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Indian Pharma industry's Oliver syndrome

Over the years, policy formulators within the government seem to have figured out the ailments affecting the Indian pharma industry and at regular intervals, have responded with antidotes.

twitter-logo E Kumar Sharma        Last Updated: June 29, 2015  | 14:03 IST

"Please, sir, I want some more." This classic moment from Charles Dickens' novel Oliver Twist often gets repeated when the Indian pharma industry looks at Indian policy makers. Systematically, over the years, policy formulators within the government seem to have figured out the ailments affecting the Indian pharma industry and at regular intervals, have responded with antidotes. But they have, almost every time, fallen short of expectations leaving the industry always seeking more.

Call it over-expectations from the industry or under-delivery from the government, the net effect in terms of symptoms is identical. Let us call it the 'Oliver Twist syndrome' for the moment. Consider the topic of the day: it is about the government's plans to set up a Rs 500 crore venture capital fund to boost or help the domestic pharmaceutical industry by providing them with cheaper loans or access to funds to establish or upgrade their manufacturing facilities. As is apparent, large Indian pharma companies, many of them either sitting on idle cash or having the ability to raise debt, have access to capital. This fund will help small and medium companies: typically the under-Rs 10 crore companies that often deal with big pharma and are good in either technology or a particular process or a platform, but do not have access to funds to invest in manufacturing. They would typically be companies that do not make end products, but either a key starting drug ingredient or a drug intermediate. But then, then this is also the space where Indian companies are fighting the onslaught from China, which is hurting Indian bulk drug or active pharmaceutical ingredient manufacturers.

Therefore, while the Rs 500 crore fund could be a good start, it is first, a very small fund considering India's size. These companies will need to cater to some 800 companies and a Rs 89,000 crore domestic branded formulations market (an equal size of which is exports), as per AIOCD AWCAS data, wherein the top 25 companies constitute about 75 per cent of the market. In fact, on the export front, 75 per cent of exports come from about a dozen leading Indian pharma companies and these include companies with sales of $2 billion to $4 billion. Also, if the Indian pharma industry's demand for safeguarding against China is to be met, then the sector needs more than this Rs 500 crore fund. It needs creation of industry clusters where basic infrastructure is created and common utilities such as power are provided by the government at a competitive price. Or, the government would do well to listen to the recommendations of the bulk drug manufacturer's association, which asked for "duty free import of equipments & lab instruments ( without any export obligation ) required for implementation of technologies for import substitution products. And provide advance capital grants for setting up R&D facilities for technological upgradation."

These and a series of other recommendations would go a long way to improve the cost competitiveness of Indian pharma in the bulk drug space. That alone will reduce dependence on China in the supply of bulk drugs for select essential drugs, such as Penicillin-based antibiotics where India is totally depended on imports from China. Plus, how did India lose its edge to China in bulk drugs and part of the problem, according to many industry leaders, is the approach to price controls in India. While prices need to be checked, especially in a country like India where affordability is a big issue, the point of dispute is the method. The government could buy in bulk or devise new ways to procure instead of not making it remunerative for the industry.
The story is the same in other initiatives of the government. For instance, there are tax incentives that are available, such as the 200 per cent weighted deduction on R&D, but then the pharma companies also need to undertake bioequivalence studies and conduct clinical trials abroad apart from doing patent filings abroad, and these are not eligible for this deduction leaving the industry dissatisfied. The emphasis within the government is to encourage IP (intellectual property) but then the expenditure that Indian pharma companies incur on filing global patents is not considered R&D expense.
Or take the government's plan for a Rs 900-crore revival package for public sector undertaking Indian Drugs & Pharmaceuticals (IDPL). To put the number in context, this translates to just around 15 per cent of the cost of one new drug development today.
Getting back to the Rs 500 crore fund, the industry's view has been cautious: "It is necessary, but not sufficient," says Kiran Mazumdar-Shaw, chairperson and managing director of Biocon. Once again, it is a case of a good beginning, but which still needs a lot more to be done. It is almost similar to looking at the public spending on health in India. The 1.2 per cent of the GDP is good and needed but it is enough? Move it to 2.5 per cent of the GDP at least, if not around 4 per cent, which is what India as a whole spends on health. In comparison. China spends around 3 per cent of GDP on public health and it is over 8 per cent in the United States.


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