India’s Rs 98,000 crore pharmaceutical market may face some road bumps ahead as the government implements tough policies in a regulatory overhaul that includes banning some drugs, controlling prices and withdrawing tax benefits. Some industry officials said the moves may negatively affect consolidation moves and the government’s ‘Make in India’ initiative.
The drug industry, which has grown over 13% in each of the past few years, is now confronted with unexpected headwinds such as the recent ban on hundreds of drugs that the government said are irrational and shouldn’t have been sold. Besides the curbs on these drugs known as fixed dose combinations the industry has taken issue with hefty penalties levied in cases of overcharging and the withdrawal of customs duty exemptions, which they say may dent growth prospects.
Some companies have lost their appetite for growth through acquisitions.
“Because of this recent ban on FDC drugs, we had to halt a deal with a domestic drug maker,” said a senior executive of a leading pharma company, who asked not to be identified because of the sensitivity of the issue. “We had examined a two to three times valuation in our due diligence process for some brands.
But those (products) are likely in the banned FDCs list. We have decided to move away from that deal for now.” Market research agency Pharma Trac estimates the health ministry’s decision earlier this month to ban 344 drugs may wipe out almost Rs 3,000 crore from the Indian pharma market.
Dozens of drug companies moved court against the ban and the Delhi High Court is expected to hear the case next Monday. The affected products include common cough syrup solutions, analgesics and antibiotic combinations. While industry officials said the ban on combination drugs may have been necessary, they advocated a phased withdrawal of stocks from the market. Pharma companies typically have a two-month inventory and the supply chain may have six to eight weeks of stocks. The immediate impact may be upwards of Rs 1,000 crore, an official said.
“This is going to negatively impact the ‘Make in India’ plans of the government. Investments and M&As will be impacted because of the uncertainty that this has caused,” said Ramesh Juneja, president of the Federation of Pharma Entrepreneurs, a lobby group of mid-size Indian drug companies. Juneja, who is also managing director of New Delhi-based Mankind Pharma, a company he founded, even compared the situation with last year’s ban on Nestle’s Maggi noodles, which was subsequently lifted.
“What happened with Maggi, the same thing is being repeated – the government could have given us time,” Juneja said. The federation said the reputation of the Indian drug industry, already tainted because of deviations by some companies in manufacturing practices, might get muddied further.
“There is an air of uncertainty. People are asking if this is the right time to invest. Some are shocked about the ban.Everyone is in a wait-and-watch mode,” said Ranga Iyer, an independent investment banker specialising in pharma M&As. Some experts said the ban couldn’t have come at a worse time.
The industry is still recalibrating its strategies to deal with the impact of a negative wholesale price index, which is expected to eliminate 2.7% of the existing market due to lowered prices.Adding to that list is an impending exercise by the National Pharmaceutical Authority, the regulator, to consider a revised list of drugs to be brought under price controls.
“We all need to have a dialogue, and not debate, about important issues and co-create implementable solutions,” said Ranjit Shahani, India head of Swiss drug maker Novartis. “Such sudden moves send negative signals about investment climate in the country.” Over the past 12 months, the BSE Healthcare Index has dropped 9%.
Date: 22nd March, 2016.