Pharmaceutical: No R&D dose

Budget 2002-03 is neutral for the Indian companies and slightly negative for the MNC Pharma companies

Budget provisions

The following are the important measures taken for the Pharmaceutical sector in the budget 2002-03:

• The budgetary support for Indian systems of medicine has been increased by 25% to Rs 1.500 crore.
• Specified anti AIDS drugs exempted from excise duty with effect from 1^st March, 2002.
• 8 drugs catering to the cancer and some other critical diseases will figure in the list of fully exempted drugs.
• Vaccine for immunization of Japanese Encephalitis shall be exempted from customs duty.
• Basic customs duty of 5% imposed on drugs manufactured indigenously.
• Customs duty on glucometers and test strips reduced from 25% to 10%.

The following drugs catering to the cancer and some other critical diseases will be fully exempted from customs duty:

Basiliximab
Beractaut Intra-Tracheal Suspension
Imatinib Mesilate
Rituximab
Tetrofosmin
Trastumab
Zoledronic Acid

Industry impact
Exemption of Anti AIDS drugs from excise would positively impact Cipla, though marginally.

Customs duty of 5% on drugs manufactured indigenously will marginally impact Pharma MNCs like Novartis, Aventis and Pfizer, which import from their parent.

However, the expected benefits relating to the R&D has been side stepped this time. The industry had hoped that high spenders on R&D would be given some special treatment such as income tax exemption for the royalty earned through licence deals of the products developed through R&D.

Reactions
Habil Khorakiwala, Chairman, Wockhardt. expressed his dissatisfaction for neglecting the R&D. He said that, "The finance minister has dissappointed the pharmaceutical industry by not providing boost to the indigenous R&D efforts. While India has a large pool of talent in the Pharmaceutical and biotechnology research, some incentives in terms of custom duty and income tax exemption for R&D efforts would have made Indian research more competitive. We hope that the finance minister will be kind enough to review this aspect and take some corrective measure before the budget is passed in the parliament."

Reacting to the Union Budget, Pankaj R. Patel, Chairman and Managing Director Zydus Cadila said,
"The Budget 2002 aims at wide sweeping reforms particularly in agriculture, power and infrastructure. Reduction of 5% in customs duty on raw materials and 10% increase in customs duty on finished goods will give some relief to Indian manufacturers.

"While the Budget aims to rejuvenate industrial growth, the pharmaceutical sector which is one of the major contributors to the economy and had anticipated announcements of incentives to boost R&D has been sidestepped once again.

"Special incentives in the field of healthcare such as exemption of specific Anti-AIDS drugs from excise duty and exemption of cancer drugs and vaccine for Japanese encephalitis from customs duty will be a welcome relief for the people".

As a company, Aurobindo Pharma welcomed the excise duty exemption on anti-HIV drugs in budget.

Aurobindo Pharma has welcomed the budget announcement of excise duty exemption on all drugs for HIV treatment. The Company announced that it would pass on the benefits to the patients appropriately.

Mr.Hariharan, Vice-President, Imunus, the anti-HIV division of Aurobindo Pharma said "We welcome this gesture from the Government and take this opportunity to request the concerned authorities to exempt antiretrovirals from Central and State Sales Tax to benefit the HIV patients".

Industry Scenario:
The US$ 5.5 billion Indian pharma industry is expected to touch US$25 billion by 2010. Amongst high growth segments are IT-related new horizon, novel research, bioinformatics, genomics and proteomics. The potential areas in research include pharmacogenomis (personalised medicine), bio-pharmaceuticals, outsourcing utilities, contract reasearch and as a tool and technology partners in informatics.

The domestic sales of the pharmaceutical industry grew by 9.7% to Rs 15534 cr in the year ended Dec'01. Glaxo Wellcome (excluding Smithkline Beecham) continues to lead the domestic market with 5.38% share, while Cipla finished second with 5% share as Ranbaxy (including sales of its affiliates Solus, Rexcel and Crosslands) came closer with 4.8% share.

During the year 2001, domestic pharma companies outperformed MNC firms in terms of market growth. While Glaxo-Wellcome recorded 3.5% growth, Hoechst-Roussel (now called Aventis Pharma) recorded 1.9% growth only, domestic players like Sun Pharma, Cipla, Nicholas Piramal (including Rhone-Poulenc), Dr Reddys and Ranbaxy recorded 21.7%, 16.8%, 9.3%, 8.4% and 7.5% respectively.

The industry manufactures bulk drugs and formulations of which formulations constitute about 82%. Formulations can further be classified as essential drugs and common drugs. Essential drugs comprise five major sectors - cardiovascular, antibiotics, antibacterial, anti-TB and anti-parasitic. Common drugs comprise six major sectors - rubs and balms, cough and cold preparations, general nutrients, vitamins and minerals, tropical ointments, and anti-inflammatory and analgesics. Antibiotics constitute the largest therapeutic segment with a market value of about Rs 3,000 crore.

The Pharmaceutical Industry has been playing a crucial role in the social well being of the country by not only discovering, developing and manufacturing, but also distributing quality medicines. Being a knowledge-based industry it has a great potential to be a leading global player. The WTO led trade measures and the TRIPs driven patent regime have posed new challenges for the national pharmaceutical industry.

If one considers the entire healthcare scenario, allopathy accounts for 50% of the overall Indian market, ayurveda accounts for 30% and sidha, unani, homeo and other systems share the rest.

Pharmaceuticals are medicinally effective chemicals converted to dosage form suitable for patients. In its basic chemical form, pharmaceuticals are bulk drugs and the when converted in final dosage forms are formulations.

In pharmaceutical industry, research and development play a vital role for development of new product. In establishing R&D facilities of international standards, capital investment required is considerably high. For this purpose research equipment are imported and customs duty is to be paid which increases the R&D bill of the pharmaceutical companies.

Latest Drug Price control order (DPCO):
To ensure the availability of essential drugs at affordable prices to the public, drug prices are controlled by the Drug Price Control Order, which is monitored by the National Pharmaceutical Pricing Authority (NPPA).

Recently, on 15^th February 2002, the government unveiled details of new pharmaceuticals policy. The policy was earlier cleared by the cabinet on 5^th February 2002. This policy aims to reduce state control on drug pricing and encourage research.

Under this new policy, the government will fix price of only those formulations which have an annual turnover of Rs 25 crore and in which a single firm making a formulation has a market share of 50% or more. The government will also fix the prices for formulations with a turnover of Rs 10-25 crore if a single formulator has a market share of more than 90% or more.

These new rules are expected to reduce by half the number of drugs whose prices the government determines. The number, before this policy, stood at 74 against 374 in 1985.

Company benefited from the budget:
Cipla (exemption for Anti AIDS from excise), Wockhardt

Company negatively impacted from the budget:
MNCs Pharmaceutical companies because of the imposition 5% custom duty on drugs manufactured indigenously.

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