Industry blames policies, USFDA probes for 73% drop in pharma FDI

Other reasons for drop include push for generics over branded drugs, weak IPR protection, pricing cap on stents and other devices, and ban on FDCs

Foreign Direct Investment (FDI) equity inflows into the country's drugs and pharma industry dropped by 73 per cent to $266 million (around Rs 1,842 crore) between April 2018 and March 2019, from $1.010 billion (around Rs 6,502 crore), during the same period a year ago. Industry representatives have attributed policies and USFDA investigations into the practices of certain Indian Pharma companies among the key reasons for the decline.

While pharma companies have not responded to queries related to the decline, experts believe the sector may not attract investments till attractive and investor-friendly policies are introduced.

Krishnanath Munde, Research Analyst at Reliance Securities said that domestic pharmaceutical market witnessed muted growth over the last two years due to several factors including new pricing policy and ban on Fixed Dose Drug Combinations (FDCs), GST implementation, demonetisation, weak seasonality and overall weakness in trade generics business.

Other reasons for the drop in FDI include the government's push for generic medicine over branded drugs, uncertainty over the outcome of the recently-held general elections, weak intellectual property protection and pricing cap on medical devices, including cardiac stents.

CARE Ratings said policy measures such as price control on certain drugs, ban of fixed drug combinations (FDCs) and USFDA investigations into the manufacturing and procing practices of certain Indian Pharma companies could have impacted investments are the other key factors.

Drugs and pharma accounted nearly four per cent of total inflows in dollar terms. Between April 2000 and March 2009, the sector attracted $15.983 billion (around Rs 84,165 crore).

Experts said that domestic formulation and medical device segments are not attractive for investors due to policy uncertainty, regulatory challenges and pricing cap on medical devices and formulations. The API business has gained more prominence especially following supply constraints from China. 

Contract Manufacturing Organisations (CMO) and Contract Research (CRO) is also lucrative segment due to low cost capabilities. Further, niche segment like injectable and bio-similar space seems to be attractive, the experts  added.

Indian pharma companies have several advantages over China and other MNCs such as low-cost manufacturing and R&D, skilled man power, proven chemistry skills, better command over English, second highest number of US FDA-approved facilities (both API and formulations), highest number of ANDA and API filings with the USFDA.