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US drug approvals, focus on R&D to drive pharma sector in 2015

Pace of approvals in the US could hasten in the coming months of New Year, helping pharma companies with improved growth rates and margins

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The year 2015 could be a mix year for the Indian pharma industry. While it is expected that in the domestic market, more drugs could come under price control bringing in some hope for the consumers, the expected fastening pace of approvals in the US market can help pharma companies to improve growth rates and margins.

According to industry experts, the increased focus on research and development (R&D) activities by the pharma companies will also help in building capabilities required to drive innovation. While the domestic industry was able to report growth this year after a difficult year in 2013, thanks to the price control imposed on a wide basket of drugs and regulatory issues, the year 2014 still continued to be a challenging year for the pharma industry on the back of increased government intervention and slowdown in product approvals.

Glenn Saldanha, chairman-cum-managing director, Glenmark, said, "The year 2014 has been a challenging and eventful year for the global pharma industry marked by acquisitions, increased government intervention on the sector, slowdown in product approvals across markets and more complex regulatory requirements."

However, according to data released by Central Drugs Standard Control Organisation (CDSCO), the number of drug approvals have gone up in the current year from 35 in 2013 to about 56 till November 2014. Approvals for clinical trials have also witnessed a rise in number from 107 in 2013 to 133 till September 2014.

Last year, National Pharmaceutical Pricing Authority (NPPA) capped prices of 348 scheduled drugs as part of the National List of Essential Medicines (NLEM), 2011. According to a recent update on the website of the NPPA, the new government has been able to bring in 251 medicines, including treatment for cancer, diabetes, cardiovascular disease and HIV/AIDS, under price control within 212 days of taking charge. The annual benefit to customers has been Rs 558 crore, it said.

Sameer Sah, principle associate, Khaitan & Co, said, "The government seems to be clear that the existing NLEM is not enough and the government wants to include additional items. Therefore, next year one can expect to see some changes, and greater clarity on what will be brought under price control. The government should do this after public consultation as opposed to bringing drugs under price control on a unilateral basis."

According to an industry analyst, the domestic market has shown good growth for most pharma companies in the past two quarters. "Most companies have been able to take the annual price increase in both drugs within and outside NLEM this year which resulted in better domestic growth numbers. While the attempt to bring more drugs under price cap is welcome, the NPPA should try to reach a consensus through dialogues with the industry stakeholders before taking any step further," said the analyst.

While that's a positive for consumers, pharma companies are facing a muted growth, largely on account of slowdown in the US markets. India is the third largest exporter of pharmaceuticals to the US with its 40% generic requirements been met by India.

"US, the world's largest market for pharmaceuticals, is witnessing a slowdown in product approvals and channel consolidation which is impacting overall sales for the industry. We, however, feel that the pace of approvals should hasten in the coming months of the New Year, thereby helping companies record improved growth rates," said Saldanha.

The US is important for the Indian companies, both in terms of revenue and profitability. This dependence is quite easy to understand, thanks to the ability to sell products in that market at a significant premium by the pharma companies compared to what they can do in India.

However, this has resulted in higher scrutiny from the US drug regulator, the US Food and Drug Administration (FDA). To keep a tab on the way the Indian companies are doing business, especially in relation to quality control and compliance related issues, US FDA announced an increase in its staff in its India office. The frequent audits by US FDA staff on the Indian plants of both multinationals and Indian companies have led to an increased number of issuance of warning letters.

"The problems identified by foreign regulators are related to good manufacturing practice (GMP) compliance by Indian units. The regulators have not targeted Indian companies alone, they are also targeting Indian units of multinationals. Therefore, all Indian units have to improve compliance. This includes engaging sophisticated professional advice and implementing clear processes and checks and balances. Once this is done, there is no reason why exports should suffer," said Sah, adding in the short term, compliance costs will inflate the bottomline and squeeze margins, but that is the trade-off for long term benefits.

"Indian companies have already started assessing compliances and products; and instances of recalls have also increased. These are not compulsory recalls which implies companies are reassessing their stocks and products to discover issues if any. Assessing this at their end prevents any patient safety issues and would prevent this from escalating into a larger issue," he further said.

However, a number of pharma companies are trying to diversify into other markets such as Brazil, Mexico, Venezuela and also in some East European markets to lower this growing dependency on the US. Besides, certain emerging markets in Asia and Africa are also expected to do well in the future.

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