The Union commerce ministry has reportedly initiated an exercise to determine if checks need to be placed on foreign investment in Indian drug firms (currently 100 per cent investment is allowed through the automatic route) in view of several acquisitions that have taken place in the last few years. These include the takeover of Ranbaxy by Daiichi Sankyo and Piramal Healthcare by Abbott Laboratories. But it will be wrong to think that the takeovers indicate declining health or rising vulnerability of the Indian pharmaceutical sector. It may, in fact, be the opposite. The takeovers can be seen to be a rather hurried attempt by global drug majors to acquire a generics portfolio in order to insure themselves for an immediate future in which the patent pipeline will be running thin and health care cost-cutting measures in the developed economies will improve the market for generics players. Abbot, in particular, is considered to have overpaid for its acquisition of Piramal Healthcare. All the foreign acquisitions have been friendly and Indian promoters have exited at great profit. What is more, the last few years have also seen significant acquisitions by Indian pharma companies globally. Ranbaxy itself earlier acquired Romania’s largest generics drug firm Terapia and Allen SpA, the unbranded generics division of GlaxoSmithKline in Italy. Even before that, Dr Reddy’s acquired Betapharm, the fourth-largest German generics player at the time. So, the fact that some Indian companies have been taken over at a time when they themselves have done the same overseas can mean that there is a good and efficient market for pharma companies which should be used to everybody’s advantage.
What is, however, important is that acquisitions by foreign firms should not lay the foundations for a secular rise in drug prices in India. Drug prices and patient expenditure on drugs in India have indeed gone up faster than they should have in the last several years, but the reasons for that are different. Since the Indian pharmaceuticals market is heavily fragmented and there is intense competition, price rise can mainly be attributed to rise in costs, including marketing expenditure. The latter is indeed an unfortunate feature of the industry where a growing army of medical representatives is being engaged to persuade doctors to prescribe to the benefit of firms and not according to patient need. As for growing patient expenditure, it comes largely via the prescribing of patented medicines by doctors (they are incentivised by the industry to do so) even though good generics could do just as well. A lot does need to be done to make medicines of acceptable quality (sub-standard drugs are a huge menace) and affordable price to meet the health-care needs of Indians who are mostly still poor. The best way to keep a lid on prices is for the government, both at the Centre and the states, to adopt an aggressive procurement policy whereby essential medicines for the public health-care system are acquired at negotiated prices from approved manufacturers who follow good manufacturing practices.
