Indian pharmaceutical industry – at crossroads

The McKinsey report published a few years back had painted a  bright future for the Indian  pharmaceutical business. From a sale of $13 billion then it had forecast a figure of US $ 50 billion in 2025. The way India's domestic consumption of medicines is growing and the way pharma  exports to regulated markets are shaping up, one does not have to be an astrologer to say that McKinsey report figures will come out true if not exceed them.

Despite this rosy picture , what causes concern are four  issues which are affecting the pharma industry at different levels.

The first and the foremost is the price control. This affects the industry only at the domestic level. After the "success" of DPCO,2013 in bringing down the prices of essential medicines, as listed in the National List of Essential Medicines (NLEM) the NPPA got tempted to extend its realm and sphere of influence to other drugs not included in the NLEM. The NPPA got unduly carried away by the success of DPCO,2013. Reasons for the success were different. First, prices of drugs had not been controlled for a long time except for the drugs and their formulations included in the Scheduled category. The UPA2 government was also under pressure because of proximity of elections in early 2014 to offer a relief to the patients and voters.

The industry, particularly the bigger players were overjoyed at the methodology adopted by the NPPA that of capping the price at an arithmetical mean of twenty leading brands in the country. Though the industry did shed some tears at the price control and the methodology adopted, these were crocodile tears so as not to expose its joy to the consumers.  Some players also took the legal route to challenge the order but it was more of an exercise to keep NPPA in check rather than get redressed the wrong done. Some products and companies genuinely suffered but the setback was more because of the stipulation that products be brought back from the market and restamped with the reduced price. Cost of logistics also hurt. The sales too dropped for at least three to six months because of uncertainty and different interpretations by industry and the trade associations.

Just as the industry and trade was coming out of DPCO,2013 blues, the new NDA government led by Narendra Modi took oath. People reeling under unbearable and uncontrolled inflation heaved a sign of relief as if to associate scams under UPA2 government with this inflation. The Minister of Chemicals and Fertilisers was also quick to announce that medicine prices will be reined in. NPPA took the cue from the minister and issued a notification or two to regulate the prices further. The real shock to the industry came when in July the NPPA brought down the prices of 108 drugs belonging to the anti-diabetic and cardiovascular treatment. Here it invoked There was a hue and cry from the industry since the players affected were multinationals and the Indian sector leaders.a clause which gives the power to regulate prices of non-essential drugs in larger public interest.

PM Modi fresh from a successful and a high profile visit to the US did not want to be seen as anti- industry particularly the pharma industry. He reined in the NPPA by taking away its power to regulate the prices of drugs outside the list of essential medicines. Red faced NPPA  did not rescind the notification of reduced prices only as a saving grace. But the signals were clear. The industry is not to be unduly disturbed as far as prices are concerned.

The other issue which could be a cause of concern for domestic players as well as exporters is the stance of Narendra Modi Government on IPR or the Patents. Section 3(d) of Indian Patents Act does not provide for evergreening of pharma patents particularly after their expiry of 15- 20 years. Merely by changing the salt of the active drug for which original patent was obtained, the patent holder cannot seek extension in India. This has been upheld by the highest court of the land in the well known case of Novartis' GLIVEC an anti-cancer drug. However when PM Modi visited USA recently, he was requested to reconsider this and probably he has agreed.

Though 95 per cent of Glivec in India is donated free or sold at a big subsidy by the company, the case is being used by them to cry wolf against the government in the hope that this will open the doors of India to their other drugs. If this becomes a reality, it will mean that cancer treatment in India will assume unaffordable levels and the multinationals will have a field day. However denying this patent extension will have a risk of India being looked at as an IPR unfriendly country leading to reducing FDI inflows. At the same time political fallout of this cost raising decision will also be hard to digest. The poltical acumen of Narendra Modi will be tested here and it will be interesting to watch how he handles this ticklish issue.

The third issue is of Fixed Dose Combinations (FDC). This is going to have a major impact on the topline as well as the bottomline of major Indian pharma players. The DCGI has been carrying on this exercise of weeding out irrational combinations of drugs as well as FDC's whose rationality though not established scientifically has been taken for granted for lack of any significant Adverse Drug Reactions.

A major percentage of sales of companies figuring in the first 100 or even first 200 companies comes from these FDC's. If these FDC's are banned because of Drug Technical Advisory Board or any such high level committee findings, it will have a major impact on sales and profitability of these players. Further the brand value of many of pharma companies rumoured to be up for grabs by foreign companies will erode by at least 50 per cent if the Government takes this extreme step. That the present government perceived to be business and industry friendly is least likely to take such a step is another matter. But the amount of limelight the pharma industry commands in India also makes it vulnerable to activists and RTI specialists who will not lose any opportunity to attack the industry on some ground or other.

The fourth issue which only applies to pharma exporters to regulated markets is the regular breach of US FDA GMP guidelines by some plants of giant Indian companies. Deficiencies found after inspections are published by the media sending a wrong signal to the Indian public as well as strengthening the anti-India lobby in the US that Indian pharmaceutical products brought into the US cannot be trusted for their quality.This is a major issue on which hinges the profitability and sales of pharma exporting majors.The Government of India in collaboration with associations like the IPA (Indian Pharmaceutical Alliance) will be well advised to sort out such regulatory issues so that the image of India as the generic pharmacy of the world is not dented.

To the credit of the present government, economy is likely to witness a steady growth in the years to come and this will increase the disposable surplus in the hands of the powerful middle class of India. This will make them more comfortable with the increased prices  of of drugs and the pharma industry can be expected to come true to the projections of McKinsey report.