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Pharma price control norms need to be updated
The turnover of the Indian pharmaceutical industry has been growing at the rate of around 15 per cent per annum since the past decade, and touched Rs 197 billion in fiscal year (FY) 2000. However, the industry is highly fragmented with about 20,000 players accounting for a total investment of around Rs 30 billion.In FY 2000, the Indian pharmaceutical industry witnessed a slight decline in its growth rate. Besides, the margins declined following the reduction in price realisations in both the domestic and international markets. The performance, however, has not been uniform across companies mainly because of the differences in product portfolio and distribution network. The companies operating in the lifestyle segment have witnessed increase in growth rates as compared with other companies. The industry has the potential to emerge as the sourcing base for the global industry, primarily in terms of bulk drugs. Moreover, companies are likely to broaden their product portfolio with the introduction of new products in the fast-growing segments. This is expected to be the outcome of the increased emphasis on research & development (R&D), the expenditure on which is likely to increase. However, most companies still focus on applied research, as opposed to basic research. Otherwise, India is likely to emerge as the global base of research because of relatively cheaper resource costs. On the whole, the industry is expected to continue its restructuring process through mergers and acquisitions, both for brands and companies. The interest of international companies in India, too, is likely to increase following changes in the patent norms. Competition at the top echelons is expected to increase, with the market share of Indian companies, especially those in the retail formulations segments, reducing significantly. Current industry position
Industry growing steadily at a CAGR of around 15 per cent in the past decade.
Highly fragmented industry with more than 20,000 players but about 40 players accounting for more than 75 per cent of the industry turnover.
Share of unorganised sector and multinational companies has reduced in the past. However, the share of multinational companies is likely to increase in the retail formulation segment with advent of product patent norms and increase in marketing expenses by them.
R&D expenditure has increased in the recent past. However, it is still very small compared with global norms and is largely restricted to process research activities.
The merger and acquisition activities in the industry have increased in the recent past. This has mainly been driven by an urge to increase the marketing efficiency and streamline product portfolio.Key issues facing the industry
Pricing Control: The pharmaceutical sector needs an updation in price control norms. Moreover, streamlining of the regulatory process of price control norms can improve the efficiency of the industry.
R&D expenditure: The Indian pharmaceutical sector has the potential to emerge as the global R&D base because of relatively cheaper resource costs in India as compared with global norms. However, most of the players in the industry are not working on the basic research process because of lack of funds or awareness.
Product patent: Implementation of product patents by the year 2005 is likely to have a significant impact in the long term, which may result in the MNCs getting a dominant position.
Increase in marketing expenses: Better growth rates and margins are attached with the formulations and that too in lifestyle segments. In such a case, the average marketing expenses for all the players would have to be increased significantly to meet the competition.Factors that can be addressed in the Budget
Streamlining price control norms under the Drug Price Control Order (DPCO): A change in drug policy is likely to make the domestic industry more competitive in terms of cost and quality norms.
Increase in income tax benefits on merger and acquisition activities: This would encourage the companies to streamline their product portfolio, which would make them competitive in the long term.
Increase in tax exemptions on R&D activities, provision of incentives to incur R&D expense, simplification of processes required to be complied with for R&D activities: Though tax exemptions provided by the Indian government on R&D activities are on the higher side compared with the global norms, an increase in promotion of R&D activities would result in strengthening of base for Indian companies in the global market. This would be of critical importance in the post-product patent regime.
Rationalisation and reduction of customs duty on drug samples, equipment, reference standards for R&D process: This would lower the cost of R&D in the country. Further absence of fixed valuation procedure delays the process. Consequently, rationalisation would expedite the clinical trials and promote R&D in the country.
Exemption of tax on income derived from export of research technology or products: This is likely to promote contract research activities, which involve completion of different phases of research by different entities as per their core competence. Moreover, India has the advantage and facilities to conduct certain phases of R&D process at a cheaper cost as compared to the complete research process.
Lowering of customs duty for import of drug intermediates and chemicals for bulk drugs: This would promote the bulk drugs industry and make Indian companies cost-competitive, which in turn would promote emergence of India as the sourcing base for the global industry.
Reduction in central excise duties and CVD: This would reduce the overall indirect tax burden on the consumers and thus, increase the average usage of medicines in the country.
Simplification of regulatory mechanism: This would promote faster introduction of new products and effective pricing of pharmaceutical products.Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
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