Here’s What Transpired in the Indian Pharma and Healthcare Industry in 2019

The industry, which had a bad first-half, witnessed a rebound in the second-half of the year on the back of significant growth in domestic formulation businesses and strong exports.

The year 2019 has been an action-packed one for pharmaceutical and healthcare sectors, with the USFDA warning letters and government policy actions. The industry, which had a bad first-half, witnessed a rebound in the second-half of the year on the back of significant growth in domestic formulation businesses and strong exports.

Investor returns

Like in the previous year, pharmaceutical and healthcare sectors didn’t bring much cheer to investors in 2019. The S&P BSE Healthcare index, which represents pharma and healthcare stocks, underperformed compared to the benchmark Sensex.

While the S&P BSE Healthcare index cooled off by declining 3.6 percent to 13,454.71 points, Sensex gained 15 percent to 41673.9 points in 2019.

However, on the flip side, there are some bright patches such as the moderation of US pricing pressure, rebound in domestic formulation businesses and companies’ efforts to tighten costs which have started to pay-off.

Regulatory troubles

Regulatory risks for the pharmaceutical industry in India have intensified over the past year.

Around 18 pharma companies have received USFDA warning letters for their Indian plants in 2019- this was more than half of the all the warning letters issued by the regulatory agency. The total number of warning letters issued up till December 18 were 76.

In 2018, out of the 68 warning letters issued by the USFDA, 10 were related to India.

A recurring theme, compliance woes include failure to establish and follow appropriate procedures for production; failure to thoroughly investigate any unexplained discrepancy like failure of a batch or any of its components to meet prescribed standards; failure to establish a quality control unit with the responsibility and authority to approve or reject all components, and discrepancies in following procedures for cleaning equipment and maintaining aseptic processing conditions.

This shows that Indian pharma companies still have a long way to go when it comes to regulatory standards.

Government price regulations and Ayushman Bharat

In 2019, the Modi government pursued its price control. The Indian drug price regulator – the National Pharmaceutical Pricing Authority (NPPA) — early this year invoked paragraph 19 of the Drug Price Control Order (DPCO), 2013, to fix trade margins at 30 percent for 42 non-scheduled anti-cancer medicines, which are sold under 463 different brands covering most of the anti-cancer prescriptions. The 42 cancer medicines make up almost 40-45 percent of the entire cancer treatment range. More than pharma companies, this impacted hospital margins which took a major hit.

Towards the end of the year, however, the government allowed a 50 percent hike in ceiling prices of 21 drugs. This was done to help companies producing these drugs maintain supplies amid rising costs of Chinese raw materials.

In another major policy development, the government banned vapes and e-cigarettes, dealing a huge blow to the nascent industry. E-cigarettes started as an alternative to conventional smoking, but soon they came under the scanner for making youngsters addicted to nicotine.

Private hospitals’ expectations of a revision in package rates offered under the Ayushman Bharat scheme introduced by the Modi government was also met with disappointment as the government showed no such inclination. Hospitals had a tough time in getting payments under the Central Government Health Scheme (CGHS), Ex-servicemen Contributory Health Scheme (ECHS), Employees’ State Insurance (ESI) and other state government health schemes for services they provided.

The Fortis and Singh brothers saga

The saga of Fortis is not yet over. Malaysia’s IHH Healthcare, which agreed to buy Fortis for $1.1 billion after an extended bidding drama in 2018, had to hit the pause button. This follows the Supreme Court’s order that status-quo be maintained in the case which threw a spanner in the works to complete the deal. The reason cited for the same was the pending litigation between erstwhile Fortis promoters, the Singh brothers, and Japanese drug maker Daiichi Sankyo.

Fortis did see operational improvement under its new CEO Dr Ashutosh Raghuvanshi. The operating metrics have improved. However, the uncertainty still remains.

In 2019, the Singh brothers (Malvinder Singh and Shivinder Singh), who were quarreling with each other, had to face arrest. They are now facing a barrage of investigations and court cases. Time is running out for the two to pay up the Rs 3,500 crore due to Daiichi Sankyo, which it won in an arbitration in Singapore against the brothers.Mergers and Acquisitions

The mergers and acquisitions (M&A) in pharma and healthcare in 2019 remained dull. The only big deal that saw the light of day in the pharma world was the acquisition of Bharat Serums and Vaccines (BSV) by US-based global private equity firm Advent International. Advent has remained tight-lipped about the financial details, although there were media reports quoting a price of Rs 3,500 crore paid for the majority interest.The other high profile deal that was widely covered in the press but failed to materialise in the end was the Manipal Hospitals’ acquisition of Dr Naresh Trehan-promoted Medanta.

Source: Money Control