THE pharmaceutical sector in India is going through anxious moments on two major counts, both of which are likely to hurt the bottomline of industry majors. 

One crucial move of the government, expected to be implemented later this week, relates to imposing price control on essential drugs, and the other is about licensing only generic drugs and not branded ones.

A group of ministers (GoM), headed by agriculture minister Sharad Pawar, has submitted a report to the central cabinet relating to imposing curbs on the price of 348 essential drugs by bringing them under the ambit of the Drug Price Control Order. The cabinet is expected to approve the report on November 27, when the Supreme Court takes up the hearing in the matter.

A public interest litigation was filed in the apex court almost a decade ago, seeking its intervention to bring down the price of essential medicines. Drug prices have been soaring in the country in recent years and in the absence of price control on most essential drugs, the healthcare budget of millions of Indians have shot up phenomenally.

At present, the National Pharmaceutical Pricing Authority controls the price of 74 bulk drugs and formulations. Last year, the National List of Essential Medicines (NLEM) identified 348 medicines — covering 489 formulations — which were considered to be adequate to meet the healthcare needs of the population.

These essential drugs account for about 60 per cent of the revenues of the domestic pharmaceutical sector — and fetch revenues of Rs300 billion (about $5.43 billion). But their price is not controlled; on the contrary, prices have been galloping in recent years. These include essential medicines such as anti-TB, anti-cancer, anti-AIDS drugs, besides painkillers and sedatives.

The Planning Commission had suggested that caps should be imposed on the price of NLEM drugs as they are essential for basic healthcare of the majority of the population. The commission had also criticised the pharma sector for “taking advantage of lax regulations, no drug pricing and reaping high margins through complex price-setting activities.”

The GoM on drug pricing had in September formulated a policy on the pricing of these 348 essential drugs based on their weighted average in a specific segment and with a more than one per cent market share. But the finance ministry raised objections, noting that this would result in a steep price hike for many of the drugs.

Following the objections, the GoM met again and resolved the issue by opting for a simple average method, which would result in overall price reduction for all the essential drugs. The new policy has to be approved by next week, as the case will come up for hearing at the Supreme Court.

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BUT an even more formidable challenge that the pharmaceutical sector confronts relates to the decision of the federal health ministry, instructing state governments to stop issuing licences for the manufacture or sale of drugs on the basis of their brand names.

Earlier this year, the parliamentary standing committee on health and family welfare had come out with a damning report, indicting not just the industry, but the government and even the regulators. The panel had also objected to the practice of issuing licences to drug firms on the basis of brand names.

Interestingly, the parliamentary panel had summoned Bollywood star Aamir Khan, who had targetted branded drugs in an episode on how doctors and pharmaceutical majors were ripping off the public, in his show Satyamev Jayate that was being telecast earlier. The standing committee has been batting for the promotion of generic drugs and has been critical of the Department of Pharmaceuticals for not doing enough in the matter.

Last month, the drugs controller-general wrote to state health secretaries and state drug controllers, directing them that all drugs should be referred to in generic terms and not as brand names. However, an exception was made in the case of drugs for import or export purposes.

Says Dr G.N. Singh, the drugs controller-general: “We want to gradually move towards a future where we will not issue any brand or trade names. We are going all out to push generic drugs solely for the benefit of the public.”

According to Singh, all state health departments have been asked to instruct their drug licensing authorities to issue licences only on the basis of generic names and not branded or trade names. “A branded drug can be 10 times more expensive than a generic variant,” adds Singh.

While there is still a lot of ambiguity on what this may mean, sources in the health ministry say that manufacturers will still be allowed to print the brand name along with the generic one on the packaging.

The federal health ministry has been pushing for the promotion of generic drugs in recent months. For instance, it has been made mandatory for doctors in the public sector to prescribe only generic drugs.

But opponents of brand names say that doctors prefer prescribing drugs with their brands thanks to the nexus between pharmaceutical firms and the medical practitioners. Medical malpractice is rampant in India, and many doctors prescribe drugs of specific companies as they get commissions, incentives including gifts and even foreign travel.

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THE pharmaceutical industry has not taken kindly to the move on licensing of only generic drugs. The Indian Drugs Manufacturing Association, the apex lobby group, is planning to challenge the government move in court.

The Organisation of Pharmaceutical Producers of India (the lobby representing multinational drug makers) is seeking clarifications from the government, and is hopeful the government would consider the views of all stakeholders.

Many are confident that the government will dilute the requirements, allowing companies to still market non-generic drugs with brands in place.

But the most vociferous opponents of the move are drug makers in Gujarat, which has the highest number of US FDA approved pharmaceutical plants. Of the total 160 FDA-approved plants in India, 41 are in Gujarat. The pharmaceutical industry in the state accounts for 40 per cent of India’s domestic drug sector and a fifth of drug exports from the country are from manufacturers in Gujarat.

Drug makers fear that if the regulator’s instructions are implemented, it could destroy the Indian pharmaceutical sector. Aware that the move to ban brand names in the sector would hurt India’s exports — at present, exports bring in $12 billion in revenues — the regulator decided to exempt medicines meant for overseas markets from the rule.

India’s pharma exports are expected to more than double to $25 billion by 2014-15, according to the government. Of course, the export of generic medicines is also growing, especially as demand in the US and other developed countries — where concerns about soaring healthcare costs are forcing governments to seek generic medicines from India — is on the rise.

The market for generic drugs is expanding rapidly, even faster than the one for branded drugs. Last year, the market size of drugs losing patent amounted to $270 billion. This is expected to rise to $430 billion by 2016. India ranks among the top-five generic drugs exporter and domestic manufacturers are expanding their presence across the developed world, especially in the US.

Of course, many Indian drug firms are facing problems in Europe, where some governments have even seized consignments of drugs meant for Latin America and Africa.