Greater clarity on regulatory issues seems to be the key to reverse the trend of drug companies who talk of India, but end up investing in China, says consulting company KPMG, in its recent report on the pharmaceutical industry. "India needs to get medicines. And drug companies will not come to India, unless it is profitable.

The Government needs to rethink its vision and the market will evolve depending on how it (the Government) decides," Mr Sanjay Aggarwal, co-author of the report, told Business Line.

Drug companies have a huge distribution cost in India, with about 30 per cent lost to trade margins; unlike China, India does not have data exclusivity and drug prices in India are among the lowest in the world, observes Mr Aggarwal.

The Chinese government, the report says, is committed to pro-industry policies, including a strong regime, though there are issues related to implementation.

The KPMG report comes at a time when the Indian Government is finalising pricing issues for a new Drug Policy. On the Centre's move to bring a large basket of essential and life-saving drugs under price control, the report says: "Many of the measures intended by the Government contradict the industry's wishes for further de-regulation of the Indian pharmaceutical market. The challenge remains to provide access to life-threatening diseases and, at the same time, create price incentives for the R&D investments."

The report also moots more private-public partnerships to cover rural areas, which are currently 'unexplored'.

Another segment where China is in close competition is biotechnology, the report says. '... India's nascent biotechnology sector could face particularly strong competition from China, the only developing country to participate in the international Human Genome Project.'  Massive levels of state investments are resulting in Chinese firms producing hepatitis vaccines, recombinant insulin, interferon and other generic therapeutic biologics, the report says.

Citing a report of the Organisation for Economic Cooperation and Development (OECD), it said that India's lack of focus on biotech due to a lack of consensus on a definition, and the large numbers of agencies that deal with biotech have led to duplication of research funding and poor coordination. India may still have the edge in terms of its English-speaking people, judicial standards etc. But China's emergence as a serious biotech contender has serious implications for the Indian biotech aspiration, the report said.