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FEB. 11, 2007
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Taxing Times
The phase-out of central sales tax is yet another move towards ushering in the national goods and services tax (GST). The compensation to the states, in lieu of CST phase-out, will include revenue proceeds from 33 services currently being taxed by the Centre as well as 44 new services of an intra-state nature that will be traded by the states. However, VAT is the way forward, though much needs to be done to iron out the anomalies in the current VAT regime.

India, Ahoy!
Indian investments overseas are growing and how. For instance, total Indian investment in Latin America and the Caribbean has topped $3 billion (Rs 13,500 crore) so far. The latest investment is by ONGC Videsh, which acquired an oilfield in Colombia for $425 million (Rs 1,912.5 crore). Earlier, ONGC bought an offshore oilfield in Brazil for $410 million (Rs 1,845 crore).
More Net Specials
Business Today,  January 28, 2007
The Price Conundrum
India is already one of the cheapest markets for drugs. Does it need price controls? Perhaps not.
Within reach: The industry is in favour of more drugs being sold over-the-counter, The government is against it; arguing that it will lead to improper self-medication
One of the big ironies of the Indian pharma story is this: Neither Indian drug manufacturers nor their investors are too excited by the domestic market. On the face of it, that must seem strange. The Indian pharma market is the fourth-largest in the world by volume. But by value, the Rs 27,000 crore that manufacturers toted up in domestic sales during 2005-06 puts India at a distant 13th in the global stack-up. Now, the country's Chemicals and Fertilisers Minister, Ram Vilas Paswan, wants companies to subject more of their drugs to governmental price controls. Not surprisingly, the industry is crying murder. "A staggering 97 per cent of the drugs manufactured in India are generic versions of almost every drug under the sun," says Harinder Sikka, Director (Corporate Affairs), Nicholas Piramal, implying that drug prices are already very competitive.

It's easy to believe him. With an estimated 20,000 manufacturers (there's another count that puts the number at just 6,000), the industry is awfully competitive. Drug prices, the industry points out, have risen between just 1 and 3 per cent a year historically, well below the annual rate of inflation, and that prices of some life-saving drugs are lower in India than in poorer countries such as Pakistan and Bangladesh. "Any move to bring intrusive price control measures will stymie the much-needed effort and capital required to augment crucial R&D efforts," says Ramesh Adige, Director (Corporate Affairs), Ranbaxy Laboratories, the market leader. "The industry already has a lot on its plate and grappling with such unproductive diversions consumes a lot of energy and time," he adds.

How much cheaper? Chemicals and Fertilisers Minister Paswan wants more drugs to be brought under governmental price control
Adige has a point. The industry is competitive enough to ensure that prices don't spiral out of consumer reach even over the next, say, 10 years. But the issue of pricing will need to be addressed thereafter-not for the generic drugs, which will continue to be the bulk of the market, but patented drugs that Big Pharma is looking to launch in India. Of course, what has made the environment favourable for patented drugs is the introduction of the Product Patent regime in 2005. Until then, India only recognised process patents, which allowed Indian manufacturers to reverse engineer drugs patented abroad and build a highly competitive industry. According to a yes Bank report, 15 per cent of the Rs 60,000-crore domestic pharma sales by 2015 could come from patented drugs.

The question is at what price will these drugs be launched? Consider some of the patented drugs that are expected to be launched in India soon: Novartis' anti-cancer drug Avastin costs $2,750, or Rs 1,23,750, for a 400 mg or 16 ml solution in the us. According to a report in usa Today, "adding Avastin to standard chemotherapy raises the price to $21,000" for an eight-week treatment in the us. Even American consumers are outraged by the price of the new generation drugs. (According to the same report, "treating all 56,000 Americans with advanced colorectal cancer could total $1.2 billion, or Rs 5,400 crore".) Similarly, another new age drug, also from Novartis, called Lucentis (for treatment of macular degeneration in the eye), costs $1950 (Rs 87,750) per injection in the US.

Will the innovator companies launch such drugs at their exact us prices? Perhaps not. But even at 'India prices', these drugs may be affordable only to the most affluent consumers. (For the record, some Big Pharma companies have a policy of selling critical, but high-priced, drugs to the poor free of cost.) How will the drug regulator deal with this issue? Not an easy question to answer, but neither a significant source of worry right now. For one, no drug company will price a product beyond the purchasing power of its consumers. Two, the government retains the right to compulsorily licence the drug-that is, in case of a deemed national emergency, the government can ask other manufacturers to produce the drug. "Patent offices here are still not equipped to handle applications. The absence of clear-cut procedural guidelines, and delays in disposing of pre-grant opposition are some of the issues that need to be addressed," says a director at a pharma MNC.

Changing Topography

A bitter pill: Companies like Ranbaxy are more focussed on global markets, but India is key in terms of volumes
Meanwhile, the fragmented domestic industry is likely to consolidate further. In fact, in some sense, it is already fairly tight-knit. In branded formulations, for example, the top 50 companies account for 80 per cent of the market. There will also be further shift towards improved drugs-that is, ones that are more efficacious or come in a different and more convenient form or dosage. In industry lingo, it's called novel drug delivery system, or NDDs. In addition, drug makers will target life style-related diseases. Over the recent years, therapeutic segments such as anti-diabetic, cardiovascular, and neurological have grown rapidly, even as traditional segments, including anti-infectives, have declined. Most analysts expect the former to drive the industry's growth in the years ahead.

Over-the-counter (OTC) drugs are something else the industry is betting on. Currently, 80 per cent of OTC drugs is sold via standalone chemists and drugstore chains. Selling OTC products through grocery stores is only permitted in rural areas of less than 1,000 inhabitants, but the industry has been lobbying for a change in this rule. "Wider access to non-prescription products will bring opportunities to manufacturers to sell to a wider consumer base and will allow retailers to expand their current product offering, thereby improving the quality of healthcare in the country," says D.G. Shah, General Secretary, Indian Pharmaceutical Association.

The government is in two minds over expanding the OTC list. The industry argues that putting more household remedy drugs such as calcium supplements, antacids, skin ointments and medicated inhalers will create a market worth Rs 3,000 crore. However, Union Health Minister Anbumani Ramadoss doesn't seem to be in favour of it. The argument against widening the OTC list is that 61 per cent of Indians are illiterate and, therefore, there are chances of improper self-medication.

A growing middle class and greater incidence of life style-related diseases mean that the domestic market will continue to grow. In fact, a CII study estimates that the industry revenues will touch Rs 1,20,000 crore by 2010. It may still not be large enough to excite Indian drug makers, but it is this base that allows them to reach out to global generic markets.