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Regulatory ecosystem spurs life sciences industry
Thursday, December 15, 2011, 08:00 Hrs  [IST]

The first comprehensive pharmaceutical policy in India was formulated in 1978. The National Pharmaceutical Policy has seen a number of changes through new policy guidelines issued since then. The main objectives of the Pharmaceutical Policy are:

  • To ensure availability of good quality essential pharmaceuticals at reasonable prices for mass consumption.
  • To strengthen the domestic industry's capabilities for cost effective quality production and export of pharmaceuticals by reducing trade barriers.
  • Quality control system for pharmaceutical  manufacturing and distribution  processes to improve quality in the domestic industry.
  • Encourage pharmaceutical R&D in line with the country's needs.
  • To encourage new investment in the pharmaceutical industry and the introduction of new technologies and new drugs.
The government issued an expression of interest for technical and financial bids for the selection of consultants for preparing a detailed project report to develop India as a drug discovery and pharma innovation hub by 2020. Further, the Department of Pharmaceuticals has prepared "Pharma Vision 2020" for making India a leading destination for end-to-end drug discovery by providing support in the form of R&D funding, infrastructure development and training scientific manpower.

Overview of regulatory structure
The Ministry of Health & Family Welfare (MoHFW), the Ministry of Chemicals and Fertilisers (MoC&F) and the Ministry of Science and technology of the Government of India play a major role in regulating the pharmaceutical sector in the country.

Ministry of Health & Family Welfare(MoHFW)
The Department of Health is a key component of the MoHFW. Under this department there are several agencies which deal with key issues including drug approvals for the pharmaceutical industry.
  • Drugs Controller General of India (DCGI): The DCGI is an apex body governing issues such as product approval and standards, clinical trials, introduction of new drugs, import licenses for new drugs and enforcing new drug legislation.
  • Central Drugs Standard Control Organisation (CDSCO): CDSCO works both at the Central and the State level and is responsible for ensuring safety, efficacy and quality of drugs supplied to the public. The agency performs these functions, with the DCG1 as the executive head.
  • Ministry of Chemicals and Fertilisers (MoC&F): The Ministry consists of departments which are entrusted with the responsibility of policy making, planning, development and regulations related to the Chemical, Petrochemical and Pharmaceutical industries.
  • Department of Pharmaceutical: In 2008, the MoC&F decided to carve out a separate department for the pharmaceutical sector.
  • National Pharmaceutical Pricing Authority (NPPA): It has been entrusted with the task of fixation / revision of prices of bulk drugs and formulations, enforcement of provisions of the Drugs (Prices Control) Order and monitoring the prices of controlled and decontrolled drugs in the country.
  • Department of Chemicals & Petro-Chemicals: This department is the concerned authority for formulating and implementing policies and programmes for achieving growth and development of pharmaceuticals in the country. In order to attract investment into the sector, the Department has undertaken several initiatives with the objective of strengthening the production, export & R&D related to the industry.
  • The draft National Pharmaceutical Policy, 2006 seeks to strengthen the drug regulatory system and patent offices in the country. It focuses on research and drug development with clinical trials. The policy aims at providing increased access to anti-cancer and anti-HIV/AIDS drugs to the patients. It seeks to rationalize the excise duty on pharmaceuticals and to streamline the system of bulk procurement of drugs by the Government, besides promoting the generic medicines.
Department of Biotechnology: The Indian government established this department in 1986 under the Ministry of Science and Technology. The department has undertaken several measures to encourage the growth of the industry. These include a programme for providing tax incentives and grants for biotech start-ups, establishing new Biotechnology Parks and SEZs, expanding animal testing to include larger animals as earlier this was restricted to just rodents.
  • India's recently approved National Biotechnology Development Strategy (NBDS) includes a strong focus on science education and training. The NBDS efforts are focused towards increasing R&D funding and creating regional centres of excellence, incubators and biotech hubs. NBDS also recognizes the importance of technology transfer and International Patents.
  • The department has also constituted the Review Committee on Genetic Manipulation (RCGM) for monitoring the safety related aspects in respect of all ongoing r-DNA projects & activities involving genetically engineered organisms/ hazardous micro-organisms and controlled field experiments. The RCGM will set guidelines and procedures for such projects.
States have started to vie with one another for a larger part of the booming biotech sector and are offering such various additional incentives such as exemption from VAT and other fees, financial assistance with patents, and subsidies on everything ranging from investment to land to utilities.

At the state level, the State Food and Drug Administrations (PDAs) monitor the drug manufacture, sale, and testing by companies in their jurisdiction. There are also two main statutory bodies formed by Parliament.
  • The Drugs Technical Advisory Board, whose technical experts advise the Central and State Governments on special technical matters involving drug regulation.
  • The Drugs Consultative Committee, where Central and State drug officials ensure that drug control measures are enforced uniformly in all states.
Policies and laws
Some laws and regulations governing Indian pharmaceutical industry are as follows:
Drugs Price Control Order (DPCO), 1995: The Drugs Price Control Order (DPCO), 1995 is an order issued by the Government of India under the Essential Commodities Act, 1955 to regulate the prices of drugs. The order provides the list of price controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by Government and penalties for contravention of provisions among other things. DPCO ascertains, as per Drug Policy guidelines, the bulk drugs (and their formulations) to be kept under price control.

The Drugs and Cosmetics Act, 1940: This Act regulates the import, manufacture, distribution and sale of drugs in India.
  • Schedule M of the Drugs and Cosmetics Act specifies the general and specific requirements for factory premises and materials, plant and equipment and minimum recommended areas for basic installation for certain categories of drugs.
  • Schedule T of the Drugs and Cosmetics Act prescribes Good Manufacturing Practices (GMP) specifications for manufacture of Ayurvedic, Siddha and Unani medicines.
  • Schedule Y of the Drugs and Cosmetics Act governs the clinical trials legislative requirements of the Drugs and Cosmetics Act.
The Pharmacy Act, 1948: This legislation regulates the profession of Pharmacy in India. Under the provisions of this act the Central Government constitutes a Central Pharmacy Council of India and the State Governments constitute State Pharmacy CounciIs.

The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954: This Act provides to control the advertisements regarding drugs and prohibits the advertising of remedies alleged to possess magic qualities.

The Narcotic Drugs and Psychotropic Substances Act, 1985: This is an act concerned with control and regulation of operations relating to Narcotic Drugs and Psychotropic Substances.

The Medicinal and Toilet Preparations (Excise Duties) Act, 1956: An Act to provide for the levy and col collection of duties of excise on medicinal and toilet preparations

Good Clinical Practice (GCP) Guidelines: The Ministry of Health, along with Drugs Controller General of India (DCGI) and Indian Council for Medical Research (ICMR) has come out with draft guidelines for research in human subjects.

Patent law in India
The most significant recent change faced by the industry was the amendment to India's patent law (came into effect on January 2005) which reinstated product patents for the first time since 1972. The legislation was enacted on the basis of the WTO's Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which mandates patent protection on products and processes fora period of 20 years. This impacts the core of the business model of almost all pharmaceutical companies, who now have to adapt to the new system, which raises several new challenges.

Current policy update
At present, 100 per cent foreign direct investment (FDD is allowed under the automatic route in the drugs and pharmaceuticals sector. Due to the recent spate of acquisitions by global pharma giants in India, there have been concerns regarding monopolistic competition in the sector which could lead to higher prices. A proposal for capping FDI at 49 per cent has been raised. In July 2011, an inter-ministerial panel comprising senior officials from the health ministry, department of industrial policy and promotion, the pharmaceuticals department and the finance ministry suggested measures that could help retain India's competitiveness and recommended that the FDI cap for brownfield pharma projects, which would include expansion and mergers and acquisitions (M&As), be cut to 49 per cent, while the ceiling for greenfield ventures be retained at 100 per cent.

Government grants and incentives
The Government has been supportive of the life sciences industry and has undertaken several initiatives to promote development of innovative products and spur infrastructure development for facilitating the industry. The Government is also trying to expand accessibility to cover a higher proportion of the population through several methods, including setting up of 3,000 Jan Aushadhi stores in the next two years, for selling unbranded generics at heavy discounts in comparison to the branded drugs.

Initiatives announced during Budget 2011-12
  • A 20 per cent hike in the health budget for the year 2011-2012 to Rs 26,760 crore. This move will positively impact almost all sectors in the healthcare and life sciences industries, by increasing demand for related goods and services.
  • Weighted average R&D deduction increased from 175 to 200 per cent, which will make R&D effectively less expensive and is likely to encourage companies to increase this expenditure and improve their innovativeness.
  • The Rashtriya Swasthya Beema Yojana, an instrument for providing health coverage to marginal workers, is now being extended to cover Mahatma Gandhi National Rural Employment Guarantee Scheme beneficiaries and others working in unorganized sectors and in hazardous mining and associated industries, hence increasing demand for healthcare and Life Sciences products and services by increasing accessibility.
  • Government plans to develop a cold-storage chain across the country for the agro-sector and this will benefit the logistics and supply functions of the pharmaceutical industry also.
Incentives for small and medium enterprises
Small and medium pharma companies are increasingly facing a tough business environment due to marketing and regulatory constraints, pressure from buyers in regards of high eligibility barriers, and also from suppliers as SMEs can't negotiate prices through bulk purchases resulting in high procurement costs. SMEs are increasingly looking to the government for support for upgrading manufacturing technology, brand promotion and marketing to enhance domestic sales and exports.

Given the huge business opportunity available for contract manufacturing, SMEs need to have capabilities which comply with manufacturing standards like Good Manufacturing Practices (GMPs) set by the Indian government and the World Health Organization (WHO), to be able to capture this. This requires liberal funding from the government along with financial incentives.

The government has implemented financial assistance programmes like the Credit Linked Capital Subsidy Scheme (CLCSS) for technology upgrade of small-scale industries to enable SMEs to comply with GMP standards with the revised Schedule M norms under the Drugs and Cosmetics Act. However, it was implemented long after the rules came into existence and there are restrictive terms and conditions. Lack of support from select banks authorized by the government to issue the incentives has also affected the free flow of funds allotted under the scheme.

Besides, the government also announced a Pharmaceutical Technology Upgradation Assistance Scheme (PTUAS) that provides a five per cent  interest subsidy for SMEs to upgrade their facilities to WHO-GMP standards. Complying with these standards will help companies export their products to a large number of countries that have accepted the WHO standards for manufacturing and marketing medicines.

Special economic zones
With the introduction of the Special Economic Zone (SEZ) Act in India in 2006, the SEZs have grown at a vigorous rate driven by its goal of providing an internationally competitive and hassle-free environment for exports. Sector-specific SEZs, with a focus on pharmaceutical and biotech, offer infrastructure required by these industries such as R&D facilities and opportunities for international business.

The SEZ Act gives many benefits to the developer as well as the companies which set up units in the SEZ. These include:
  • Income tax exemption on profits earned through exports of goods out of India, to the extent of 100 per cent  for first five years and 50 per cent for next five years.
  • Exemption from all indirect taxes, like customs, excise, VAT, sales tax, etc. on capital goods and other goods and services required for manufacturing or service activities.
  • Exemption from Capital Gains Tax on transfer of assets and land on relocation from an urban area to SEZ (this is being reconsidered by the Empowered Group of Ministers).
  • Simplified procedures for assessment and examination of export-import cargo and reporting, with a single-window clearance for all requirements.
  • Earlier no Minimum Alternative Tax (MAT) was charged, but in the Budget 2011-2012, the Government announced levying of MAT at the rate of 18.5 per cent  on profits for both SEZ developers and units, effective from April 2012. Industry practitioners have strongly criticized this proposal stating that such a move would lead to either companies' opting out or putting their projects on hold, challenging the inflow of capital funds and investments and stifling exports from these zones.
The pioneers from the Indian life sciences industry to leverage the advantages associated with SEZs were:
  • Divi's Laboratories: Set up a sector-specific SEZ for pharmaceutical ingredients at Andhra Pradesh.
  • Jubilant Organosys: Received approval from the Government of India to set up an SEZ in Gujarat for chemicals and pharmaceuticals and in Karnataka for biotech and drug discovery.
  • Ranbaxy Laboratories: Set up units within the 'product-specific' pharmaceutical SEZ at Mohali, Punjab.
  • Zydus Cadila: Established a pharmaceutical SEZ
  • in the outskirts of
  • Ahmedabad.
  • The Indore SEZ has several big and small pharma and biotech companies like Ecolife Pharma for manufacturing basic drug intermediates, IPCA Labs for manufacturing drug formulations, Windlass for formulation of tablets and capsules and Cipla.
The presence of a higher number of SEZs have led to Andhra Pradesh, Maharashtra and Gujarat becoming the most favoured destinations for companies planning to open new units. Their proximity to ports has also helped in this.

Courtesy: CII -Yes Bank joint knowledge report ” Financing Ecosystem of Indian Life Sciences Industry- A new perspective”

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