industry

What ails India's pharmaceutical sector?


By Karan Singh

It has been a rough end to 2019 for India’s pharmaceutical industry. While like the rest of India Inc, companies in this sector have been bogged down by economic malaise, there are some sector-specific issues that concern my fellow CEOs.

For the last few months, their businesses have been buffeted by an over 50% increase in the cost of raw material imported from China, leaving businesses hobbled by shrinking margins and questions of long-term viability. This distress caused them to appeal to the National Pharmaceutical Pricing Authority (NPPA) for price increases. The regulator used the rarely invoked Para 19 of the Drugs (Prices Control) Order to enact these rates providing some relief.

Unlike mature markets such as the US, where drug prices are market-controlled, here, the government and regulators play a pivotal role in the entire process. Regulators fix both the price companies pay for bulk drugs and the price at which they sell their products in the market, leaving little leeway to build profitable businesses. The list of price-controlled drugs, by the department of pharmaceuticals under the ministry of health and family welfare, has swelled from 74 in 1995 to almost 860 in 2019.

For Indian pharma, this is a double-edged sword. Companies have learnt to maximise efficiency from this system by squeezing every ounce out of their processes. But with slim margins, they have little incentive to modernise and upgrade their manufacturing capabilities and capacity.

On the world stage, this places Indian pharma at a distinct disadvantage, as companies can’t compete with their rivals worldwide and don’t invest in R&D to develop breakthrough high-margin drugs. This pressure has become only more acute, because the cost of bringing a drug candidate to the market has increased sharply — from nearly $1.1billion in 2010 to over $2.1billion in 2018, according to Deloitte.

India’s pharma industry has built a myth that it cannot competitively manufacture essential medicines under these constrained circumstances. While the current base price for excipients (the inactive substance that is the medium for a drug) and active pharmaceutical ingredients (API) is not in line with what GoI has listed, this only impacts margins and not feasibility. But with the massive volumes required, these firms can yet build viable businesses here. Instead, with technological developments such as Industry 4.0 and digital manufacturing globally, Indian drug-makers can harness these tech upgrades to rejuvenate their outmoded businesses, and even prosper.

An estimated 50% of drugs still fail in Phase 2 and Phase 3 of the development cycle due to lack of efficacy or safety signals. Using artificial intelligence (AI), drug-makers could identify better compounds four times faster, with the potential to reduce the late-stage drug failure rate by as much as 20%.

Recently, the pharma industry has begun to belatedly embrace new technologies such as mobile, cloud, analytics and the Internet of Things (IoT). In India, a rethink is needed as to the way the pharma business is done. Today, medicines are manufactured using a batch process that is wasteful and inefficient. Firms need to consider shifting to a process of continuous manufacturing, which shaves valuable startup capital costs and helps pharma companies build sounder businesses. The onset of newage technologies, especially AI and IoT, has allowed companies to build factories of the future ready to compete on the world stage.

Traditionally, once a company decides to commercially manufacture a drug, it discards hundreds — if not thousands — of trial batches, before it can zero in on what is termed a ‘golden batch’. In an era of digitisation, this process can be hastened by using AI to rapidly identify this one ideal batch and manufacture it continuously. While technology allows these manufacturers to operate far more efficiently, this aggressive investment in building advanced digitally-led manufacturing operations also enables drug-makers to be more compliant, since multiple manual checks and balances these companies had in place are being replaced by faster AI and machine learning (ML)-driven processes.

The use of these emerging technologies will also enable equipment efficiency and better utilisation of existing capacities. In many companies, the facilities are so underutilised that there is scope to even double production and, therefore, tap effectively into the large volume game. To really make this booster shot stick, GoI has a role to play too. It needs to incentivise companies making this upgrade with financial sops to ensure they invest in building a more robust and competitive industry, primed to compete on the global stage.

The writer is managing director, ACG, Mumbai





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.