The current draft pharma policy may have a negative impact on growth and profitability of the industry due to continued emphasis on price control, say industry officials and analysts

Mumbai: India’s proposed pharmaceutical policy, if implemented in the current form, may have a negative impact on growth and profitability of the industry due to continued emphasis on price control, cap on trade margins and discontinuation of loan licensing or third-party manufacturing, industry officials and analysts said.

Several recommendations in the draft policy, though intended to be patient-friendly, are likely to hurt the industry, particularly the smaller players. The policy is prepared by the department of pharmaceuticals under the ministry of chemicals and fertilizers.

In a country where 65% of medical costs are out-of-pocket expenses, the government’s efforts to provide quality medicines to patients at affordable prices are in the right direction but such moves are expected to squeeze margins of pharma companies.

Proposals such as mandatory bio-equivalence and bio-availability tests for all drugs, adoption of World Health Organisation (WHO) quality standards by all manufacturing units, and phasing out of loan-licensing practice are likely to increase costs of companies, while cap on trade margins, implementation of “one company-one drug-one brand name-one price”, and government’s drugs price control order may keep pricing under pressure.

On the draft policy, D.G. Shah, secretary general of Indian Pharmaceutical Alliance said, “It appears to be a hurriedly prepared document with several flaws…It is more a product of perceptions than evidence. It will hurt patients by promoting proliferation of substandard and poor quality drugs, reducing competition and compromising availability. It will damage the industry by further slowing down growth and its profitability.”

“The policy document explicitly states providing a longer term stable policy environment for the sector which is much needed. However, the policy needs to ensure it addresses facts rather than perceptions. The continued focus on price control versus allowing market factors and quality to determine prices seems flawed. In the end, the patient will suffer if the manufacturing of good quality medicines at prevailing prices becomes a challenge and the government must be thoughtful on this,” Rahul Guha, partner and director at The Boston Consulting Group (BCG), said.

In a note dated 17 August, brokerage firm Nomura said the proposals favour large pharma companies, which adhere to relatively high standards of manufacturing and marketing practices, but are negative for smaller firms.

The draft policy document states that loan licensing raises many quality maintenance and assurance issues. Therefore, except in biopharmaceuticals where India is at a relatively nascent stage of development, in other pharmaceutical formulations, loan licensing is proposed to be phased out over three years and allowed up to only 10% of total production of the company and from a WHO-approved manufacturing unit.

B&K Securities said in a note that the proposal to discontinue loan licensing or third-party manufacturing would be negative for the industry as almost 40-50% of local drugs are sourced through loan licensing or contract manufacturing from small scale units.

“Instead of a blanket ban on loan licensing activity which would create excess un-utilised capacity, it would be better if central drug regulator brings loan licensing units under their audit protocol to ensure high quality standards are complied. If loan licensing is discontinued, the burden on the local pharma players would increase dramatically as companies will have to invest in capex plans or maybe acquire these SMEs (small and medium-sized enterprises) into their fold,” the brokerage said.

While the policy talks about the increase in use of generic names of drugs instead of brand names, it does not explicitly say that doctors will have to compulsorily prescribe medicines by their generic names, a move that was mentioned by Prime Minister Narendra Modi in early 2017.

“The draft pharma policy does not have the requirement of doctors prescribing the medicines through molecule/salt names (except procurement by public hospitals). The policy is based on the principle of ‘one company–one drug–one brand name–one price’. Even for public procurement, the policy allows the use of brand names for fixed dosage combinations. The key worry for the sector was use of generic names, and with the new draft policy not emphasizing on it, this removes a key overhang from the sector,” broking firm Credit Suisse said in a report dated 17 August.

Key points of draft New Pharma Policy:

01 – One manufacturer, one salt, one brand name, one price.

02 – Making essential drugs accessible & affordable to all.

03 – Providing longer term stable policy environment for companies.

04 – Making India sufficiently self-reliant in end-to-end indigenous manufacturing.

05 – Ensuring world class quality of drugs for domestic consumption & exports.

06 – Creating an environment for R&D to produce innovator drugs.

07 – No overwhelming benefit to the sector due to loan licensing.

08 – ‘Loan licensing’ only for up to 10% of total production of the company.

09 – ‘Loan licensing’ undermines veracity of drug manufacturing.

10 – 2,500 salts manufactured but there are 60,000 brands with varying prices.

11 – Will phase out policy allowing 1 drug companies to make multiple brands for other companies.

12 – A level of trade margins will be prescribed to create level playing field.

13 – E-pharmacy with adequate safeguards will be encouraged.

14 – Public procurement of drugs will be of generic drugs in salt names.

15 – Drug pricing to be poor-oriented & industry-friendly.

16 – National list of essential medicines will be basis for price control.

17 – Marketing practices of several pharma companies create an unfair advantage.

18 – Voluntary regulations for marketing practices to be made mandatory.

19 – New agency to look at violations in marketing practices.

20 – Approval time for applications to be fixed at 3 months.

21 – Chief Drug Regulator can extend approval time with reasons recorded.

22 – Brownfield FDI subject to continuance of drug manufacturing by entity getting FDI.

23 – Brownfield FDI subject to continuance of expenditure on R&D.

24 – Brownfield FDI subject to continuance of transfer of technology.

25 – New system to monitor adherence of brownfield FDI conditions.