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Pharma: Concerns over R&D, Chinese sourcing

Indian pharma companies also have a new concern - China - from where they source an increasing amount of bulk drugs and intermediaries.  

twitter-logo E Kumar Sharma        Last Updated: February 22, 2011  | 17:11 IST

Each year for the past few years, before the presentation of the Union budget , it has become a ritual for Indian pharma companies to seek incentives for pharmaceutical R&D. This year is no different. But Indian pharma companies also have a new concern - China - from where they source an increasing amount of bulk drugs and intermediaries.  

But first the R&D: "Not doing enough is by itself something that could hurt the industry,'' says Swati Piramal, director, (strategic alliances and communications) at Piramal Healthcare and the past president of Assocham.  "At a time when other countries like China, Israel and Taiwan are proactively promoting research and development in the pharmaceutical sector, India needs to do much more if we have to compete with these countries in the pharmaceutical space.'' 

Satish Reddy, managing director and COO of Dr Reddy's Laboratories, agrees.  "There is need to create an eco-system for research and for that there have to be concrete steps through allocations in the budget with plans to operationise them,'' he says. Specifically, Piramal points out  measures like granting pharma R&D companies tax benefits under section 80-I. That apart, R&D expenditure undertaken globally by Indian companies, including money spent on clinical trials, should be counted as research expenditure. Also, in cases where patents have been published in India, the income from these should be exempt from tax.

Now on the other big worry:  "The domestic companies' increasing reliance on China for the API, intermediates and pharmaceutical raw materials should be a matter of concern for the government. Once China builds its regulatory compliance, it could block the supplies and hurt India's prospects to be a global leader in pharmaceuticals,'' says D G Shah, Secretary General, Indian Pharmaceutical Alliance. He quotes the example of the recent Olympic Games in China .  "As several chemical units were shut down in China to contain pollution for the Olympic Games, the prices of many raw materials, intermediates and active pharmaceutical ingredients (APIs) sky rocketed and several were not available,'' he says. So how huge is India's dependence on China? 

"I have heard estimates that suggest that 70 per cent of the total Indian requirements for APIs (active pharmaceutical ingredients) and intermediates are today being imported from China," says Shah. He lists the factors leading to this and suggests budget measures that could address the issue (both listed below).

Why is India increasingly dependent on China for APIs?

1. The government does not recognize or provide assistance for costly safety and environmental protection measures

2. An inverted duty structure (there is a lower duty on finished products and a higher duty on raw material), which favours imports of finished dosage forms

3. High power tariffs, which particularly impact the fermentation industry

4. Lack of common effluent treatment facilities; and a legacy of fragmented capacities

What's the solution? 

1. Special fiscal incentives for production of drugs from the initial stage, to neutralize the advantage of imports

2. Provision of higher weighted deduction and accelerated depreciation for investment in equipments for effluent treatment facilities; safety and protection of environment

3. Refund of electricity duty for fermentation industry

4. Correction of what the pharmaceutical industry sees as an inverted duty structure

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