High expectations from the draft Bill

In early July, the Union Health Ministry released the draft Drugs, Medical Devices and Cosmetics Bill 2022 for comments from the industry. In keeping with the times, the bill has expanded to include and regulate e-pharmacies, medical devices and the conduct of clinical trials of drugs and medical devices. It also includes a section on Ayurveda, Siddha, Sowa Rigpa, Unani and Homeopathy drugs.

Review of the Drugs and Cosmetics Rules, 1940 started in 2016 and while this draft bill plugs some gaps, it is likely to get suggestions for further tweaks. The draft bill already has changes
proposed by the industry.

For instance, it separates the regulation of drugs and medical devices, proposing a separate Drugs Technical Advisory Board (DTAB) and a Medical Devices Technical Advisory Board (MDTAB) for technical advice. The latter will include not just medical professionals, but also people with technical knowledge of the devices, acknowledging that medical devices need different parameters for regulation. In line with this reasoning, besides health ministry officials the MDTAB will include representatives from the Department of Atomic Energy, Department of Science and Technology, Ministry of Electronics, DRDO, and experts in the field of biomedical technology, biomaterials, and polymer technology.

Keeping track of the increasing online sale of medicines and medical devices, as observed during the pandemic, the draft bill restricts the sale, stocking, distribution or exhibition of any drug by
online mode (e-pharmacy) except under and in accordance with a licence or permission. The regulation of all retail channels becomes even more crucial after recent raids by the special task force (STF) in Uttarakhand resulted in the seizure of fake drugs worth crores. The allegation is that counterfeits are more easily sold via online pharmacies but there is no doubt that brick and mortar pharmacies too could fall prey to counterfeiters, especially in tier-II and -III towns.

While the draft bill will no doubt make its way through discussions and several amendments, there should be a sense of urgency as we now have yet another viral infection to track. The WHO declared monkeypox as a public health emergency of international concern, one level below a pandemic, even as COVID cases once again surged past the daily 1000 mark in some states of India and H1N1 cases too flared up in some hot spots.

We are definitely more prepared for a pandemic today than in 2019. For instance, companies have already launched RT PCR-based kits for the monkeypox virus. And with many pharma companies ranging from Reliance Life Sciences, Mankind Pharma, Lupin and now reportedly Torrent Pharma looking at the diagnostics sector to diversify their revenue streams, we are sure to have many options. Likewise, Serum Institute of India (SII) is looking for partners to import medicines for monkeypox. Companies would be scanning for partners should there be a need to make these medicines in India at a later date.

But while success with COVID vaccines and kits has given us confidence that the country has the talent and resources to take on new viruses, the spectre of counterfeit medicines reminds us that regulation is important to ensure each dose is of the quality promised.

The next few quarters will be tight for the pharma sector as windfall gains of the COVID quarters moderate. In fact, some companies are now under the scanner for tax evasion on the exponential sales made during COVID. ICRA predicts that headwinds related to pricing pressures in the US generics market and rising raw material costs will result in a contraction of FY2023 profit margins of pharma companies in their sample set. Operating profit margins have already contracted to 18.3 per cent in Q4 FY2022 from 22.3 per cent in Q4 FY2021 and 21.0 per cent in Q3 FY2022, due to rising costs of raw materials, other input costs such as freight, packaging among others, pricing pressures in the US generics market and inventory write-offs for COVID products for a few companies in the sample. ICRA expects the sector’s liquidity profile to cover higher CAPEX and research and development (R&D) expenses which are expected to stabilise at current levels of 7-7.5 per cent of revenues for its sample set as companies continue to focus on complex generics, first-to-file opportunities and specialty products, which entail higher R&D expenses.

The new Drugs, Medical Devices and Cosmetics Bill 2022 will have to carefully balance these headwinds facing the sector and protecting consumer/patient interests.