Pharma, along with telecom, generally escaped the scars of slowdown. But unlike telecom, pharma is suffering from a rash of bad news. Worse, this is not just bad for pharma companies, to the extent that India?s private health service is at an inflexion point?big things are predicted in the near future?pharma catching cold may give the health sector flu. Growth drivers for the pharma sector as well as medical equipment, hospital business and related services are enormous. To put this in perspective, the two largest domestic medical service groups, Fortis and Apollo, have built 71 hospitals in the country, and they plan to increase this number to 100 by 2012. But look at this?the pharma sector is underperforming in the stock markets. The BSE health care index has slid in the last one year (August-on-August) by almost 13%. Except consumer durables and realty, that is the worst performance in the same period for all sectors covered in the BSE-13. There are three sets of issues that are hurting pharma.
Take the simplest one first. We continue to wait for a molecule developed by Indian pharma that can be patented. The latest to join the list of also-rans is Glenmark Pharmaceuticals, whose oglemilast molecule failed one set of trials according to data released by the company. Analysts have therefore discounted the value of the entire research & development activity of the company. A brutal but understandable reaction. This is a problem that afflicts the entire pharma industry at present, and it will therefore impact valuations all round. Promoters of some of these companies are looking at exit routes. They will have a tough time. The second problem the industry faces is the enormous amount of litigation generated in filing for products, particularly in developed markets. A fallout of all these cases has been the often unfair targeting of the manufacturing processes of Indian companies. We call this unfair because in at least two cases, the same plant has been cleared by the regulator of one country, after it has been described inadequate by another regulator. The third set of issues concern the new battleground that has opened for Indian generic companies doing business in Africa. The rules for declaring a drug counterfeit is so loosely defined that a company can run foul of it, simply because a consignment has passed through a third country in transit. How to cope? Sophisticated management is one obvious answer. Indian pharma promoters must either shape up or, for their and the sector?s sake, they should be bought out by those who can run professional management in a complex, over-regulated field.
