Pro-generics, but how much pro-India?

Pro-generics, but how much pro-India?

How will the next resident in the White House view the growing presence of Indian pharmaceutical players in the US? Viveka Roychowdhury analyses

2008 will probably go down as another year of milestones in the history of the Indian Pharmaceutical Market (IPM). It will be remembered as the year in which Ranbaxy Laboratories decided that being the biggest in the IPM was not good enough. The promoter’s decision to cede control and chase global leadership, with the Japanese Daiichi Sankyo, could be a trendsetter. Sun Pharma’s long drawn out tussle with the Israeli Taro, yet another pursuit of global identity, will also be a defining moment of this year.

This issue goes to press in the midst of the run up to the US Presidential elections, which promise to be yet another milestone of the IPM. Dubbed by The Economist as ‘The battle of hope and experience’, this presidential election pits Democrat Senator Barrack Obama versus Republican Senator John McCain. Considering that the US population is an ageing one, the two Presidential candidates’ stands on healthcare reforms and their proposals to revamp the healthcare system has become a barometer of their respective policies. In fact, as per a poll conducted by the same publication, 44 percent of the respondents (all economists at the National Bureau of Economic Research) placed healthcare among the top three concerns.

Today, the American public is disenchanted with the healthcare system. “In spite of the fact that the US spends more than 15 percent of its GDP on healthcare, more than 40 million Americans do not have health insurance cover and an average American believes that the medicine prices in his/her country are much higher than rest of the developed world,” says Dr Ajit Dangi, President and CEO, Danssen Consulting. At the current rate of soaring costs, the Congressional Budget Office warns that Medicare (the US Government’s health schemes for the elderly) and Medicaid (schemes for destitute) will rise to 20 percent of the US GDP by 2050, more than the entire federal budget.

The old argument that research based companies were justified in recovering research costs from the consumer via higher prices for pharmaceutical products has few takers today, warns Dangi.

“In fact, most lifestyle diseases like diabetes, CVD, RA etc are chronic in nature and hence need life long medication. Add to this, demographic changes of increasing life expectancy, diseases like Alzheimer’s and Parkinson etc are reaching alarming proportions. No wonder therefore, when a US citizen goes abroad to a neighbouring country like Canada or Mexico for a holiday, the first thing on his shopping list is medicines,” reveals Dangi.

Delving into the past, Dangi says, “Traditionally, Republicans with their free market philosophy, lower taxes and aversion to rigid price control were the darlings of the research based US pharma companies. This reflected in their campaign contribution in the past. Obama has however, more than once hinted at fixing the healthcare system which is at a breaking point and has been able to garner much more campaign funds from the healthcare companies than McCain.”

Increasing coverage without increasing cost would seem to be the way forward, but achieving this seems impossible. Given that generics are increasingly being seen as one of the key factors to re-haul the US healthcare system, both Presidential candidates cannot afford to ignore generic companies. As Sujay Shetty, Associate Director, PricewaterhouseCoopers, points out, “Nearly two-third of the prescriptions written in the US today accounts for generics drugs, which has helped to mitigate the rate of growth in healthcare spending.”

In fact, both candidates are encouraging greater use of generic pharmaceuticals, but differ however, on the means to achieve this. “Obama proposes to increase the use of generic drugs in government-funded programs and prohibit drug companies from making ‘reverse payments’ to competitors linked to their delaying the sale of generic products. McCain has publicly supported faster introduction of generic drugs, he would authorise the US FDA to approve safe and effective generic drugs,” analyses Shetty.

‘It’s the economy‚Ķ stupid’, Bill Clinton`s famous campaign phrase in the 1992 presidential election has come to haunt America once again. Having just returned from Washington DC after participating in an international conference jointly organised by the US Food and Drug Administration (FDA) and Parenteral Drug Association (PDA) where I was invited to speak, I got a ring side view not only of the Wall Street Crash but also McCain – Obama live debate in Mississippi and President Bush’s dramatic appeal to the nation with an exhausted face.

Undoubtedly, the most hot button issue today in US for the Government is to restore the confidence of an average American and also the world in the economy which was until recently perceived as one of the strongest in the world. While the root cause of the Wall Street crash is bad loans for real estate, the one trillion dollar Iraq war has also fuelled the crisis. Although the US Congress has approved the $700 billion (actually it is $1.3 trillion as $592 billion have already been pumped in since last August) bailout plan to jumpstart the stalled economy, most financial experts believe that the US has already slipped into recession. With highest unemployment rate of 6.1 percent, tight credit squeeze and more than $5 million, expected foreclosures for home loans, all other issues like healthcare, terrorism, immigration etc have temporarily taken a back seat. The Presidential candidates and their spin doctors are therefore busy trying to convince the electorate how their smart rescue plan will benefit the economy. The debate, therefore, which candidate– whether a Democrat or a Republican in the White House will be better for the pharma industry needs to be seen with this background.

Traditionally, Republicans with their free market philosophy, lower taxes and aversion to rigid price control were the darlings of the research based US pharma companies. This reflected in their campaign contribution in the past. Obama has however more than once hinted at fixing the healthcare system which is at a breaking point and has been able to garner much more campaign funds from the healthcare companies than McCain. Inspite of the fact that the US spends more than 15 percent of its Gross Domestic Product (GDP) on healthcare, more than 40 million Americans do not have health insurance cover and an average American believes that the medicine prices in his / her country are much higher than rest of the developed world. Research based companies’ argument that it takes more than a billion dollars and 9-10 years of painstaking research to discover a new drug to justify the high prices, although logical, therefore has few takers in US.

In fact, most lifestyle diseases like diabetes, cardiovascular disease (CVD), rheumatoid arthritis (RA) etc are chronic in nature and hence need life long medication. Add to this, demographic changes of increasing life expectancy, diseases like Alzheimer’s and Parkinson etc are reaching alarming proportions. No wonder therefore, when a US citizen goes abroad to a neighbouring country like Canada or Mexico for a holiday, the first thing on his shopping list is medicines.

McCain with his 26 years in Washington is unlikely to deviate radically from his free market philosophy and therefore likely to be supportive to the US pharma lobby. However, his track record shows that he has been targeting US pharma and scaling back on Medicare benefit. Obama on the other hand, will have to depend more on the generic industry to contain the healthcare cost. A Democrat in the White House is therefore more likely to benefit the generic industry (remember Hillary Clinton’s healthcare reforms?) Since Indian pharma industry enjoys a significant market share of the generics market in US, this will benefit India. Although two more factors, US FDA and China competition will have significant impact on Indian (pharma) exports. It was apparent at the Washington conference I attended that US FDA is under tremendous pressure from the Congress to spruce up its act as recent incidents such as heparin injection contamination, melamine in candies imported from China, high lead content in paint used in toys, Ranbaxy investigation, biphenyls in packaged drinking water etc, have shaken public faith in the agency perceived as one of the toughest in the world. This is likely to make drugs exports to US tougher. As regards China, it is not only very aggressive in exports of drugs but unlike India, is working very closely with US FDA and Department of Commerce to satisfy their needs. But more about that later.

Till then, let us hope that the best candidate wins. It is a fundamental management principle that if you want to clean up the mess in your organisation you need an outsider rather than the one who carries old baggage. Lastly, the more I look at the performance of the three musketeers — Bush, Bernanke and Paulson — my respect for Manmohan Singh, Chidambaram and Reddy goes up manifold.

But today, healthcare reforms will have to be seen against the backdrop of the deepening financial crisis. “The most hot button issue today in the US for the Government is to restore the confidence of an average American and also the world in the economy which was until recently perceived as one of the strongest in the world,” comments Dangi.

To come back to the poll conducted by The Economist, over 40 percent of the respondents thought Obama could do a better job on healthcare than McCain (who scored with a little over 25 percent of the respondents). As Dr Swati Piramal,Vice Chairperson, Piramal Life Sciences and Director, Piramal Healthcare comments, both candidates seem to be pro-Indian pharma, thanks to their pro-generics stand. Whether the IPM is able to capitalise on being in the sweet spot, will depend on two more factors–US FDA and China competition, according to Dangi. These two factors will have significant impact on Indian (pharma) exports.

Signing off, Shetty says, “As significant as expanded production of generics or re-importation would be, they are only the first steps towards the ultimate goal of making India’s pharma industry a global powerhouse that can better serve the needs of its people. Moving to the next level requires a strong commitment by industry and government alike.”

Healthcare is the top domestic issue in the 2008 American election. Both the candidates, senator John McCain, the Republican presidential nominee, and Senator Barack Obama, the Democratic presidential nominee have been aggressively laying out a vision for reforming the US healthcare system, in a way that protects the quality of care while making it affordable and accessible to all.

Given that healthcare reform is a priority among both Republicans and Democrats implies that it will bring about changes in current US healthcare system, with effects that will ripple globally. India’s growing pharma and life sciences industry is likely to benefit from this reform. India could receive a boost from policy changes on the manufacture and sale of drugs.

Nearly two-third of the prescription written in the US today accounts for generics drugs, which has helped to mitigate the rate of growth in healthcare spending. Yet there are sharp divisions over whether – and how – growth in generics should be encouraged.

Both the candidates are encouraging greater use of generic pharmaceuticals and each has specific plans on how to achieve this. Senator Barack Obama proposes to increase the use of generic drugs in government-funded programmes and prohibit drug companies from making ‘reverse payments’ to competitors linked to their delaying the sale of generic products. Senator John McCain has publicly supported faster introduction of generic drugs, he would authorise the US FDA to approve safe and effective generic drugs.

Opening the giant US market to expanded generic competition, as Senator Obama and Senator McCain have proposed will benefit Americans at large and facilitate availability of high-quality drugs at cost effective price.

Moreover, a wave of biogenerics is on its way. Although biogenerics already are being manufactured in Europe and India, there is no pathway for regulatory approval in the US, stalling their introduction into the lucrative US market. While there are more FDA approved facilities in India than anywhere but US itself, by definition there are no biogenerics plants. Should the next President and Congress authorise a regulatory pathway for biogenerics, competition will be fierce and the capacity for rapid entry could prove decisive. Indian companies should prepare to capitalise on their existing strength in biogenerics by ensuring that their production capabilities can move quickly to enter the US market.

Another pharma industry issue being debated in the US elections is the re-importation of drugs. Pharma products often cost less in other nations than in the US, typically because regulations in those countries cap the cost of products and manufacturers look to the US market to recoup development costs and earn profits.

Senator Obama will allow for the re-importation of drugs, with a caveat that the prices of the re-imported drugs should be lower than their cost in the US. Senator McCain also supports allowing re-importation.

Allowing re-importation would provide Indian manufacturers with greatly expanded access to the profitable US market. Even limiting re-importation to Canada, as some have proposed, would result in parallel growth in that market as Canadian drug distributors made up shortfalls resulting from increased exports to the US.

Indian pharma companies will be closely watching the US presidential election. However, as significant as expanded production of generics or re-importation would be, they are only the first steps towards the ultimate goal of making India’s pharma industry a global powerhouse that can better serve the needs of its people. Moving to the next level requires a strong commitment by industry and government alike.

viveka.r@expressindia.com