Opinion

India can become the pharmacy of the world

Arvind Sahay | Updated on May 07, 2020 Published on May 06, 2020

There is an opportunity for the Indian pharmaceutical industry to play a larger role in global drug supply-security. Financial and policy incentives will help make this happen

In 1969, Indian pharmaceuticals had a 5 per cent share of the market in India, and global pharma had a 95 per cent share. By 2020, it was the reverse, with Indian pharma having an almost 85 per cent share and global, 15 per cent. Over the last 50-plus years — in terms of both meeting the domestic needs as well as building a leading position in the global pharmaceuticals landscape — Indian firms have been successful. India already contributes over 20 per cent by value to the global generics market, with Indian products contributing over 40 per cent (by volume) of US drugs.

There is a saying — why waste a good crisis? The Covid-19 crisis provides an opportunity to the Indian pharmaceutical industry to play an even more important role in global healthcare. There is a potential opportunity for India to truly play the role of ‘pharmacy of the world’/ How can the pharmaceuticals industry in India use the opportunity to leapfrog into the future using the impetus provided by Covid-19?

Competitive market

The Indian pharma industry has been growing steadily for the past few years, as seen in the Table.

The industry in India is worth about $37 billion, with exports accounting for about $18 billion. Interestingly, the prices of medicines in India are amongst the lowest in the world, partly because they are characterised by very high competition. The Herfindahl index is a measure of competitive intensity of an industry, and measures the size of firms in relation to the industry. Unconcentrated markets have a Herfindahl index value less than 0.15 while highly concentrated markets have Herfindahl index values greater than 0.25.

We calculated the Herfindahl index for top seven therapeutic categories from the molecules in India, with an annual sale of at least ₹100 crore. The results show the sample having an Herfindahl index of less than 0.15, indicating unconcentrated markets with very high levels of competition. On the whole, the analysis of the Indian pharmaceutical industry reveals a highly competitive industry structure, and based on the standard economic theories, the competitive market structure should lead to market clearing prices and increased consumer surplus. With increased competition comes an automatic downward price pressure.

An AIOCD-AWACS MAT 2019 report shows that 11 per cent of the formulations in India are under the price point of ₹5. There are studies which document that prices of Indian generic medicines are amongst the lowest in the world.

Production boost

How does this help at this time of Covid-19? Despite having some of the lowest prices in the world, leading Indian firms have the capacity to not only serve the Indian market for essential drugs but also supply the world.

So we should first use this opportunity to increase the production of drugs in India by supporting and streamlining pharmaceutical manufacturing through initiatives such as consistent implementation of policies on manufacturing personnel movement across all States (including formal notification to all State governments/local authorities); consistent implementation of policies across all States to ensure streamlined logistics for pharmaceuticals material, eg material movement across State borders; and support to ancillary suppliers (eg packaging material, solvents) of pharmaceutical manufacturers.

The low prices make the drugs acceptable everywhere in the world. With quality that is enforced by the USFDA (India has the largest number of USFDA-approved plants in the world), which has a reputation for top-notch standards, India will be able to supply quality medicines at low prices.

Second, to increase production, the government needs to launch targeted financial incentives to promote the manufacturing of diagnostic kits and other medical devices — especially given that the raw material for manufacturing of these devices is heavily dependent on imports. This is also an opportunity to bring a much larger proportion of manufacturing of APIs back into India, so that the country is not dependent on imports of critical inputs.

In this connection, the government’s decision to promote domestic manufacturing of KSMs, intermediates and APIs (through the setting up of bulk drug parks and production-linked incentives) is a very welcome policy for the industry. Going forward, India’s self-reliance in pharmaceutical manufacturing can be further enhanced by providing incentives / support to API and Intermediates/KSM manufacturing such as provision for SEZ’s for manufacturing bulk drugs.

Increased research

Third, the Indian pharma industry is now at the cusp of developing new molecules for treatment of various medical conditions at scale. Many Indian firms already have molecules in clinical trials. Developing new drugs costs money, and the government needs to provide the conditions for sufficient profits for investment in new molecules while holding the firms accountable for producing new drugs for India and the world.

At this time, Indian medicine prices are already amongst the lowest in the world. In addition, research evidence from IIM-Ahmedabad based on data from 2011-2018 for 108 molecules suggests that price control has not increased access and affordability. There is, thus, a need to fine-tune the drug pricing policy to generate enough surpluses to invent new molecules while keeping the price levels reasonable with the objective of providing affordable healthcare.

In this connection, the government can boost Indian pharma R&D by implementing streamlined and accelerated regulatory and testing pathways for all drugs (including those for Covid-19). The increase in overall innovation/R&D can provide a long-term thrust to Indian pharmaceuticals. Three recommended moves to enable this are encouragement of R&D expenses and outcomes; increase in availability of funding for R&D; and creation of a closer cooperation process between public institutions like CSIR laboratories and NIPERs with private R&D.

The industry has already taken some significant steps during the Covid-19 crisis by providing drugs to many friendly countries. This initiative can be made much more broad-based by launching a structured export-incentive plan for Indian pharmaceutical manufacturers, to promote greater supply of drugs to global markets in the medium term.

There is an opportunity for the Indian pharmaceutical industry to play a larger role in ensuring global drug supply-security, and potential financial incentives can play a significant role in making this happen. This is, of course, subject to the availability of essential medicines in India at a reasonable cost.

The Indian pharmaceutical industry is a strategic industry for the nation, with the advantage of scale (at $37 billion in 2019-20, it contributed 1.5 per cent to the GDP directly, with another 3 per cent coming indirectly). The industry also has global reach, and is a net foreign exchange earner of more than $10 billion annually. Pharma can do for India what software was able to do in the 1990s and 2000s. India became the back office. Let this be the moment that triggers the acceleration of the movement to becoming the ‘Pharmacy to the World’.

The writer is Professor of Marketing and International Business at IIM-Ahmedabad

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Published on May 06, 2020
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