The Hindu Business Line : New patent regime — Discovering new challenges

The new patent regime may augur well for the pharmaceutical sector but there are formidable challenges too. The immediate task before the industry and the policy-makers is to formulate appropriate strategies to overcome the shortcomings and derive the full benefits from the opportunities that are likely to open up, says S. D. Naik.

THE passing of the Patents (Amendment) Bill 2005 by the Lok Sabha on March 22 augurs well for the future growth and development of the Indian pharmaceutical industry. The number of amendments moved by the Commerce and Industry Minister, Mr Kamal Nath, to address the concerns of the Left parties and some of the NGOs and experts, are intended to provide adequate safeguards to ensure the availability of some of the essential life-saving drugs at affordable prices to consumers.

The two major changes that have been introduced in the earlier Bill are: Allowing Indian firms to contest patent applications by foreign multinationals far more effectively and fine-tuning the definition of what can be patented. Under the amended legislation, only molecules which are truly new developments — and not just minor changes to the original — can be patented. Moreover, this facility will be available only to molecules discovered after 1995.

Thus, copies of older discoveries, even if they are now patented, can continue to be sold. This change should benefit Indian drug companies. The other changes relating to the option to contest frivolous patent applications by multinationals should make the Indian companies such as Ranbaxy and Dr. Reddy's happy. After the amendments are incorporated in the patent Bill, Indian firms can oppose grant of patents on nine grounds instead of just two allowed by the earlier Ordinance.

An important feature of the amended law is that even third-parties can oppose the grant of a patent even as it is under consideration and not only after it is granted. Thus, a party or an NGO likely to be affected can now seek judicial intervention. In the process, the rights of those who now manufacture generic medicines are also sought to be protected; they would now be required to pay only `reasonable' royalty to the patent holders.

The industry representatives had rightly pointed out that the Ordinance issued in December had not utilised all the flexibilities available in the TRIPS Articles 30 and 31 relating to compulsory licensing. Utilising all the flexibilities available to developing countries was all the more important because India will have to provide patent protection not only to new medicines developed after January 1, 2005, but has to also consider the pending applications filed during 1995-2005 under the so-called `mail box' provision of Article 70.8 of TRIPS.

Details made available recently reveal that some 7,000 applications relating to pharmaceutical products are in the `mail box' patents. Of these, 2,500, claimed as newly discovered chemical entities, are reportedly being seriously pursued. This certainly defies credulity since it would imply that, on an average, 250 new entities were discovered in India every year over the 10-year period against the global average of about a dozen.

Not surprisingly, an analysis by the Indian Pharmaceutical Alliance suggests that only 250 of the applications could relate to new chemical entities and associated new drugs that were developed outside in 1995-2005 while 6,750 could relate to something else, including minor changes in the structure of molecules. Since few Indian generic producers have the financial muscle to fight protracted legal battles with foreign multinationals, clarifying the concept of new discoveries in unmistakable terms was essential.

Even now, one is not sure if Parliament has used the opportunity to take advantage of all the flexibilities available in the TRIPS Agreement so as to provide adequate scope to produce affordable versions of life-saving medicines.

Against this backdrop, some experts have rightly suggested that India would do well to join with other like-minded developing countries in the ongoing Doha Round of multilateral trade negotiations to press for further liberalisation of Articles 30 and 31 of TRIPS to enable developing countries meet their public health concerns in the manner they deem best.

Anyway, now that the product patent regime is in place with Parliament passing the legislation to the effect, it would be worthwhile analysing the implications of the new regime and the challenges facing the pharma industry.

At the outset, one has to admit that despite all the amendments to the earlier Patent Ordinance, the challenges facing the pharma sector remain formidable. Hence, the immediate task before the industry and the policy-makers is to formulate strategies to overcome the shortcomings and derive the full benefits from the opportunities that are likely to open up.

Experts believe that the product patent regime will have far-reaching implications for the domestic pharma sector in the long run, if not immediately. The new regime is expected to bring about structural changes in the industry and the marketplace. The leading domestic companies such as Ranbaxy, Dr. Reddy' Laboratories, Cipla, Nicholas Piramal, Glenmark, Wockhardt and a few others with a strong focus on R&D will be able to innovate cost-effectively and deliver better value to consumers.

However, over 5,500 smaller pharma companies may have to go for mergers and consolidation to enable them to increase their R&D expenditure and get contract manufacturing assignments from MNCs.

Today, the Indian pharma industry is one of the most cost-effective producers of generic drugs and it will continue to thrive on this segment, notwithstanding the adoption of product patent regime. For, the global generic market is projected to grow from $36 billion now to $50-55 billion by 2008 and India will be in a position corner a substantial share of this growing market.

It is understood that quite a few drugs will be off patent in the US in 2007 and 2008 and there will be growing opportunities for Indian pharma companies to continue with their healthy growth rates, at least in the medium term. However, over the next decade and beyond, Indian companies will have to make the transition towards becoming discovery-based companies to maintain their growth momentum and to emerge as global players.

It goes without saying that in the new product patent regime, pharma companies will have to focus hard on discovering new drugs through enhanced R&D spending. In the immediate future, the new business environment will be more favourable to the MNCs because of their scale of operation and the huge R&D budgets.

However, most small and medium Indian companies can serve as research hubs for multinational players leveraging the abundant scientific talent available in the country. According to estimates, the global contract research pie is in the region of $30 billion and a substantial share of this can come to India.

In addition, pharma companies worldwide spend $8-10 billion every year on clinical research. Since India is fast emerging a favoured destination for clinical trials, a chunk of this investment is expected to flow to the country. Already, big international names such as Astra Zeneca, Bayer, Chiron, E. Merck, Eli Lilly, GSK, Novartis, Pfizer, Sanofi Aventis, and Rosch have decided to make India their regional hub for clinical trials and research.Similarly, contract manufacturing is emerging a promising area for Indian drug companies. According to an estimate, drug MNCs outsource $20 million worth of operations to India but this is projected to cross $2 billion over the next 10 years.

Over the past few years, some of the leading players in the Indian pharma sector have already been preparing for the impending product patent regime. The strategies being adopted by them include:

Acquiring brands, production facilities and businesses overseas to gain ready access to markets;

Entering into partnership with the generic companies as well as innovators for supply of bulk drugs and formulations;

Offering research and manufacturing services on contract basis; and

Expanding the product portfolio for treatment of chronic ailments, product launches in over-the-counter segment and formation of alliances for manufacturing, marketing and distribution of third-party patented molecules in India.

According to estimates, the Indian pharma industry has the potential to grow five-fold to $35 billion over the next decade and its exports could exceed $15 billion against $2.5 billion now. The fear that drug prices in the domestic market will soar with the introduction of the product patent regime appears rather overstated since almost 97 per cent of the medicines now available, including 350 life-saving drugs, are off-patent. It is, of course, possible that the prices of a few medicines will go up.

The developing world will continue to look to India for the supply of life-saving drugs, including those required for the treatment of AIDS, at affordable prices. The Indian industry will have to continue to address the needs of less developed and developing countries, home to a variety of infectious diseases, but not the focus areas for companies from the developed world.

There should also be a conscious effort by the Indian industry and the Government to guard against the possible tilt in research towards developing the so-called life-style drugs for upscale world markets rather than working on drugs for diseases such as malaria and tuberculosis that affect billions of poor in the developing world.

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