The Indian Pharmaceutical industry (domestic, import and export) as per Market Publishers Forecast, is valued at USD 27.4 Billion. It is growing steadily at a CAGR of 10+ %. The industry is typically involved in four types of businesses- production of branded medicines, production of branded generic medicines, product of unbranded generic medicines and production of active pharmaceutical ingredients which are used as ingredients in medicines. India has also become a popular destination for outsourced contract research and manufacturing service. The Contract manufacturing and research Industry has grown more than 60 % CAGR between 2007 and 2010, and has a market size of USD 1.5 Billion. The industry is primarily focused on manufacturing of generic medicine and export of bulk drugs. The focus on development of new drugs began with introduction of new Patent regime in 2005 which permitted patenting of pharmaceutical products. However, compulsory licensing remains a concern.
The Indian pharmaceuticals market is the third largest in terms of volume and thirteenth largest in terms of value, and it accounts for 20 per cent in the volume terms and 1.4 per cent in value terms of the Global Pharmaceutical Industry as per a report by Equity Master. India is the largest provider of generic drugs globally with the Indian generics accounting for 20 per cent of global exports in terms of volume. Of late, consolidation has become an important characteristic of the Indian pharmaceutical market as the industry is highly fragmented.
India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers who have the potential to steer the industry ahead to an even higher level. Presently over 80 per cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immuno eficiency Syndrome) are supplied by Indian pharmaceutical firms.
The UN-backed Medicines Patent Pool has signed six sub-licences with Aurobindo, Cipla, Desano, Emcure, Hetero Labs and Laurus Labs, allowing them to make generic anti-AIDS medicine TenofovirAlafenamide (TAF) for 112 developing countries.
The Indian pharma industry, which is expected to grow over 15 per cent per annum between 2015 and 2020, will outperform the global pharma industry, which is set to grow at an annual rate of 5 per cent between the same period!. The market is expected to grow to US$ 55 billion by 2020, thereby emerging as the sixth largest pharmaceutical market globally by absolute size, as stated by Mr Arun Singh, Indian Ambassador to the US. Branded generics dominate the pharmaceuticals market, constituting nearly 80 per cent of the market share (in terms of revenues). The sector is expected to generate 58,000 additional job opportunities by the year 2025. *
India’s pharmaceutical exports stood at US$ 16.4 billion in 2016-17 and are expected to grow by 30 per cent over the next three years to reach US$ 20 billion by 2020, according to the Pharmaceuticals Export Promotion Council of India (PHARMEXCIL).
Indian companies received 55 Abbreviated New Drug Application (ANDA) approvals and 16 tentative approvals from the US Food and Drug Administration (USFDA) in Q1 of 2017. The USFDA approvals are expected to cross 700 ANDA in 2017, thereby recording a year-on-year growth of 17 per cent. The country accounts for around 30 per cent (by volume) and about 10 per cent (value) in the US$ 70-80 billion US generics market.
India’s biotechnology industry comprising bio-pharmaceuticals, bio-services, bio-agriculture, bio-industry and bioinformatics is expected grow at an average growth rate of around 30 per cent a year and reach US$ 100 billion by 2025. Biopharma, comprising vaccines, therapeutics and diagnostics, is the largest sub-sector contributing nearly 62 per cent of the total revenues at Rs 12,600 crore (US$ 1.89 billion).
The Union Cabinet has given its nod for the amendment of the existing Foreign Direct Investment (FDI) policy in the pharmaceutical sector in order to allow FDI up to 100 per cent under the automatic route for manufacturing of medical devices subject to certain conditions.
- The Indian Pharmaceutical industry is witnessing healthy foreign direct investment, amalgamations and collaborations (such as licensing, co- development, joint distribution and joint ventures)
- Domestic manufacturers are looking to tap into international generic market with high margins. The Abbreviated new Drug Applications (ANDA) to the US FDA are increasing every year
- The Industry is witnessing a paradigm change as the focus is shifting from the manufacturing of generic drugs to drug discovery and development (Sun Pharma, Cadilla Healthcare and Piramal Life Sciences, had applied for conducting clinical trials on for numerous new drugs in 2010)
- However, the clinical trials industry is on decline due to various reasons like regulatory delays, compensation issues etc
- The drugs and pharmaceuticals sector attracted cumulative FDI inflows worth US$ 14.71 billion between April 2000 and March 2017, according to data released by the Department of Industrial Policy and Promotion (DIPP).
Some of the major investments in the Indian pharmaceutical sector are as follows:
- The exports of Indian pharmaceutical industry to the US will get a boost in FY18, as branded drugs worth US$ 50 billion will become off-patented. #
- Private equity and venture capital (PE-VC) investments in the pharmaceutical sector have grown at 38 per cent year-on-year between January-June 2017, due to major deals in this sector.
- Indian pharmaceutical firm, Eric Lifesciences Pvt Ltd, has launched its initial public offering (IPO) worth Rs 2,000 crore (US$ 311 million) in June 2017.
- Indian pharmaceutical company, Cadila Healthcare Ltd, is planning to raise Rs 1,000 crore (US$ 155 million) via a qualified institutional placement (QIP) of shares shortly.
- Capital International Group, a private equity fund, has acquired a three per cent stake in Intas Pharmaceuticals Ltd from ChrysCapital Llc for a consideration of US$ 107 million, thereby valuing Intas Pharma at approximatively US$ 3.5 billion.
- Aurobindo Pharma Ltd, has acquired four biosimilar products from Swiss firm TL Biopharmaceutical AG, which will require TL Biopharmaceutical to supply all the developmental data for four molecules, which will be developed, commercialised and marketed by Aurobindo Pharma
- Piramal Enterprises Ltd acquired a portfolio of spasticity and pain management drugs from UK-based specialty biopharmaceutical company Mallinckrodt Pharmaceuticals, in an all-cash deal for Rs1,160 crore (US$ 171 million).
- Aurobindo Pharma has bought Portugal based Generis Farmaceutica SA, a generic drug company, for EUR 135 million (US$ 144 million).
- Sun Pharmaceutical Industries Ltd, India’s largest drug maker, has entered into an agreement with Switzerland-based Novartis AG, to acquire the latter’s branded cancer drug Odomzo for around US$ 175 million.
- Kedaara Capital Advisors LLP, a private equity (PE) firm, plans to invest Rs 430 crore (US$ 64.5 million) to acquire a minority stake in Hyderabad-based diagnostics chain Vijaya Diagnostic Centre Pvt Ltd.
- Sun Pharmaceuticals Industries Limited plans to acquire 85.1 per cent stake in Russian company Biosintez for US$ 24 million for increasing its presence in Russia through local manufacturing capability.
- Abbott Laboratories, a global drug maker based in US, plans to set up an innovation and development center (I&D) in Mumbai, which will help in developing new drug formulations, new indications, dosing, packaging and other differentiated offerings for Abott’s global branded generics business.
The implementation of the Goods and Services Tax (GST) is expected to be a game-changer for the Indian Pharmaceuticals industry. It will lead to tax-neutral inter-state transactions between two dealers, thereby reducing the dependency on multiple states and increasing the focus on regional hubs. It is expected to result in an efficient supply chain management, which is expected to reduce its cost considerably. The cost of technology and investment is expected to reduce on account of tax credit which can be availed now on the duties levied on import of costly machinery and equipment.
Some of the initiatives taken by the government to promote the pharmaceutical sector in India are as follows:
- In the Union Budget 2017-18, the Department of Biotechnology (DBT) received Rs 2,222.11 crore (US$ 333.31 million), an increase of 22 per cent, to continue implementing the department’s national biotech strategy.
- In an attempt to revive the active pharmaceutical ingredient (API) and bulk drug market in India, the Government of India has proposed peak customs duty on the import of APIs and also plans to set up mega drug parks to give a boost to domestic production.
- The Government of India unveiled ‘Pharma Vision 2020’ aimed at making India a global leader in end-to-end drug manufacture. Approval time for new facilities has been reduced to boost investments.
- The government introduced mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing Authority to deal with the issue of affordability and availability of medicines.
- Mr Ananth Kumar, Union Minister of Chemicals and Petrochemicals, has announced setting up of chemical hubs across the country, early environment clearances in existing clusters, adequate infrastructure, and establishment of a Central Institute of Chemical Engineering and Technology.
The Indian pharmaceutical market size is expected to grow to US$ 100 billion by 2025, driven by increasing consumer spending, rapid urbanisation, and raising healthcare insurance among others.
Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers that are on the rise.
The Indian government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.
MAJOR PLAYERS IN INDIA
- Leading Indian companies: Cipla, Ranbaxy Labs (subsidiary of Japanese pharmaceutical company Daiichi Sankyo), Dr. Reddy’s Labs, Sun Pharma, Glenmark Lupin, Aurbindo Pharma, Piramal Healthcare, Cadila Healthcare, Zydus Cadilla, , Wockhardt Pharma.
- Leading MNC Companies in India: GSK, Sanofi Aventis, Pfizer, Johnson & Johnson,Novartis, Abbott, Takeda, Roche, Mylan Pharma
- Important industry associations: Organization of Pharmaceutical Producers of India (OPPI), Pharmaceutical & Allied Manufactures’ & Distributors’ Association Limited (PAMDAL), Pharmaceuticals Export Promotion Council Of India (Pharmexcil), Indian Pharmaceutical Alliance (IPA), Indian Drug Manufacturers’ Association (IDMA), Bulk Drug Manufacturers Association (BDMA), All India Organization of Chemists and Druggists (AIOCD)
IMPORTANT LAWS AFFECTING THE INDUSTRY
Drugs and Cosmetics Act, 1945 and Rules
- Regulates manufacturing, import, distribution and sale [confirm] of drugs (includes certain medical devices) and cosmetics
- Prescribes product and labeling standards
- Regulates clinical trials
- Regulates advertisements of drugs
Pharmacy Act, 1948
- Regulates pharmacy education, profession and practice of pharmacy in India
- Provides that an offense in a professional capacity by a registered pharmacist may lead to penal action under the Act to the extent of permanent deregistration
- Impersonation as a registered pharmacist is also punishable under the Act
The Drugs & Magic Remedies (Objectionable Advertisements) Act, 1954
- Regulates advertisements of drugs relating to diagnosis / cure / mitigation / treatment / prevention of certain prescribed diseases and conditions
- Diseases and conditions include AIDS, Asthma, Cancer etc.
Indian Patent Act, 1970
- Provides for product and process patent for 20 years
- Specific provision for compulsory licensing and prevention of ever- greening
Trade Marks Act, 1999
- Provide exclusive right to use registered trademark in connection with the specific goods and services in the territory of India
- Act extends protection to only registered trademarks. For infringement of an unregistered trademark, an action for passing- off will lie.
Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 (MCI Code)
- Regulates professional conduct of registered medical practitioners in India
- Prescribes that, inter alia, registered medical practitioners will not receive any gift from pharmaceutical or allied healthcare industry or their sales representative and that the practitioner will not endorse any drug or product publicly
- Makes recommendations to institutions (such as hospitals) regarding non- ethical nature of solicitation of patients
- Violation of MCI Code will amount to professional misconduct resulting in penal action to the extent of permanent disqualification to practice, over and above any other civil or criminal action which may lie under relevant law
Drugs Price Control Order, 1995 (DPCO)
- Regulates prices of controlled bulk drugs and formulations
- Regulates margins offered to dealers and retailers
- Imposes obligation to sell bulk drugs and formulations to dealer (conditionally) and consumer (unconditionally)
Uniform Code for Pharmaceutical Marketing Practices (UCPMP)
- Regulates marketing practices of pharmaceutical industry
- Imposes requirement of prior permission from Drugs Controller General of India for promotion
- Requires promotion to be accurate, fair, objective, verifiable and not be misleading
- Lays down standards for rival product comparison
- Mandates that promotion will not involve exchange of gifts in any form
- Voluntary code with a condition that non- compliance will result in conversion to statutory code.
Information Technology Act, 2000 (IT Act)
- Imposes a liability on such body corporate or person who deals with sensitive personal data or information for negligence in implementation and maintenance of reasonable security and procedures for securitization of such data, if such negligence causes wrongful gain or loss to any person
- Penalizes disclosure of personal information to a third person, if it is done without consent of the person to whom such information belongs or in breach of a lawful contract, and with the intention or knowledge that the disclosure will cause wrongful gain or wrongful loss
- Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 define sensitive personal data or information to include medical records and history and such personal information relating to physical, physiological and mental health condition
Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 (Data Protection Rules)
- Define personal information and sensitive personal data or information. Medical records and history, and such personal information relating to physical, physiological and mental health condition are deemed to be sensitive under the Rules.
- Impose several obligations on body corporate dealing with personal information and sensitive personal data or information
- Violation of Data Privacy Rules will lead to penalty under IT Act
National List of Essential Medicines (NLEM)
- List published by Ministry of Health and Family welfare
- All medicines in the list are deemed essential, and are available or made available at affordable costs and with assured quality
- List comprises of a total of 348 medicines (excluding repetition)
- The last list was published in 2011.
TAX LAWS AFFECTING PHARMACEUTICAL INDUSTRY
Income Tax Act, 1961
- It is tax on income imposed by Central Government
- Residents in India are taxed on their worldwide income
- Non- residents are taxed on Indian source of income
- The Indian tax rates applicable to non-residents could be up to 40% (excluding applicable surcharge)
- If the tax payable by any company, including a foreign company taxable in India, is less than 18.5% of its book profits, it will be required to pay Minimum Alternate Tax
- Interest received by a non-resident from Indian on foreign currency denominated loans may be taxable
- Payments towards royalty and fees for technical services is taxable
- Expenditure on scientific research is treated as capital expenditure and is deductible
Transfer Pricing Regulations
- Income tax Act makes provisions for the taxation of income arising from international transaction between associated enterprises
- Transfer Pricing Regulations lay down that any income arising from such an “international transaction” shall be computed having regard to the “arm’s length price”
- The Regulations also lay down methods for calculation of arm’s length price
Research and Development Cess Act, 1986
- All payments made towards the import of technology are subject to a tax of 5% under the Act
- Technology includes any special or technical knowledge or any special service required for any purpose whatsoever by an industrial concern under any foreign collaboration, and includes designs, drawings, publications and technical personnel
- Import of drugs and pharmaceuticals is liable to basic customs duty and additional customs duty
- Import of neutraceuticals and health supplements is liable to basic customs duty, additional customs duty and a special additional customs duty
- There is no additional customs duty on certain drugs (life- saving)
- Import of medical devices is liable for basic customs duty and additional customs duty
Sales Tax / Value Added Tax (VAT)
- Sales tax / VAT is levied by states on sale of goods within its territory
- Sale of drugs (including bulk drugs) and medical formulations is taxable
- Life- saving drugs are many a times exempt from sales tax
- Central Sales Tax is applicable in case of the sale of goods in the course of inter-state trade or commerce
- Duty imposed by Central Government on manufacture of goods
- Generic excise duty rate on the inputs (Active Pharmaceutical Ingredients or APIs) is currently at 10.3%
- Generic excise duty rate on finished formulations is 4.12%
- Under the current service tax regime, all services are taxable unless exempt.
- Exempted services include: ‘Health care services’ by a clinical establishment, an authorised medical practitioner or para-medics
- ‘Health care services’ means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma
Central Drug Standard Control Organisation (CDSCO)
- Established under Drugs and Cosmetics Act, 1945
- Responsible for- approval of new drugs; conduct of clinical trials in India; preparation, implementation and maintenance of standards for Drugs; maintenance of quality of imported Drugs and screening of drug formulations available in Indian market.
- Arm of Ministry of Health and Family Welfare
State Drug Standard Control Organisation
- Established under Drugs and Cosmetics Act, 1945
- Responsible for regulation of manufacture, sale and distribution of Drugs in respective States
- Monitors quality of Drugs manufactured in respective state and initiates penal proceeding for any violation of standard
The Drug Controller General of India (DCGI)
- Authority established under Drugs and Cosmetics Act, 1945
- Statutory authority for the purposes of Drugs and Cosmetics Act, 1940 and Rules, 1945
- Head of CDSCO
- Carries out licensing and controlling function of CDSCO
National Pharmaceuticals Pricing Authority (NPPA)
- Authority established under Drugs Price Control Order, 1995
- Fixes/ revises the prices of controlled bulk drugs and formulations
- Enforces prices and ensures availability of the medicines
- Recovers amounts overcharged by manufacturers for the controlled drugs from the consumers
- Monitors the prices of decontrolled drugs in order to keep them at reasonable levels.
- Arm of Department of Pharmaceuticals, Ministry of Chemicals and Pharmaceuticals
The Indian Pharmaceutical Industry has shown great potential and continues to grow consistently. The Indian generic drug sector is robust and is establishing its presence in foreign markets too. The new- drug sector is also expected to record a healthy growth owing to significant industry- wise increase in R&D expenditure and proposed new- drug launches. However, since health is an important subject, the industry continues to be heavily regulated. Multiple Ministries continue to regulate the pharmaceutical industry such as the Health Ministry, Chemicals and Fertilizers Ministry, Science and Technology Ministry, Food Ministry etc. Numerous legislations, regulations and judgments affecting the industry have come into existence recently and numerous others have been proposed. The Industry will have to realign itself with these legal changes in order to ensure continuance of its success story.
Exchange Rate Used: INR 1 = US$ 0.015 as on October 10, 2017
References: Consolidated FDI Policy, Department of Industrial Policy & Promotion (DIPP), Press Information Bureau (PIB), Media Reports, Pharmaceuticals Export Promotion Council