Pharma industry poised for impressive growth
Pharma industry poised for impressive growth
Will FDI in pharma industry increase drug prices?
India’s pharmaceutical industry is undergoing a transformation. Lot of changes are taking place in the industry. Whether these changes will produce beneficial effects to the people and the economy is not known at this state. For example, if 100% foreign direct investment is allowed in the existing pharma companies as is contemplated by the government, it is not known whether the drug prices will skyrocket and make people suffer. But India is insisting on Indonesia to allow access to Indian pharma. We cannot advocate one rule for Indonesia and another rule for India. When we want our pharma companies to expand abroad, we should permit foreign investment in our pharma companies. But the question is to what extent should we permit them to invest?
Foreign takeover of Indian pharma companies
There is no direct established and proven connection between FDI investment and drug prices. Anyway, there is an existing Drug Price Control Order (DPCO) to regulate the prices of life saving and essential drugs. The acquisition of matrix Laboratories by Mylan, Ranbaxy by Daiichi Sankyo, Shantha Biotechnics by Sanofi Aventis and Piramal Healthcare by Abbott has sent shockwaves in India. Is the pharmaceutical industry up for grab by foreigners? Why is it that the pharma industry is meekly surrendering itself to foreign entities instead of putting up a fight at the global level as many Indian companies are doing in IT sector? In the last decade, there were some five or six Indian manufacturers of Pencillin-G, the basic drug essential for the manufacture of other antibiotics. But today, no Indian company manufactures Pencillin-G. India depends on Chinese imports for this vital drug.
Super profits
Pharmaceutical industry is a very profitable industry. Already Indian consumers are paying a hefty price for the drugs they consume. For a 100 ml bottle of branded cough syrup. The manufacturing cost works out to be less than Rs.10, but it is sold at more than Rs.60. One gram of injectible powder of ceftriaxone, a broad spectrum antibiotic, sells at more than Rs.120 whereas its manufacturing cost is only around Rs.11. There is virtually no control on the price of majority of the drugs sold in the market. Users are helpless and they pay through their noses, because there is no alternative for them. India’s drug price watchdog National Pharmaceutical Pricing Authority (NPPA) is not able to do anything in this regard. Now the government is thinking of giving more powers to NPPA to verify landed cost of imported drugs and thereby to play its assigned role effectively. The government is also setting up six national institutes of pharma education to meet the requirements of skilled manpower.
Illegal online pharmacies galore
There are many illegal pharmacies active in India. Drugs are exported to Western countries and other nations without doctor’s prescription and without examining the illness of the patient. These companies sell their drugs through online and ignorant customers fall prey to them. Recently, the Narcotics Control Bureau (NCB) busted an illegal online pharmacy in Villupuram in Tamil Nadu arrested two persons, including a Russian citizen. There is also a move to bring pharma department under the health ministry to suggest control on prices of essential drugs. Genuine pharma exporters have received a boost in recent times due to weakening of the Indian Rupee. In the January-August period, retail pharma industry has grown in double digits. In January, the industry was worth Rs.4629 crore. In August, it grew to Rs.5782 crore.
Risky industry
For pharma multinationals, India is an effective pill, not a placebo. Multinationals spend huge sums for discovering new drugs. It is estimated that for inventing a new drug, $1 billion investment is required on an average, which is very high. There are also risks involved in marketing new drugs. If the drug produces any side effects, the pharmaceutical company will have to face lawsuits worldwide. If deaths result, the name of the company will be tarnished. Therefore, it is not proper to compare pharma companies with IT companies, which are relatively in a cosy environment. Multinationals have raised their stake in Indian pharmaceutical industry from 15% five years ago to 25% now through several acquisitions. These acquisitions have cost the multinationals quite a lot.
Acquisitions at high cost
Lab Mylon of USA spent $736 million to acquire Matrix. Pharma Fresenius Kabi of Singapore spent $219 million to acquire Dabur. Daiichi of Japan spent a whopping $4.6 billion to acquire Ranbaxy, Sanofi Aventis of France spent $783 million to acquire Shantha Biotech, Chemicals Horpira of USA spent $400 million to acquire Orchid and Abbot of USA spent $3.7 billion to acquire Piramal Healthcare. Because of the heavy spending in these acquisitions, there is reason to suspect that the multinationals, after acquiring the Indian companies, will be intent to raise the drug prices steeply in the coming days.
USFDA seeking more Indians
There is an increasing demand for Indian skilled workers in pharma industry worldwide. USFDA is planning to increase Indian staff as the USA has become one of the largest consumers of Indian food and drugs. USFDA has international operations in India and China. USFDA initiated a controversial move recently when it proposed user fees for pharmaceutical factory inspections. India is the largest exporter of generic medicines in the world. India exports medicines worth Rs.50000 crore, bulk of which goes to the USA. Apart from generics, India exports nutraceutical supplements, dietary supplements and seafood like shrimps to USA. Currently, the public health system in India spends 0.1% of GDP amounting to Rs.6000 crore for procuring drugs. There is a suggestion that this amount should be increased five fold. Moreover, for a country which has 10000 registered pharmaceutical factories, there are only 66 drug inspectors to visit and inspect them. How can they visit all these factories, assess their quality and certify them?
Potential for medical technology
Indian medical technology has immense potential, considering the huge population of 1.2 billion in India. The size of medical technology industry in India can be pegged at $2-3 billion. At present important medical appliances like primary imaging equipment, pacemakers, orthopaedic appliances, respiration apparatus and dental equipment are imported. But the irony is that a majority of what is manufactured in India is exported. The industry is expected to grow to $5 billion in 2012. Indian pharma companies are planning to jointly initiate research of new drugs with multinational companies in order to minimise their costs. Eli Lilly & Company’s Executive Director Aaron Schat stated recently that the strengths of Indian pharma companies lie in contract research and manufacturing services and respect to global regulatory regime.
Liptor losing patent protection
Next month (November), a biggest event is going to occur in the pharmaceutical industry. The world’s largest selling cholesterol drug Liptor loses patent protection in US. Local Indian pharma companies will gain because of this as the drug comes under the generic category. In order to protect its turf, the pharmaceutical major Pfizer struck deals with Indian pharma major Dr Reddy’s Lab and globally with Watson and Sanofi in France. The off-patent drugs in the next few months open up a market well over $1 billion. Lipitor netted annual sales of $11 billion globally. But Pfizer may have to deal with more Indian companies like Aurobindo Pharma and Lupin to prevent them to manufacture this important generic drug and market it worldwide. It is not enough to deal only with Dr Reddy’s. Big multinational companies are increasingly worrying about the patent system operative in the world. While around 25 new drugs are granted patent every year, a very large number of drugs lose their patent protection every year. These drugs are important drugs, fetching billions of dollars of revenue to their manufacturers every year. Losing protection, these drugs could be manufactured by any generic drug manufacturer and sold worldwide.
Many other drugs also lose patent protection
In the current year itself (2011), several important drugs will lose their patent protection. Some important drugs are, apart from Lipitor, Diovan (manufactured by Novartis with sales of $6 billion), Plavix (manufactured by BMS, Sanofi with sales of $4.8 billion), Zyprexa (manufactured by Eli Lilly with sales of 4.8 billion), Seroquel (manufactured by AstraZeneca with sales of $4.7 billion), Singulair (manufactured by Merck with sales of $4.5 billion), Actos (manufactured by Takeda with sales of $3.9 billion), Symbicort (manufactured by AstraZeneca with sales of $1.7 billion), Lexapro (manufactured by Forest Labs with sales of $3.4 billion) and Lovenox (manufactured by Sanofi with sales of $3.1 billion). The sales figure provided above are for one year. From the above details, one can gauge the opportunities that will come to Indian pharmaceutical companies to expand their sales and profits in the coming months.
Spurious drug manufacturers on the prowl
Pharmacy Council of India (PCI) has expressed against opening of new colleges. It has plans to go for quality assurance system in every pharmacy college. Indian pharmaceutical industry is also faced with the challenge of combating spurious drugs menace. Pharmaceutical industry will be worth $20 billion in 2015. Spurious drugs manufacturers are running a parallel industry with their substandard products, which cannot cure any ailment. Rather, they will invite new ailments inside the body, once consumed. Health ministry and the government are concentrating only to keep the prices of essential drugs under control. Equal attention should be paid to booking the spurious drug manufacturers and the pharmacies that sell them to the gullible public.
Asset base of pharma funds grow
The asset base of pharma funds in the mutual funds sector has grown over the years. Pharma industry is performing even when the economy is not doing well. This is because cure for sickness cannot be postponed because of economy. One can postpone purchase of car or a house. But medicines are vital and cannot be delayed or avoided. For the quarter ended 30.06.11, pharma companies have put up a mixed performance. Ranbaxy’s net sales have come down by 1.8% while Cipla’s net sales have increased by only 8.6%. Dr Reddy’s net sales grew by 17.5%, Sun Pharma by 19.8%, Lupin by 17.2%, Cadilla Healthcare by 11.2%, GSK Pharma by 12.8% and Jubilant Life by 15.5%.
NPPA circumvents rules and protects the public
Barcode technology needs to be introduced in Indian pharmaceutical industry to ensure safety and to boost exports. Large pharma companies that get into limelight, actually get their drugs manufactured through SME companies. Shasun Chemicals has production agreement with Ranbaxy. Many medicines like the popular paracetamol (for fever and mild pain) and ampicillin (antibiotic) are manufactured by leading companies like Lupin and Ranbaxy and also by small companies. This is possible because technology for the manufacture of these drugs is easily available for everybody and does not involve any sophistication. In fact, small companies have lesser overheads and so their profits are higher. But their prices are lower. Recently the drug price regulator has halved the margin on popular imported insulin brands of Eli Lilly, after losing a court case. Delhi High Court had asked NPPA to accept the landing cost statement of Eli Lilly. Eli Lilly had questioned the powers of NPPA to demand the cost of production from importers. While accepting the court judgement, NPPA coolly lowered the margin, thus keeping the MRP same. NPPA has plans to introduce a programme to help common people to procure their medicine at the cheapest rates available. If the consumer sends the name of the brand of the medicine they want to buy to NPPA, they will get a return SMS, informing them about all available brands of the medicine with their prices, so that they could choose the lowest price.
Private equities eye start up venture in pharma industry
China, India and other members of BRICS have agreed to stand together to oppose any move by developed nations to tighten Intellectual Property Rights (IPR) rules that could threaten access to affordable drugs in developing countries. A new breed of Indian pharmaceutical companies, started not by businessmen, but by scientists and engineers, is springing up to research new drugs and diagnostics. Their success is not guaranteed, given the long time it takes to invent a new drug. But even if a few of them succeed, they will become a billion dollars companies. Private Equity funds and venture capitalists are searching for such potential companies in order to be early birds and park their funds in them for a good return later.
Hepatitis B vaccine in demand
Global drug firms invest more in China than in India. This should be changed by offering incentives to them. One more diabetes drug pioglitazone, marketed under the brand name Actos, has been banned by France and Germany because of fears of increased bladder cancer. Earlier, there was a controversy that another drug rosiglitazone could increase risk of heart attacks and fractures. It has been stressed by experts that universal vaccination against Hepatitis B is critical in order to protect people from viral infections that attack the lever. The Hepatitis B virus vaccine has also decreased incidents of lever cancer to a substantial extent. Therefore this vaccine will be the most sought after in the coming days, increasing the business of pharma companies.
Anti cholesterol drugs produce side effects
US health regulator issued an advisory on the usage of drugs with cholesterol lowering molecule simvastatin in 80 mg strength, citing risk of muscle injury. This warning will lower the revenues of Indian drug firms Ranbaxy and Dr Reddy’s. Lundbeck, the Danish company involved in a controversy over the use of its products in lethal injections in the USA has agreed to restrict such use after facing opposition and pressure at home and abroad. In India also, the government has banned free gifts and sponsored trips for doctors. It has laid down code of ethics for pharma industry, which is likely to be made into a law. UNICEF has disclosed the vaccine prices for the first time. AIDS medicine prices have been cut worldwide to combat the disease. Anti-anxiety drug Deanxit is under scan due to complaints of side effects and approval without mandatory studies.
Doctors should prescribe more generic drugs
In order to help common people, doctors should be made to prescribe generic drugs instead of branded drugs as far as possible. There is an impression that generic drugs, which are cheap, are ineffective in cure compared to the costly branded drugs. Price has nothing to do with cure of a disease. Even in advanced countries like USA and Britain, generic drugs are prescribed. In 2010-11, pharma exports from India touched $10.3 billion. Many of these exports contain generic drugs only. If foreigners are using Indian made generic drugs, why not Indians use them? Global pharmaceutical majors are joining hands with leading Indian firms to take advantage of their generic drug capabilities. Pfizer is collaborating with Aurobindo, Biocon, Strides Arcolab and Claris LifeSciences, Fresenius is collaborating with Dabur, Mylan is collaborating with Biocon and Famycare, GSK is collaborating with Dr Reddy’s, Astra Zeneca is collaborating with Torrent and Aurobindo, Aspen is collaborating with Indoco, Abbot is collaborating with Cadilla, Bayer is collaborating with Cadilla. Therefore there should be no fear for the people to consume generics prescribed by the doctors. In fact, what was once a branded medicine has become generic today due to expiry of the patent. The Central government is planning to make details of locally patented drugs public. This move will help Indian drug makers to challenge patent holders and sell cheaper versions for the benefit of the public. Indian pharma companies are already bracing up for battle over generic riches. Some of the hurdles faced by the Indian drug makers are fierce competition, lawsuits from rival firms and stricter US norms. Old is gold in Indian pharma industry. 23 of the top 25 brands in Indian pharmaceutical industry are over 10 years old. The patent period is generally 12 years. It has been a time tested theory that matured brands bring greater share of revenues than new launches, which take time to establish themselves in the market.
Pharma companies – darling of investors
Pharma companies have become a darling for the investors. Their strong pricing power, high margins, potential to improve profits and their essential nature at all times have endeared them to the investors. If you want to invest your money in a company not affected by economic and stock market cycles, invest it in a good pharma company. Indian pharma companies are driven by prospects at home, in developed countries like USA and the emerging markets. Recently Bill Gates remarked that most common TB test is more than 125 years old and TB drugs are more than 40 years old. These drugs are driving the spread of drug resistance, according to Gates. Research is going on to update and come out with new drugs and tests for effective cure of this disease. India also faces the challenge of inappropriate use of antibiotics, which have developed resistance over the years. Abuse of drugs in developed countries is causing concerns. India is one of the main sources of psychotropic drugs sold through illegal internet pharmacies. FMCG companies are tapping opportunitie{jcomments on}s in the growing non-prescription healthcare market. Dabur’s Chyawanprash is an example. Many energy drinks have entered India with vigorous marketing and advertising. Amritanjan, Vicks and other OTC products are selling like hot cakes. Opportunities are created in the protein supplements, multivitamins and herbal supplements. As more organised players get into this sector, faith in homeopathy and ayurveda is increasing among Indian public. Increase in disposable income added to increase in lifestyle-related diseases is spurring demand for such products more and more. Self medication is also increasing because of the increasing medical fees charged by the doctors and hospitals. Many people do not have a medical insurance policy. Even if they have one, most of these policies cover only expenses incurred for hospitalisation. They do not cover outpatients.
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