What ails India pharmaceutical?

By FnF Correspondent | PUBLISHED: 18, Jan 2020, 12:12 pm IST | UPDATED: 21, Jan 2020, 7:16 am IST

Delhi: It has been a rough end to 2019 for India’s pharmaceutical industry. While like the rest of India Inc, companies in this sector have been bogged down by economic malaise, there are some sector-specific issues that concern my fellow CEOs.

For the last few months, their businesses have been buffeted by an over 50% increase in the cost of raw material imported from China, leaving businesses hobbled by shrinking margins and questions of long-term viability. This distress caused them to appeal to the NPPA) for price increases. The regulator used the rarely invoked Para 19 of the Drugs (Prices Control) Order to enact these rates providing some relief.

Unlike mature markets such as the US, where drug prices are market-controlled, here, the government and regulators play a pivotal role in the entire process. Regulators fix both the price companies pay for bulk drugs and the price at which they sell their products in the market, leaving little leeway to build profitable businesses. The list of price-controlled drugs, by the department of pharmaceuticals under the ministry of health and family welfare, has swelled from 74 in 1995 to almost 860 in 2019.

For Indian pharma, this is a double-edged sword. Companies have learnt to maximise efficiency from this system by squeezing every ounce out of their processes. But with slim margins, they have little incentive to modernise and upgrade their manufacturing capabilities and capacity.

On the world stage, this places Indian pharma at a distinct disadvantage, as companies can’t compete with their rivals worldwide and don’t invest in R&D to develop breakthrough high-margin drugs. This pressure has become only more acute, because the cost of bringing a drug candidate to the market has increased sharply — from nearly $1.1billion in 2010 to over $2.1billion in 2018, according to Deloitte.

India’s pharma industry has built a myth that it cannot competitively manufacture essential medicines under these constrained circumstances. While the current base price for excipients (the inactive substance that is the medium for a drug)

API) is not in line with what GoI has listed, this only impacts margins and not feasibility. But with the massive volumes required, these firms can yet build viable businesses here. Instead, with technological developments such as Industry 4.0 and digital manufacturing globally, Indian drug-makers can harness these tech upgrades to rejuvenate their outmoded businesses, and even prosper.

An estimated 50% of drugs still fail in Phase 2 and Phase 3 of the development cycle due to lack of efficacy or safety signals. Using artificial intelligence (AI), drug-makers could identify better compounds four times faster, with the potential to reduce the late-stage drug failure rate by as much as 20%.