India Pharmaceuticals and Healthcare Report Q3 2012

BMI View: India's pharmaceutical regulator should drop its requirement for local clinical trials in order for a new medicine to receive approval. The country does not have the necessary number of trained professionals to effectively monitor the costly and timely process. Patients would benefit from more rapidly introduced pharmaceuticals, and drugmakers would also see higher commercial upside if the requirement was withdrawn. Like most other emerging markets, India should follow the guidance of regulatory agencies in developed states, namely the US Food and Drug Administration and the European Medicines Agency. If a country insists on local clinical trials ahead of approval, it must have the resources to do so as the Japanese Ministry of Health, Labour and Welfare does.

Headline Expenditure Projections

Pharmaceuticals: INR730bn (US$15.6bn) in 2011 to INR846bn (US$17.4bn) in 2012; +15.9% in local currency terms and +11.5% in US dollar terms. Our forecast is unchanged from Q212.

Healthcare: INR3,353bn (US$71.8bn) in 2011 to INR3,748bn (US$77.3bn) in 2012; +11.8% in local currency terms and +7.6% in US dollar terms. Our forecast is unchanged from Q212.

Medical devices: INR139bn (US$3.0bn) in 2011 to INR156bn (US$3.2bn) in 2012; +12.2% in local currency terms and +8.0% in US dollar terms. Our forecast is unchanged from Q212. Risk/Reward Rating: India’s Pharmaceutical Risk/Reward Rating (RRR) score has dropped from 56.0 in Q212 to 54.4 in Q312 due to falls in its industry risks and country risks scores. As a result, India’s position on the proprietary ranking system is now 10th out of 18 countries, falling a position behind New Zealand.

Key Trends And Developments

In May 2012, the upper house of the Indian parliament, Rajya Sabha, strongly criticised the operations of the Central Drugs Standard Control Organisation. It cited several shortcomings, including understaffing, lack of qualifications among key personnel, acting in the interests of commercial entities, approval of medicines that are banned in other markets, substandard postmarketing surveillance activities, and a failure to demand local clinical trials for drugs to be approved.

The Indian Controller General of Patents Designs and Trademarks granted its first compulsory licence for a patented pharmaceutical in March 2012. Local firm Natco Pharma is now allowed to sell the anti-cancer agent sorafenib, which is the active ingredient in GermanyIndia based Bayer's Nexavar in return for a 6% royalty to the originator. Bayer was 'disappointed with the decision' and launched an appeal in May 2012.

In March 2012, Roche planned to introduce two cheap cancer drugs to the Indian market. The strategy comes after the Indian government confirmed it would take patent exclusivity rights away from companies who employed pricing strategies that put drugs out of reach for most citizens in the country.

In March 2012, the Indian Department of Pharmaceuticals (DoP) decided to abandon the controversial industry-friendly National Pharmaceutical Pricing Policy (NPPP). The NPPP was designed to cap the retail prices of 348 necessary medicines at the average price of the three bestselling brands and to stick with the production cost as the benchmark. BMI Economic View: A modest growth print of 5.3% year-on-year in Q4 FY2011/12 (January-March) and soaring twin deficits in the fiscal and current accounts have convinced consensus to dramatically derate India's economic outlook, with most calling for much weaker headline expansion in the current fiscal year. While the current state of play appears dire, we still see sufficient evidence to suggest that the investment cycle has bottomed out and that economic growth will re-accelerate within a couple of quarters. Our core view is that real GDP growth will come in at an improved 6.9% in FY2012/13, up from a nine-year low of 6.5% in the previous fiscal year.

BMI Political View: While India's 60-year-old democracy has withstood the test of poverty, the coming decade will show whether it can withstand the test of rising prosperity. Against a backdrop of economic growth, India's government will need to work even harder to combat poverty and inequality, invest in education and infrastructure, and clamp down on corruption in order to satisfy an increasingly cognisant electorate. Meanwhile, icy relations with neighbouring Pakistan and growing competition with China will continue to dominate India's international agenda. Failure to address these shortcomings could see social disharmony and pockets of fundamentalism continue to ferment at the grassroots level.