A Period Of Transition

There are four such restrictions. First, drugs that are still reserved for the public sector need to be de-reserved. Examples are vitamin B1, vitamin B12, folic acid, antibiotic tetracycline and antibiotic oxytetracycline. Second, the Drug Price Control Order (DPCO) continues to be unrealistic. If price controls artificially curb profitability, there will not be investments and expenditure on research and development. The DPCO was liberalised in 1995 and the number of price-controlled drugs has been brought down from 142 to 73. But 73 is far too high. Prices are best controlled by injecting investments and competition. In addition, if the poor need cheap drugs, there are various ways of achieving this objective. Cheap drugs for everyone is not the answer. While on price controls, the government has done nothing about setting up the autonomous National Pharmaceutical Pricing Authority. The third restriction was the 40 per cent foreign equity cap on investments. Since it was relaxed in 1995, about $40 million of foreign direct investment has come in.

 

The fourth restriction, which also inhibited investment inflows, was the process patents regime. The law has not yet changed: the deadline is 2005. There were several people who argued that this would spell the death knell of the Indian pharmaceutical industry. Judging by what the industry has been doing during the period of transition, nothing of the kind is going to happen. There are an estimated 23,000 pharmaceutical firms in the country, of which, around 16,000 are into formulations and 700 into bulk drugs. India already accounts for 6 per cent of global exports of bulk drugs and there is a conscious attempt to step up this share by switching from formulations to bulk drugs. Indias advantage of low manufacturing costs and process development skills can then be tapped. For example, the Serum Institute, Pune, will be producing paediatric vaccines for SmithKline Beecham. Other pharmaceutical companies, which are strong on R&D, have decided to focus on formulations and the development of drugs and processes.

The top 10 pharmaceutical firms have all stepped up their R&D budgets. Sometimes this requires alliances with global majors. Indias strength will be in ayurvedic formulations and herbal drugs. A US patent has recently been obtained for an Indian ayurvedic compound that enhances the effectiveness of anti-tuberculosis and anti-leprosy drugs. This formulation was isolated by the Regional Research Laboratory, Jammu. All of these developments are positive signals and highlight the strength and resilience that the pharmaceutical industry possesses. The more the government reduces its intervention, the better the sector will do.