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Pharma FDI: Damning Report of Parliamentary Panel, PM Vetoes…and Avoids Ruffling Feathers?

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An interesting situation emerged last week. The Parliamentary Standing Committee (PSC) on Commerce proposed a blanket ban on all FDI in brownfield pharma sector. Just two days after that, the Prime Minister of India vetoed the joint opposition of the Department of Industrial Policy and Promotion (DIPP) and the Ministry of Health to clear the way for all pending pharma FDIs under the current policy.

On August 13, 2013, Department related Parliamentary Standing Committee on Commerce laid on the Table of both the Houses of the Indian Parliament its 154 pages Report on ‘FDI in Pharmaceutical Sector.’

The damning report of the Parliamentary Standing Committee flags several serious concerns over FDI in brownfield pharma sector, which include, among others, the following:

1. Out of 67 FDI investments till September 2011, only one has been in green field, while all the remaining FDI has come in the brown field projects. Moreover, FDI in brown field investments have of late been predominantly used to acquire the domestic pharma companies.

2. Shift of ownership of Indian generic companies to the MNCs also results in significant change of the business model, including the marketing strategy of the acquired entity, which are quite in sync with the same of the acquirer company. In this situation, the acquired entity will not be allowed to use flexibilities such as patent challenges or compulsory license to introduce new affordable generic medicines.

The withdrawal of all patent challenges by Ranbaxy on Pfizer’s blockbuster medicine Lipitor filed in more than eight countries immediately after its acquisition by Daiichi-Sankyo is a case in point.

3. Serial acquisitions of the Indian generic companies by the MNCs will have significant impact on competition, price level and availability. The price difference between Indian ‘generics’ and MNCs’ ‘branded generic’ drugs could  sometimes be as high as 80 to 85 times. A few more larger scale brownfield takeovers may even destroy all the benefits of India’s generics revolution.

4. FDI inflow into Research & Development of the Pharma Industry has been totally unsatisfactory. 

5. FDI flow into brown field projects has not added any significant fresh capacity in manufacturing, distribution network or asset creation. Over last 15 years, MNCs have contributed only 5 per cent of the gross fixed assets creation, that is Rs 3,022 crore against Rs 54,010 crore by the domestic companies. Further, through brownfield acquisitions significant strides have not been made by the MNCs, as yet, for new job creation and technology transfer in the country.

6. Once a foreign company takes over an Indian company, it gets the marketing network of the major Indian companies and, through that network, it changes the product mix and pushes the products, which are more profitable and expensive. There is no legal provision in India to stop any MNC from changing the product mix.

7. Though the drug prices may not have increased significantly after such acquisitions yet, there is still a lurking threat that once India’s highly cost efficient domestic capacity is crushed under the weight of the dominant force of MNCs, the supply of low priced medicines to the people will get circumvented.

8. The ‘decimation’ of the strength of local pharma companies runs contrary to achieving the drug security of the country under any situation, since there would be few or no Indian companies left having necessary wherewithal to manufacture affordable generics once a drug goes off patent or comply with a Compulsory License (CL).

9. Current FIPB approval mechanism for brownfield pharma acquisitions is inadequate and would not be able to measure up to the challenges as mentioned above.

The Committee is also of the opinion that foreign investments per se are not bad. The purpose of liberalizing FDI in pharma was not intended to be just about takeovers or acquisitions of domestic pharma units, but to promote more investments into the pharma industry for greater focus on R&D and high tech manufacturing, ensuring improved availability of affordable essential drugs and greater access to newer medicines, in tandem with creating more competition. 

Based on all these, The Committee felt that FDI in brown field pharma sector has encroached upon the generics base of India and adversely affected Indian pharma industry. Therefore, the considered opinion of the Parliamentary Committee is that the Government must impose a blanket ban on all FDI in brownfield pharma projects.

PM clears pending pharma FDI proposals:

Unmoved by the above report of the Parliamentary Committee, just two days later, on August 16, 2013, the Prime Minister of India, in a meeting of an inter-ministerial group chaired by him, reportedly ruled that the existing FDI policy will apply for approval of all pharmaceutical FDI proposals pending before the Foreign Investments Promotion Board (FIPB). Media reported this decision as, “PM vetoes to clear the way for pharma FDI.”

This veto of the PM includes US $1.6-billion buyout of the injectable facility of Agila Specialties, by US pharma major Mylan, which has already been cleared by the Competition Commission of India (CCI).

This decision was deferred earlier, as the DIPP supported by the Ministry of Health had expressed concerns stating, if MNCs are allowed to acquire existing Indian units, especially those engaged in specialized affordable life-saving drugs, it could possibly lead to lower production of those essential drugs, vaccines and injectibles with consequent price increases. They also expressed the need to protect oncology facilities, manufacturing essential cancer drugs, with assured supply at an affordable price, to protect patients’ interest of the country.

Interestingly, according to Reserve Bank of India, over 96 per cent of FDI in the pharma sector in the last fiscal year came into brownfield projects. FDI in the brownfield projects was US$ 2.02 billion against just US$ 87 million in the green field ventures.

Fresh curb mooted in the PM’s meeting:

In the same August 16, 2013 inter-ministerial group meeting chaired by the Prime Minister, it was also reportedly decided that DIPP  will soon float a discussion paper regarding curbs that could be imposed on foreign takeovers or stake purchases in existing Indian drug companies, after consultations with the ministries concerned.

Arguments allaying apprehensions:

The arguments allaying fears underlying some of the key apprehensions, as raised by the Parliamentary Standing Committee on Commerce, are as follows:

1. FDI in pharma brownfield will reduce competition creating an oligopolistic market:

Indian Pharmaceutical Market (IPM) has over 23,000 players and around 60,000 brands. Even after, all the recent acquisitions, the top ranked pharmaceutical company of India – Abbott enjoys a market share of just 6.6%. The Top 10 groups of companies (each belonging to the same promoter groups and not the individual companies) contribute just over 40% of the IPM (Source: AIOCD/AWACS – Apr. 2013). Thus, IPM is highly fragmented. No company or group of companies enjoys any clear market domination.

In a scenario like this, the apprehension of oligopolistic market being created through brownfield acquisitions by the MNCs, which could compromise with country’s drug security, needs more informed deliberation.

2. Will limit the power of government to grant Compulsory Licensing (CL):

With more than 20,000 registered pharmaceutical producers in India, there is expected to be enough skilled manufacturers available to make needed medicines during any emergency e.g. during H1N1 influenza pandemic, several local companies stepped forward to supply the required medicine for the patients.

Thus, some argue, the idea of creating a legal barrier by fixing a cap on the FDIs to prevent domestic pharma players from selling their respective companies at a price, which they would consider lucrative otherwise, just from the CL point of view may sound unreasonable, if not protectionist in a globalized economy.

3.  Lesser competition will push up drug prices:

Equity holding of a company is believed by some to have no bearing on pricing or access, especially when medicine prices are controlled by the NPPA guidelines and ‘competitive pressure’.

In an environment like this, any threat to ‘public health interest’ due to irresponsible pricing, is unlikely, especially when the medicine prices in India are cheapest in the world, cheaper than even Bangladesh, Pakistan and Sri Lanka (comment: whatever it means).

India still draws lowest FDI within the BRIC countries: 

A study of the United Nations has indicated that large global companies still consider India as their third most favored destination for FDI, after China and the United States.

However, with the attraction of FDI of just US$ 32 billion in 2011, against US$ 124 billion of China, US$ 67 billion of Brazil and US$ 53 billion of Russia during the same period, India still draws the lowest FDI among the BRIC countries.

Commerce Minister concerned on value addition with pharma FDI:

Even after paying heed to all the above arguments, the Commerce Minister of India has been expressing his concerns since quite some time, as follows:

“Foreign Direct Investment (FDI) in the pharma sector has neither proved to be an additionality in terms of creation of production facilities nor has it strengthened the R&D in the country. These facts make a compelling case for revisiting the FDI policy on brownfield pharma.”

As a consequence of which, the Department of Industrial Policy and Promotion (DIPP) has reportedly been opposing FDI in pharma brownfield projects on the grounds that it is likely to make generic life-saving drugs expensive, given the surge in acquisitions of domestic pharma firms by the MNCs.

Critical Indian pharma assets going to MNCs:

Further, the DIPP and the Ministry of Health reportedly fear that besides large generic companies like Ranbaxy and Piramal, highly specialized state-of-the-art facilities for oncology drugs and injectibles in India are becoming the targets of MNCs and cite some examples as follows:

  • Through the big-ticket Mylan-Agila deal, the country would lose yet another critical cancer drug and vaccine plant.
  • In 2009 Shantha Biotechnics, which was bought over by Sanofi, was the only facility to manufacture the Hepatitis B vaccine in India, which used to supply this vaccine at a fraction of the price as compared to MNCs.
  • Mylan, just before announcing the Agila deal, bought over Hyderabad based SMS Pharma’s manufacturing plants, including some of its advanced oncology units in late 2012.
  • In 2008, German pharma company Fresenius Kabi acquired 73 percent stake in India’s largest anti-cancer drug maker Dabur Pharma.
  • Other major injectable firms acquired by MNCs include taking over of India’s Orchid Chemicals & Pharma by Hospira of the United States.
  • With the US market facing acute shortage of many injectibles, especially cancer therapies in the past few years, companies manufacturing these drugs in India have become lucrative targets for MNCs.

An alternative FDI policy is being mooted:

DIPP reportedly is also working on an alternate policy suggesting:

“It should be made mandatory to invest average profits of last three years in the R&D for the next five years. Further, the foreign entity should continue investing average profit of the last three years in the listed essential drugs for the next five years and report the development to the government.”

Another report indicated, a special group set up by the Department of Economic Affairs suggested the government to consider allowing up to 49 per cent FDI for pharma brownfield investments under the automatic route.However, investments of more than 49 per cent would be referred to the Foreign Investment Promotion Board (FIPB).

It now appears, a final decision on the subject would be taken by the Prime Minister after a larger inter-mimisterial consultation, as was decided by him on August 14, 2013.

The cut-off date to ascertain price increases after M&A:

Usually, the cut off point to ascertain any price increases post M&A is taken as the date of acquisition. This process could show false positive results, as no MNC will take the risk of increasing drug prices significantly or changing the product-mix, immediately after acquisition.

Significant price increases could well be initiated even a year before conclusion of M&As and progressed in consultation by both the entities, in tandem with the progress of the deal. Thus, it will be virtually impossible to make out any significant price changes or alteration in the product-mix immediately after M&As.

Some positive fallouts of the current policy:

It is argued that M&As, both in ‘Greenfield’ and ‘Brownfield’ areas, and joint ventures contribute not only to the creation of high-value jobs for Indians but also access to high-tech equipment and capital goods. It cannot be refuted that technology transfer by the MNCs not only stimulates growth in manufacturing and R&D spaces of the domestic industry, but also positively impacts patients’ health with increased access to breakthrough medicines and vaccines. However, examples of technology transfer by the MNCs in India are indeed few and far between.

This school of thought cautions, any restriction to FDI in the pharmaceutical industry could make overseas investments even in the R&D sector of India less inviting.

As listed in the United Nation’s World Investment Report, the pharmaceutical industry offers greater prospects for future FDI relative to other industries.  Thus, restrictive policies on pharmaceutical FDI, some believe, could promote disinvestments and encourage foreign investors to look elsewhere.

Finally, they highlight, while the Government of India is contemplating modification of pharma FDI policy, other countries have stepped forward to attract FDI in pharmaceuticals. Between October 2010 and January 2011, more than 27 countries and economies have adopted policy measures to attract foreign investment.

Need to attract FDI in pharma:

At a time when the Global Companies are sitting on a huge cash pile and waiting for the Euro Zone crisis to melt away before investing overseas, any hasty step by India related to FDI in its pharmaceutical sector may not augur well for the nation.

While India is publicly debating policies to restructure FDI in the ‘Brownfield’ pharma sector, other countries have stepped forward to attract FDI in their respective countries.  Between October 2010 and January 2011, as mentioned earlier, more than 27 countries and economies have adopted policy measures to attract foreign investment.

Thus the moot question is, what type of FDI in the pharma brownfield sector would be good for the country in the longer term and how would the government incentivize such FDIs without jeopardizing the drug security of India in its endeavor to squarely deal with any conceivable  eventualities in future?

Conclusion:

In principle, FDI in the pharma sector, like in any other identified sectors, would indeed benefit India immensely. There is no question about it…but with appropriate checks and balances well in place to protect the national interest, unapologetically.

At the same time, the apprehensions expressed by the Government, other stakeholders and now the honorable members of the Parliament, across the political party lines, in their above report, should not just be wished away by anyone.

This issue calls for an urgent need of a time bound, comprehensive, independent and quantitative assessment of all tangible and intangible gains and losses, along with opportunities and threats to the nation arising out of all the past FDIs in the brownfield pharma sector.

After a well informed debate by experts on these findings, a decision needs to be taken by the law and policy makers, whether or not any change is warranted in the structure of the current pharma FDI policy, especially in the brownfield sector. Loose knots, if any, in its implementation process to achieve the desired national outcome, should be tightened appropriately.

I reckon, it is impractical to expect, come what may, the law and policy makers will keep remaining mere spectators, when Indian Pharma Crown Jewels would be tempted with sacks full of dollars for change in ownerships, jeopardizing presumably long term drug security of the country, created painstakingly over  decades, besides leveraging immense and fast growing drug export potential across the world.

The Competition Commission of India (CCI) can only assess any  possible adverse impact of Mergers & Acquisitions on competition, not all the apprehensions, as expressed by the Parliamentary Standing Committee and so is FIPB.

That said, in absence of a comprehensive impact analysis on pharma FDIs just yet, would the proposal of PSC to ban foreign investments in pharma brownfield sector and the PM’s subsequent one time veto to clear all pending FDI proposals under the current policy, be construed as irreconcilable internal differences…Or a clever attempt to create a win-win situation without ruffling MNC feathers?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

The New Drug Policy of India enters into the final lap of a Marathon Run

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Final working out and thereafter announcement of much awaited and long overdue the new ‘Drug Policy’ of India has now entered into a very interesting stage. This is mainly because of the unique combination of the following three key reasons:

1. 2002 Drug Policy was challenged in the Karnataka High Court, which by its order dated November 12, 2002 issued stay on the implementation of the Policy. This order was challenged by the Government in the Supreme Court, which vacated the stay vide its order dated March 10, 2003 but ordered as follows: “We suspend the operation of the order to the extent it directs that the Policy dated 15.2.2002 shall not be implemented. However we direct that the petitioner shall consider and formulate appropriate criteria for ensuring essential and lifesaving drugs not to fall out of the price control and further directed to review drugs, which are essential and lifesaving in nature till 2nd May, 2003”.

2. A live court case on the new draft ‘Drug Policy’ with the ‘essentiality criteria’ for price control is pending before the Supreme Court of India with its next hearing scheduled in the last week of July 2012. In this court case an independent network of several ‘Non-Government Organizations (NGOs)’ known as ‘All India Drug Action Network (AIDAN)’ is arguing against the ‘flawed’ draft ‘National Pharmaceutical Pricing Policy 2011 (NPPP 2011)’, mainly on the following grounds:

  • ‘Market Based Pricing (MBP)’ methodology calculated on the ‘Weighted Average Price (WAP)’ of top three brands, as specified in the ‘Draft NPPP 2011’ would not only lead to increase in the prices of medicines, but also legitimize higher drug prices.
  • To keep the drug prices under check effectively, the ‘Ceiling Prices (CP)’ of Medicines should be based on ‘Cost based Pricing (CBP)’ model rather than MBP.
  • Adequate control mechanism is lacking in the NPPP 2011 to prevent the manufacturer from avoiding price control by tweaking with the formulations featuring in the National list of Essential Medicine 2011 (NLEM 2011).

3. In this scenario, a Group of Ministers (GoM) of the Union Cabinet has started deliberating on this issue since April 25, 2012 taking all key stakeholders on board to give its recommendations to the Union Cabinet on the scope, form, structure and the basic content of the new Drug Policy.

The bone of contentions:

The methodology and the span of price control of the draft NPPP 2011 have still remained the key bone of contentions for the new ‘Drug Policy’ of India. Suggested three key methodologies: From the responses received on the draft NPPP 2011, it appears that following three are the  suggested key methodologies to arrive at the CP of price controlled NLEM 2011 formulations:

  • Cost Based Pricing
  • Market based pricing

-  WAP of top 3 brands             -  WAP of bottom 3 brands

  • The formula suggested by the Economic Advisory Council of the Prime Minister of lesser of (i) the price paid by the median consumer + 25% and (ii) price paid by the 80th percentile consumer.

ARGUMENTS IN FAVOR AND AGAINST OF EACH: A. Cost based Pricing: Besides AIDAN, other reported key supporters of the CBP are the Ministry of Health and All India Chemists Associations. ARGUMENTS IN FAVOR: The current drug price control regime (DPCO 1995) is based on cost-plus pricing model, where Maximum Retail Prices (MRPs) of price controlled formulations are worked out as per the formula given in ‘para 7’ of DPCO, 1995 as follows: R.P. = [M.C. +C.C. +P.M. +P.C.] x [1+MAPE/100] +E.D. Where,

  • R.P:  Retail price
  • M.C:  Material cost, including process loss
  • C. C.: Conversion cost
  • P.M: Packing material
  • P.C: Packing Charges
  • MAPE : Maximum Allowable Post manufacturing Expenses of 100 percent
  • E.D.: Excise duty

The proponents of CBP believe that it is:

  • Transparent
  • Most beneficial to the patients
  • Fair, with a decent profit margin allocation for the manufacturers

ARGUMENTS AGAINST: Many others do not believe in CBP. They argue that price-inflation of non-price controlled drugs is much less than the price-controlled ones, which clearly vindicates that market competition works better than price control of drugs and thus is more beneficial to the patients. The following table shows the trend of general inflation against the drug price inflation from 1992 to 2011 period, as follows:

Type of Inflation

Inflation (in Index)
1. General Inflation

403
2. Price-controlled molecules

151
3. Non Price-Controlled Molecules

112

(Source: IMS data, RBI CPI average yearly inflation) This school of thought quotes the example of discontinuation of manufacturing in India 29 out of 74 Active Pharmaceutical Ingredients (APIs) under DPCO 1995 due to financial non-viability on account of CBP. Moreover, CBP is considered by them as a process, which is:

  • Intrusive
  • Lacking in transparency
  • Discretionary
  • Discouraging for innovation, high quality & efficiency
  • Not followed by any major country in the world
  • Not supported by even WHO. It says other countries are moving away from Indian type of CBP

B. Market Based Pricing (MBP): MBP in general is considered by its proponents as a system which is:

  • Transparent
  • Non-Discretionary
  • Encourages growth & investment
  • Rewards innovation
  • Promotes efficiency

The two variants of MBP under discussion are:

- WAP of top 3 brands

- WAP of bottom 3 brands

ARGUMENTS IN FAVOR:

1. WAP of top 3 brands:

  • It is a transparent system and will reduce the prices of medicines
  • With adequate checks and balances in place the method will not lead to increase in prices because of the following reasons:

- All price increases are subject to WPI              – Market competition will not permit any price increases              – Companies in low-price segments will create pressure to reduce prices further

2. WAP of bottom 3 brands: This group argues that instead of WAP of top 3 brands, if the same for the bottom three brands is considered, ceiling prices will come down very significantly, benefiting patients much more than what WAP of top three brands will do.

ARGUMENTS AGAINST:

1. WAP of top three brands:

  • Would lead to overall increase in the prices of many medicines
  • Below ceiling price brands would raise their price upto the ceiling price level immediately
  • Would legitimize high drug prices

2. WAP of bottom 3 brands:

  • Not representative of the market, as only the brands with a low market presence will be considered for WAP calculations
  • The Bottom 3 priced brands factor in only ~17% of the market
  • Likely to have an adverse overall impact on patients as many small brands with lowest acceptable quality standards will be considered for WAP calculations, which may ultimately push high quality formulations out of the market.

C. Formula suggested by EAC of the Prime Minister: ARGUMENTS IN FAVOR:

Will ensures affordable drug prices for the patients by:

  • Encouraging and rewarding high market competition
  • Discouraging monopolistic or oligopolistic market situation

ARGUMENTS AGAINST:

  • EAC criteria for insufficient competition are based on the 1994 Policy
  • The situation is different today as the market has grown 9 times since then
  • The number of brands tends to be low in lower volume turnover molecule segments mainly due to low disease prevalence. Thus bringing these molecules under CBP will be irrational
  • Instead of implementing CBP where lesser number of brands exists in many generic segments, EAC formula should encourage competition even in these lower value turnover molecule segments to bring the prices further down

That said, ‘Drug Price’ has always remained one of the critical factors to ensure greater access to medicines, especially in the developing economies like India, where predominantly individuals are the payors. This point has also been widely accepted by the international community, except perhaps by the diehard ‘self-serving’ vested interests. Important Points to Ponder:

A. ‘Drug Price’ control alone can not improve access to medicines significantly:

To improve access to medicines, even the Governments in countries like Germany, Spain, UK, Korea and China have recently mulled strict price control measures in their respective countries. However, it is important to note and as we have seen above, though the drug prices are indeed one of the critical factors to improve access to modern medicines, there is a need to augment other healthcare access related initiatives in tandem for a holistic approach.

In India, we have witnessed through almost the past four decades that drug price control alone  could not improve access to modern medicines for the common man very significantly, especially in the current socioeconomic and healthcare environment of the country.

B. Taming drug price inflation only has not helped improving access to medicines:

It is quite clear from the following table that food prices impact health more than medicine costs :

Year

Pharma Price Increases

Food Inflation

2008

1.1%

5.6%

2009

1.3%

8.0%

2010

0.5%

14.4%

Source: CMIE Exploring a practical approach: Considering pros and cons of the key methodologies of price control of formulations featuring in NLEM 2011, as I had written in this blog in April 2, 2012, I would like to reemphasize that a middle path with a win-win strategy to resolve this deadlock effectively would be in the best interest of both patients and the industry alike, in the current situation. The middle path, I reckon, may be explored as follows:

  1. Calculate ‘Weighted Average Price’ for each formulation based on prices of all brands – high, medium and low, applying some realistic exclusion criteria.
  2. When inclusion criteria for price control in the draft NPPP 2011 is ‘essentiality’ of drugs, it sounds quite logical that price control should be restricted to NLEM 2011 only.
  3. Enough non-price control checks and balances to be put in place to ensure proper availability of NLEM 2011 drugs for the common man and avoidance of any possible situation of shortages for such drugs.

Conclusion:

Conforming to the directive of the honorable Supreme Court of India on price control of essential medicines in the country, the GoM should now help resolving the issue of putting in place a robust new National Pharmaceutical Pricing Policy, without further delay, taking the key stakeholders on board.

In any case, it has to be a win-win solution both for the patients and the industry alike, paving the way for improving access to modern medicines for the entire population of India, together with other strategic initiatives in this direction. This is absolutely essential, especially when medicines contribute around 72 percent of the total ‘Out of Pocket Expenses’ of the common man of the country.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

How have the ‘Drug Policies’ of India fared against the set objectives?

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Indian Pharmaceutical Industry has by now established itself as one of the most important knowledge based industry of the nation with significant sets of differential advantages. It has earned global recognition as a low cost producer and global supplier of generic drugs. The domestic industry today meets almost the entire demand for pharmaceutical products of the country. This happened, as many would consider, primarily due to the pragmatic decision of the government to abolish the product patent during the growth stage of the Indian pharmaceutical industry, in the early 70’s.
In global perspective India is still a small market in terms of value turnover:

Having achieved all these, one should keep in mind that despite being the second largest country in terms of population, domestic Indian pharmaceutical market recorded a turnover of just U.S$ 7.8 billion in 2008, which is significantly lower than any smaller country of the developed world.

This is primarily because India is a low priced generic pharmaceuticals market. McKinsey forecasts that by 2015 the industry will record a turnover of U.S$ 20 billion. The key drivers of growth are forecasted to be the following:

1. Overall rising income level, particularly of the middle class.

2. Increase in life-style related diseases.

3. Change in demographic pattern with increase in life expectancy.

4. Greater penetration in the rural markets.

5. Increasing penetration of health insurance.

6. Increase in government expenditure towards healthcare.

A quick snapshot of ‘Drug Policy’ changes:

With the initiation of globalization process in 1991, many significant steps have been taken by the government for the pharmaceutical industry of India.

Along with reduction in the span of price control of drugs, reservation of some drugs for the public sector was withdrawn and private sector was allowed to manufacture all types of drugs. Although industrial licensing for pharmaceuticals was abolished, for bulk drugs the system is still in force. Foreign investments through automatic route was first raised to 74 percent and then to 100 percent.

The product patent regime with the introduction of the Patents Act 2005 ushered in a paradigm shift in the pharmaceutical landscape of India. Almost simultaneously, on in-house research and development, the facility of weighted deduction of 150 percent (though inadequate) to cover expenditure towards R&D, patent filing, regulatory approvals and clinical trials was a welcome step. These steps, howsoever good, were considered to be not good enough by a large section within the pharmaceutical industry of India.

The need for some more key changes:

The reform initiatives as enunciated in the successive drug policies were considered by the pharmaceutical industry as far from satisfactory. In the era of globalization, where market forces play a dominant role to control prices including of essential commodities like, food grains, the rigors of stringent price control on pharmaceuticals need to have a relook urgently. This was re-inforced even in the ‘National Economic Survey Report of 2009′.

Moreover, considering the new product patent regime is well in place since January 2005, to foster and encourage innovation within the country, there is an immediate need to take robust fiscal measures and offer attractive financial incentives for indigenous pharmaceutical R&D initiatives.

Simultaneous reform measures are warranted in the health insurance sector:

It is worth mentioning, effective penetration of health insurance being one of the key growth drivers of the Indian pharmaceutical industry, adequate and immediate reform measures in this area is necessary to respond to the need of a robust healthcare financing model for all strata of the society. This should work in tandem with the new drug policy measures.

The health insurance sector is growing, but not to the extent that it should. Health insurance premiums had grown to around U.S$ 800 million as on 2007 and are expected to reach around U.S$ 4.5 billion by 2013. Entry of more private health insurance players along with a reformed health insurance regulatory policy, is expected to expedite the growth rate of this important sector further.

Achievements against each key objective areas of the drug policy, thus far:

In the Drug Policy 1986 the basic objectives of policies relating to drugs were clearly enunciated. But the question is: have the objectives of the successive drug policies yielded the desirable outcome? Let us have a reality check as follows:

1. Objective: To ensure abundant availability of medicines at reasonable price and quality for mass consumption.

Reality: 65 percent of the population of the country still do not have access to modern medicines

2. Objective: To strengthen the domestic capability for cost effective, quality production and exports of pharmaceuticals by reducing trade barriers in the pharmaceutical sector.

Reality: The country has been able to make good progress in this area.

3. Objective: To strengthen the system of quality control over drug and pharmaceutical production and distribution.

Reality: The quality of all medicines produced in the country against valid manufacturing license still raises a big concern. Even the government of India while purchasing medicines for its own ‘Jan Ausadhi’ outlets, restricts purchases of medicines only upto a certain category of pharmaceutical manufacturers, for product quality reasons.

4. Objective: To encourage R&D in the pharmaceutical industry in a manner compatible with the country’s need and with particular focus on diseases endemic or relevant to India by creating conducive environment.

Reality: Nothing worth mentioning has been done in this area.

5. Objective: To create an incentive framework for the pharmaceutical industry, which promotes new investment into the industry and encourage introduction of new technology and new drugs?

Reality: Again nothing significant has been done by the government in this area.

Conclusion:

The role and objectives of the drug policy should help accelerating the all-round inclusive growth of the Indian pharmaceutical industry and make it a force to reckon with in the global pharmaceutical industry. The drug policy is surely not formulated only to implement rigorous price control of drugs. The policy formulates other key objectives to contribute significantly towards achieving the healthcare objectives of the nation, working closely with other related ministries of the government.

Unfortunately, it has not been able to keep pace with the globalization process of the country as compared to the other industries, also dealing with the essential commodities. The amended Indian Patents Act came into force in India in 2005. The drug policy of India, for various reasons, has not been able to articulate, as yet, specific measures to encourage innovation, giving a new thrust to the pharmaceutical R&D space of the nation.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.