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Perspective

A Bitter Pill
Regulatory woes continue to pile up for pharma companies

Kripa Mahalingam

On 18th April, just as he was inaugurating a charitable hospital in Surat, Narendra Modi threw a curveball at the unsuspecting Indian pharma industry.

The government was going to bring a legal framework where doctors had to mention the generic name of the drug in their prescription instead of the brand name. After demonetisation, providing health services at minimal costs seems to be the government’s new obsession. In a country where the Centre and state governments collectively spend 1.15% of GDP, for now, it seems like mere lip service.

Indian pharma companies are definitely not a happy lot. They already have their hands full with increasing regulatory checks and observation from USFDA inspections and now revenues from the lucrative domestic market is under threat as well. 

For years, the pharma industry had the luxury of offering huge trade discounts and lavishing gifts on doctors to get them to prescribe their brands and yet companies got to keep a healthy margin for themselves. The move to a generics market would mean the days of easy money for the industry will definitely be over. But for the proposal to work, the government will have to put in place an effective monitoring system that ensures a strong regulatory environment. Like most government announcements in the recent past, there hasn't been much thought put into implementation. While that gives the pharma industry some breathing space, it will have to quickly reorient itself to a changing environment. Branded generics make up 92% of the market and pharma companies have enjoyed premium valuations thanks to the predictability that this market offers. Now with the predictability gone, read our cover story, Under The Weather, to know what's in store.

In other stories, we take a look at the bad loan challenge that Axis Bank is currently facing in Axis Bank's Bad Loans Battle; and in investing, read Bed, Bath And Beyond, where we have zeroed in on a home textiles player who is worth taking a bet on.

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