Merck vs Roche: Towards Differential Pricing in India


SpicyIP has often lamented the lack of a robust differential pricing model by big pharma. As our earlier post demonstrated, Roche charges the same (or even more) in India than it does in the US and other “developed” countries!

Granted there is the oft touted threat of “parallel imports”. However, I’m not sure as to the likely quantum of losses from such parallel imports into the more developed markets and whether such losses would be severe as to make serious inroads into R&D incentives. Further, we’d blogged earlier on potential technology solutions to prevent such imports. Apart from the example of GSK, we haven’t seen any evidence of other innovative companies adopting such a solution.

The failure to adopt a differential pricing (DP) model on grounds of the threat of parallel imports reminds one of the Napster debate. Till an infringing model (at least in the eyes of the US court in question) came along, none of the record companies were interested in harnessing the potential of the internet to distribute music. Thanks to iTunes and a now legal “napster”, we know that online models work well and copyright owners and record companies stand to make sufficient moneys by harnessing this new technology medium.

Which leads to the question: why don’t pharma companies spend more money and encourage more R&D into technology for preventing parallel imports? But before asking this question, we may also need to step back and ask: Are “parallel imports” the real issue here? As one of the earliest reporters on IP and access issues, Tina Rosenberg (a Pulitzer prize winning reporter with the New York Times) suggested, this fear of differential pricing could be more deep-rooted i.e. a lower price in India would lead to demands for lower prices in the home markets of the US and the EU. Amongst the developed countries, the US has one of the worst healthcare systems in the world: as per 2007 stats, the number of uninsured in the US stood at 47 million or about 16%. Apparently, if we take into account the number of “inadequately” insured, the figure rises to a whooping 30%. No wonder then that the US ranks at Number 37 in a healthcare poll by the WHO. For those interested, some of these stats feature prominently in Michael Moore’s widely controversial movie, “Sicko” (if you’re skeptical of Michael Moore’s methods of “fact” acquisition, all the above stats are independently verifiable).

Given the pitfalls of the US healthcare system, a reduced price for Tarceva in India is likely to spur an uninsured poor American to question as to why he/she is paying a higher price in the US.

Despite all the above concerns, Merck, a company that is a trend setter of sorts in the international IP debates (it gave away, Mectizan, a river blindness drug free of cost) appears to be adopting a more progressive pricing policy in India. It recently introduced its anti-diabetic drug, Januvia in India at one fifth of the US price. Bhuma Srivastava of the Mint reports:

“In a move that could force other patented drug makers to follow suit, the Indian arm of New Jersey-based Merck and Co. Inc. will sell Januvia, the first patented diabetes drug it is selling here, at almost one-fifth of its US price.

Experts said the India-specific pricing of Januvia could signal the start of “differential pricing”, where manufacturers of patented drugs price their medicines lower in a country compared with others in line with the buying capacity of the patient population. These companies have often faced ire from government agencies, public health advocates and patient groups for highly priced drugs.

MSD Pharmaceuticals Pvt. Ltd, an unlisted and wholly owned subsidiary of Merck, announced on Monday the launch of sitagliptin, sold as Januvia, that keeps blood sugar levels under control in people suffering from Type II diabetes.

The drug blocks the action of an enzyme called dipeptidyl peptidase 4 that inactivates the body’s insulin-stimulating hormones. Januvia, by inhibiting its function, keeps the essential insulin flowing.

In India, the once-a-day drug will cost Rs1,284 for a month or little under $32, while the same treatment regimen costs about $150 in the US.

“We came at this price point after conducting a market survey as well as talking to patients and doctors on what price they thought was affordable,” said Naveen Rao, managing director of MSD India. Rao said Januvia is the first drug Merck has differently priced in the country.
India, billed as the diabetes hot spot of the world, has over 32 million diabetics, a number that is estimated to grow to 80 million by 2030. Diabetes medicines—oral drugs constituting 80% and insulin the rest — is worth some Rs1,000 crore in India and is growing at 20% yearly.
Merck, which sells three anti-infective medicines and a pneumonia vaccine in the country, plans to launch two drugs every year and be among India’s top five drug makers by 2015, said Rao, declining further detail.”

One cannot help but think that Merck’s laudable move had a lot to do with Justice Bhat’s judgment in Roche vs CIPLA. For our previous posts on this judgment, see here.

It is likely that Justice Bhat’s judgment will also induce other innovative pharma to price more reasonably in India. Prashant blogged earlier on a Mint news item that seemed to suggest that big pharma is attemtping to follow a differential pricing model within India itself. This appears to make economic sense, as India has both “developed’ and “developing” pockets and plenty of patients that can afford “western” prices. However, the challenges are severe: how does one divide up markets within the same country and more importantly, how does one prevent price arbitrage within these markets?

Arbitrage within international markets is tough enough–doing so within the same market may prove an uphill task. However, as the old adage goes: “Where there is a will, there is a way”.

The interesting question to ask is: Does Roche have such a “will”? Will it learn from Merck’s wisdom? Or will it continue to insist that it is free to price in India in any way that it wishes, even if this means that a poorer country with no health insurance system will end up paying the same price as its “richer” counterparts like the US and UK?

Shamnad Basheer

Shamnad Basheer

Prof (Dr) Shamnad Basheer founded SpicyIP in 2005. He is currently the Honorary Research Chair of IP Law at Nirma University and a visiting professor of law at the National Law School (NLS), Bangalore. He is also the Founder of IDIA, a project to train underprivileged students for admissions to the leading law schools. He served for two years as an expert on the IP global advisory council (GAC) of the World Economic Forum (WEF). In 2015, he received the Infosys Prize in Humanities in 2015 for his work on legal education and on democratising the discourse around intellectual property law and policy. The jury was headed by Nobel laureate, Prof Amartya Sen. Professional History: After graduating from the NLS, Bangalore Professor Basheer joinedAnand and Anand, one of India’s leading IP firms. He went on to head their telecommunication and technology practice and was rated by the IFLR as a leading technology lawyer. He left for the University of Oxford to pursue post-graduate studies, completing the BCL, MPhil and DPhil as a Wellcome Trust scholar. His first academic appointment was at the George Washington University Law School, where he served as the Frank H Marks Visiting Associate Professor of IP Law. He then relocated to India in 2008 to take up the MHRD Chaired Professorship in IP Law at WB NUJS, a leading Indian law school. Prof Basheer has published widely and his articles have won awards, including those instituted by ATRIP and the Stanford Technology Law Review. He is consulted widely by the government, industry, international organisations and civil society on a variety of IP issues. He also serves on several government committees.

2 comments.

  1. AvatarPrashant Reddy

    Great to hear that foreign pharma is finally adopting lower prices in India. I just wanted to make two quick points:

    1.) In regards my previous post on diffrential pricing within India I completely missed out an obvious fallacy in this pricing model – what about the Urban poor? Dividing markets on the lines of urban/rural seems to be predicated on the fact that all urban consumers can afford high prices while all rural consumers cannot. However as Shalini pointed out to me in a recent discussion such an assumption is terribly wrong since the urban poor constitute a significant chunk of the poor in India.

    2. The second point: Diffrential pricing within the country may very likely lead to competition law issues. i.e. An urban Indian consumer is well within his right to approach the competition commission (if and when it starts working) accusing the pharma company of ‘excessive pricing’. You may remember that a couple of years ago UK consumers had filed a complaint against Itunes for charging 20% more for U.K consumers when compared to the rest of Europe. The matter ended only when the Itunes reduced its UK prices. Considering that Indian competition law borrows from EU competiton law it is very likely that the same line of action could be pursued in India as well.

    Prashant

    Reply
  2. AvatarAnonymous

    it might be in his right but drug is different from itunes. these days “in public interest” is anyway the magic word in this democracy.

    besides i wonder sometimes with the generics driving the pharmas carzy how far is the day when these two join hands and get back to making money. there would be no talk of public interest.

    Reply

Leave a Reply

Your email address will not be published.