India Just Did What Millions of Americans Wish the U.S. Government Would Do

The United States is unquestionably the premier economic superpower around the globe. It has the highest GDP, the greatest number of world-renowned universities, and of course has the most followed financial markets around the globe.

Compared to India the U.S. appears to be a giant. Despite India's population nearly equaling four times the current population in the U.S., India's 2013 GDP of $1.9 trillion is dwarfed by the United States' $16.8 trillion. Furthermore, whereas the passage of the Affordable Care Act, better known as Obamacare, helped reduce the U.S. uninsured rate below 14%, an estimated 80%-plus of India's 1.2 billion people are believed to be without insurance. The list of night-and-day discrepancies between the two nations is a mile long.


Source: Kim Hill, Flickr.

But, India is also setting a standard in its country that I suspect millions of Americans would love to see implemented in the United States.

India lays down the law on drugmakers
Just last week India announced in a surprise decision from the National Pharmaceutical Pricing Authority, or NPPA, that it would be capping the price of 108 different drugs ranging from diabetes treatments to HIV therapies in order to make access to these drugs more affordable for Indian citizens. This decision follows a move last year in which India initiated price controls on more than 30% of existing medicines within the country, once again in an effort to ensure that its citizens have access to these much needed drugs.

Think about what a price cap would mean in the United States. Right now there's a huge debate over the price being charged for Gilead Sciences (NASDAQ: GILD  ) revolutionary oral hepatitis C treatment, Sovaldi, which runs roughly $1,000 per day. A standard 12-week treatment is therefore going to cost the patient and insurance company a whopping $84,000.

Source: StockMonkeys.com, Flickr.

On one hand Gilead could be viewed as justified in its superior pricing given that Sovaldi can be offered to select genotypes without the need for interferon, thus dramatically reducing the side effects associated with treatment. More importantly, Sovaldi's success rate of eliminating detectable levels of the disease after 12-weeks ranged 90% and higher in its multiple clinical studies. Yet, this is a price that's far too high for most uninsured Americans to pay and is even causing insurers to grimace in pain. Gilead has also taken substantial heat from Congress over the pricing of its drug, to the point where it's even possible that insurers could begin denying coverage to members simply because of Sovaldi's high cost. If price caps were in place within the U.S. this wouldn't even be a discussion.

Realistically, however, price caps would be incredibly difficult to implement in the U.S.

One reason India's prescription drug costs will regularly undercut prices found in the U.S. simply relates to the cost of the health care system itself. Within the U.S., pharmaceutical companies spend millions upon millions of dollars annually in order to protect their patents. These costs add up into significant price hikes for U.S. prescription drugs.

Also, the standard of living in the U.S. is significantly higher than that of India. Higher prices aren't as "noticeable" in the U.S. as they are in India for this reason, which makes it tougher for Congress to establish a feasible "cap level. "

This decision could have unintended consequences
What the NPPA is doing in India could have some very interesting effects on the pharmaceutical sector and for its citizens; although there could be some unintended consequences along the way as well.

Source: Irekia, Flickr.

On one hand, reduced prescription prices should yield better access to key drugs for India's largely uninsured population. Simply not being priced out of the market for certain key drugs could drastically improve India's life expectancy, which has improved from 60 years in 1994 to 66 years in 2012 according to data from the World Bank. Overall, India's life expectancy still lags the global average of 70 years established by the World Health Organization in 2012. Long story short, better access to game-changing medicine could yield a healthier nation that ultimately winds up being more productive.

But the NPPA's actions could have a ripple of negative reactions throughout the pharmaceutical sector which could damage the diversity of products that Indian citizens currently have to choose from.

Specifically, as Reuters pointed out, subsidiaries of Sanofi (NYSE: SNY  ) , Abbott Laboratories (NYSE: ABT  ) and Ranbaxy Laboratories (NASDAQOTH: RBXZF  ) are the most likely to be hurt by this decision. Dr. Reddy's Laboratories (NYSE: RDY  ) , the nation's No. 2 drugmaker, noted it wouldn't see as big of a hit from the ruling and stuck by its previous full-year forecast. This isn't too surprising considering that Dr. Reddy's is primarily engaged in generic drug production and the sale of active pharmaceutical ingredients rather than fully branded pharmaceutical products.

For Sanofi India, Abbott Healthcare Private, and Ranbaxy, all three could be staring down a considerable drop in profits or perhaps even losses for key brand-name treatments. The big question will be whether or not these pharmaceutical giants decide to pull their branded drugs out of India altogether following this decision. If this were to happen it would reduce competition and potentially remove superior branded therapies from the market which is bad for consumers on both counts.

Another alternative involves these drugmakers sticking around but dramatically reducing research and development within the country. If price controls would yield losses for developed drugs then it won't be worth Sanofi, Abbott, or Ranbaxy's time to develop new therapies. This, too, would be bad news for India's citizens as it would mean a steep drop off in innovation and it could thwart new pharmaceutical companies from setting up shop in India.

Although it's too early to tell exactly how this action will be received by big pharma and India's citizens, this is a situation all health care investors should be closely monitoring as the success or failure of India's price-capping on key branded drugs could be the test case other countries refer to when choosing to cap or avoid capping drug prices within their own countries.

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  • Report this Comment On July 19, 2014, at 11:19 AM, name7865 wrote:

    Availability/affordability of the newest drugs has a negligible effect on life expectancy, which is driven more by public-health factors (availability of clean water etc), adequate food supply, and lifestyle choices (exercise, not smoking, not over-eating etc).

  • Report this Comment On July 19, 2014, at 3:18 PM, highgrowthcarson wrote:

    If you are old and hoping for some kind of serious breakthrough you want companies like GILD to accumulate all the cash they possibly can. Take the best scientists from the best universities and pay them triple university scale. And get to it. None of us is getting any younger.

  • Report this Comment On July 19, 2014, at 5:49 PM, JJ82 wrote:

    Yeah but it wont happen here because OMG communism, liberalism, thugery, socialism and other derp labels created to keep sheep in line so corporations can suck America dry.

  • Report this Comment On July 19, 2014, at 6:05 PM, sacto95826 wrote:

    Here is a trick to get the same medicine at a much more reasonable cost and your health plan may cover it. You just go on vacation to South Korea, Philippines, Taiwan, Vietnam, and enjoy a pleasant holiday and get a prescription at one of their pharmacies. It is a well know fact that our health insurance and the people of the USA pay a higher costs for medicine because we make up for the lower costs of the same medicine in Asian countries. I know first hand as I left my bottle of Otrivin nasal spray back in the USA and I was able to get the same bottle in Vietnam, Singapore, and Malaysia at a mall pharmacy cheap. Same bottling, same manufacturer, same effectiveness. Only my bottle in USA costs $30.00 and these bottles in Asia costs me between $4.50 and $5.00 when their currency is converted over to dollars. People now go to South Korea for surgery and the insurance bill is half the costs of the same here and it is done by USA trained and certified doctors. I am no shill and don't work in the health industry or make any money off it. Just what I experienced and what I've read in articles in Wall Street and National Geographic.

  • Report this Comment On July 19, 2014, at 6:44 PM, rangerchuck wrote:

    The problem is that they companies in India and Canada are making drugs that were developed her in the United States. They have Patents issued by the our government and still have time to left to protect. The governments of India and Canada say to a head and produce as a generic and do not pay royalties to the patent holder. That is theft plain pure and simple. Short term it is not a problem but long term it will be a problem because it will mean less new drugs being developed. I am sure that our government would go after the pirates of movies and music well why not after the pirates of drugs.

  • Report this Comment On July 19, 2014, at 7:08 PM, richfsr wrote:

    Ridiculous article. The last thing we need is any more government intrusion in business. In case you are unaware author, the government is already regulating pharmaceuticals now which is keeping costs high. How you ask? By the FDA giving pharmaceutical companies exclusive rights to sell their "name-brand" drugs without competition for X number of years so they can recoup their research costs. And the drug companies ask for extensions on that time repeatedly and get it, so you don't get to have a cheaper generic for a long time. Second, the "paidoff" FDA is trying to stop the public from buying cheaper drugs from Canada and other countries to keep us from getting cheaper drugs. Last thing we need is more corrupt government control.

  • Report this Comment On July 19, 2014, at 7:12 PM, stockingshorts wrote:

    Great for India because their government is "owned" by the Indian people. To bad it isn't that way here. Corporate America OWNS our government. You'll never see price controls on ANYTHING here because "They" call it Free Market Forces. Short for "we're gonna stick it to ya right where the sun don't shine because we can!"....It's the American (corporate) Way!

  • Report this Comment On July 19, 2014, at 7:15 PM, richfsr wrote:

    @Rangerchuck. I get your point, however we are being ripped off by the pharmaceutical companies in the U.S. Yes they are "developing" the drugs. But at our expense. We are giving them billions in grants to do that. Then they sell them for outrageous prices to Americans. Price gouging. How is it that we pay $60 a pill for some drug here that you can get it's generic equivalent in Canada for $5? And why isn't the generic available here? The answer is your government is keeping the costs high as payback for the huge contributions to the politicians' campaigns.

  • Report this Comment On July 19, 2014, at 8:35 PM, nojuggletruth40 wrote:

    Best way to stop price gouging on medications and all medical is to make it all non profit. Make it for humanity, not profit.

  • Report this Comment On July 19, 2014, at 8:55 PM, RHO1953 wrote:

    Apples and oranges. Who has the authority to set prices in a free society? It is a ridiculous proposal to start with. Most of our drugs cost over a billion dollars to develop and bring to market, and it takes years. Add the cost of litigation and it isn't hard to see why drugs cost so much. India is also a third world country with a government structure that is very controlling, although we are getting there ourselves. There certainly are things that can be done to bring down costs. Get the damned government to speed up the approval process for one thing.

  • Report this Comment On July 19, 2014, at 8:56 PM, RHO1953 wrote:

    Making drugs non profit would cause development to just stop. Who is going to spend the capital to develop new drugs when there is no profit potential? You don't have a clue, you are falling into the trap of believing in Marxist doctrine, which has failed everywhere it has been done.

  • Report this Comment On July 19, 2014, at 9:08 PM, Freddyfreebe1 wrote:

    It is amazing what can really be done when you don't have a brought out congress. Take the greedy and the selfish out this country , we would not have anyone left to have a government. Hell you would never have another Republican even run for office again. They rather spend trillions on wars to fill there pockets and kill our kids.

  • Report this Comment On July 19, 2014, at 9:11 PM, missjessiecat wrote:

    Get the governments out of it and leave it up to the people as to how much they are willing to pay for any drug! It works!

  • Report this Comment On July 19, 2014, at 9:13 PM, OkDaley wrote:

    From what I skimmed - "it would be capping the price of 108 different drugs" - to say the least, one nation is showing that its for its people where it counts -

    Industry and Market economy is not separate from any nation but part of it. From the standpoint regulation can be none at all, or over-regulated

    Like in your phone charger, if it over regulated, the phone would no power. If no regulation, the phone would melt.

    A well balance point in regulation allows a market to exist, grow and not implode on it self while causing a black hole in an economy that sucks main street under.

    As prices are capped in certain industries also regulates the rate of inflation for the given currency. Consequently, the currency sustains its strength when prices do not increase for goods and services.

    India - so far it looks like a smart move - congrats on your accomplishment.

    So the question to our congress person at house.gov, is why India is doing this and the US not?

  • Report this Comment On July 19, 2014, at 9:15 PM, randydevinney wrote:

    Most new drugs are developed in Western countries. Price caps on drug sales in India May not have much impact on research, but if the US imposed price caps, research dollars for new medications would plummet. It's the high prices that pay for the research.

  • Report this Comment On July 19, 2014, at 9:23 PM, OkDaley wrote:

    Opp's I forgot - since Rupees are going to get stronger, soon it will be time to buy them with USD's.

  • Report this Comment On July 19, 2014, at 9:31 PM, OkDaley wrote:

    From what I read in a PDR can offer the impression that research consists of creating a compound, and then seeing what it does. All those things that can create serious problems are considered side effects.

    Quality improvement of compounds can be seen as implicit to price capping, as requiring the compound to have less tests required which requires it to be more conservative in design. In other words, to produce less side effects while addressing its stated purpose.

  • Report this Comment On July 19, 2014, at 10:24 PM, A1 wrote:

    Indian drug companies are mostly generic manufacturers. They aren't putting much into Research and Development of any new medicines. They leave that to the big US and European pharmaceutical companies and then just copy them. They should make the generics they sell available cheap.

    I take it the article writer isn't capable of doing any research at all. Nicely done.

  • Report this Comment On July 19, 2014, at 11:08 PM, njjimf wrote:

    Big Pharmas maintain global companies to research and market new drugs, many of which never make it out of clinical trials at huge costs. So, yes...take away the incentive to make a profit and see how many new drugs get developed. This whole "capitalist" idea is over-rated. Just look how many life saving drugs and therapies that have been developed in India, China, Russia....oh wait. That would be a number somewhere close to zero.

  • Report this Comment On July 19, 2014, at 11:33 PM, mbee1 wrote:

    this article is at best misleading and at worst a lie. the Indian government agreed several years ago to stop allowing the Indian manufacturers from producing generic copies of any new drugs after that year. The generic drugs in India are produced under an different law. The drug itself is not patentable, which is why the US and EU got all over India. What is patentable is the process to make the drug. All the generic companies have their own process to produce any drug they can legally make which is not the newest drugs. Because they produce copies they can sell the drug for a lot less than the the western drug companies want to sell their drugs for so you can buy viagra for example for a tenth the cost of the US version over the internet, in India you can buy it even cheaper. The cost of the Western companies drugs is not making the drug, it is the long costly multi nation process and the fact the drug is a monopoly. The drug company does not care if you die, only that somebody will pay. We could cut the cost of development of US drugs to a tenth or less of the current cost with regulation changes but that is not actually in the interest of the drug companies or the government both of which want to maintain their power.

  • Report this Comment On July 19, 2014, at 11:39 PM, ChMacQueen wrote:

    Drug prices are way to expensive in the US. Who could argue that with a reasonable argument? US Pharm companies while they spend huge amounts on research they spend just as much as keeping foreign drugs out of the US market, keeping patent length going, re-patenting a new *slightly* different version to keep patent going, and stopping research on natural remedies. Its time for the system to be redone completely. Let Pharm companies control prices for a few years when they put out a new drug but after 3-4 years allow that to be put out generically and allow foreign companies to bring out generic copies.

    US Pharm companies are so spent up on saying their *brand* version is so much superior, but in truth through my overseas work for years I've seen brand really doesn't mean much most of the time. And when you can get a generic for a fraction of the cost the brand pharm company charged on release.... obvious choice.

  • Report this Comment On July 19, 2014, at 11:50 PM, kdavis860 wrote:

    My home state of Wisconsin just passed a law saying chemotherapy pills had to be covered regardless of price, even if the same medicine is available by injection as a generic. There's literally no price cap in the law. An insurance company can now be forced to pay for $50,000 of pills instead of $4,000 of injections because somebody doesn't like needles. That one law is expected to add 0.2% to WI's health spending.

    We can't simply cap prices like India does. India doesn't invent medicines, and if we did that, there wouldn't be much innovation for any new medicine. Maybe we don't care, maybe a couple years of life expectancy doesn't matter, but we would need to understand that all private R&D would stop.

    What we could do is cap the price based on the additional benefit, such that a medicine that's much better can command a much higher price, but without a big step forward there's no such pricing power. That system, however, would still let Solvaldi command its price because it really is that much better.

  • Report this Comment On July 20, 2014, at 1:43 AM, BambiB wrote:

    Price caps are a GREAT idea! That way, if a pharmaceutical company had a new drug, like maybe a drug Sean Williams needed to keep his face from falling off, the price cap could be, oh, I don't know: $100. But since the drug actually cost $1000 to make, the company would simply refuse to make it because they're a business and it's in-sane to expect a business to operate at a loss.

    So, sadly, Sean's face would just have to fall off.

    No great loss… or so I'm told.

    /sarcasm

  • Report this Comment On July 20, 2014, at 1:43 AM, doawithlife wrote:

    I was under the impression the Medtech/Pharma bankrolled Obamacare. Which is why they are conviently still allowed to do as they want.

    That being the case, price caps on drugs is a pipe dream at best. If Obama and Republican's share anything, it's that they both have undying allegience to the drug companies.

  • Report this Comment On July 20, 2014, at 1:50 AM, BambiB wrote:

    A better course would be to do away with the Food and Drug Administration.

    Presently, the FDA requires all manner of extensive and highly expensive testing. A company can plow tens of millions of dollars into getting a drug approved - and be turned down because a small percentage of patients have undesirable side effects. So, effectively, the FDA kills thousands of people a year by denying them drugs that would work for them because a small percentage might be injured.

    The FDA also prevents drugs that are KNOWN to work and have been approved in other markets - like Europe, from being available in America.

    Does the FDA make us safer? No. Quite a few drugs that are FDA approved turn out to be quite dangerous!

    To sum up - FDA adds millions - perhaps tens or hundreds of millions - to the cost of drugs. After paying this money, the drugs may not be approved for reasons that are weak at best. The FDA mistakenly approved drugs that are harmful. Through all its failures, the FDA kills thousands of people each year - either by preventing them from getting drugs they need, or by approving drugs that kill people.

    Finally, we are moving into an entirely new era of drug design - drugs that are tailored to the INDIVIDUAL PATIENT. There is no way to do "clinical trials" on such drugs - and yet, they may be the most effective drugs for a particular ailment. The FDA doesn't even have a mechanism to approve life-saving drugs of this type.

    Want to lower the cost of drugs? Ensure life-saving drugs continue to be developed and are available? That science can advance?

    Kill the FDA.

  • Report this Comment On July 20, 2014, at 2:18 AM, MagnumPI wrote:

    Most Pharma Companies have Patient Access or Compassionate use for those who have financial difficulty to obtain their drugs. Gilead mentioned in this article as others have this program. The article did not mention that Gilead spend $11 Billion to acquire the company developing the HCV drug Solvaldi. Additionally millions more was spend on clinical trials and manufacturing setup. It should also be noted that Solvadi can cure the disease, so that it eliminates liver transplants, when otherwise indicated, that cost $600,000, and require a lifetime regimine of anti rejection drugs. The previous therapy, that is not a cure is around $50,000. Solvaldi is a cure in 12 weeks. As others have responded, take away the ability for companies to get return on investment and make a profit, and you will not see cures for other chronic illnesses taking place. Several doctors have noted that Solvaldi, prevents a lifetime of disease progression, and therefore in the course of the patients life, can be less expensive, based on total cost. Over the course of time many drugs go generic, and companies in the US offer hundreds of brand name drugs for under $10. This has expanded over the past five years.

  • Report this Comment On July 20, 2014, at 10:46 AM, Mac101 wrote:

    @BambiB,

    I don't think I've ever heard a greater over simplification of the drug approval process.

    it does takes years and millions of dollars to bring a drug to market and there is no guarantee FDA will approve a drug after clinical trails.

    New drugs sometime don't get approved when there are a small number of patients in clinical trails that have unwanted side effects. On the flip side you criticize the FDA for approving drugs that are later show to have problems. I guess you need to decide, everything goes to market and the public pays less money (maybe) for less safety or perhaps price caps could be put in place.

    Is there no limit on the amount of money big Pharma can make from their customers?

    BambiB, if you think America would be safer without FDA or any other federal agency mandated to protect the public, run with that idea. If, you think market forces, good business practices will keep you water, air, food, drugs, etc. safe look back in America's history for the answer or better yet look at what's going on in China today.

  • Report this Comment On July 20, 2014, at 1:02 PM, pepawjoe wrote:

    Wake-Up People. Listen and Actually Hear what is being "Done and Said".

    " We the People" the Citizens of the United States of America, "Do Not Get or Have the Choices of the Self Government that "OUR CONSTITUTION" speaks of .

    Corporate Interest's, Wealth, and Political Control is "ALWAYS THE TRUMP CARD", this Elected Government Plays and Uses for the Corporate's Benefit, and $ MONEY GAINS $ every single time !

    Fair Play, Common Sense, and People Concern "GETS THAT TRUNP CARD" every opportunity and ALWAYS Benefits the Corporate Interest's.

    "ONLY THE FITEST SURVIVE IS NO LONGER A GOVERNMENT TRAIT OR DECISION" !

    " WHO AND WHERE THE $ MONEY $ COMES FROM IS A MAJOR PART OF THE ' TRUMP CARD ' USED BY THIS GOVERNMENT TODAY" .

    " NOT SO MUCH OF AN EARNED POSSESSION, BUT "BUYING WHAT THE CORPORATE WORLD NEEDS OR WANTS" 1

  • Report this Comment On July 20, 2014, at 2:14 PM, beachbumct wrote:

    Wait...you mean they halted a full scale invasion of THEIR southern border by Hostile forces and a flood of illegal immigrant including terrorist, criminals, and gang members? well maybe they weren't hindered by a collusive democratic party and the antichrist himself

  • Report this Comment On July 21, 2014, at 3:43 AM, entheogenius wrote:

    Why would U.S. lawmakers put a cap on their own investments? Who do you think owns Pharmatech? The same people that think weed should be illegal until they figure out how to monopolize it as well. Well if they have diabetes and the only thing keeping them alive is my formula, I'm gonna charge em out the ass for it as long as I can. What do they have to lose? Their lives. But as long as I can profit who cares? BTW I don't own any pharma stocks or bonds. I'm just role playing.

  • Report this Comment On July 26, 2014, at 3:12 AM, strelna wrote:

    Price controls = fewer things to price control.

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