The Hindu Business Line : Need long-term research incentives for pharma sector

With the new patent regime, the pharma industry will be spending 10-15 per cent of income on research. The Government must provide financial impetus to encourage research for the next 10-15 years. MR AJAY PIRAMAL, CHAIRMAN, NICHOLAS PIRAMAL INDIA LTD.

Dosas and condensed milk were given more sops than medicines, lamented drug-makers, after Budget 2006. In the run-up to Budget 2007, pharma-company Nicholas Piramal India Ltd's Chairman, Mr Ajay Piramal, lists some issues that need to be addressed.

If there is one significant requirement in the pharmaceutical industry that you want the Finance Minister to address, what would it be?

Pharmaceutical companies are the torchbearers of India's knowledge economy. A recent survey showed that the bio-pharma industry spends over Rs 2,500 crore annually on research in comparison to info-tech companies which spend just Rs 250 crore. The difference in the bio-pharma sector is that research and development takes a long time, over 10 years to materialise into a product and out of 100 drugs in discovery only one succeeds.

The human being is at the centre of research unlike other industries, which is why research takes time as the drug goes into clinical trials. Therefore, tax incentives need to be long-term and not given one year at a time. Other nations such as China, Canada, the US, the UK, Taiwan and Israel give huge tax incentives and grants. If India is to take her rightful place as a medicine maker for the world, long-term research incentives are the minimum that the Government must do.

The industry and Chemicals and Fertilisers Ministry have asked for income-tax benefits or incentives for research. How important is this, against the back-drop of the product-patent regime?

The provisions of Section 35(2AB) have been extended only up to March 31, 2007. Normally, research requires a much longer time since clinical trials have to be carried out before the product can be commercially launched in the market. During this period, a huge expenditure is incurred. Therefore, the period specified u/s 35(2AB) should be extended at least up to March 31, 2017, to help pharmaceutical companies in the long-term planning for research.

At present, Indian companies, which have their main objective as scientific and industrial research and development, are entitled to a tax holiday of hundred per cent of their profits provided they are approved by the Department of Scientific and Industrial Research (DSIR).

This tax exemption under Section 80IB (8A) should be continued to companies approved by the DSIR up to March 31, 2015. Also, weighted deduction is not available in respect of expenditure on land and building. Since such expenditure constitutes a significant amount of the total amount spent on the research process, benefits of exemption under Income Tax Act need to be enhanced to cover depreciation on investments made in land and building for dedicated research facilities and to be increased from 150 per cent weighted exemption to 200 per cent.

With the new patent regime, the Indian pharma industry will be spending 10-15 per cent of income on research for its survival and growth. The Government needs to provide financial impetus to encourage research for the next 10-15 years.

How important is it for a drug company to have Government support its forays overseas, in terms of clinical trials, product registrations and patent filings abroad?

It is recommended that expenses incurred by approved research centres on bio-equivalence studies and similar other expenditure incurred outside the centre should also be allowed for claiming weighted deduction u/s 35(2) (AB) of the Income Tax Act. Amounts received in consideration for any Intellectual Property rights such as invention, patent, design and trademark, should be fully exempted from tax under Section 10 of Income Tax Act.

The pharma industry has been asking for excise duty of 16 per cent to be halved. Do the larger drug companies, who have moved their manufacturing facilities to the special economic zones, have some reservations here?

Over a third of the money spent by a patient on a medicine goes into tax- a little recognised fact. The Government should also help reduce this burden. Indeed large pharma companies have moved to backward areas such as Uttaranchal, Himachal Pradesh and Jammu and these areas are seeing rapid development due to the huge investments made. These are all new plants and have improved remarkably leveraging IT, world-class quality systems and an efficient supply-chain. They are proving to be a big advantage for Indian manufacturing.

Free medicine-samples given to doctors have been kept outside the ambit of the FBT. Has that brought some relief?

Samples are given for the doctor to try out and get clinical experience. It is therefore not a fringe benefit but a vital part of business to get the doctor's prescription.

A handful of cancer and AIDS drugs have been given excise and customs duty exemptions. Are there other disease segments that you think need the Finance Minister's intervention?

Yes, diabetes drugs, medicines for orphan diseases, rare life-threatening disorders, and cardiovascular diseases are some of the other diseases that need some attention.

Despite having pharmaceutical companies of different sizes, medicines are still beyond the access of several people in the country. How can the Government make drugs affordable and accessible?

The failure of medicines to reach a large section of the population is not driven by prices alone. Drugs in categories like anaemia or vitamins cost only a few paisa, yet iron deficiency anaemia affects more than 50 per cent of the rural population - particularly women and children. There has been a failure of drug delivery. The answer could be to leave enough of an incentive to encourage marketing and creating awareness and enough of a margin to drive technology and its use in solving the big healthcare problems of our nation.

What are your expectations of the Budget for the industry, in terms of spurring growth, containing fiscal deficit and in addressing labour and FDI-related issues?

We expect this is to be a good Budget with tax collections steadily rising and the success of value-added tax helping to enlarge the tax base. Labour is still an area where reforms should continue. FBT should be simplified - it is too complex. The Government has a long-term strategy and is executing it, making the changes in the annual Budget only as corrections but keeping the direction forward-looking. This is a good sign. On the whole the economy is doing well with the rise of Indian multinational across the board in many industries including steel, telecom, bio-pharma and IT.

Data exclusivity still seems to divide industry and ministries alike. Do you expect the Finance Minister to give any direction on the issue?

Data protection is going to be vital for Indian companies investing in research and we will need it to protect our own science. This is not a debate any more of MNCs (multinational companies) vs Indian companies. Many forward-looking Indian bio-pharma companies have invested in research and will need to protect it. Enough provision can be made in the law to protect from ever-greening. Data protection is only for the territory of India so it will not affect generic exports, which are dependent on the data protection laws in that country.

Spurious-drugs are an issue that has still not received as much attention from the Centre as it should. How do you think the Government could tackle this problem?

The spurious drugs issue should be firmly tackled. It is a crime against humanity. If you use a counterfeit fashion garment it does not affect your life as in the case of taking a spurious drug. The menace is increasing sharply. The law must be changed to award penal action on spurious drugs manufacturers. India is most frequently quoted as having the maximum spurious drugs, which is a national shame.

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