Indian pharma cannot afford to miss governance bus amid growth focus
July 12, 2022:
ET Intelligence Group: The emergence of India as a key growth driver for pharma companies is coinciding with an increase in regulatory scrutiny at home.
Inadequate Disclosures Related to USFDA Audits: Two weeks ago, capital-markets regulator Securities and Exchange Board of India (Sebi) issued a warning letter to Aurobindo Pharma for disclosing "very limited and restricted information" to the stock exchanges about an audit by the US Food and Drug Administration (USFDA) of its API plant. The market regulator has been closely looking at pharma companies' disclosures on USFDA investigations since it has found them inadequate in certain cases.
Unethical Marketing Under Judicial Examination: The Indian pharma industry has a self-regulatory 'Uniform Code of Pharmaceutical Marketing Practices (UCPMP)' to curb unethical marketing practices. But that has not prevented malpractices involving brand prescriptions. The Supreme Court of India, in March, issued a notice to the government in a petition seeking to make UCPMP mandatory and not a voluntary code.
New Draft Drug Legislation: Last week, the government released a draft of the Drugs, Medical Devices and Cosmetics Bill 2022 for stakeholders to give their suggestions. The bill proposes new definitions for clinical trials, over-the-counter drugs, manufacturers, medical devices, new drugs, bioavailability studies, investigational new drugs and imported spurious drugs, among others. It has provisions of penalties such as imprisonment and compensation in case of injury or death during clinical trials. Online pharmacies and medical devices have also been brought within the purview of the law.
Tax Scrutiny: Last week, the finance ministry said that the income tax department conducted searches on pharma manufacturers and distributors in Hyderabad and Delhi-NCR for unaccounted cash sales of medicines. Around the same time, Bengaluru-based Micro Labs - the maker of popular paracetamol brand Dolo, which rose to promience during the Covid-19 pandemic - came under the scanner of the Income Tax (I-T) Department for alleged tax evasion. Last October, an I-T raid at Hetero Drugs, another leading anti-Covid drufmaker, detected alleged unaccounted income of ₹550 crore, leading to an alleged cash seizure of ₹142 crore.
Under the CBI Scanner: The role of pharma companies, involved in alleged malpractices in their dealings with Central Drugs Standard Control Organisation (CDSCO) officials, has come under the scanner of the Central Bureau of Investigation (CBI). The agency made a few arrests last month, including that of a joint drug controller, a Biocon Biologics employee and a director of a Delhi-based company.
These regulatory clampdowns and legislative changes are likely to expose the governance fault lines of the companies in the sector. Investors in the sector need to be cognisant of these emerging risk factors. ET Health