'Entry of MNCs in pharma sector a big challenge for Indian SMEs'

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Namrata Kath Hazarika | 14 Jun, 2011
In an exclusive interview with SME Times, Gajanan Wakankar, Executive Director, Indian Drug Manufacturers' Association (IDMA) said Indian pharmaceutical sector is witnessing challenges from the multinational corporations (MNCs) as they are entering into Indian drug market vigorously, which is hurting small and medium pharma companies.

Excerpts of the interview...

The pharmaceutical sector has grown manifold during the years. Today the growth stands at USD 21 billion. How much competitive is Indian pharmaceutical sector as compared to the other major drugs producing market?
Gajanan Wakankar: In fact, in rupee terms it is more than Rs 100, 000 crores, and about same perhaps it will come to USD 20 billion in dollar terms. If you take Rs 45 a dollar then it will come to USD 21 billion. While, the domestic market is Rs. 55, 000 cores and the exports market is about Rs. 45,O00 crores.

As compared to major drug producing market, in fact, many other countries are also doing very well. Although in the last two-three years there was the economic crisis, this did not hurt the pharmaceutical sector. We have registered growth, all these years even when the economy was going down. However, not only our pharmaceutical sector but countries like Brazil, they were also having growth. Our share in the world market is also very less around 3 percent. At present, I think it is improving and also the market is expanding. But the percentage is less but still we are making gains.

What kind of growth do you expect to witness both domestic and in exports in the current fiscal?
Gajanan Wakankar: Generally, our growth in the export market is by 20 percent. However, the overall growth of pharmaceutical sector year-on-year has been around 12 to 14 percent. We will maintain this figure in the current fiscal as well.

What are the challenges faced by Indian pharmaceutical industry as of now?
Gajanan Wakankar: Worldwide what is happening is that many drugs are coming down from patent status to off-patent status. Major companies are trying to enter to this generic trade. Generic medicines are those which are not under patent anymore. In fact, big companies are also doing the same, as you must have heard that big companies have bought our companies. The challenge will be from the multinational which are entering into Indian the drug market. This will be a great challenge.

Any update on the Foreign Direct Investment (FDI) in the pharmaceutical sector?
Gajanan Wakankar: We have recommended that the government have not done anything much on the FDI policy. They are encouraging all industries to get as much FDI as possible. At present, the FDI in pharmaceuticals is 100 percent. The situation is not that alarming. Five years ago, the share of multinationals in the Indian market was 20 percent and now it has gone up to 25 percent. So, this is basically because of the take over. If the trend continues then what will happen is that the multinationals' share will grow to 50 percent or so. It will be major difficulty like if they raise money, it will be difficult to control that. At present, the Indian companies face several regulators and many others are kept under check. If it is a foreign sort of ownership then it will be difficult for the government to keep a check. For example, any imported drug, the prices of this kind of drug are taken for granted. No questions are asked about that. While, if they stop production in some particular place or even if something is produced in Thailand, we will not be able to do anything. Under the WTO rule, it is not possible to check anything coming from abroad. Although there is some duty of 10 percent at present. There is also some countervailing duties on most of the items. For instance, items from China have some countervailing duty, which is added to it. In fact, with the FTAs that are signed which brings to zero percentage, it will make us to loose that advantage.

Take the case of FDI, previously it was at 50 percent and then it was brought up to 100 percent where everybody can come and invest. But now we are requesting the government to again reduce it back to 50 percent. And this should be also done through the Foreign Investment Promotion Board (FIPB) route which means it has to be approved by FIPB. It is a board in the Finance Ministry. So, all these proposals are vacate by them. Similarly, when some companies come and register in India it becomes an Indian company and as far as the legal side is concerned about India and supply chain, they can buy shares in Indian stock market and they will start purchasing share of that particular company, which are called hostile takeover.

The Securities and Exchange Board of India (SEBI) has particular rules. When a company grows, the particular ownership of shareholding grows to a certain percentage then they have to dutify. It means amongst the shareholder this foreign companies have acquired the share of this amount, according to the SEBI rules. At present, there is only declaration. The idea behind this is when there is a annual general meeting of the shareholder, they can oppose it. But, it is difficult for the shareholder to be together.

While, the R&D activity has also become major focus area for the industry. Does India have enough resources for that at present? What is IDMA doing to increase the percentage of R&D spend to turnover from current 3 percent?
Gajanan Wakankar: In the R&D activities, the Indian companies are spending average 5 percent and some companies are even doing better like 10 percent to 11 percent. But these 5 percent is much better than 10 years ago when we hardly had any investment in R&D activities. As Indian companies grow and as the financial status is increasing, they are now investing in R&D activities. For example, several companies are doing experiment, very simple, instead taking a tablet three times a day, today long relief technology are being developed. Several companies are doing in that way.

IDMA, we suggests our members in this particular case that we (IDMA) can only give a recommendatory role because the actual spending has to be made by the company. IDMA is promoting, there are best factory awards for that. Best patents award are there.

Yes, the government is doing quite a lot. There are some schemes by the Department of Science and Technology, and many schemes by department of pharmaceuticals, which are helpful.

What about the government schemes, are those schemes fruitful for the sector?
Gajanan Wakankar: The schemes are good. They help certainly. Taxation relief are good schemes. There are certain demands which are not being met such as land and establishment expenses, which covers the taxation purposes, and the taxation relief. Expenditure is taken care of and that is subtracted from the income. That is our demand. That will come true, let us see, it might be true in the next Budget.

How are you dealing with the cases of seizure and destruction of pharmaceutical consignments by the customs authorities of major intermediate ports that are on an increase?
Gajanan Wakankar: The seizures of consignments are taken care of by the Ministry of Commerce and Industry. Through our mission in those countries the most important, Germany, Frankfurt, Holland and many others, now fortunately there has been no seizures in the last one year. We have not heard of new cases because of lobbying by the government. They have lobbied with each government through our embassies. All the 22-members of the EU, they have canvased. Basically the customs usually seize goods either in airport or in the seaport by blaming that such and such cargo is traveling in ship or on air. So, they unload it.

I hope you know that the EU have agreed upon treaty that was about three or four years ago and the treaty came into force recently. They have power to their customs, both at the air terminals and at the sea port to seize cargo.

Under the WTO rule, the transit trade should not be affected. If a cargo which is not under patent in India and going to Brazil that cargo can pass anywhere without any hindrance. The EU customs agreement refers to that. They had a very wide scope of interpretation and they said that even on a ship, if the ship passes their territorial water, they can call the ship, halt it and take out that particular cargo.

We have also told our Commerce Ministry that if this does not stop then we have to go WTO for dispute settlement mechanism. In the last one year, we have not heard about it. But now another development has taken place. There is an Anti-Counterfeiting Trade Agreement (ACTA). This is being finalized but the requisite number of signatures are to be done before it will become operational. We are canvasing with the government on that.

There are lots of issues being raised on 'data exclusivity'. How will data exclusivity in India affect the availability and affordability of generic medicines locally?
Gajanan Wakankar: The multinationals are doing it. They call it regulatory data protection. That is the name they are giving. It starts from the original TRIPS Agreement i.e (article 39), which wants that any data which is given by a particular company should be kept confidential. Actually, we are now following it. Earlier it was tough in the drug controller office, and now it is very tight. There is another demand side by side, they say that no second party should be allowed to apply for marketing approval.

Let us say, some machinery is there we got it patented and as soon as that is patented they can sell it in the market. They can stop others from manufacturing it. One can always manufacture whatever you like but patent is where you can stop others from doing it. But now in the case of pharmaceutical products and medicines, it is not sufficient and there is one more step and that step is called marketing approval from the drug controller. The patent is given by the patent controller, which applies to all industry. After getting the patent they have to go to the drug controller which is a part of Health Ministry and tell them that we want to market this, so, please give us the permission. They have to do clinical data or trial, which means that it is not affecting lives and etc.

These multinationals what they are doing is that they say to give them 10 years, like in USA it is 10 years, so you give us 10 years extra monopoly. In the case of patent it would not affect, as the patent comes for 20 years. There are several drugs which are available in Europe and USA, but they are not under patent anymore because the 20 year term have already passed. When it comes to India for the first time, they will do not have to take the patent because it is not under patent any longer, but they have to take the marketing approval. There problem is that they need additional 10 years for that type of thing. The basic objection is in the clinical trial. For the extra 10 years we should have expenditure of that magnitude. That means you have really done that much expenditure and you can take some monopoly for some years so that you can recover that money spend. In this case, the expenditure is not very much. India is talking about five years monopoly but other countries are also talking about 10 years. We are opposing it and so far the government is also opposing it.

Are we able to tackle the menace of counterfeit drugs?
Gajanan Wakankar: Counterfeit drugs, which means in US and Europe as trademark offense. Now, what they are doing is that in case of health issue like somebody uses wrong medicines, we in India we actually call it spurious. Under the Drug and Cosmetic Act, there are three categories for punishment purposes one is spurious and one is mislabeled and the adulterated. The punishments in all these cases are slightly different. But amongst all, the spurious is the most sensitive.

But, in the USA they call it counterfeit, so what they have done is that under the WHO, they have the International Medical Products Anti-Counterfeiting Taskforce (Impact) definition, but under the impact definition, they have change the definition of counterfeit. They are using counterfeit but in India we are not using the counterfeit drugs, so, you must be clear on that. In US, they are using counterfeit but in India we are not using the counterfeit drugs. When the US and European country use counterfeit, they also include trademark and other IPR regime. It differs in punishment. So, we are against the word 'counterfeit'.

The multinationals are doing all this because they want us not to go to their market and their market should be reserved for them. It is a trade war. They feel that we are challenging them, and we have low price which is hurting them. We are opposing it but the threat is still there.

It is true that Small and medium enterprises (SMEs) in the pharma sector are always looking to the government for support on technology upgrade in manufacturing, brand promotion and marketing in order to perform better in the domestic and export markets. In fact, regulatory constraints are putting pressure on SMEs in India. What is your take on this?
Gajanan Wakankar: We have started from the scratch. Our biggest company in the industry was Ranbaxy, which was about Rs. 4000 crores. Around 50 years, they had their chemist shop in Delhi. From a chemist shop, they have become a number one producer in India. In many other countries they had contacts, so, their export market was also very high. So, the point is small becomes medium and medium becomes large. While, the small scale in all industries not only in pharmaceuticals should be given technology, and financial help.