"Every government will like to bring down the cost of medication. Currently the US market is fed through intermediaries. So, understandably they (California) want to cut back on the intermediaries, which have a hefty margins upwards of 10-20 percent," said Dinesh Dua, Chairman of Pharmaceuticals Export Promotion Council (Pharmexcil).
Indian generic drug companies may have to prepare for a major change in the US market as California is looking to to sell generic prescription drugs under its own brand.
"The Administration will negotiate partnerships to establish the state's own generic drug label," the Budget 2020-21 proposals of California Governor Gavin Newsom said.
"The state would contract with one or more generic drug manufacturers to manufacture certain generic drugs on behalf of the state and participating entities," Newsom added.
Newsom, a member of Democratic Party, is also proposing another unconventional measure to establish a single market for drug pricing by bringing all purchasers such as the public and private medical coverage providers under one umbrella.
“Drug manufacturers would have to bid to sell their drugs at a uniform price in the California market. California would invoke a most-favoured nation clause in the manufacturer price bid, which would require manufacturers to offer prices at or below the price offered to any other state, nation, or global purchaser if they wish to sell their products in California,” the budget proposal said.
Newsom expects the proposal will increase competition in the generic market, resulting in lower generic prices for all purchasers. Newsom is making efforts to lower healthcare costs to the state's 40 million residents, of which around 33 percent are Medicaid enrollees. California spends about $100 billion on Medicaid.
Last year, he brought in a law that barred branded drug makers from entering into "pay-to-delay" deals with generic drug makers, the first such one in the US.
Drug prices have become a major issue in both California and else where in US, as six out of 10 Americans take a prescription and 79 percent say the cost is unreasonable, according to a survey by Kaiser Family Foundation.
The details of the proposals are yet to be made public. But if the proposals see the light of the day, California would become a tender-based market for generic drugs, where companies will have to compete to win supply contracts.
"Every government will like to bring down the cost of medication. Currently the US market is fed through intermediaries. So, understandably they (California) want to cut back on the intermediaries, which have a hefty margins upwards of 10-20 percent," said Dinesh Dua, Chairman of Pharmaceuticals Export Promotion Council (Pharmexcil) – the agency under Department of Commerce for promotion of pharmaceutical exports and CEO of Nectar Lifesciences.
The three distributors - AmerisourceBergen, Cardinal Health and McKesson - and other intermediaries control the around 80 percent of US market.
Dua said the impact on margins will not be huge, as American contract prices can't be compared with other countries.
"The volumes will increase substantially because the per unit cost to the ultimate users and the state insurance companies and state funding agencies will be much lower," Dua added.
Another executive of pharmaceutical company who didn't want to be named said they are still waiting for more details of the proposals."There could be some impact on prices of generic drugs sourced from Medicaid programme if California goes ahead with the move," said Surya Patra, Vice President, Research at PhillipCapital.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.