Why Cipla, Dr Reddy's will gain from govt's free drug policy

By Jeff Glekin

A $5.4 billion plan to provide free generic drugs to millions could mean the government is finally beginning to address its woeful healthcare system. Medicine has lost out to food and fuel subsidies for too long. The drugs plan may spook Big Pharma, but long term even foreign drugmakers could benefit.

Only seven governments in the world spend less on health than India as a percentage of GDP, according to the Organisation for Economic Co-operation and Development. India allocates about 1.2 percent of output annually - lagging behind, say, China, at 2.3 percent. The number of children who die before their fifth birthdays, mainly from preventable diseases like malaria and diarrhea, stands at 66 per 1,000, compared with 19 in China and 21 in Brazil.


India's left-leaning government, in power for the past eight years, has done surprisingly little to address deficiencies in public health. Instead too much policy emphasis has been placed on food and fuel subsides. Though intended to help the poor, many benefits accrue to households well above the poverty line. The total cost of these subsidies amounts to 9 percent of GDP, the OECD reckons.

But the government does want to double the amount it spends on health. With a fiscal deficit already touching 5.9 percent, it will need to scale back elsewhere to finance that goal. The new plan could be a good first step towards a healthier balance of pro-poor policies.

Indian makers of generics, like Dr Reddy's and Cipla, should benefit from the new initiative. Big foreign drugmakers, by contrast, may feel hard done by. Dr Reddy's is up half a percent while Cipla is up 1.4 percent this morning.

Providing free generics but forbidding doctors from subscribing branded medicines appears to cut them out of the loop. But 90 percent of India's drug spending is already directed to generics, and it's logical that the government should concentrate on the cheaper end of the market.

India's already a two-tier market. The growing middle class spends an additional 3 percent of GDP on private care, and it will continue to consume more branded drugs. And as India develops, greater public consumption of healthcare should ultimately lead to a relaxation of the rules on generic products. That could be a long term boon for the foreign firms too.


- India has put in place a $5.4 billion plan to provide free medicine to hundreds of millions of people, Reuters reported on July 4.

- India's public doctors will soon be able to prescribe free generic drugs to all comers, vastly expanding access to medicine in a country where public spending on health was just $4.50 per person last year. Under the plan, doctors will be limited to a generics-only drug list and face punishment for prescribing branded medicines.

- Within five years, up to half of India's 1.2 billion people are likely to take advantage of the scheme, the government says.

- In March, India granted a licence allowing a domestic drugmaker to manufacture a copy-cat version of Nexavar, a cancer drug developed by Germany's Bayer. The move unnerved foreign drugmakers but enabled Natco Pharma to sell its generic drug at Rs 8,800 per monthly dose, a fraction of the Rs 280,000 Bayer's branded version cost.


Updated Date: Dec 20, 2014 10:01 AM

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