Pharmaceuticals Industry


 

OVERVIEW

Health is of paramount importance in the social and economic development of the world. It is in this regard, that the pharmaceutical industry is widely recognised as a predominant driver in the process of economic development. The Indian Pharmaceutical Industry has acquired a noteworthy position in the global pharma sector and has been achieving significant growth in the recent years. In addition to catering to the needs of the domestic demand, the pharmaceutical industry is also engaged in contract manufacturing, contract research, clinical trials, contract R&D, and direct exports to developed and developing country markets.

Globally, the Indian pharmaceuticals market is the third largest in terms of volume and thirteenth largest in terms of value. The Indian pharmaceutical industry is estimated at US$ 36.8 billion as of 2014-15. Of this, the formulations market accounts for about US$ 12.2 billion (or Rs 746 billion) constituting around 1.1 per cent of the global market in value terms.

The industry has attained self-reliance in the production of formulations, and produces almost 70 per cent of bulk drug requirements of the country. India is also one of the major producers of generic drugs in the world.

Export

The export of pharmaceutical products was valued at US$ 6.7 billion during the year 2010-11, registering a y-o-y growth of nearly 28.6 percent. The exports of pharmaceutical products have increased at a CAGR of 14.1 percent during the period 2010-11 to 2015-16, as the value of exports increased from US$ 6.7 billion to US$ 12.9 billion. The y-o-y growth in exports of pharma products was approximately 11.4 percent during 2015-16. Share of pharmaceuticals in India’s total exports has increased from 2.1 percent in 2000-01 to 4.9 percent in 2015-16. The major export destinations for India’s pharmaceutical sector during 2015-16 were: USA (with a share of 38.9 percent), followed by South Africa (4.1 percent), UK (3.6 percent), Nigeria (3.0 percent) and Russia (2.7 percent).

Export of Pharmaceutical Products from India
Year US$ bn Growth Rate (%)
2011-12 8.5 27.1
2012-13 10.1 18.6
2013-14 11.1 10.7
2014-15 11.6 4.0
2015-16 12.9 11.4
Source: DGCI&S
Major Export Destinations for Indian Pharmaceutical Products
Country Exports Value (US$ million) Share (%)
USA 5026.5 38.9
South Africa 524.3 4.1
UK 463.3 3.6
Nigeria 392.9 3.0
Russia 353.8 2.7
Kenya 295.5 2.3
Australia 205.7 1.6
Brazil 202.1 1.6
Sri Lanka 189.1 1.5
Tanzania 177.2 1.4
Total 12907.2 100.0
Source: DGCI&S

Foreign Direct Investments

FDI Policy

  • 100% Foreign Direct Investment (FDI) is allowed under the automatic route for greenfield projects.
  • For brownfield project investments, up to 100% FDI is permitted under the government route.
  • The government may incorporate appropriate conditions for FDI in brownfield cases, at the time of granting approvals.
  • ‘Non-compete’ clauses are not allowed except in special circumstances, with the approval of the Foreign Investment Promotion Board.
  • The FDI is subject to applicable regulations and laws.

FDI in the drugs and pharmaceutical segment was approximately US$ 14 billion during April 2000 to March 2016 period, accounting for 4.8% of total FDI Inflows in the country.

Outlook

The augmentation in the demand for pharmaceuticals globally is expected to provide impetus to the Indian pharmaceutical companies over the years. Several factors inducing the growth of Indian pharma sector include patent expiry of drugs and sluggish introduction of new molecules by innovators globally. According to the Crisil Research, the Indian Pharmaceutical industry is expected to grow at 12-14 per cent CAGR during the period 2015- 16 to 2020-21. According to industry sources a rapid increase in exports of formulations and bulk drugs to the regulated markets has been estimated.


 

SELECT GOVERNMENT INCENTIVES

  • The government announced to reinvigorate the supply of generic drugs and announced its plan to open 3,000 stores under the Prime Minister’s Jan Aushadhi Yojana, during 2016-17.
  • A special patent regime has been proposed with 10 per cent rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident.
  • For start-ups set up between April 2016 and March 2019, a 100 per cent deduction of profits for three out of five years has been introduced.
  • It has proposed to amend Section 35 of the Incometax Act so as to reduce the weighted deduction under Section 35(1)(ii), 35 (2AA) and 35 (2AB) to 150 per cent from FY2017-18 to FY2019-20, and from FY2020- 21 onwards the deduction shall be restricted to 100 per cent. It also proposed that the deduction under Section 35(1) (iia) and (iii) of the Income-tax Act shall be reduced from 125 per cent to 100 per cent with effect from 1 April 2017.
  • The flat corporate tax structure of 25 per cent for companies commencing manufacturing operations after 1 March 2016 is expected to boost drug manufacturing in the country

Area-Based Incentives

Incentives for units in SEZ/NIMZ as specified in respective acts. (Setting up of pharma specific clusters in SEZ formats may help the industry in addressing the regulatory requirements and resultant costs. Common facilities, including common patent libraries, International Pharmacopoeias may be provided in identified clusters; establishing quality control labs that are cost intensive; and help developing world class quality control labs in the clusters will provide support for primary characterization and testing in a cost effective manner.)

Units in Clusters

A scheme for the development of common facilities like effluent treatment, testing centres etc.

(Utilities are the single largest contributor to the running costs of a plant in India, which include power and pollution control measures. Cluster development may address the need for reducing the cost of utilities by subsidizing power and by way of creation of Common Effluent Treatment Plant (CETP). )

R & D Benefits

Industry/private sponsored research programmes:

  • A weighted tax deduction is given under section 35 (2AA) of the Income Tax Act.
  • A weighted deduction of 200% is granted to assesses for any sum paid to a national laboratory, university or institute of technology, or specified persons with a specific direction provided that the said sum is used for scientific research within a programme approved by the prescribed authority.

 Companies engaged in manufacture having an in-house R&D centre:

  • Weighted tax deduction of 200% under section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure incurred on scientific research and development. Expenditure on land and buildings are not eligible for deduction.
  • A national centre to help develop bulk drugs and facilitate their research is being set up in Hyderabad.
  • Duty free import of Pharmaceuticals reference standards.

 

US FDA

The US FDA inspects the manufacturing sites in order to check the adherence to the current good manufacturing practices. The manufacturing operations must comply with the current good manufacturing practices (CGMP) in order to have a site clearance. In case of deviations from ideal manufacturing practices, the FDA lists down deviations in Form 483, and share the observations with the manufacturers, who then are expected to reply to the FDA with their corrective and preventive actions that will provide assurance of their adherence to the CGMP requirement. In case of further non-compliance or inadequacy of corrective and preventive actions, the FDA may issue a warning letter or an import alert. India and China pharmaceutical companies feature among the maximum number of import alerts for good manufacturing practices. India ranks fourth in the list of warning letters and import alerts and contributes nearly 3 percent of the total of US FDA import alerts till date. The import alerts have been issued on account of several alleged violations by the Indian companies in the areas such as: quality control, hygiene, lack of reliability and accuracy of data and adulteration. An import alert effectively bans all exports of pharmaceutical products from such manufacturing plants into the USA, and renders all the stocks of the impacted production batches unsalable in the USA market. Further, if the US FDA continues its spree of issuing import alerts on the Indian manufacturing facilities, pharmaceutical producers will have to adhere to the US FDA’s GMP guidelines on a more stringent level. This would mean more quality controls, more checks on the formulation manufacturing processes and rigorous monitoring and documentation as well, resulting in incurring of additional investment in these areas, which would also add to the cost of manufacturing the medicines by Indian pharmaceutical companies.


For further details on Regulations applicable in various geographies, refer to this link: http://www.standardsmap.org/identify