.

If indeed the Government wants to demonstrate its commitment to the health of its people, it should start with dramatically increasing its spend on healthcare instead of passively nudging it up, bit by bit.

It needs to source medicines, even patented ones, and supply them free or subsidised to people who need them — the poor and the middle-class (the latter being a less fashionable cause to support!). And then pump in the funds into public sector units, get companies to participate, share technology, co-fund research and ensure that medicines that emerge from there are for the local population. With this under its belt, the Government will be on solid ground to demand that drug companies bring in good medicines, at prices best suited for the local population.

The country has demonstrated its strength by disallowing patents on drugs that it feels do not show greater efficacy than existing medicines. The Government has also exercised its compulsory licensing tool by allowing a third party to make an innovative drug that it felt is not adequately supplied in the local market.

But despite this, there is a mass of people who cannot afford even the cheaper medicines, and a creamy layer who can afford the original, innovator price.

The Government needs to draw up innovative pricing models for the middle class, including life-long health insurance schemes along the lines of welfare schemes in developed nations — where the young pay to be taken care of, when they are older.

As for those who cannot afford it, the Government should simply provide the medicines free.

Open the door

Anxiety over serial buy-outs is not restricted to the Indian Government.

An article in The Economist (March 2010) on Britain’s buy-outs including the Jaguar Land Rover by Tata Motors and Cadbury by Kraft Foods, points out how the US, Japan and Germany have had anxious moments when a foreign buyer landed up at their doorsteps.

“A French prime minister even declared that Danone, a yogurt-maker, was in a strategic industry when an American rival came sniffing,” the article says, concluding that“education and skills, rather than protectionism, are still the best way to safeguard British jobs when foreign buyers come calling.”

The picture in India is a little different since it involves the health of a nation. The Government will have to take the responsible road to protect public health.

But while digging in deep as gatekeeper, it should not prevent fresh ideas and influences from coming in.

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