Stricter regulations, pricing control slow down pharma sector growth

Rajesh Desai (name changed on request) is pensive. Only four months into his new job in the quality assurance department at pharma company Ratnamani Healthcare, Desai has seen the staff level fall from 12 to below 10.

What worries him is that there are no plans to replace his two colleagues.

Working at the company’s unit at one of the largest clusters in Changodar in Ahmedabad, Desai blames the slowdown. He can see it in the declining batches of parenteral (drugs intended to be administered via infusion or injection) arriving for quality checks. As against 5-6 batches of the drug undergoing quality checks every month during a good season, the number has fallen to 2-3 batches owing to a decrease in orders. Each batch consists of 100 litres of parenteral drugs manufactured for the company’s clients.

“We are a lot into contract manufacturing and orders seem to be falling, especially in parenteral. Also, the roles vacated by those who quit are not getting filled again,” he said.

A look at the Index of Industrial Production (IIP) data between April and September 2019 indicates the slowdown in the pharma sector. From a positive five per cent growth in IIP in April 2019, the industry has seen this fall to a negative 1.4 per cent in September 2019.

Along with chemical products standing at a -1.3 per cent index in September, this puts the industry on a par with textiles, petroleum products, and automobiles, all of which are witnessing negative growth. One explanation for the negative trend is the tightening of regulatory norms, says Vishal Patel, a production manager in one of the bigger pharma companies within the Changodar Special Economic Zone (SEZ).

“The US Food and Drugs Administration (USFDA) has been tightening the noose around export facilities and this has affected production at multiple facilities within the SEZ,” said Patel, wishing to keep his employer’s identity confidential.

This is probably why, in 2019, Indian drug makers (including active pharmaceutical ingredient makers) received 11 warning letters from the US drug regulator - much more than the seven in 2018. With so many warning letters, companies are being forced to move their products from the affected units to safer ones already involved in exports to regulated markets.

While he agrees with the IIP data, Mahendra Patel, MD, Lincoln Pharmaceuticals Ltd, believes the worst is over.

“The Indian pharma industry is facing challenges such as increased scrutiny from drug regulators, warning letters have stalled the new product approvals and price controls in the home market as well as developed markets, are affecting growth…but we expect the worst is over for the industry and we are confident that it will be back in the growth momentum in the near future,” said Patel.

Another explanation for the slowdown, say industry sources, could be the recent trend of ‘genericisation’ where more and more generic drugs are being available in the market at affordable rates, putting pressure on the production of branded players.

For instance, under the Pradhan Mantri Bharatiya Janaushadhi Pariyojana (PMBJP) campaign, the Department of Pharmaceuticals is making generic medicines at affordable prices available to the masses through its stores across the country.

Yet another factor in the slowdown could be the price control measures. More and more drugs are falling under the purview of the Drug Price Control Order (DPCO) and more drugs are getting added to the National List of Essential Medicines (NLEM) which comes under DPCO. With prices capped, pharma companies are increasingly seeking discontinuation of critical drugs, citing lack of financial viability amidst higher raw material costs.

Moreover, recently the domestic drug industry agreed to the government's proposal to cap trade margins for all medicines outside the price control at 30 per cent, a move that will reduce the price of roughly 80 per cent of formulations.

These recessionary trends are corroborated by the drug sales figures.

Data by AIOCD AWACS, a pharmaceutical market research organisation, shows that the Indian pharma industry, which grew by 11.9 per cent in September 2019, later saw its market growth halve to 5.1 per cent.

What's more, the fall in growth for October 2019 has been seen across the therapies with the anti-infective market showing a growth of 2.9 per cent, cardiac at 7.9 per cent, gastro-intestinal at 4.7 per cent, anti-diabetic at 6.4 per cent and vitamins showing a growth of 2.3 per cent.

In terms of volumes, growth in October 2019 stood at a negative 2.7 per cent as compared to 3.5 per cent in September 2019 and 4.4 per cent in October 2018. The volume growth of -2.7 per cent is quite lower than the rolling average of 12-month volume growth of 1.5 per cent, according to AIOCD data.

Attributing these trends to multiple factors, Deepnath Roy Chowdhury, national president of the Indian Drug Manufacturers’ Association (IDMA) said: “For the first time during the September quarter, the Indian pharma market grew in double digits after many quarters. 

“However, the industry is now undergoing a churn due to serious regulatory, pricing and genericisation challenges. During this critical transition phase there is a need for a stable and proactive policy and increased collaboration between pharma companies, the government and regulatory bodies.”

Desai finds himself in the thick of this turmoil. He is keeping his fingers crossed but is smart enough to hedge his bets by sending his cv around to other companies.
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