The Pharmaceutical Industry Has Vested Interests in Making Arguments against Generic Drugs

The announcement by the central government about bringing in a law to ensure that doctors prescribe generic drugs only, has opened a number of issues for discussion (Hindu 2017). These range from the quality and pricing of drugs to the presence of irrational combination drugs in the Indian market.^[1]  The industry has put forward two basic arguments. First, in the use of unbranded generic drugs, quality is the main issue and not the price (Soans 2017). Second, it is said that unbranded generics are not of good quality or are of suspect quality whereas branded drugs from reputed companies are always (or almost always) of good quality. 

The subsequent sections will discuss how these arguments are incorrect and represent (or are coming from) vested interests of pharmaceutical companies.

Pricing Is An Issue

The first argument of the industry that only quality is an issue is not correct. Pricing is also an issue. The assumption in the argument seems to be that drug prices, even of branded drugs, are already very low due to intense competition in the Indian pharmaceutical sector. This assumption is totally incorrect as there are huge differences in prices of drugs, first, at the level of brands (that is inter-brand) and second between branded drugs and unbranded generics. 

There are huge price gaps between different brands having the same molecule/combination. A study that tracked the prices of seven formulations of drugs along the whole supply chain found significant inter-brand price differences for five formulations out of those seven (Kotwani 2013). The study tracked only two to three brands for each formulation and still found huge differences in retail prices. Table 1 shows that the difference between the lowest and highest priced brand ranged from 1% (for Ranitidine 50 mg tablet) to more than 700% (Amlodipine 50 mg tablet) with three formulations having more than 100% price difference.

The difference in the prices of Ranitidine and Omeprazole is on the lower side because Ranitidine was under price control in the period when the study was conducted and in the case of Omeprazole, both the brands that were selected were the top selling brands of this molecule—Dr Reddy’s had 50% market share (by sales) in 2013 before the molecule came under price control, while Zydus accounted for 27% of market share.^[2] The working sheet^[3] for Omeprazole^[4] listed the price (to retailer) as Rs 4.18 for Dr. Reddy’s Omez and as Rs 4.49 for Zydus Cadila’s Ocid, while the lowest-priced drug from Medley Pharma was priced at Rs 0.25. In this case, the lowest priced brand had a difference of more than 1,000% with the top brands.

This example shows that it is the high-priced brands that dominate the market instead of the lowest-priced ones as it should ideally be in a competitive market place. This market reality is also reflected in a study on competition in the Indian pharmaceutical industry, which found that 69% of the market at the formulation level had moderate to high concentration (Mehta et al 2016). This means that a few top brands are dominating the market and shows that the competition (especially among formulations) has failed to lower prices to the extent that it should have. 

It also raises the possibility that a part of the extra revenue earned from the high drug prices is being used in giving incentives (like gifts, sponsoring conferences, etc) to the doctors. In recent years, several instances of these activities have been documented in research articles, books, and newspaper reports (Seeberg 2012; Gadre and Shukla 2016). Apart from giving incentives, the marketing strategy of a company also includes creating a superfluous differentiation (like packaging, colour of drug/syrup, shape of pill, brand name, etc) between its brand and other brands of the same formulation.^[5] These formulations are essentially similar to each other in all aspects, except the brand name that they are sold under. The branding (with its superfluous differentiation and the incentives offered) seems to have become an escape route for companies to dominate the pharmaceutical market, especially at the formulation level. This marketing strategy, especially the incentives, is in part responsible for the pharmaceutical companies–doctors nexus.

Similar to the inter-brand price differences discussed above, similar price differences have also been found between branded drugs and unbranded generics (Chaudhuri 2005; Srinivasan 2011). Unbranded generic drugs are mostly sold through government pharmacies like Jan Aushadhi Kendras. They are also procured by state governments like those of Tamil Nadu and Rajasthan. In both these cases, the prices of drugs have been found to be too low as compared to dominant branded drugs available in the market. For example, the price of Omeprazole 20 mg capsule is Rs 0.682 (per capsule) in Jan Aushadhi Kendras (BPPI 2018), whereas the average retail price of dominant brands is Rs 2.31 meaning that the price gap was more than 300%.

However, the low-priced unbranded generics are not abundantly available in the market in general. One important reason for this is that these drugs are considered to be of suspect quality.

Quality Perception of Unbranded Generics 

The general perception among the public is that branded drugs from reputed companies are of good quality whereas unbranded generics are of suspect quality. This perception is present amongst doctors as well and can clearly be seen in the case of the prescriptions written by doctors in Mumbai after the recent announcement by the central government. The doctors prescribed unbranded generics to patients, but with a disclaimer that stated:

“I cannot ensure quality, dose [depends on the strength dispensed] and manufacturer of the product that you receive from dispensing chemist. You should try and ensure that the drug comes from a renowned manufacturer, whether Indian or multinational.” (Barnagarwala 2017) 

The Indian Medical Association too has opposed the government’s decision, raising concerns regarding drug quality (Vora 2017). This perception, in part, has been built by the pharmaceutical companies themselves to their advantage. The perception acts as an entry barrier for unbranded drugs and this has become possible due to the absence of a strong drug regulatory authority in India. A strong drug regulatory authority would have ensured a check on the quality of drugs entering the market irrespective of whether they were branded or not. This, in turn, would have brought all the competitors (in the same formulation), at the same level at least in terms of drug quality.

The absence of such a regulatory body has left a void in the drug quality monitoring and pharmaceutical companies have exploited this opportunity by using their market power. They have managed to build a perception that unbranded drugs are not of standard quality (or are of suspect quality) and their own branded drugs are. This perception is usually the underlying point in almost all the drug promotions targeted towards doctors (Nagral 2013).

The marketing strategy seems to have two parts. The first discredits the low-cost unbranded generic drugs as having suspect quality, and this acts as an entry barrier for these drugs. In the second, incentives/gifts and superfluous features are used to differentiate their brands and to lure doctors and chemists. This acts as an entry barrier  for other branded drugs. This, in combination with the amount of effort put into a particular brand (like the number of sales persons promoting that drug) determines how much market share these brands are able to capture.

It is important to note that this perception about both unbranded generic drugs and branded drugs is not completely correct. A study that compared four unbranded generic drugs being sold in Jan Aushadhi Kendras with their branded counterparts sold in the market, found that generics were as good in quality as the branded medicines (Singhal et al 2011). The drug procurement system currently in effect in Tamil Nadu, is also said to have a robust and efficient quality testing system ensuring that low cost and good quality unbranded generic drugs are provided to all the government hospitals in the state (Singh et al 2012). Both these examples show that it is possible to have low cost, good quality, unbranded generic drugs.

On the other hand, in the last two years, the Central Drugs Standard Control Organisation (CDSCO) has found many instances of branded drugs (like Combiflam, D Cold Total, Oflox-100) from “reputed” companies (like CIPLA, Cadila, Sanofi) failing quality tests. In the last year itself, Combiflam from Sanofi (which has sales of Rs 169 crore) failed the tests thrice (Indian Express 2017). Additionally, there have been instances where other government organisations like different zones of the Indian Railways have blacklisted many reputed pharmaceutical companies (like USV Ltd, Unichem Lab Ltd, Alkem Laboratories Ltd, Alembic Pharmaceuticals, and Abbott Healthcare Pvt Ltd) for providing sub-standard drugs (Thakur 2016).

Therefore, both the claims of the pharmaceutical industry are not correct. Rather, these appear to be coming from the vested interests of companies which want to keep the entry barrier for low-cost generics high, in turn maintaining their own dominance in the market (at the formulation level at least).

Conclusions

The announcement by the government on prescribing unbranded generics only, is a good step. In order for this to be effective, the government first needs to break the incorrect perception that pharmaceutical companies have built around unbranded generic drugs. It needs to strengthen drug regulatory measures so that quality is ensured in the approval process and also thereafter through regular testing. This will fill the gap presently existing in the drug quality area.

 
Meanwhile, the government also needs to do two more things. First, it needs to relook at the price control mechanism, as the present mechanism gives more weightage to brands that are dominant in the market place. The present price control mechanism calculates the price ceiling for a drug formulation as an average of those brands which have more than 1% of market share (by value). So, the formula includes the brands with higher market share only even if they are priced higher than others (which is usually the case, since it is the high-priced brands only that dominate the market). On the other hand, the formula excludes any brand/generic drug that has less than 1% of market share even when their prices are low. This nullifies (or reduces) the effect of price control. 

Second, the government must make the Uniform Code for Pharmaceutical Marketing Practices (UCPMP) mandatory and implement it effectively. The UCPMP is needed to restrict the aggressive and unethical marketing practices of pharmaceutical companies, especially the incentives part, which helps them in dominating the drug market with their own brands. The companies have reportedly been using these practices to influence doctors so that they prescribe their high-priced brands instead of any other brand (sometimes doctors also ask for incentives in exchange of prescriptions). By controlling these marketing practices, the dominance of these brands can be checked to some extent and the pharmaceutical companies–doctors nexus can be broken.