1. Impact of Globalization on Indian Pharma Industry (SMEs): Current scenario Vinod Kalani vinodkalani1@gmail.com Cris Pharma India Ltd. | Oasis Test House Ltd.

2. 2 Policy measures by Govt. of India  Govt. of India implemented a series of policy measures in the 1970s to achieve self-sufficiency in pharmaceutical production

3. 3 Policy measures by Govt. of India  The Patents Act 1970 allowed only process patent protection for pharmaceutical inventions  As a result, Indian companies could produce new medicines which had been introduced in the international market but were not available to needy patients in India  This made possible the production and sale of new medicines at affordable prices

4. 4 Policy measures by Govt. of India  The government introduced control measures on foreign ownership under which foreign companies were not allowed to hold more than 50% of equity  The government introduced direct price control on all formulations of about 347 bulk drugs

5. 5 Policy measures by Govt. of India  Pharmaceutical multinational corporations (MNCs) were forced to start production of both formulation and bulk drugs in India  Public sector production of bulk drugs encouraged the small and medium enterprise (SME) sector to start formulation

6. 6 Impact of policy measures  Within a span of some 20 years, these policy initiatives cumulatively made India not only self-sufficient but also a net exporter of generic medicines

7. 7 The subsequent impact  The Indian pharmaceutical industry recorded spectacular growth from 1991 till the first half of the 2000s  It is now facing serious threats to its self-sufficiency and ability to compete in the generic medicines market

8. 8 The challenges  There are multiple challenges before the Indian pharmaceutical industry emanating from internal and external sources

9. 9 The challenges  The most important challenge is the growing control of the Indian pharmaceutical industry and market by MNCs and their ruthless exploitation and abuse of the product patent protection afforded by India's current patent regime

10. 10 The present crisis  Two policy decisions by the Indian government can be identified as crucial in the emergence of the present crisis facing the industry

11. 11 The present crisis  The first of these was the change in the government's policy on foreign investment, and the other was the radical change in the country's intellectual property regime to comply with World Trade Organisation (WTO) treaty obligations  Together, both these changes set the country on the present destructive course

12. 12 Foreign acquisitions and strategic alliances  In 2001, India liberalized foreign direct investment (FDI) norms for the pharmaceutical sector  As a result, 100% FDI was allowed through the 'automatic route' (without prior permission) in pharmaceutical manufacturing (except in sectors using recombinant DNA technology)

13. 13 Foreign acquisitions and strategic alliances  The FDI policy did not make any distinctions between 'greenfield' (new facilities) and 'brownfield' (takeover of existing facilities) investments  However, during the last 12 years MNCs did not make any major effort to undertake greenfield investments in India, largely opting for brownfield investments, i.e., acquisition of Indian companies

14. 14 Foreign acquisitions and strategic alliances  In recent years there have been a number of high-profile MNC acquisitions of Indian pharmaceutical companies

15. 15 Product patent protection  In 2005, India reintroduced the product patent regime to comply with the obligations of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)  This replaced one of the important policy tools used for the development of the Indian pharmaceutical industry

16. 16 Product patent protection  In the absence of product patent protection prior to 2005, the Indian pharmaceutical industry was able to introduce new medicines in the Indian market and abroad within a short period of time at a fraction of the originator's price

17. 17 Product patent protection  Further, competition was generated among Indian pharmaceutical manufacturers because, with no product patents, many companies introduced the same products in the market

18. 18 Product patent protection  The reintroduction of product patentability takes away the freedom of Indian pharmaceutical companies to introduce generic versions of new chemical entities (NCEs) in the normal course because NCEs often come with product patent protection

19. 19 Product patent protection  Seven years after the introduction of product patent protection, there is ample evidence of growing control of MNCs in the Indian pharmaceutical market  Figures released by the Indian Patent Office reveal that out of 3,488 product patents issued from 2005 to March 2010, 3,079 were granted to MNCs

20. 20 Product patent protection  There is a growing trend of importation of patented medicines by MNCs

21. 21 Product patent protection  Even though, there is an export surplus, importation has grown at a faster rate than exports, leading to a decrease in formulations trade surplus  The value of formulation imports expanded at a compound annual rate of growth (CARG) of 20%  During the same period, exports grew at 17% CARG

22. 22 Acquisitions, alliances and adverse effects on access to medicines  MNCs have resorted to various strategies, one of which is to control the generic medicine market  Acquisitions of and strategic alliances with generic companies should be understood in this context

23. 23 Acquisitions, alliances and adverse effects on access to medicines  Such acquisitions and alliances have far-reaching consequences and can potentially compromise access to affordable medicines

24. 24 Acquisitions, alliances and adverse effects on access to medicines  These acquisitions would result in the capture of the marketing and distribution networks of Indian generic companies  Takeovers are an easy way to establish a marketing and distribution system in a country and substitute low-cost medicines with higher-priced, including patented, versions

25. 25 Acquisitions, alliances and adverse effects on access to medicines  The MNCs are seeking to buy and kill off the competition in a global generic market which is growing at a fast pace  MNCs want to restrict the Indian companies from getting into the regulated markets with their low-priced generic products

26. 26 Acquisitions, alliances and adverse effects on access to medicines  At the same time, the MNCs are also devising their strategies to capture the Indian market, which, while relatively small in global terms, is one of the fastest-growing pharmaceutical markets

27. 27 Acquisitions, alliances and adverse effects on access to medicines  The introduction of a product patent regime took away the freedom that had previously been available for Indian pharmaceutical companies to introduce generic medicines

28. 28  In India, about 8000 pharma SMEs are operational  Most of these have upgraded their plants, machines, systems etc. during last 10 years  Over 900 new SMEs have been set up in excise free zones at H.P., Uttrakhand and J&K, during last 8 years  Most of these plants are as per the latest trends in the industry and very well equipped Pharma SMEs in India

29. 29  Indian pharma sector has emerged as a global player by virtue of SMEs growing and becoming an organized sector Pharma SMEs in India

30. 30  In India, SMEs have not been able to project at the right places and right time the exact design and exact changes in the regulations which are totally in favour of multinational companies and which will result into closure of many pharma SMEs in the country, if not checked Pharma SMEs in India

31. 31  The multinationals are achieving their objectives by painting the Indian Industry, specifically SMEs, black and everybody went all-out to change the regulations forgetting the interest or safeguard of legitimate and genuine SMEs  The result of all this shall be that the medicines will be much expensive in the future as in US, Europe or other developed countries Pharma SMEs in India

32. 32  It is important to keep in mind that per capita income in India is much low, per capita health expenses are negligible.  India is still a developing country, topical country where the temperature even goes up to 50°C  The storage, transportation facilities, the retail shops, Govt. hospitals, dispensaries are no where near the western countries standards while for drug manufacturing more stringent standards have been laid down than even US FDA Pharma SMEs in India

33. 33  Patent act, Schedule M implementation, Schedule L1, fixed dose combination drugs issue, certain provision in spurious drugs bill, NPPA policies, Central Drug Authority (CDA) where licensing may be a central subject and not a state subject, medicine manufacturers in the SSI sector will be a thing of past except exports, institutional supplies, contract manufacturer of organized sector and MNCs having established brands Pharma SMEs in India

34. 34  There is a dire need to review many of the recent amendments in the related laws affecting pharma industry from India centric point of view, for survival of SMEs in India Pharma SMEs in India

35. 35  A 10 year excise and income tax holiday was notified by the Central Govt. for Himachal Pradesh, Uttarakhand and Jammu & Kashmir towards the end of 2003 for the industrialization of these backward states SMEs in tax free zones

36. 36  With the reduction of excise duty on pharmaceutical products, most of the small and medium scale units have lost interest in operating in duty free regions SMEs in tax free zones

37. 37  Due to increase in the overall cost of production / finance and competition, the margins have been reduced drastically and the break- even levels have increased significantly  The operations are becoming un- viable SMEs in tax free zones

38. 38  The tough competition now faced from units in other states is forcing these units to shut down their units or cut the production to curtail losses  Nearly 40% of the units thus wish to sell off the business and return to the states they had come from SMEs in tax free zones

39. 39  Having established several manufacturing facilities at the cost of crores of rupees in these states, it will not be prudent for the Center and State Governments to allow these facilities to turn into junkyards SMEs in tax free zones

40. 40  Pharmaceutical industry in India is passing through a bad phase since last year after its brilliant performance during the past 5 years or more  It is experiencing this situation mainly on account of the hurdles the industry is facing in the overseas markets Pharma export in peril

41. 41  As per the estimate made by Department of Commerce, the pharmaceutical exports during the current year may fall short by atleast 30% of the target set by the Government sometime back Pharma export in peril

42. 42  The growth of Indian pharmaceutical exports During 2012-13 came down to 12.55% over previous year During 2011-12 exports registered growth of 23.7% over previous year Pharma export in peril

43. 43  Now, the US is planning to effect a hike of 24% on ANDA filing and another 48% hike on drug master filing fees from October 2013 Pharma export in peril

44. 44  Getting certifications and licenses from Licensing Authorities is becoming tougher and also time consuming  This is affecting exports from India Pharma export in peril

45. 45 Pharma SMEs in India  Endurance of the SME units would be based on how substantially and rapidly these units are capable to adapt to the altering business scenario

46. 46 Pharma SMEs in India  Indian Pharma SMEs can definitely see a good future if these companies are willing to accept change and take over an accommodative move towards with the government and the other major industry players

47. 47  Downfall in the Indian economy is a matter of great concern to the pharma industry  We need all-out support from the Govt. agencies to sustain and survive

48. 48 Vinod Kalani vinodkalani1@gmail.com Cris Pharma India Ltd. | Oasis Test House Ltd. Thank you