Access to quality and affordable healthcare is one of the basic needs of every individual. In a country like India, where 37 % of the population falls in the BPL category, the state, the industry and all other stakeholders need to ensure its availability at an affordable cost.
A sound healthcare policy in any state needs to achieve a three-fold objective: (i) encourage discovery and innovation so that new molecules and treatment methods are discovered; (ii) ensure that safe and quality medicines are made available to the general public at affordable prices; and (iii) promote healthy competition amongst healthcare companies.
The landscape of FDI investment in pharmaceuticals in India has seen a paradigm shift over the last decade. From a limit of 74% in the year 2000 for bulk drugs, their intermediaries and formulations (except those produced by the use of recombinant DNA technology) to 100% approval under automatic route and subsequently imposing checks for brownfield investments in 2011, the manner in which Indian companies have evolved in their outlook and functioning and the extent to which government has sought to regulate investments in pharmaceutical sector make for an interesting analysis.
India has seen a significant inflow of FDI in the drugs and pharmaceuticals sector (totaling US$ 2,424.57million since April 2000) and the Indian pharma sector has made giant strides in terms of capacities, investments, employment generation and exports. Over a period of time, there has been a steady shift in focus from being a reverse engineering industry that catered to domestic markets towards evolving as the R&D and manufacturing hub of most global pharma players. This has been achieved through a combination of factors such as advancement of technology, a strong focus on R&D, availability of foreign funds (both in the form of equity / ECBs), low manufacturing and capex expenditure, low cost pool of scientific talent, proven track record in design of high tech manufacturing facilities and a ‘state of the art’ regulatory compliance function for operating these assets. Indian companies have moved up significantly in the value chain, making significant investments in upgrading their facilities to meet global regulatory norms. This has resulted in a significant presence of global pharmaceutical companies in India.
But this surge in FDI investments has not been without its share of apprehensions and worries. Recent high profile pharma acquisitions had led to apprehension of destruction of competition, movement of drug prices northwards and scarcity of essential drugs. In addition to this, it was also felt that if most of the generic companies are acquired by foreign companies, the option of compulsory licensing (that is available under the Indian Patents Act, 1970) may not be availed by such companies.
In a high powered committee meeting chaired by the Prime Minister of India on October 11, 2011, the government had decided that: a) subject to certain conditions, FDI in the pharma sector would continue to stay at 100 per cent , and b) the FDI in all brownfield projects in the pharma sector will henceforth be scrutinized by the FIPB as an interim measure until a comprehensive policy is drafted out for this purpose.
Overseas companies that are interested in acquiring Indian companies would now be required to demonstrate the value addition that they would bring in through brownfield investments. It is also quite likely that approvals from FIPB are conditional, thereby imposing additional obligations on companies.
In the past, FDI in pharma sector was automatic (subject to compliance with the FEMA guidelines). There was no proactive system of checking and analyzing the impact of a given transaction on the local competition landscape. Although there are other redressal mechanisms, for e.g., the Consumer Protection Act, these mechanisms are reactive in nature and lack the teeth to check anti-competitive practices effectively.
Indian pharmaceutical market is a fragmented, prescription driven market with tens of hundreds of players vying for a market share. Company representatives meet doctors, explain them the strengths of the products, equip them with the related safety and efficacy data, with an intention that the healthcare professionals prescribe their product. While the intent is a laudable one, in reality marketing practices in India range from the ‘sublime to ridiculous’. Unethical practices have significantly increased the cost of the goods to the company pressurizing their margins. As a result of all these factors, the cost of the products continues to remain high, despite the fact that India is a global pharmaceutical manufacturing hub.
It must be noted that India did not subscribe to any of the Ethical Drug Marketing Practices promoted by IFPMA OR PhrMA, nor did it have one designed on similar lines, until 2011 when the Department of Pharmacy came up with a draft Code of Marketing Practices for the Indian pharmaceutical industry. This code is currently under discussions and would be mandatory very soon. The government should look at implementing a rational and pragmatic code for marketing of pharmaceutical products and encourage generic substitution while keeping a watch on the quality norms so that healthcare costs are kept in check.
It is also important that there be a clear policy on the criteria that FIPB would look into while evaluating investment proposals so that there is transparency in policy implementation. In a globalized world, the government should desist from have a very high-handed approach in evaluating investment proposals. India’s potential as a manufacturing and R&D hub should be fully realized. Synergies between companies should be encouraged so that affordable medicines are made available to patients across the world, including India.
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