Bhupesh Bhandari: Obamacare and Indian generics

Last Updated: Thu, Jul 05, 2012 19:10 hrs

The Supreme Court of the United States last week gave its nod to the most important law of the Obama administration: the Affordable Care Act, now popularly known as Obamacare. Simply stated, the Act says that all Americans need to buy health insurance, and those who don’t will have to pay a penalty, the so-called individual mandate. The penalty became the bone of contention between Republicans and Democrats. It was coercion, the Republicans cried. The matter went to the US Supreme Court, which decided on June 28 that the government is well within its rights to introduce a tax. Though the penalty, after the verdict, has come to be called a tax, the judgment could alter the healthcare scenario in the US.

Almost 50 million Americans are not covered by any health insurance plan. Those with a medical condition find it hard to buy insurance. A lot of people are covered by group health insurance bought by their employers, but in these uncertain times nobody can take it for granted. Companies might retrench employees or even fold. This means that a whole lot of people must buy personal health insurance as well. Obamacare is meant for such people. Of course, the government will have to provide for a subsidy so that all can buy insurance.

Healthcare in the US is prohibitively expensive. There is the tendency amongst hospitals and doctors to over-medicate: they recommend too many tests and write expensive prescriptions. Americans spend vast sums of money on litigation over medical bills — a clear indication that healthcare costs are running way beyond the capacity of ordinary individuals to pay. Under Obamacare, the insurance company will pay only for the authorised generic version of any medicine. If the patient wants to buy expensive branded medicine, he will have to pay the price difference. The future, therefore, belongs to inexpensive generic medicines.

This is a huge opportunity for Indian makers of generic drugs. The US is the biggest market in the world — it accounts for almost 50 per cent of global pharmaceutical sales. So the additional business that could come to Indian generic companies once Obamacare is fully in place is substantial. But there are fears that some non-tariff barriers may come up that will keep most Indian companies out of the US. The new product pipeline of most large drug makers has run dry; so they are doing everything they can to protect their business from makers of inexpensive drugs in India and China. One solution they had hit upon was to get an associate company to launch the authorised generic version of a patented medicine. There could be more, Indian companies are convinced, as drug makers there will do all they can to protect their turf.

For instance, from next year, Indian companies will have to pay a higher fee when they seek the US Food & Drug Administration’s (USFDA’s) permission to launch a generic drug. For drug makers with factories within the United States, the fee is low. The argument is that USFDA officers need to travel to India to certify the facility every time such an application is filed. This raises the cost of regulation. One way to recover the cost is to charge more application money from overseas companies. It sounds logical, but the Indian pharmaceutical sector sees it as an entry barrier. While bigger companies can afford to pay the higher fee, and some of them can even buy factories in the US to circumvent this problem, the bulk of mid-sized and small Indian pharmaceutical companies will be hit very hard.

Governments all over the western world, not just in the US, are struggling to contain the spiralling cost of healthcare. The solution to that problem, all have come to realise, lies in generic medicine. Thus, France ruled some years back that even if the doctor prescribed a patented medicine, the chemist could offer the generic version of that medicine if it was available. Again, this should have been a massive opportunity for Indian drug makers. But they aren’t finding it easy. The European Union made it mandatory last year for all imported bulk drugs to be certified by the exporting country’s drug regulator that they conform to EU standards. Indian companies know that it is very difficult for the Drug Controller General of India to give such an approval — it simply doesn’t have the wherewithal to do that. This brings exports to the EU under a cloud. It is only now that the industry has woken up to the issue and made representations to the government.

At the moment, all eyes are on the US and how Obamacare rolls out over the next few years. Opinion is divided. The situation is being watched with great interest by all groups. An Ipsos/Reuters survey done in the US showed that negative attitudes to Obamacare softened after the Supreme Court verdict. But opposition also seems to be building up. Mitt Romney, the Republican candidate for the presidential elections in November, has said that he will repeal the law if voted to power. Mr Romney’s campaign managers claimed that he raised $4.6 million in the 24 hours after the verdict.

So, the opportunity is very much there for Indian drug makers; the question is: will they get there?

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