The Financial Express published an infographic today that showed that the Indian pharma industry’s turnover from exports was up to 65.8 per cent in FY16 from 57.1 per cent in FY11. The newspaper was quick to lay this at the door of enhanced government price controls though the graphic itself proved no such thing. The government “needs to ponder” over whether this was proving helpful to consumers, it said.
While I’m no great fan of price control as a long-term, sustainable solution for the affordability problem, I felt this claim was not rooted in sufficient research or at least not based on this particular infographic that was being used to back it. You can say a lot of things about India’s price control regime, but if India Pharma is enamoured of exports, price controls are only marginally, if at all, responsible.
First, here’s the graphic. I actually saw this on Twitter as the newspaper’s Managing Editor Sunil Jain tweeted it to the handle of the Prime Minister’s Office with an interesting observation. When I last checked, it had been retweeted 21 times and had 20 favourites.
The export focus of Indian Pharma can be charted over roughly two decades when leading companies decided to make exports a strategic part of the business and to act/invest accordingly; opportunistic exports began even earlier. The first fifteen years of this period were, in fact, relatively easy from the price control point of view; the regime had been pared to 74 dated drugs and many companies had reduced their exposure to them.
Enhanced price controls came into being only in 2013. True, a new price control regime was discussed off and on for 12 years prior, but the industry didn’t seem unduly bothered by it, tangled up, as the debate was, in court cases and committees. Yet, as the graphic shows, by FY11, well over half of the industry’s revenues came from exports. This could not have happened overnight. Exports to regulated markets, especially, take years of planning.
There were multiple reasons for this. One, making up for the effects of pretty intense price competition in the local market (mostly, involving drugs with no price control) especially in acute therapy segments where the most doctors were to be found. Two, earning foreign exchange. Three, capturing a slice of the lucrative US generics market where 180-day exclusivity for a single generic drug could yield hundreds of millions of dollars over six months (a scenario difficult to imagine in India, price control or not). And four, from an image makeover point of view, chasing the ‘global’ tag.
While the domestic market was far from saturated, it took a lot of heart to increase penetration. Beyond the paved roads of the cities, there were issues with doctor numbers, a reliable supply chain, and awareness. In such areas, the accent would have to be on volume sales and not premium pricing not because the government ordained it but because that is what would work. It would be a slow process. This is not to say that the industry hasn’t expanded into the hinterland, since. But I recall press conferences organised to advertise these efforts suggesting how exceptional they were and what a talking point in the media, the “tier 2” and “rural” strategies became. Not all of them worked in the first attempt, either.
Is it at any wonder that many in the industry looked to exports, in the meantime? They don’t deserve blame, but nor does the price control regime.
Now look at that graphic again. Since FY14, the share of exports has remained flat or declined. In FY16, it is almost level with the percentage share from three years ago. The domestic market’s percentage share after a noticeable decline in between FY11 and FY14, appears to be gradually going up again. I have read media reports suggesting that exports hit a snag over regulatory issues in developed markets and that domestic growth, after an adjustment period in the wake of the new price control regime, is on the recovery path. That could be a possible explanation for these numbers.
If you really want to “blame” someone/something for the rising trend in exports, blame the abysmal healthcare infrastructure in India that makes access challenging and limits market size, or blame the absence of rigorous quality assurance that has resulted in a free-for-all, or blame the weak Indian rupee that makes exports lucrative. Don’t blame price control. At least, not yet.