Daily Editorial Analysis for 6th June 2020

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A right time to shift pharma gears

Paper: III

Mains: General Studies-III: Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management


Considering the Health Impact Fund as a plausible institutional reform of the current regime for developing and marketing new pharmaceuticals.

Overview of Indian Pharmaceutical Industry:

  • The Indian Pharmaceutical Industry (IPI) is ranked third globally in terms of volume and thirteenth in terms of value.
  • The lower market share in terms of value can be attributed to the predominance of IPI in generic medicines which command lower prices.
  • As per estimates, the industry size is expected to grow at a compounded annual growth rate (CAGR) of about 13.6% from around USD 33 billion in 2016 to about USD 55 billion by 2020, given the huge export potential coupled with steady growth in the domestic formulation market.
  • Growth in the domestic pharma market is expected to be driven by increase in the penetration of health insurance, improving access to healthcare facilities, rising prevalence of chronic diseases and rising per capita income.
  • The export growth is expected to be led by increasing generic penetration in the regulated markets on the back of enhanced focus on the niche and complex product segments, patent expiries, medicine patent pool announcing licensing agreement with pharmaceutical companies and growing demand from semi-regulated pharma markets.
  • In the long term, growth in the export market will be sustained by emerging markets such as Russia, Brazil, and South Africa, etc.

R&D Scenario:

There are three main concerns:

  1. Innovators motivated by the prospect of large markups tend to neglect diseases suffered mainly by poor people, who cannot afford expensive medicines.
  • The 20 WHO-listed neglected tropical diseases together afflict over one billion people (WHO n.d.) but attract only 0.35% of the pharmaceutical industry’s R&D.
  • Merely 0.12% of this R&D spending is devoted to tuberculosis and malaria, which kill 1.7 million people each year.
  1. Due to a large number of affluent or well-insured patients, the profit-maximising price of a new medicine tends to be quite high.
  • Consequently, most people around the world cannot afford advanced medicines that are still under patent.
  • This is especially vexing because manufacturing costs are generally quite low.
  • Every year, millions suffer and die from lack of access to medicines that can be mass-produced quite cheaply.
  1. Rewards for developing and then providing pharmaceutical products are poorly correlated with therapeutic value.
  • Firms earn billions by developing duplicative drugs that add little to our pharmaceutical toolbox — and billions more by cleverly marketing their drugs for patients who won’t benefit.
  • These large R&D investments would be much better spent on developing new life-saving treatments for deadly diseases plaguing the world’s poor.

Health Impact Fund:

  • The Health Impact Fund as an alternative track on which pharmaceutical innovators may choose to be rewarded.
  • Any new medicine registered with the Health Impact Fund would have to be sold at or below the variable cost of manufacture and distribution, but would earn ten annual reward payments based on the health gains achieved with it.
  • The Health Impact Fund could start with as little as ₹20000 crore per annum and might then attract some 10-12 medicines, with one entering and one exiting in a typical year.
  • Registered products would then earn some ₹17000-₹20000 crore, on average, during their first ten years.
  • Long-term funding for the Health Impact Fund might come from willing governments — contributing in proportion to their gross national incomes — or from an international tax, perhaps on greenhouse gas emissions or speculative financial transactions.
  • Non-contributing affluent countries would forgo the benefits: the pricing constraint on registered products would not apply to them.
  • This gives innovators more reason to register (they can still sell their product at high prices in some affluent countries) and affluent countries reason to join.


  • The Health Impact Fund would make an important difference also by rewarding for health outcomes rather than sales.
  • For selling a medicine, it helps, of course, if this medicine is known to be effective.
  • But it is quite possible to sell a relatively ineffective drug or to sell a drug to patients who will not benefit from it or would benefit more from another.
  • With exorbitant markups, this sort of thing happens often: firms seek to influence hospitals, insurers, doctors and patients to use their patented drug and to favour it over others.

Issue of state risk

  • Participation of commercial pharmaceutical firms is crucial for tackling global pandemics. They are best suited to develop and scale up provision of new vaccines and medications fast.
  • However, at present such firms face discouraging business risks from governments which may use of compulsory licences to divest them of their monopoly rewards.
  • Health Impact Fund registration would remove this risk as states would have no reason to interfere with innovators whose profit lies in giving real and rapid at-cost access to their new product to all who may need it.

Way forward:

  • For achieving health gains with their product, innovators need new strategies.
  • They need to deliberate holistically about how their drug can work in the context of, or in synergy with, other factors relevant to treatment outcomes.
  • They must think about therapies and diagnostics together, in order to identify and reach the patients who can benefit most and monitor results in real time to recognise and address possible impediments to uptake or therapeutic success.
  • It must be ensured that high-value patients have affordable access to the drug and are properly instructed and motivated to make optimal use of it with the drug still in prime condition.
  • A reward mechanism oriented towards health gains rather than high-markup sales would lead to a sustainable research-and-marketing system.


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