Most in the Indian pharma industry are hopeful that the new National List of Essential Medicines (NLEM) expected in 2020 will not be too disruptive. Industry insiders claim the government has shown in recent past it can be receptive to the industry's concerns. In December, the National Pharmaceutical Pricing Authority (NPPA) invoked para 19 provisions of the Drug Prices Control Order, 2013, for the first time to make an upward revision in prices of certain drugs. In a move welcomed by the industry, it increased the ceiling prices of 21 formulations by 50 per cent.
"This is a positive move and is a sign of the government's willingness to consider genuine demands of the industry and a recognition of the fact that access is a function of both affordability and viability," said Sudarshan Jain, Secretary General of the Indian Pharmaceutical Alliance (IPA).
The developments in India come at a time when things are also slowly looking up in the US, the other key market. In October, the US Food and Drug Administration (USFDA) disclosed the findings of its report 'Drug Shortages: Root Causes and Potential Solutions'. It pointed to the "lack of incentives for manufacturers to produce less profitable drugs" as one of the key reasons for drugs shortage.
Looking back at the last decade, most analysts feel, it started well for the Indian pharma companies in both the US and India. The US was a growing market and most companies saw a spike in both topline and bottomline. In the domestic market, the Drug Price Control Order of 2013 shifted the pricing formula from cost-based to market-linked. However, 2013 onwards, Indian companies including Ranbaxy, Wockhardt and others began to feel the regulatory heat from the US drug regulator (the US Food and Drug Administration). It eventually hit almost all the leading Indian pharma companies. Coinciding with this, around middle of the decade, the US market saw squeeze on pricing like never before with major consolidation of large wholesalers and chains that source generic drugs. The number of chains reduced to three large players from about a dozen.
Indian Policy Opera
Meanwhile, the domestic market for Indian companies started seeing some major policy shifts. The Ministry of Health and Family Welfare banned 344 fixed-dose combinations in 2016. This hit 6,000 brands produced by over 100 companies. The ban followed recommendations of an expert committee that they lacked therapeutic justification. Next came demonetisation, which threw many Indian businesses out of gear. It was soon followed with the rollout of Goods and Services Tax (GST), which created a wide range of logistics and pricing issues. This led to destocking by dealers and subsequent fall in sales. Post-GST, the sector even witnessed certain periods of negative growth.
If that was not all, there were implementation issues surrounding the Drug (Prices Control) Order, 2013, or DPCO, that industry started raising concerns about. The practice of not changing the list of essential drugs but invoking Para 19 provision of DPCO, which gives the regulator the power to control the prices of drugs that are not under the National List of Essential Medicines became a point of contention. Indian drug price regulator National Pharmaceutical Pricing Authority put a cap on some knee implants as well as some cardiovascular and diabetes drugs, which further upset many in the healthcare sector. While price reduction is a move that benefits the patient eventually, the issue was around unpredictability and what some industry representatives called arbitrariness in the implementation of the DPCO.
Around this time, the industry was also beginning to cope with new developments in China. In mid-2017, China's Food and Drug Administration joined the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH) as a member. China also became a member of the Geneva-based Pharmaceutical Inspection Convention (PIC). This required the Chinese regulator to become more stringent. It resulted in shutdown of massive capacities in China, which had for years been a big supplier of bulk drugs globally. Obviously, it led to a rise in prices of bulk drugs - a key input for pharmaceutical companies.
But despite the cut in production in China, India is far behind its neighbour when it comes to export of APIs or Active Pharmaceutical Ingredient. According to Pharmexcil, in 2018/19, India imported Rs 17,400 crore worth of APIs from China and exported APIs worth around Rs 1,600 crore. This shows India still has to cover a long distance in substantially reducing its China dependence. So far, the India API industry has been surviving on a margin of 6-8 per cent, mainly due to Chinese dominance. There are 300-400 API makers in India. The hub is Ankleshwar, which is the largest chemical cluster in Asia, followed by Hyderabad.
However, from a policy-making point of view, the Indian pharma industry suffered a major setback in February, 2019 when it lost D G Shah, the former secretary general of the Indian Pharmaceutical Alliance (IPA). He had lobbied hard for the Indian pharma industry and left a major impact. He held the top position at the IPA since its founding in October 1999 as an association of eight leading Indian pharmaceutical companies. IPA now has 22 member companies and accounts for 85 per cent and 50 per cent of domestic sales. It cooperates with the government in the evolution of a patent regime which meets Trade Related Intellectual Property Rights (TRIPs) obligations. It also engages with the government to move to price management from price control regime and upgrade regulatory provisions, procedures and standards for harmonisation with those of the developed markets.