Imperative that we build and strengthen the pharma sector

The Indian pharmaceutical industry has earned the proud label of being the ‘Pharmacy of the World’ by virtue of being the largest and lowest-cost producer of generic drugs for the benefit of patients the world over.

This sector, which has propelled India into global prominence and leadership, has also made our country an indispensable and integral part of global healthcare.

It is therefore imperative that we build and strengthen this sector so that it can assume an even greater position in global healthcare. The Indian pharma industry is today worth $20 billion, of which $15 billion is accounted for by exports. It is a matter of pride that one in five, or 20 per cent, of generic drugs in the world are of Indian origin and one in three children are immunised with a ‘Made in India’ vaccine.

This sector must be commended for having built these strengths and capabilities through the zeal and zest of a number of committed entrepreneurs who have painstakingly and consistently invested in both skills and scale over several decades, with very few incentives from the Government.

Manufacturing and jobs

What is even more important is to highlight the role of scientists and engineers in building this important sector. It has thus been a great job creator, providing employment to thousands of scientists, pharmacists, engineers and technicians.

The pharma industry has created a global scale manufacturing sector which has enabled the development of specialised skills and has provided India a globally competitive advantage.

Innovation has also been the hallmark of this sector wherein leading Indian pharma companies have invested consistently in R&D of generic drugs which has paid handsome dividends by way of our global leadership in generics today.

It is important to highlight that this is one sector which has self-financed its investment in R&D and in establishing global scale, state-of-the-art manufacturing facilities.

This sector has also seen the mushrooming of thousands of SME pharma enterprises, which have bolstered the manufacturing capacity of this sector.

Impact of investments in R&D, quality systems and large scale manufacturing

A significant difference exists between pharma companies in terms of investments, scope of activities and overhead costs. This leads to vast variation in drug prices.

In recent times, the Government through the National Pharmaceutical Pricing Authority (NPPA) decided to examine the vast variation in drug prices and pared them through the imposition of ceiling prices on 348 essential drugs under the National List of Essential Medicines (NLEM). Instead of factoring in the huge differential that exists between companies based on investment- linked overheads, the Government merely adopted a simple average price formula which industry believes acts to its disadvantage and deters further investments in research and high quality manufacturing and distribution.

The industry is willing and committed to partner the Government in its efforts to meet the healthcare needs of Indian patients through various mechanisms such as rational pricing of drugs and fair market competition, universal healthcare, bulk procurement schemes, special assistance in times of national emergency through CSR initiatives, etc. but questions the unilateral fixing of ceiling prices based on an inequitable formula which will only devalue and erode the strength of this very important sector.

The Indian pharma industry is a highly capital intensive and investment intensive sector due to its inherent needs in terms of specialised infrastructure, R&D and quality systems.

You are perhaps aware that India has 370 plants approved by the US FDA, the largest number outside the US. Recently, many Indian pharma companies have received warning letters pertaining to non-compliance and poor compliance to the US FDA regulatory norms. This will entail additional investment in attaining these standards if we are to retain our strong position in the US market.

NPPA pricing has challenged manufacturing viability

The forced price discounting imposed by NPPA has done collateral damage to our indigenous industry which has only strengthened our external competitors, especially China. E.g., Indian manufacturers of Active Pharmaceutical Ingredients (APIs) or bulk drugs have found it difficult to compete with Chinese API producers and Indian drug companies are now increasingly importing APIs from China. This has led to the shutting down of many API plants and discontinuance of many important APIs, especially antibiotics.

Additionally, the drastic price discounting imposed on a number of antibiotic drugs have led to their manufacturing being discontinued by Indian companies on the ground of non-viability. This has resulted in drug shortage which will eventually result in the importation of Chinese antibiotics. This is an extremely dangerous situation that is evolving and must be corrected urgently.

SME pharma companies in India can manufacture limited quantities of essential drugs, but they simply cannot cater to the large needs of our country’s formularies which are dependent on large scale production. Hence, it is vital that we ensure the uninterrupted supply of these essential drugs by large scale manufacturers through viable pricing options.

Based on the above alarming set of challenging factors, I request you Hon’ble Prime Minister, to urgently intervene and take corrective action to revive and resurrect this life-saving sector. This is a sector of strategic importance for India and one that relies on manufacturing and job creation which are at the core of our development agenda.

Recommendations

In order to give the pharma industry a shot in the arm, I request you to kindly review the following recommendations:

1. Supporting capital investment for upgrading and expanding manufacturing infrastructure

The Indian pharma sector is a highly capital intensive sector. Over the past decade, the Top 20 companies have invested over ` 25,000 crores in setting up global scale manufacturing facilities. These facilities need to be further augmented through exponential capital investment in the next 10 years. Many of these past investments have been done through high-interest domestic and overseas borrowings. Foreign currency borrowings have resulted in huge liabilities on account of sharp rupee devaluation that has hurt the balance sheets of several of these companies. Therefore, low-interest borrowings need to be made available for future investments to be made by the pharma industry.

2. R&D Investments

For India to retain its global leadership, investment in R&D and innovation is paramount. The 200 per cent weighted tax deduction on R&D costs allowed to companies does not permit the inclusion of international patenting and overseas drug development expenses. This tax exemption should be allowed urgently.

3. Drug Pricing

It is requested that computation of price ceilings should be based on an equitable formula which ensures like-for-like comparisons and factors the quantum of investments. If Return on Investment is denied, any such price formulae will erode huge value for this all-important sector and make business unviable.

4. Pharma exports from SEZs

Unlike other sectors, the pharma industry is not permitted to export drugs and APIs without obtaining international regulatory approval. This process takes on an average two years which denies all pharma units in SEZs nearly two years of 100 per cent Tax Holiday. The SEZ policy has therefore overlooked this aspect which is specific to the pharma sector. It is therefore requested that the pharma sector be compensated by allowing it to choose the starting year of the Five-Year Tax Holiday based on obtaining the required regulatory approval. The imposition of Minimum Alternate Tax has also been a contentious issue with all SEZ companies. The removal of MAT will help to enhance global competitiveness for the Indian pharma sector. Additionally, the Government should also consider the exemption of duties and taxes on domestic sales of essential drugs from SEZs.

5. Clinical Trials

If India is to claim leadership in the pharma industry, it is imperative to focus on drug innovation. The current moratorium on clinical trials is severely hampering drug development and instead strengthening external competition which is highly undesirable.

The medical community itself can only be strengthened if it is encouraged to pursue clinical research along with clinical practice. Only when these run in tandem can we see better health innovation and thereby better health outcomes. We therefore request your intervention in lifting the current moratorium and reviving this very important sector which is a large skill-based job creator providing employment to life sciences graduates, pharmacy graduates, statisticians ad IT professionals.

The concerns around ethics and safety pertained to a few trials, which should have been investigated and dealt with by regulators. Unfortunately, the entire sector has had to pay the price for a few errant trials. Hence, there is an urgent need to resume clinical trials post haste.

The Indian pharma industry has a key partnership role in the Government’s efforts to deliver on its stated agenda of ‘Health for All.’ Unless there is trust and equity in this partnership, we will lose a huge opportunity in not only fulfilling the medical needs of millions of patients in India but also our leadership role in making a difference to billions of patients around the world.