ECONOMIC INSIGHTS INTO THE INDIAN PHARMACEUTICAL INDUSTRY
This piece has been authored by Siddharth Dhawan, a final year student of B.A.LL.B (Hons.) at Amity Law School, Delhi.
The pharmaceutical industry is a vital part of healthcare system across the globe. It includes many public and private organisations that create and market medicines for both human and animal health. This industry is based upon research and development of medicine that treats diseases and disorders. Pharmaceutical industry typically has four pillars:-
1. Generic medicines
2. Branded generic medicines
3. Innovator medicines
4. Active pharmaceutical ingredients
The Indian pharmaceutical industry was valued at USD 33 billion in 2017. The export from India alone stood at USD 18.12 billion in year 2018.[i] India is a well-known destination for outsourced contract research and manufacturing services. The Indian pharmaceutical industry is witnessing tremendous amount of FDI, mergers, and collaboration these days. There is a shift of focus towards drug discovery and development from manufacturing of generic drugs.[ii] India is a leading global manufacturer of efficient and cost effective generic medicine having a market share of at least 20% of the global demand. Domestically, India has 3000 drug companies. And about 10,500 manufacturing units. 1400 of these units are approved by WHO Good Manufacturing Practices (GMP).[iii]
The Indian pharmaceutical industry is on the right path and likely to be in the top 10 global market in value by the year 2020.[iv] However lack of research component and real-time good manufacturing practices have always been a difficulty. There is a need to build a better operational facility.
Secondly, due to cost efficiency of the medicine, the Indian pharmaceutical company struggles to generate reasonable profit. Due to this factor they are not able to reinvest the money into further research. Thirdly, supply of raw materials to create generic drugs is dependent upon China. Fourthly, the Government policies are still very complex to obtain licensing for the pharma companies, which discourages the new market entrepreneurs from entering into this industry.Indian Government could not implement its Pharmaceutical Policy of 2002 because of the orders of the Karnataka High court, which was upheld by the Supreme Court of India. The policy was found to be ineffective and inefficient as it failed to fulfil the purpose of sustainable growth in pharmaceutical industry.[v] The new National Pharmaceuticals Pricing Policy, 2012 (NPPP-2012) was notified on 07.12.2012. Intention of the legislature was to control the price of the ‘Essential Drugs’. The DPCO-2013 was notified on 15th May 2013 by the Ministry of Chemicals & Fertilizers (MoC&F). Drug price control order due to its fixed ceiling prices affect the small manufacturers who are at the bottom of price ladder and makes very less profit due to increase in cost of production and raw material costs[vi].
Lastly, there is a need to establish a functional testing laboratory in every state to improve the work of development of raw materials. In August 2017, 18 pages draft policy paper (Draft Pharmaceutical Policy) was circulated by Department of Pharmaceuticals (DOP) to different organizations including various civil societies. This paper narrated the proposed role of government to provide health care to all. The policy paper intended to provide ‘Ease of Business’ and to fulfil the dream of ‘Make in India’.
There must be creation of equal growth opportunities in every state rather than focusing only upon the metro cities. It is evident that expensive drugs are only available in the urban areas and people from suburban and rural areas have to travel miles for procuring such drugs. This creates a regional imbalance. Easy availability of the essential medicines equally across the country ought to be the utmost priority of the government. Hospitals, chemist shops, nursing homes, and care centres should be developed in the rural areas as well.
The pharmaceutical industry should explore qualified academicians beyond urban areas. There are many talented aspirants who are willing to be part of this industry. However due to a lack of knowledge and resources, their dreams are not being fulfilled. It is required to establish a system through which these talents can contribute to this industry.
Incentives must be offered to students for their contribution in research and development of any formula.These incentives can be in the form of scholarships, internships, expert counselling, and practical training.
Adoption of a user friendly policy to encourage young minds to establish small-scale industries and finally establishment of academic pharmaceutical institutions to improve the knowledge of data interpretation and data mining is required.
GLOBAL MARKET DYNAMICS AND IMPACT ON INDIAN PHARMACEUTICALS
In spite of various challenges in the last few years, the growth in the Indian pharmaceutical industry is commendable. 40% of the market capital is being shed by many leading generic players in India and globally in merely a month due to several reasons[vii]. These reasons include – regulatory approval, litigation expenses, impairment charges etc.
Various dynamics in international market are eroding the value from the generic value pool, like consolidation among distributor and pharmaceutical chains and increased price control with protectionism in various global market.
4 C’s OF THE PHARMACEUTICAL INDUSTRY[viii]
COST - Cost management during difficult times is important for survival of domestic pharmaceutical companies which competes on low-cost generics. Heavy expenditure upon research and development has not been a profitable business strategy. Besides, legal expenditure and advertisement cost has also surged with time.
COMPLIANCE - Various pharmaceutical industries are indulging in the compliance battle with the government. Long list of compliances with uncertainty over the future growth has discouraged new companies to step into this industry.
COMPETITION- With the increase in competition with foreign players, Indian pharmaceutical companies are finding it difficult to generate sufficient profit to survive and grow in the pharmaceutical industry. With modernisation, generic drug production prospects of the company will depend upon selection of right strategy and expert management in future.
CHINA- Access to the Chinese domestic market helped in increasing the chances of growth of Indian pharmaceutical Companies.[ix]With the world’s largest population, China has enough demand for various types of drugs. Indian companies are trying to find the sweet spot to export drugs to China amidst the trade war between U.S.A and China.
India should become a member of the Pharmaceutical Inspection Cooperation Scheme (PIC/S)[x].This scheme is an informal, non-binding, cooperative arrangement between various regulatory authorities in the field of good manufacturing practices of medicinal products. The primary aim of PIC/S is to harmonize the inspection procedure through development of the common standard in the area of GMP and to provide training opportunities to the inspectors. Secondarily, it also facilitates cooperation between various competent authorities and national-international organizations.[xi]
There are currently 52 active members of this cooperation scheme. All food and drug administrators are part of this scheme. Even small countries like Vietnam and Uzbekistan have shown interest in becoming a part of this scheme. As mentioned earlier, India is contributing around 20% of the total medicines of the world and every 5th tablet created in India is used worldwide, but still India is not a part of this society. India is a part of the W.H.O, but it is not as relevant for the pharmaceutical industry as much as PIC/S and therefore, it is important to become a member of PIC/S.
India needs to develop transparency in rules and regulations which are to be complied with by the pharmaceutical industry. Moreover, a healthy percentage of the economic resources should be allocated for the growth of this Industry and for competing with ever-growing international market competition.
Different dynamics of the Indian pharmaceutical industry makes it unique. Rising income levels with enhanced medical infrastructure has led to the unprecedented growth of Indian pharmaceutical industry. Various market leaders are now focusing upon new and emerging opportunities. The pace of innovation, launch of branded generic medicines, and significant expansion of market coverage illustrates the growing dynamics of the Indian pharmaceutical industry. With few challenges to overcome, India is ready to become the market leader in the pharmaceutical industry globally.
[i] Indian Brand Equity Foundation, Indian Pharmaceuticals Industry Analysis, MINISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDIA, (July 10, 2019, 11:00 AM), https://www.ibef.org/industry/indian-pharmaceuticals-industry-analysis-presentation.
[ii]PricewaterhouseCoopers, Global pharma looks to India: Prospects for growth, PRICEWATERHOUSECOOPERS, (July 14, 2019, 09:00 AM), https://www.pwc.com/gx/en/pharma-life-sciences/pdf/global-pharma-looks-to-india-final.pdf.
[iii]Dezan Shira & Associates, The Pharmaceutical Industry in India- Trends and Opportunities, INDIA BRIEFING, (July 07, 2019, 08:00 PM) https://www.india-briefing.com/news/pharmaceutical-industry-india-trends-opportunities-18300.html/.
[iv] PricewaterhouseCoopers, India’s Pharmaceutical industry is on a good growth path, but will have to watch out for the regulatory intervention, PRICEWATERHOUSECOOPERS, (July 16, 2019, 12:00 AM), https://www.pwc.in/press-releases/india-pharmaceutical-industry-is-on-a-good-growth-path.html.
[v] Prasanta Kumar Ghosh, Government’s Policies and Growth of Pharmaceutical Industry in India 1947-2018: A Review, RESEARCH AND INFORMATION SYSTEM FOR DEVELOPING COUNTRIES, (July, 09, 2019, 07:00 PM), http://ris.org.in/sites/default/files/Publication%20File/DP%20236%20P%20K%20Ghosh%20DP-min.pdf.
[vi] Raj Pradhan, DPCO 2013 loopholes: OPPI view and Moneylife’s counterview – Part 1, MONEYLIFE, (July 19, 2019, 04:30 PM), https://www.moneylife.in/article/dpco-2013-loopholes-oppi-view-and-moneylifes-counterview-part-1/35452.html.
[vii] Federation of Indian Chamber of Commerce, Trends and Opportunities in Indian Pharma, MINISTRY OF CHEMICALS & FERTILIZERS AND PARLIAMENTARY AFFAIRS, (July 11, 2019, 07:00 PM), http://ficci.in/spdocument/22944/india-pharma-2018-ficci.pdf.
[viii] Kiran Kabtta Somvanshi, 4 Cs to determine the course of Indian Pharma, ECONOMIC TIMES, (July 17, 2019, 11:00PM), https://economictimes.indiatimes.com/markets/stocks/news/four-cs-to-determine-the-course-for-indian-pharma/articleshow/69643245.cms?from=mdr.
[ix] McKinsey & Company, India Pharma 2020: Propelling access and acceptance, realising true potential, MCKINSEY & COMPANY, (July 01, 2019, 08:14 PM), https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Pharma%20and%20Medical%20Products/PMP%20NEW/PDFs/778886_India_Pharma_2020_Propelling_Access_and_Acceptance_Realising_True_Potential.ashx.
[x] Pharmaceutical Inspection Co-operation Scheme, Introduction, THE PHARMACEUTICAL INSPECTION CO-OPERATION SCHEME, (July 15, 2019, 04:00 PM), https://www.picscheme.org/en/picscheme.
[xi] Pharmaceutical Inspection Co-operation Scheme, About, THE PHARMACEUTICAL INSPECTION CO-OPERATION SCHEME, (July 12, 2019, 09:00 PM), https://www.picscheme.org/en/about.