The proposal has resulted in a stir among clinical research organisations (CROs) and both multinational and domestic pharmaceutical companies. The cost of conducting clinical trials is set to go up by 12.3 per cent, including the surcharge, once the Budget gets Parliament's approval.
Research-oriented companies such as Biocon, Lupin and Glenmark have started eyeing places abroad to shift their trials. Many say the move would significantly impact the domestic CRO industry, which conducts clinical trials for drug firms, primarily for multinationals.
"Several of the small and newly established players in the clinical research segment will have to shut shop," said a senior industry official.
Even generic drug development is likely to be impacted. For, under the Drugs and Cosmetics Act, any drug launched for the first time in India is considered a 'new drug'. Companies are also required to conduct clinical trials for such drugs.
Lupin's chief financial officer, Ramesh Swaminathan, said: "There is a need for the country to have universally accessible, affordable and effective health care. So, it is imperative for the government to offer tax incentives to encourage innovation in R&D (research and development) and assist in developing and honing Indian IP (intellectual property) - none of which has been addressed."
Clinical research in India has already been facing a difficult and unpredictable regulatory environment for at least two years. The Supreme Court had asked the government and the drug regulator to keep a close eye on companies conducting trials on humans and this resulted in almost a standstill for test approvals. Only 25 new trials were approved by the regulator this year, against an earlier average of 200, government data show. And, while 35 new drugs were approved by the regulator in 2013, only seven new medicines have received a go-ahead so far this year.
Earlier this year, Biocon's chairman and managing director, Kiran Mazumdar-Shaw, had said the company was being forced to move trials offshore. Lupin had moved some trials to the US and Europe. And, Cadila Healthcare is considering shifting some of its trials to the US.
"Withdrawing the exemption on service tax for clinical trials will act as a further disincentive to doing clinical research in India. Given the fact that a sixth of the world's population lives in India and we have the highest disease burden in the world, we need to foster an environment and ecosystem that encourages clinical research," says Suneela Thatte, president of the Indian Society of Clinical Research. While the industry says it supports the government's move to bring in regulatory guidelines for guarding a patient's interest and ensuring ethical practice, they strongly oppose a regulatory uncertainty. And, say the latest withdrawal of tax exemption which would make trials expensive.
"India is losing its competitive edge in the global market. Malaysia, Bangladesh and Singapore are emerging as new hubs for conducting trials. Moreover, expensive trials would ultimately translate into an increase in cost of medicines," says Indian Pharmaceutical Alliance's secretary-general, D G Shah. However, some also feel the current regulatory environment and overall review and approval process of the health ministry is more detrimental to the future of innovative research.