New pharma sector laws must focus on reforms
Over the years, India has been a prime source for the manufacture and supply of affordable and efficacious generic medicines across the world and there has been a steady flow of foreign direct investment in this sector, with India’s pharmaceutical industry being the third-largest globally by volume. According to the Economic Survey of 2020-21, the Indian pharmaceuticals sector is expected to expand multifold and become a $ 130 billion industry by 2030, while medicine spending is projected to grow rapidly too, leading India to become one of the top 10 countries in terms of such expenditure.
Currently, the Drugs and Cosmetics Act (DCA) of 1940, read together with the Drugs and Cosmetics Rules of 1945, are the primary legislations governing the import, manufacture, distribution and sale of drugs and cosmetics in India. In addition, there are other industry-specific rules and regulations around medical devices, prices of essential notified drugs, narcotic and psychotropic drugs and substances, development of new drugs and undertaking clinical trials. However, with the advancement of research and development, innovation and technology, as well as challenges such as the covid pandemic, the pre-independence era DCA and regulatory framework governing the sector in general need to keep pace, so as to provide a conducive and business-friendly environment for further growth and foreign investment in the sector.
The New Drugs, Cosmetics and Medical Devices Act : It seems that the government has considered representations made in the past to take a fresh look at the decades-old law governing the pharmaceutical sector, and, on 27 August 2021, issued an order to constitute a committee to undertake pre-legislative consultations, examine the DCA and previously framed drugs and cosmetics bills, and then submit draft documents for a de-novo Drugs, Cosmetics and Medical Devices Bill by 30 November 2021. This is a first step towards framing a new Drugs, Cosmetics and Medical Devices Act.
The committee is chaired by Dr. V.G. Somani (drugs controller general of India) and includes Rajiv Wadhawan (director, drugs), Dr. S.E. Reddy (joint drugs controller of India), A.K. Pradhan (also joint drugs controller), N.L. Meena (an Indian Administrative Services officer) and the drugs controllers of Haryana, Gujarat and Maharashtra. This panel can add on members, too.
This development is a good move forward, the task at hand is of great significance for India as well as the rest of the world, given the country’s importance in the global pharmaceutical industry, and the new committee has its work cut out in a relatively short time frame. India’s pharmaceutical industry has high expectations of this process, and while there may be different priorities for different stakeholders, here are some of the key aspects the committee may want to consider for the country’s proposed new legislation.
Digital health: New-age technologies and internet-based business models such as e-pharmacies are major drivers of growth, but specific regulations for such business models are necessary to provide a clear and predictable regulatory framework that would aid further investment in this segment.
Medical devices: While the Medical Devices Rules of 2017 govern medical devices, there is still dependence on the DCA and the Central Drugs Standard Control Organization (CDSCO) regulates both drugs and medical devices. There have been efforts in the past to enact a separate legislation governing medical devices and the newly set-up committee could consider adopting a similar approach in the proposed legislation.
Licensing issues: One of the conditions under various licences issued under the DCA is a requirement for fresh licences if there is a change in the constitution of the firm operating under earlier issuances. However, what constitutes a change in constitution is not explained, often leading to contradictory interpretations by regulators in different states. Such ambiguity impacts merger and acquisition modalities and timelines in this sector, and so clarity on this aspect may be provided in the proposed bill.
Sandbox regime: Regulators across the globe are considering novel ways in which the startup ecosystem can be encouraged, and regulators in this sector could also adopt the approach of providing a ‘sandbox’ for innovation that’s backed by a suitable regulatory regime around it.
Foreign direct investment: FDI inflows continue to be of utmost importance for the growth of the sector and India’s economy at large. Our regulatory regime for FDI in this sector limits overseas investment in brownfield pharmaceutical ventures to 74% of equity under the automatic route and also features sector-specific conditions such as no ‘non-compete’ restrictions that are likely to have a knock-on impact on FDI inflows. While FDI-norm reforms may not squarely fall within the purview of the proposed bill, it is another area that the committee may consider with a view to pushing for further relaxations in this area to boost investment.
The aspects highlighted above are a few points that the committee may consider while proposing suitable reforms in consultation with various stakeholders. However, these are still early days and it remains to be seen what areas are eventually dealt with in the proposed bill. This is at least a welcome start towards what could be a complete reset of the legislative framework that governs this sector in India.
Paridhi Adani & Ravi Shah are partners in the Ahmedabad office of Cyril Amarchand Mangaldas.