The True Cost Of Low Drug Prices | Healthcare and Technology news | Scoop.it

India is not, yet, a wealthy country. Nevertheless its people experience many of the same expensive-to-treat illnesses as wealthier populations in the U.S. and Europe. Therefore the country has made a series of policy decisions designed to lower the cost of medical treatments. For example, until 2005, it offered no – I repeat, no – patent protection for pharmaceutical products, thereby spurring the development of its robust and relatively inexpensive generic industry. Even when India passed patent laws in 2005, the laws only offered weak protections. When new drugs come on to the Indian market, they typically face generic competition less than, gulp, 12 months after their launch.

The upside of these policies is straight forward. Drugs in India are cheap, often way less expensive than the cost of the same medications in the U.S. or Europe. But India’s policies create a less obvious, but very important, downside – they delay the entry of new pharmaceutical products into the Indian market. This delay is powerfully rendered in the following figure, reproduced from a study published in Health Affairs, and conducted by Ernst Berndt, an economist at MIT, and Iain Cockburn, a management professor at Boston University:


The figure shows how quickly new drugs come to market after they receive FDA approval in the U.S., a relatively high regulatory hurdle requiring the kind of scientific evidence that typically meets the standards required by European and Indian regulators too. Within one to two years, most of these products have been launched in the U.S., launches that suggest that the companies believe they can profit from the drugs, thereby justifying the enormous marketing and other costs associated with bringing them to market. Germany does not see quite as many of these drugs come to market so quickly, likely reflecting the lower prices such products demand in that heavily regulated country. But India? It takes almost five years for even half of those products to come to market there. As Berndt and Cockburn put it: “These low prices have arguably come at the cost of significant delays in the availability of new drugs.”

That’s an understatement. There is little doubt that the dismal odds of profiting in India deter pharmaceutical companies from quickly entering that market. But that does not therefore mean that India is making a mistake by promoting such stingy policies. India’s approach involves a value judgment, hopefully a well thought out one. The Indian government must decide the importance of lowering the price of available drugs, given that such policies will delay how quickly its citizens will get access to new ones. The government has to decide how to balance these two important goals, of controlling costs versus expanding access. India is not wealthy enough to have it all, to be able to pay full price for all the latest treatments while providing medical care to most of its citizens. As its economy grows, I expect India to tighten up its patent laws, or to somehow give pharmaceutical companies more incentives to launch products in their markets more quickly.