Fit in the paradigm change!

HARINDER S SIKKA

Much noise is being made by small-scale pharma companies about the implementation of Schedule ‘M’ and its far-reaching impact on their operations. The product patent regime, Vat and MRP-based excise duty are being seen by these players as draconian acts meant to throttle their growth. Agreed, that the finance ministry’s ill-timed Ordinance on MRP-based excise duty early this year hastened large pharma companies into capacity expansion. The writing, however, was always on the wall for small pharma companies engaged in producing life-saving drugs under conditions that did not match with the prevailing international standards.

India is known as the generic capital of the world. Ironically, we are also the world’s largest producers of substandard and spurious drugs. With Trips compliance coming into effect post-January 2005, business is expected to grow manifold. A number of MNCs are beginning to set up their manufacturing activities, which should give a new lease of life to the small sector. But only companies that are able and ready to deliver high quality drugs at low cost would be able to reap the benefits.

Anticipating such growth, the Drugs Controller General of India introduced Schedule ‘M’, containing stricter and higher qualitative manufacturing norms with an aim to bring all drug manufacturing activities at par. Many companies agreed to adhere to the new laws but sought more time, which was duly given through two extensions. While some companies succeeded in bringing about the necessary change in their manufacturing processes, a large number have continued to produce drugs under undesirable conditions. Now that their long stretched honeymoon is coming to an end, panic buttons are being pressed.

The Indian government is the largest procurer of drugs. Unfortunately, under the present system, it procures medicines under an archaic ‘lowest cost tendering system’(L-1) that intently overlooks the highest qualitative needs. This lackadaisical attitude has also been the raison de etre of the rise of spurious drugs in the market. Inadequate regulatory machinery, insufficient manpower and weak laws governing the fake drugs trade has further encouraged fly-by-night operators to play merry hell with the system. But if the government decides to link its drug procurement policy with companies that strictly adhere to Schedule ‘M’, not only would patients reap instant benefits, but production of substandard drugs would also take a mega hit. In the process, if a few companies that do not maintain highest quality standards are forced to go out of business, then it rather be so, for it will serve a larger cause.

The small industry must also appreciate that the finance ministry’s decision to give only 40% abatement linked to MRP-based excise duty leaves large players with no option but to expand their own capacity. Only those companies that achieve the highest manufacturing standards would stand any chance of getting the loan licence business. In the long term, this will help Indian drugs move up the value chain. While at a macro level, this would be a healthy sign for the pharma industry, it could spell doom for those not willing to change track. Drugs, unlike candies and FMCGs, must be produced in an environment that guarantees early recovery to an ailing patient. It is in the interest of the small players to stand up to the challenge and upgrade their facilities and follow the best international standards and practices.

Finally, patents are here to stay. With generic versions of over 97% of drugs already under manufacture in our country, there’s no real worry for the industry for the next two decades. Big players with adequate R&D base however, would need to deliver newer molecules, especially those related to Indian subcontinental diseases. The onus also lies on the government for a concrete roadmap and suitable incentives at par with the West. Contract manufacturing and clinical trials constitute a whopping $100 billion basket. With China, Korea, Singapore and Taiwan jostling and wooing MNCs with tailor-made offers, India needs to quickly get its act together.

The coming decade could witness a dramatic fall in the total number of drug manufacturers (at present around 20,000). Those who survive the churn will rule the knowledge economy roost and emerge winners.

The writer is senior president, corporate, Nicholas Piramal India Ltd