The Hindu Business Line : Pharma sector — No side-effects of patent regime

India's pharma industry is one of the most cost-effective manufacturers of generic drugs, and the overall outlook is encouraging. But if it is to derive full benefit from the opportunities opening up, it will have to strive hard to overcome some of the barriers.

WITH the new product patent regime in place from January 1, through an Ordinance issued by the Government on December 26, the pharma industry is poised to enter a new growth phase. Despite apprehensions of some non-governmental organisations (NGOs), the industry representatives have generally welcomed the move to switch to the product patent regime so as to comply with the country's obligation to the World Trade Organisation (WTO).

Today, the pharma industry is not unduly worried about the possible adverse effects of the new regime. When the product patents on pharma products were abolished in India in 1972, the Indian industry was not a significant player either in the domestic or the overseas market. It was largely confining its activities to reverse engineering and thriving on developing new processes for the existing products and catered mostly to the domestic market.

However, over the last 25 years, the pharma companies have gained a firm footing in the market, their share of the domestic market having risen from barely 10 per cent in the early 1970s to over 80 per cent now. India has also emerged as a major supplier of drugs to the international markets, particularly over the past decade.

A major factor that contributed to the rapid growth of the pharma industry is that through skilful innovations in production processes, the Indian companies could make cheap copies of patented drugs and sell them at very low prices compared to anywhere else in the world. However, this favourable business environment will now undergo a change to favour drug MNCs because of their size and heavy R&D budgets.

Even so, given the maturity and growth achieved by the pharma industry over the past decade and the successes of leading firms such as Ranbaxy, Dr Reddy's Laboratories, Cipla, Nicholas Piramal, Glenmark, Wockhardt and many others globally, the Indian industry today is not unduly worried by the challenges of the new regime.

Currently, the global output of the pharma industry ranks fourth in terms of volume and 13th in terms of value and it is all set to move up the value chain by overhauling its strategies to suit the new regime. The total size of the industry is estimated at $7 billion with exports accounting for $2.5 billion.

Over the next decade, it has the potential to grow five-fold to $35 billion because of the synergy in the fields of IT, bio-technology, medicine and pharmaceutical sciences.

Of late, many Indian companies have been readying themselves to offer the global pharma giants high-quality and low-cost contract services to support R&D, conduct of clinical trials, data management and manufacturing.

In fact, over the past few years, the world's leading pharma companies have successfully outsourced manufacturing of their products to Indian companies.

Experts believe that once India demonstrates its intent to uphold intellectual property rights, the floodgates will open with an increasing number of pharma MNCs seeking to establish outsourcing arrangements with Indian companies both in R&D and manufacturing.

Medicines Sans Frontiers (MSF), the Nobel Prize winning humanitarian organisation, says that Indian manufacturers of combination drugs for treating HIV/AIDS victims have been instrumental in bringing down the cost per patient from $10,500 per month to just $350 per year.

They have, thus, revolutionised the treatment and care of AIDS patients across the world. A host of domestic organisations have also expressed concern that the new patent regime may seriously compromise the accessibility and availability of life-saving medicines at affordable prices to the poor.

However, all the fears relating to drug prices witnessing a sharp rise under the new dispensation appear highly exaggerated.

The Centre has clarified that the new patent regime will not affect prices of 350 essential (life-saving) drugs available in the market. About 97 per cent of the drugs currently available in the market are already off patent and are not likely to be patented in India.

Speaking to media, the Industry Secretary, Mr Ashok Jha, said only about three per cent of the domestic pharma market was likely to come under newly patented drugs in the coming months as the Government took decision on applications pending in the mailbox. Only on such drugs, the government will have no control.

According to reports, there are about 9,000 patent applications in the mail-box with the majority of them being from US companies. It is also understood that though the number appears huge, only 2,500 of the applicants have followed it up with examination requests. Moreover, even when product patents are granted, there are provisions to protect consumer interest with regard to pricing.

Besides, the provision of compulsory licensing in Articles 30 and 31, Article 2 of TRIPs incorporating the Paris Convention allows member countries wide discretion to prevent abuses resulting from the exercise of exclusive rights by the patent holders. Nothing in TRIPs prevents member countries from continuing to use price regulation and making it a part of the Patents Act itself.

Some of the contentious issues that bother the consumers and NGOs will have to be thrashed out when the Patents (Amendment) Ordinance comes up for deliberation in the coming Budget session of Parliament.

Apart from the question of fair pricing, domestic drug companies want only the new chemical entities or new drugs to be patentable while the drug MNCs want the Government to extend the definition of patentability to new drug delivery systems.

The Indian industry representatives have rightly pointed out that the Ordinance issued last month has not utilised all the flexibilities provided in the TRIPs Agreement and the Doha Declaration. For instance, they point out that to avoid repeated renewal of the patent termed `ever greening' should not be allowed and applications for patenting of minor changes such as salts, esters, polymorphs, isomers, and so on, need to be rejected.

Once these safeguards are incorporated into the Patent Act, the pharma industry can certainly look forward to conquering new heights even in the field of new drug discoveries. Companies such as Ranbaxy Laboratories, Nicholas Piramal, Cipla, Glenmark Pharma and many others have been ramping up their R&D programmes in a big way and plan to increase their R&D expenditure to 7-10 per cent of the sales revenues from the present industry average of 2-3 per cent.

True, even the largest Indian companies cannot match the world giants in the field in size, scale of operation and R&D budgets as of now and it will take a few more years for the industry to make it big in the field of new drug discoveries. But, in the meanwhile, there are other opportunities that are wide open for the Indian industry to grow and make an impact in the global arena.

For instance, the Indian industry is one of the most cost-effective manufacturers of generic drugs and will continue to thrive in this area notwithstanding the introduction of product patents. The favourable factors include a well-developed chemical industry infrastructure, strong vertical integration and abundant scientific talent. The global market for generic drugs in 2005 is estimated at $36 billion and should grow further with the impending expiry of patents on drug sales worth over $50 billion.

Outsourcing of R&D and manufacturing activities is another promising area for the pharma sector. Spiralling costs in developed countries, expiring patents, low R and D costs in countries such as India and China and market dynamics are driving the MNCs to outsource both manufacturing and research activities. India with its proven skills both in research and manufacturing, coupled with significant cost advantages, is bound to attract a lot of business in the coming days.

The local companies have already been investing in expanding their manufacturing capacities besides getting their production units approved by regulatory authorities abroad. Indian outfits already have the largest number of units that have been approved by the United States Food and Drug Administration (USFDA) outside the US, numbering about 65. While the US continues to remain the hot favourite, the pharma industry's exports to Europe are also on the rise.

Thus, the overall outlook for the industry is quite encouraging. However, if the industry is to derive maximum benefits from the opportunities, it will have to strive hard to overcome some of the barriers. For instance, apart from some 300 companies of large and moderate size, India has over 5,500 small pharmaceutical companies. There is a need for smaller companies to go for mergers and consolidation to enable them to increase their R&D expenditure.

Another issue which the Government needs to address at the earliest, is the pricing regime. Industry experts feel that except in special cases, the Government should not bring back the much-misused price control regime if it wants to encourage the industry to invest substantial amounts into R and D for new drug discoveries.

The recent move by the ministry concerned to bring more drugs under price control is clearly unwarranted. Instead, more healthy competition is a better way to keep a check on prices.

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