The Indian government faces a genuine dilemma in formulating a useful policy on foreign direct investment (FDI) in the pharmaceutical industry. After a spate of high-profile foreign takeovers of established Indian firms, the central government last year took FDI in brownfield pharma companies out of the automatic route. It is now mandatory for such investors to seek approval from the Foreign Investment Promotion Board (FIPB) for six months, after which the subject comes within the purview of the Competition Commission of India (CCI).
It is not clear what criteria FIPB will, or can, deploy to judge which investment proposal will aid the cheap and abundant availability of quality medicines in India. Naturally, FIPB now wants aspiring foreign investors to give an undertaking that they will not stop or reduce the production of essential medicines without the permission of the health ministry. This will be more stringent than the price control regime in drugs so far, which manufacturers can escape simply by not producing price-controlled items, or tweaking combinations and dosages so as to price them freely. It is even more unclear what CCI will do, since there is hardly any dominance in market share in this highly fragmented industry.
On the other hand, there is every reason to want to retain the character of the Indian pharma industry, which is a global leader in manufacturing cheap, quality medicines. This is important not just because India still accounts for a large number of the poor with low health outcomes. Additionally, the global space for generics (low-cost medicines out of patent) is constantly enhanced by challenges to existing patents under para four of the US Hatch-Waxman law claiming that the molecule offered for certification has been produced in a non-apparent and non-patent infringing way. The most energetic Indian pharma firms are at the global forefront of patent challenging even as big pharma with patent pipelines tries to restrict the space for generics by seeking patent extension and “evergreening” soon-to-expire patents by making minor product, dosage and labelling changes.
Now that the US itself is seeking to bring down healthcare costs and the market share of generics prescribed is rising significantly, the time is ripe for US law to be changed so that knowledge in the public domain through publicly funded research is available for the manufacture of medicines affordable for not just the world’s poor but also the aged and the needy in the US.
In this context, what does India do now? Let us recall Indian pharma’s three weapons: abundant low-cost chemistry skills; an absence of product patent protection; and price control. Instruments two and three are not available, but governments in India have three potent weapons in their hands. All the dormant or malfunctioning public-sector pharma companies can be revived to create an abundant supply of low-cost quality generics. Also, central and state governments can adopt a regular schedule of negotiated bulk purchase from the private sector. The Pronab Sen task force on drug pricing has noted that the procurement system currently in place is “riddled with all manner of malpractices, such as [procurement of] sub-standard and under-strength drugs and short supplying”.
Finally, there is a major weapon that the government is yet to use: compulsory licensing. If there is a health emergency in the country and medicines for it are globally available but beyond the reach of average Indians, then the government can ensure that they are manufactured and sold in India at affordable prices without breaching any of the commitments the country has made towards protecting intellectual property rights.
With so many weapons available but not being used, the government appears to be barking up the wrong tree. Politicians and civil servants seem interested only in increasing their scope of discretion. Even if an FDI proposal is approved by obtaining an undertaking to keep the supply of essential medicines going, it will be difficult to refuse permission to produce two per cent less of this and one per cent more of that. This is because the market, the country’s disease profile and people’s ability to spend keep changing. Permissions will come — but the need to lobby and the scope for rent-seeking go up enormously.
More investment is required in the Indian pharma industry because it needs to spend much more on research and development. Traditional Indian leaders like Ranbaxy, Dr Reddy’s and Cipla are yet to produce a single new molecule that is globally accepted and adopted. On the other hand, India is one of the best places in terms of value for money for undertaking custom designing of molecules, their pilot production and, finally, clinical trials. So companies in India, whether foreign or domestically owned, will have to be encouraged to earn good money and spend it well. The former can be done by expanding the space for them by stopping public procurement of substandard drugs, particularly by many state governments, from firms that do not follow good manufacturing practices.
The latter can be done by encouraging more investment in research both in the firms’ own labs and in collaboration with public laboratories and universities. The government can even announce three prizes of, say, $500 million for the first three new drugs developed by companies in India that get global regulatory approval. After all these years, national hopes should not rest on the shoulders of a single company like Glenmark. The aim must be to create a friendly environment for research-oriented firms which can also earn good money in the conventional business space.
