Budget 2014: Biocon chief wants more R&D incentives, fewer essential drugs

July 4, 2014

India’s $15 billion healthcare industry has taken hits on several fronts in recent years, from slow approvals for drugs in clinical trials to several run-ins with the U.S. Food and Drug Administration over the quality of its generic drugs.

Market growth fell to less than 10 percent last year after the increase in the number of drugs that the government said should be subject to price caps so that poor and middle-class people could afford them (Only 15 percent of India’s 1.2 billion people have health insurance).

Now, with Prime Minister Narendra Modi hinting at a “bitter pill” to rescue India’s economy, the pharma industry wouldn’t want to be at the receiving end of tough decisions; it would be difficult for a business that’s used to making medicine instead of taking it.

Biocon Ltd., led by entrepreneur Kiran Mazumdar-Shaw, is one company that has suffered along with other Indian pharmaceutical peers. Recently, the company had to restrict its clinical trials in India because of slower approvals, spiralling costs, stringent rules and regulatory uncertainty. Mazumdar-Shaw shared her thoughts for what India should do for its drug companies, including extending incentives for any costs incurred developing drugs overseas and raising the amount of money that foreign firms can invest in Indian companies to 100 percent.

Here are excerpts from an e-mail interview. It has been lightly edited.

What is the biggest issue for the pharmaceuticals business? What can the government do to help in its budget?
The difficulty in conducting clinical trials is the biggest deterrent for drug development. The incentives for R&D should extend to overseas development costs as well as patenting. This is vital for global competitiveness. It is also key to provide tax holidays to greenfield, export-oriented manufacturing projects that will further enhance our “pharmacy of the world” profile. We also need to lift the FDI [foreign direct investment ] norms in pharma to 100 percent.

What about other problems of the sector that the government needs to address in this budget?
All indigenously developed biotech drugs must be exempt from the three-year market standing norm in government tenders [currently, the government procures drugs that have been in the market for three years] and also give a 20 percent weighted advantage [most government tenders in various countries give an advantage to locally manufactured drugs] over imported drugs. This will eliminate the cross-subsidizing practice that MNCs adopt. This will also encourage local manufacturing.

Can any steps be taken to encourage innovation and start-ups in the pharma sector?
Yes, through exempting angel investors from capital gains tax. Government should also provide tax breaks to CSR (corporate social responsibility) funds investing in government-accredited incubators and accelerators.

Do you want support from the government in pricing essential drugs that the current policy aims to make cheaper for the public?
India is already the lowest cost producer of generics and biologic drugs. We must not impose further price control but rather let competitive market forces determine fair prices. Bulk drug procurement will provide the discount that government is seeking. The number of essential drugs are far fewer than currently listed.

With Arun Jaitley saying that “mindless populism” needs to be checked to ensure the government’s financial health, does it give hope to the pharma sector on fair pricing of drugs?
The right to healthcare is not mindless populism. However, it needs a sustainable model that will entail every citizen making a modest monthly contribution towards health insurance and for the government topping this up to create a health insurance system that can reimburse healthcare through health coupons.

Should the government devise mechanisms to safeguard Indian pharma companies in the international market?
Our regulatory system must focus on quality compliance, which is the root cause of our present problems with the U.S. FDA. Every pharma company knows what quality compliance is all about, but have been lax about adherence. This is inexcusable.

How can the government help Indian pharma players emerge stronger in the international drugs market? As of now, India is seen only as a large manufacturer of cheap drugs.
It’s much to be proud of to be called the “pharmacy of the world” as the lowest cost producer of generics. We need to further strengthen this advantaged position. Additionally, we need to make efforts to emerge as the lowest cost producer of novel drugs wherein drug innovation must be supported with a capable regulatory system that focuses on speed of regulatory approvals as well as developing abbreviated pathways based on new technologies to address safety and efficacy.

Does the industry want any changes in policy?
The price control on essential drugs, by reducing the number of drugs on the essential medicines list.

Have you been consulted on the budget and have you relayed any suggestions to the government? What did they say?
Each year the government consults the industry on fiscal requirements to augment growth. However, very few of our recommendations are actualised. We have sought inclusion of overseas R&D and international patenting spends in our R&D tax incentives but so far this has not been permitted.

(Editing by Tony Tharakan and Robert MacMillan; follow Shashank on Twitter @shashankchouhan, Tony @tonytharakan and Robert @bobbymacReports. This article is website-exclusive and cannot be reproduced in any form without permission.)

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/