GENERAL INDUSTRY BACKGROUND

The Indian Pharmaceutical industry (domestic, import and export) as per Market Publishers Forecast, is valued at USD 27.4 Billion. It is growing steadily at a CAGR of 10+ %. The industry is typically involved in four types of businesses- production of branded medicines, production of branded generic medicines, product of unbranded generic medicines and production of active pharmaceutical ingredients which are used as ingredients in medicines. India has also become a popular destination for outsourced contract research and manufacturing service. The Contract manufacturing and research Industry has grown more than 60 % CAGR between 2007 and 2010, and has a market size of USD 1.5 Billion. The industry is primarily focused on manufacturing of generic medicine and export of bulk drugs. The focus on development of new drugs began with introduction of new Patent regime in 2005 which permitted patenting of pharmaceutical products. However, compulsory licensing remains a concern.

IMPORTANT TRENDS IN THE INDUSTRY

  • The Indian Pharmaceutical industry is witnessing healthy foreign direct investment, amalgamations and collaborations (such as licensing, co- development, joint distribution and joint ventures)
  • Domestic manufacturers are looking to tap into international generic market with high margins. The Abbreviated new Drug Applications (ANDA) to the US FDA are increasing every year
  • The Industry is witnessing a paradigm change as the focus is shifting from the manufacturing of generic drugs to drug discovery and development (Sun Pharma, Cadilla Healthcare and Piramal Life Sciences, had applied for conducting clinical trials on for numerous new drugs in 2010)
  • However, the clinical trials industry is on decline due to various reasons like regulatory delays, compensation issues etc

MAJOR PLAYERS IN INDIA

  • Leading Indian companies: Cipla, Ranbaxy Labs (subsidiary of Japanese pharmaceutical company Daiichi Sankyo), Dr. Reddy's Labs, Sun Pharma, Glenmark Lupin, Aurbindo Pharma, Piramal Healthcare, Cadila Healthcare, Zydus Cadilla, , Wockhardt Pharma.
  • Leading MNC Companies in India: GSK, Sanofi Aventis, Pfizer, Johnson & Johnson,Novartis, Abbott, Takeda, Roche, Mylan Pharma
  • Important industry associations: Organization of Pharmaceutical Producers of India (OPPI), Pharmaceutical & Allied Manufactures' & Distributors' Association Limited (PAMDAL), Pharmaceuticals Export Promotion Council Of India (Pharmexcil), Indian Pharmaceutical Alliance (IPA), Indian Drug Manufacturers' Association (IDMA), Bulk Drug Manufacturers Association (BDMA), All India Organization of Chemists and Druggists (AIOCD)

IMPORTANT LAWS AFFECTING THE INDUSTRY

Drugs and Cosmetics Act, 1945 and Rules

  • Regulates manufacturing, import, distribution and sale [confirm] of drugs (includes certain medical devices) and cosmetics
  • Prescribes product and labeling standards
  • Regulates clinical trials
  • Regulates advertisements of drugs

Pharmacy Act, 1948

  • Regulates pharmacy education, profession and practice of pharmacy in India
  • Provides that an offense in a professional capacity by a registered pharmacist may lead to penal action under the Act to the extent of permanent deregistration
  • Impersonation as a registered pharmacist is also punishable under the Act

The Drugs & Magic Remedies (Objectionable Advertisements) Act, 1954

  • Regulates advertisements of drugs relating to diagnosis / cure / mitigation / treatment / prevention of certain prescribed diseases and conditions
  • Diseases and conditions include AIDS, Asthma, Cancer etc.

Indian Patent Act, 1970

  • Provides for product and process patent for 20 years
  • Specific provision for compulsory licensing and prevention of ever- greening

Trade Marks Act, 1999

  • Provide exclusive right to use registered trademark in connection with the specific goods and services in the territory of India
  • Act extends protection to only registered trademarks. For infringement of an unregistered trademark, an action for passing- off will lie.

Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 (MCI Code)

  • Regulates professional conduct of registered medical practitioners in India
  • Prescribes that, inter alia, registered medical practitioners will not receive any gift from pharmaceutical or allied healthcare industry or their sales representative and that the practitioner will not endorse any drug or product publicly
  • Makes recommendations to institutions (such as hospitals) regarding non- ethical nature of solicitation of patients
  • Violation of MCI Code will amount to professional misconduct resulting in penal action to the extent of permanent disqualification to practice, over and above any other civil or criminal action which may lie under relevant law

Drugs Price Control Order, 1995 (DPCO)

  • Regulates prices of controlled bulk drugs and formulations
  • Regulates margins offered to dealers and retailers
  • Imposes obligation to sell bulk drugs and formulations to dealer (conditionally) and consumer (unconditionally)

Uniform Code for Pharmaceutical Marketing Practices (UCPMP)

  • Regulates marketing practices of pharmaceutical industry
  • Imposes requirement of prior permission from Drugs Controller General of India for promotion
  • Requires promotion to be accurate, fair, objective, verifiable and not be misleading
  • Lays down standards for rival product comparison
  • Mandates that promotion will not involve exchange of gifts in any form
  • Voluntary code with a condition that non- compliance will result in conversion to statutory code.

Information Technology Act, 2000 (IT Act)

  • Imposes a liability on such body corporate or person who deals with sensitive personal data or information for negligence in implementation and maintenance of reasonable security and procedures for securitization of such data, if such negligence causes wrongful gain or loss to any person
  • Penalizes disclosure of personal information to a third person, if it is done without consent of the person to whom such information belongs or in breach of a lawful contract, and with the intention or knowledge that the disclosure will cause wrongful gain or wrongful loss
  • Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 define sensitive personal data or information to include medical records and history and such personal information relating to physical, physiological and mental health condition

Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 (Data Protection Rules)

  • Define personal information and sensitive personal data or information. Medical records and history, and such personal information relating to physical, physiological and mental health condition are deemed to be sensitive under the Rules.
  • Impose several obligations on body corporate dealing with personal information and sensitive personal data or information
  • Obligations arise at the time of collection, storing, using and transferring personal data. For example, a body corporate collecting sensitive personal data or information is expected to take the informed consent of the owner of the information. The body corporate is also required to publish a privacy policy on its website
  • Violation of Data Privacy Rules will lead to penalty under IT Act

National List of Essential Medicines (NLEM)

  • List published by Ministry of Health and Family welfare
  • All medicines in the list are deemed essential, and are available or made available at affordable costs and with assured quality
  • List comprises of a total of 348 medicines (excluding repetition)
  • The last list was published in 2011.

TAX LAWS AFFECTING PHARMACEUTICAL INDUSTRY

Income Tax Act, 1961

  • It is tax on income imposed by Central Government
  • Residents in India are taxed on their worldwide income
  • Non- residents are taxed on Indian source of income
  • The Indian tax rates applicable to non-residents could be up to 40% (excluding applicable surcharge)
  • If the tax payable by any company, including a foreign company taxable in India, is less than 18.5% of its book profits, it will be required to pay Minimum Alternate Tax
  • Interest received by a non-resident from Indian on foreign currency denominated loans may be taxable
  • Payments towards royalty and fees for technical services is taxable
  • Expenditure on scientific research is treated as capital expenditure and is deductible

Transfer Pricing Regulations

  • Income tax Act makes provisions for the taxation of income arising from international transaction between associated enterprises
  • Transfer Pricing Regulations lay down that any income arising from such an "international transaction" shall be computed having regard to the "arm's length price"
  • The Regulations also lay down methods for calculation of arm's length price

Research and Development Cess Act, 1986

  • All payments made towards the import of technology are subject to a tax of 5% under the Act
  • Technology includes any special or technical knowledge or any special service required for any purpose whatsoever by an industrial concern under any foreign collaboration, and includes designs, drawings, publications and technical personnel

Custom Duty

  • Import of drugs and pharmaceuticals is liable to basic customs duty and additional customs duty
  • Import of neutraceuticals and health supplements is liable to basic customs duty, additional customs duty and a special additional customs duty
  • There is no additional customs duty on certain drugs (life- saving)
  • Import of medical devices is liable for basic customs duty and additional customs duty

Sales Tax / Value Added Tax (VAT)

  • Sales tax / VAT is levied by states on sale of goods within its territory
  • Sale of drugs (including bulk drugs) and medical formulations is taxable
  • Life- saving drugs are many a times exempt from sales tax
  • Central Sales Tax is applicable in case of the sale of goods in the course of inter-state trade or commerce

CENVAT

  • Duty imposed by Central Government on manufacture of goods
  • Generic excise duty rate on the inputs (Active Pharmaceutical Ingredients or APIs) is currently at 10.3%
  • Generic excise duty rate on finished formulations is 4.12%

Service Tax

  • Under the current service tax regime, all services are taxable unless exempt.
  • Exempted services include: 'Health care services' by a clinical establishment, an authorised medical practitioner or para-medics
  • 'Health care services' means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma

REGULATORY AGENCIES

Central Drug Standard Control Organisation (CDSCO)

  • Established under Drugs and Cosmetics Act, 1945
  • Responsible for- approval of new drugs; conduct of clinical trials in India; preparation, implementation and maintenance of standards for Drugs; maintenance of quality of imported Drugs and screening of drug formulations available in Indian market.
  • Arm of Ministry of Health and Family Welfare

State Drug Standard Control Organisation

  • Established under Drugs and Cosmetics Act, 1945
  • Responsible for regulation of manufacture, sale and distribution of Drugs in respective States
  • Monitors quality of Drugs manufactured in respective state and initiates penal proceeding for any violation of standard

The Drug Controller General of India (DCGI)

  • Authority established under Drugs and Cosmetics Act, 1945
  • Statutory authority for the purposes of Drugs and Cosmetics Act, 1940 and Rules, 1945
  • Head of CDSCO
  • Carries out licensing and controlling function of CDSCO

National Pharmaceuticals Pricing Authority (NPPA)

  • Authority established under Drugs Price Control Order, 1995
  • Fixes/ revises the prices of controlled bulk drugs and formulations
  • Enforces prices and ensures availability of the medicines
  • Recovers amounts overcharged by manufacturers for the controlled drugs from the consumers
  • Monitors the prices of decontrolled drugs in order to keep them at reasonable levels.
  • Arm of Department of Pharmaceuticals, Ministry of Chemicals and Pharmaceuticals

CONCLUSION

The Indian Pharmaceutical Industry has shown great potential and continues to grow consistently. The Indian generic drug sector is robust and is establishing its presence in foreign markets too. The new- drug sector is also expected to record a healthy growth owing to significant industry- wise increase in R&D expenditure and proposed new- drug launches. However, since health is an important subject, the industry continues to be heavily regulated. Multiple Ministries continue to regulate the pharmaceutical industry such as the Health Ministry, Chemicals and Fertilizers Ministry, Science and Technology Ministry, Food Ministry etc. Numerous legislations, regulations and judgments affecting the industry have come into existence recently and numerous others have been proposed. The Industry will have to realign itself with these legal changes in order to ensure continuance of its success story.

Mission and Vision


Distinctly Different


Webinars

Will Drones ever fly in India?
December 05, 2017

This event is over. For event material please click here


Seminar

Innovation in Digital Economy - Transforming a Trillion Dollar Potential to Reality
December 07, 2017

This event is over. For event material please click here


Round Table

Evolving Structures and Trends for Distressed M&A/PE in India post the New Bankruptcy Code
November 23, 2017

This event is over. For event material please click here

Want to work with us?


HIRING Now!!

Inviting Top Talent for our Corporate, Funds and International Tax Practices

Strong credentials in Corporate Law (in particular M&A or Fund Investment), Fund Formation or International Tax? Now’s the time to apply. We’re looking for the industry's best talent with scope to do extraordinary work for the world’s best, marquee clients. Reach out for a great career in a great place!

Write to happiness(at)nishithdesai.com


TO LEARN MORE ABOUT US

CLICK HERE.


Nishith Desai Associates 2013. All rights reserved.