What India needs to develop its own innovative R&D focussed pharma and medical devices sector

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Published: August 7, 2017 4:39:00 AM

For India to develop its own innovative R&D focused pharmaceutical and medical devices sector regulators like NPPA need to re-imagine their regulatory strategies .

During his recent Israel visit, prime minister Modi signed an agreement with his Israeli counterpart Benjamin Netanyahu to create a million innovation fund to connect innovators from India and Israel with larger R&D opportunities.

During his recent Israel visit, prime minister Modi signed an agreement with his Israeli counterpart Benjamin Netanyahu to create a $40 million innovation fund to connect innovators from India and Israel with larger R&D opportunities. This is among a series of welcome steps that the incumbent government has adopted, including ‘Startup India’, the Rs 1,000 crore Impacting research innovation and technology (IMPRINT) initiative, and the India Innovation Index to rank Indian states on their innovative spirit, to create an innovation-centric economy for India. However, the ethos of innovation seem to lose themselves in transit, as it percolates down to the regulators. It is quite disheartening to find, that despite such laudable government measures, Indian regulators routinely adopt strategies, including egregious ‘price control’ mechanisms which hinder the ability of the industry to innovate. The ability of an innovator to monetise her innovation-based upon its market value is a key ingredient to the entire innovation process. Price control measures deny an innovator the right to price goods in line with what the market will permit and deprive the market of an efficient reallocation of resources for the next round of the innovation process. A much talked about recent example is the price capping of stents, engineered by the National Pharmaceutical Pricing Authority (NPPA). In February, the NPPA, venturing from drug pricing into medical device pricing, slashed prices of stents—a tube-like mesh placed to unblock arteries to maintain the heart’s blood supply—by about 85%.

In effect, NPPA put all drug-eluting stents into a single category and price, with no consideration of innovations that have led the industry from first to the fourth generation of stents. Further, NPPA disallowed stent manufacturers from withdrawing their loss-making products from the market for at least six months to avoid any shortage. This essentially means that stent manufacturers can neither decide the price nor the type of stents they can sell in India—an echo of the ‘license-quota-permit’ raj from which India seems to have been unshackled a quarter of a century ago. The fundamental illogic of NPPA’s decision is the “all stents are the same, they are priced the same, but you must make all stents available” argument. If all drug-eluting stents are the same, does it matter which ones the companies supply? And if they are not, then how can the same price apply to all? The regulator’s attitude is reminiscent of that classic Hotel California line “you can check out any time you like, but you can never leave”.

Countries like the US and the UK have their drug regulators, the US Food and Drug Administration (UFSDA) and (Medicines and Healthcare products Regulatory Agency) MHRA, respectively, subject new devices to rigorous rounds of clinical trials, assessing their improvements and innovations before approving such devices. The absence of robust medical devices regulations in India may be the reason for NPPA’s current approach. Such a genre of NPPA’s regulatory framework will also jeopardise India’s $2.5 billion medical-device industry. According to a Deloitte report, the growth rate of India’s medical-device industry is around 15% which is more than double of the global industry growth rate of 4-6%, and is expected to become a $25-30 billion industry in India by 2025. However, by shackling the innovation capacity of the industry, NPPA could easily stunt the industry’s growth prospects.

In terms of meeting their own ‘targets’ of regulating prices, the NPPA may be doing a sterling job by controlling device prices. However, the report card of the country’s healthcare status, is much more than one regulator’s target. India spends a woeful little of only 0.9% of its GDP in bio-pharma research and is largely dependent on other countries for supply of pharmaceutical ingredients and medical devices. Regulatory trends that undercut market dynamics by mandating price levels below market value or deny due-process of pricing policies would only cause such foreign suppliers to withdraw from the Indian market – ultimately harming the Indian patients. What is most concerning is that despite the NPPA meeting its KRAs, the faith on the system to balance healthcare access and innovation, may be quickly eroding.

For those who would argue that NPPA’s price-fixing will reduce medical expenses for Indian patients, the experience since February shows a different picture. As stent prices crashed, hospitals allegedly started leveraging margins on consumables and services to offset stent price margin losses, with negligible benefits reaching the final consumer. Strangely, the regulator’s answer to that problem seems to be considering price control on more medical devices and consumables! In-spite of Indian drug prices being one of the lowest in the world, out-of-pocket expenditure of Indian patients on healthcare is as high as 61%. There is enough evidence that price-capping of drugs as a regulatory framework has not ultimately benefitted Indian consumers and it seems the NPPA is about to repeat the same mistake with the medical-device industry.

Price control is a blunt regulatory instrument and is not a substitute for genuine healthcare reform. The NITI Aayog, the government’s policy think-tank, in its three year Agenda document for 2017-2020 has argued that the current drug price control framework has worked against innovation and production of quality medicines. NPPA would be well advised not to extend the same failed framework for regulating India’s burgeoning medical device industry. The regulation of medical drugs and devices involves competing goals of assuring public safety and innovation. While a regulator’s job is to regulate, for a nation to truly innovate and jump start its healthcare ecosystem, every element needs to become an enabler and not act like a controlling authority. For India to develop its own innovative R&D focused pharmaceutical and medical devices sector regulators like NPPA need to re-imagine their regulatory strategies from policing price to that of nurturing innovation.

Assistant professor, competition law, Jindal Global Law School and a former expert consultant with the Competition Commission of India. Views are personal

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