State-owned pharmaceutical companies want to drive home a point?it’s hardly sustainable for them to pursue the public interest goals of their majority owner (the government), without having an eye on reasonable profits.
To make profits by competing with private sector giants in a knowledge-based industry, they need enterprise as well as quick decision-making powers independent of the central bureaucracy.
Pharmaceutical companies owned by the central government now do not have either of these. As a result, out of the seven state-owned firms, two are under liquidation for six years now, three others are at various stages of revival and only the remaining two make some profits.
Now the government is considering a Rs 4,000 crore revival plan for one of the oldest and real estate-rich firms?Indian Drugs and Pharmaceuticals Ltd (IDPL). But the fact that another state-run firm, Hindustan Antibiotics Ltd (HAL), received a revival package in 2006-07 but still made losses subsequently, holds back policymakers from spending taxpayer’s money to salvage sinking public sector firms. The finance ministry believes that the resources needed to revive these firms may be sufficient for setting up new sophisticated manufacturing facilities.
The department of pharmaceuticals, the nodal agency, says that HAL, IDPL and Bengal Chemicals and Pharmaceuticals Ltd (BCPL)?another state-run company that received public funds for revival in 2006?have been progressively reducing their losses for the last three years and may even make a small profit of around Rs 5 crore this fiscal. BCPL, which got cash infusion of Rs 207 crore and loan waiver of Rs 233 crore, is expected to be fully revived in 2016-17, the department says.
The government wants these firms to be there for two reasons. If they function well, they can be a somewhat effective counterweight to private sector firms and can instil a downward bias in drug prices. Secondly, if the government has to break a patent held by a private company that refuses to sell a drug at an affordable price, it should have a state entity to rely on for making a copy of the costly private sector brand. Countries like Thailand have resorted to this option during health crises.
But that does not mean that public interest goals alone can sustain these firms. For their bread and butter, these companies should know how to make profits in a commercial and competitive environment where they do not get state protection.
According to a person involved with the public sector pharmaceutical companies, their biggest constraints include an aged workforce, low pay, lack of motivation and the need of government approval for day-to-day business decisions, which handicap them when competing with the cutting-edge sales army of the private sector players. Besides, they make low-cost mass use drugs which are ‘commoditised’ as against the high-value drugs of some of the private sector firms. Expanding the product portfolio needs money for research.
Despite having a national policy that gives preference to state-run drug makers in procurement of medicines by government agencies like the railways, some state governments are yet to put this into practice.
The government also toyed with the idea of shifting the administrative control of public sector drug makers from the department of pharmaceuticals to the health ministry, which needs to procure large quantities of medicines for various healthcare schemes. That would provide an assured market for them. But that does not address the problem plaguing them.
Experts who were involved in reviving some of these firms told FE that they should be given a free hand in hiring professionals at market rates, flexibility in decision making, resources to modernise facilities and a clear mandate to make profits, rather than to be merely ‘viable instruments’ for policy goals.
For finding resources, the government may not need to dig deeper into its exchequer. Companies like IDPL have huge real estate assets at prime locations, valued at more than the turnover of the domestic pharmaceutical industry. Using parts of it for various projects such as software parks for state governments can yield the much-needed funds. But swiftness in implementation is the essence.