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Pharma: The regulatory angle... - Views on News from Equitymaster
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  • Oct 9, 2007

    Pharma: The regulatory angle...

    Healthcare has assumed significant importance the world over and the fact that the developed nations of the world spend around 8% to 14% of the GDP on healthcare further highlights the importance of the same. Moreover, the issue of drug pricing has become a debatable point between the government and the pharmaceutical industry with the former looking to keep the costs under control in a bid to make medicines more affordable to the larger sections of the society. In this article, we shall take a look at some of the regulatory acts, which have had an important bearing on the fortunes of the Indian pharma industry and the outlook going forward.

    The Hatch Waxman Act: In 1984, the US government introduced the Hatch-Waxman Act to encourage generic versions of patent protected drugs. The rationale behind the same was to maintain inducements necessary for brand name companies to research and develop new drugs and at the same time enable lower cost generic products to reach the market. This act has been a boon for generic companies worldwide including Indian players enabling them to bolster their revenue streams by launching generic drugs in the US market. The fact that healthcare accounts for nearly 14% of US' GDP and the mounting pressure on the government to reduce the healthcare costs has further provided an impetus to generic companies focusing on this region. Another important provision of the Hatch-Waxman Act was the grant of the 180-day exclusivity period for a generic company successful in challenging the patent of a drug of the innovator.

    That said, with their R&D pipelines showing signs of drying up, global innovator companies are looking to fiercely protect revenues of their blockbuster drugs and have introduced authorised generics which reduce the extent of revenues and profitability that the challenging generic company can earn during he exclusivity period. Besides on an overall basis, the pricing pressure has continued unabated in the US due to rising competition and this price erosion has become fierce for new molecules losing patent expiry.

    Product patent law: The product patent law is an important and fundamental change that has taken place for the Indian pharmaceutical industry. Besides putting an end to the reverse engineering practices, from a strategic point of view, this law is important, as it is expected to increase India's relevance in the global pharmaceutical industry in terms of launching patented molecules and in terms of being a preferred destination for contract research and manufacturing. Also, it is expected to increase the pace of product launches by MNC companies in India. However, we believe that resolving issues relating to data exclusivity, definition of patentability and scope of compulsory licensing by the government will be critical going forward. We do not expect a free hand for such patented products and believe that the pricing of the same is most likely to be subject to negotiation.

    For domestic companies, over a longer term, the increased likelihood of a slowdown in the pace of product launches has prompted many of them to intensify their focus on

    • The global generics market

    • R&D - in a bid to launch their own proprietary molecules and

    • In-licensing by leveraging their marketing and distribution network to launch the products of global innovators in the domestic market.

    Drug Pricing Control Order: The prices of drugs in India have been one of the lowest in the world, not only due to the fragmented nature of the industry and consequently increased competition, but also the price control imposed by the National Pharmaceutical Pricing Authority (NPPA). But this has failed to translate into better healthcare service to the larger section of the Indian populace over the last decade.

    The price control on drugs has always been a bone of contention between the government and the Indian pharma industry. In 1970, almost all bulk drugs and their formulations were under price control. This number got reduced to 347 bulk drugs in 1979, 142 in 1987 and finally to 74 in 1995. While the National Pharmaceutical Policy 2002 had been contemplating reducing the span of drugs under price control further, this has been mired in controversy and is currently under litigation. The New Pharmaceutical Policy 2006, which is yet to be passed by the government proposes to bring 354 drugs on the National List of Essential Medicines under price control and has been stiffly opposed by the pharmaceutical industry.

    To conclude...
    The abov ementioned regulatory acts have been amongst the more significant ones having an important bearing on the fortunes of the Indian pharmaceutical industry. Besides this, with domestic pharma companies making increasing strides in the global generics market, the challenges posed by regulatory changes and healthcare reforms in various countries are also expected to play a role in determining the performance of these companies going forward. Thus, while having a widespread geographical reach is one way of de-risking revenues, efficiencies at the operating level and continuous launch of products are equally critical to have that upper edge for pharma companies going forward.



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