Coordinating innovation in generic-dominated pharmaceutical markets: A study on government coordination and R&D policy in the Indian pharmaceutical industry

Details

Supervisors

Agrell, Per Joakim

Faculty

Louvain School of Management

Degree label

Master [120] : ingénieur de gestion, à finalité spécialisée

Abstract

The pharmaceutical industry is characterized by its deep complexity and unique attributes. A pharmaceutical supply chain requires adequate coordination mechanisms to ensure optimal production, distribution, and innovation. Innovation in this industry is paramount for global health, but implies facing thorough regulations, quality compliance, high R&D expenditures, and high uncertainty. Countries like India achieved the development of their industry by historically leveraging capabilities in the production of generics. In fact, 20% of the global demand for generics is supplied by India. However, efforts to encourage the development of innovative drug therapies have not led to a diversification of product portfolios, as Indian firms continue to focus their efforts on R&D destined to generic production. Thus, a novel governmental coordination strategy to transition from a purely generic-based pharmaceutical industry to one that also fosters breakthroughs is imperative. This work combines theoretical resources with a comprehensive case study on India to gain insights on market dynamics, governmental policies and key conflicts of interest. A cost-sharing coordination contract was identified as a mechanism to achieve optimal production levels and R&D capacity build-ups, which model the investments allocated to R&D efforts. The findings suggest that the cost-sharing mechanism optimally achieves capacity build-up through the R&D phase in a context of full screening, as hidden information leads to efficiency losses. To ensure authentic innovation, it is imperative for high-level prices to align with marginal costs, thereby hindering the attainment of optimal R&D capacity. Hence, the results demonstrate the importance behind full screening of patents in order to achieve the objectives behind government investments. Only through this approach can resources be allocated appropriately, and efforts be steered clear of misdirection.