Germany, Japan mull changes in drug laws

Indian pharma companies likely to be impacted.

Germany and Japan are contemplating changes in laws which will impact Indian pharma companies.

Parliament in Germany, world's third largest pharma market, is contemplating a reduction in generic prices by 30 per cent and Japan, the second largest market, is mandating substitution of branded drugs, which will give a boost to generic drugs.

Among Indian companies, Ranbaxy Laboratories, Wockhardt, Torrent and Dr Reddy's operate in Germany. Only Ranbaxy has ventured into Japan.

The German Parliament is taking up the Drug Savings Act 2006, which proposes a 30 per cent reduction in the prices of generic drugs, change in the pricing system and an increase in the mandatory rebate.

An analyst said this could affect Dr Reddy's, which recently acquired Betapharm in Germany. "The proposed legislation would extend the payback period of the acquisition," he said. However, companies could leverage the backward integration and escape with a lesser hit.

"We had factored these legislation changes while bidding for Betapharm. Healthcare costs are likely to go up and there will be pricing pressures in the market with the margins of premium end players taking huge hits," said Malvinder M Singh, managing director & chief operating officer of Ranbaxy, which was vying for Betapharm.

A Dr Reddy's executive refused to count the proposed legislation as an obstacle, saying: "The Act is a mixed bag for generic companies which we had carefully evaluated. On balance, it would be somewhat favourable for Betapharm."

The Japanese market, however, is set to become more attractive for generics. With effect from April 1 this year, a doctor will get a monetary incentive to endorse a column in the prescription suggesting generic alternatives.

"Japan is emerging as a key market. Though Ranbaxy had a headstart in having a presence there...we would also be looking at it in due time," said Dr Reddy's managing director Satish Reddy.

The attractions in Japan are many. While the price erosions are lower, the industry is evolving, policies are pro-generics and drugs worth $2.5-3 billion are going off patent.

The individual co-payment (which is the share of cost paid by salaried individuals) too has steadily increased from 10 per cent to 30 per cent, inducing the patient to use generics.

Ranbaxy, the only Indian player in Japan, currently, is considering a fully-owned subsidiary. It already has a 50 per cent in the joint venture Nihon Pharmaceutical Industry Co Ltd and has a 36 per cent market share in Voglibose tablets which it had launched under the brand name, Vogseal.