While the pharmaceutical industry saw its lowest growth in eight years in 2017, ANNASWAMY VAIDHEESH, vice-president (South Asia) and managing director, GlaxoSmithKline Pharmaceuticals Ltd, told DEEPAK PATEL in an interview that the low revenue recognition under the goods and services tax (GST) regime has to be factored in to understand the real growth. Since last round of price control happened in 2016, Vaidheesh, who is also president of the Organisation of Pharmaceutical Producers of India (OPPI), said he expects the government not to make any changes in the price control regime till 2021 as the companies want to do their business planning with certainty. Edited excerpts:
What kind of problems has your company faced during the roll-out of GST, and as you are also the president of OPPI, what has been the effect on industry as of now? Has the effect tapered over or is it still there?
For the pharmaceutical industry, fortunately, there was a good amount of conversations that took place related to GST. Some life-saving products came under 5 per cent of GST, and many of them fell under 12 per cent, which is where the industry did not suffer because there was (differentiation of) higher GST or the lower GST. So, I would say it has gone off well. In the initial stage, there was a lot of anxiety. After the roll-out, as a company and industry, we are not seeing any significant procedural issues. Even though, still, we have some distance to go. However, as you know, the top line of the company and the revenue goes down to an extent due to GST because it gets bumped up as the excise is getting removed. So, to that extent, the revenue recognition goes down but it is more a cosmetic change. So, you need to add the GST component to get to know the real growth.
The base is not comparable and it will take about one year. Profits should not get affected because it is just the way you build up your revenue.
Your company has been the market leader in vaccines, with a market share of 34 per cent. How do you see the Indian vaccines sector in the next two years?
As a country, we have done a fantastic job in government programmes. There is one thing called a government programme and the other one is called the private market. Now, the government is including Pneumococcal vaccine and Rotavirus vaccine in the schedules. So, to that extent, the government-sponsored programmes are going to make a huge difference to large number of people and that also increases the awareness for vaccines among people. So, you would see the greater uptake of vaccines as you go long. So, the market will grow at a much faster rate than the pharma industry.
Two of your largest-selling brands — Augmentin and Zantac — are currently under price control. How do you see the price control regime in India right now? Do you think the government can follow some alternative methods for making the medicines affordable?
The first and foremost when it comes to price control, there was an uncertainty that happened in the last two years. I think it is to do with the way in which they rolled out. The whole NLEM (National List of Essential Medicines) price control works for a period of five years. Now, the first NLEM price control came in 2011. But, actually, the implementation took place only in 2013. So, the general belief was that since it got implemented in 2013, everybody thought we will get five years from 2013 i.e. till 2018. Actually, they (government) said it is 2011, so they will implement in 2016. So, there was a lack of understanding or communication or transparency. So, within a matter of two years, the industry got hit twice. So, we have spoken to the government saying that you have to give advance notice, but I think it has to do with the communication and interaction. Now, there is a general consensus that the next price control, or whatever the round of price control or price reduction, will happen in 2021. Now, we are only requesting the pharma ministry not to make any changes to this. So far, we have got a commitment that there won’t be any change in the revision of the entire list.
At the end of the day, I don’t think anyone can be against price control. If government does it, I don’t think you can say anything negative about it — it is the government’s responsibility to give essential medicines in an affordable price. What is important is that the industry should be prepared for certainty. If you know that it (price control) is coming in five years, you’ll manage your business planning or financial planning accordingly. This is the request that we have made. So far, the impression is that there won’t be any price control happening to our existing products. Now, there are some clauses in DPCO (Drug Price Control Order) where they can execute that clause Para 19, which they have used (to put price cap) on stents. So, we believe that hopefully, it is an exception for emergency use. But, we believe that if too many of this kind of action is taken, you are creating uncertainty.
Your company recently started scouting for acquisitions in the domestic market. You have talked about inorganic growth. Have you found anyone interesting?
Not yet. But our search is on.
Your company removed the target for sales representatives in 2013. How has been the experience in the past four years with this model?
As a company, we believe in that our sales people should communicate science to the doctors, and then giving the choice to the doctors to decide what is the right medicine or brand they should use on the patients.
When you give a sales target, there is a tendency for people to focus on sales rather than doing this job well. At the end of the day, we want a good choice that should be made by the doctor and not by the pressure from somebody. Lot of people said that will it affect your sales? Currently, we are still maintaining our business growth and profitability.
A departmental committee on high trade margins submitted its report to the government in 2016. Nothing has been done on it as yet. What is your view on the capping of drug’s trade margins?
I think there is a lot of discussion that is going on. You can’t have undue margins. The government has to decide what is undue margin or a due margin. At the end of the day, it is the business that will decide if the margin is good or bad. In a price control regime, (trade) margin control regime will also come hand in hand. You can’t just have a price control. You also will start getting into entire supply chain — retailer, distributor and wholesaler, etc — that brings in a lot of inefficiency.