India’s move to vanilla generics : Don’t hold your breath

By now, the news that India wants to move away from branded generics and encourage vanilla generics to bring down drug prices has gone around the world.  But all those who think a structural reform of the Indian drug industry is around the corner : stop. And breathe.

First, for the record, the news. The Drugs Controller General of India (DCGI) reportedly wants all state drug controllers to issue manufacturing licences henceforth by generic name and not brand name. This is being seen by many as an attempt to set the private pharma market on the road to genericisation.

That is highly unlikely to happen in the short, even medium, term.

Before I explain why, let’s gauge another, more likely, impact of this move – on the DCGI’s decade-old attempt to curb the liberal approvals that states grant to fixed dose combinations or FDCs of multiple drugs.

As some states have been quick to point out,  the stricture to licence-by-generic-name would be particularly cumbersome to follow when approving drugs with many ingredients.  That, it appears, is the primary motive of the DCGI’s office; it considers many of these FDCs new drugs and wants full control over their approval requiring them to show proof of safety and efficacy.

“Instances were brought to the notice of central government that the licensing authorities of many states.. have been granting licenses for manufacture of new drugs including fixed dose combination falling under the category of new drugs…without prior approval of the licensing authority (DCGI),” the notice, quoted in The Times of India, observed.

According to a damning report on the drug regulatory regime by a committee of parliamentarians released in May this year, state regulators have exceeded their brief by doing so. “The end result is that many FDCs in the market have not been tested for safety and efficacy,” the report observed. “This can put patients at risk,” it added. See more on this report here.

This is an old battle that has yet to be won. Some – like the parliamentarians who wrote the report – believe it is because the DCGI’s office has not tried hard enough to curb states’ enthusiasm by issuing specific orders.

It is also because the drug industry has a lot at stake. From a purely commercial point of view, FDCs serve two purposes.

One, they help to create differentiation in India’s crowded market of me-toos and also-rans. And two, they have been used to evade price control by adding to a drug that is price-controlled, an ingredient that is outside control thus deeming the whole to be outside control. (The exact prevalence of this last practice is unclear as many companies have phased out their exposure to price-controlled drugs simply by not making them and so, don’t need to resort such methods).

Since states have apparently continued with the practice of approving FDCs, it looks as though they’ve chosen to back their local drug industry rather than defer to the Centre.  In this context, the notice should not surprise.

No doubt FDCs are a useful concept that can do much for patient compliance. But that’s not under discussion, at the moment.

Now, let’s move on to the other – more discussed – ramification of this notice. Some observers might have concluded that that the health ministry has hastened the private pharma market’s move to being commoditised. Since brands have a premium attached to them, it is assumed that by not granting a manufacturing licence by brand name, states will force drugs to sell by generic name effectively decimating the brand premium.

Drug pricing is definitely a Matter of Great Importance at the health ministry. But of all the steps it could take, it’s a wonder why this would be thought the most effective. For one, it is prospective – there’s a Rs 60,000 crore market of legacy branded generics that is untouched by this provision. Two, it is vague. Even if manufacturing licences were granted by generic name, is there an explicit provision in the law that prevents companies from branding them or doctors from prescribing them?  Three, it is discriminatory. Someone is bound to ask why this practice is not being followed with on-market drugs.

Importantly, no attempt at genericisation can succeed without stepped-up quality assurance. Read an article I wrote in 2011 for Businessworld here. Inconsistency on this front is the key reason why a multi-billion dollar branded generics industry continues to thrive.  India’s woefully few testing laboratories, for instance, are no match for its prolific drug companies.

To the extent that it could slow down approvals for new FDCs this new stricture could impact companies. And confused policies are never good for business. That only means that drug producers will do their best to protect themselves. Already, one industry association is toying with the idea of approaching Indian courts.

To sum up, if you think the bottom is going to fall out of drug pricing thanks to India embracing generics, don’t hold your breath. You’ll just turn blue.

Pic courtesy Red Balloon Advertisers photostream on Flickr.

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