India’s Pharma Ache

THE Indian pharmaceutical industry finds itself at a cusp. Depending on how the government approaches the necessary amendment to the Indian Patents Act, the fast-growing sector could find itself stalled or poised for a further push.

Ever since the Indian Patent Act was enacted in 1970 to allow for reverse engineering of patented drug molecules, the pharmaceutical business in India has galloped ahead using new processes to make medicines at some of the lowest prices in the world.

Multinational drug companies have not been able to compete with the low prices of the aggressive Indian upstarts who have pushed up their market share since 1970 from under 30 per cent to 72 per cent. Growing at over 20 per cent a year, the 370-billion rupee (S$13.6 billion) Indian pharma sector is the third largest in the world in volume, but much lower down in value of output because of the low prices.

But now the Indian Patent Act is to be amended under Trips (Trade Related Intellectual Property in Services) of the World Trade Organization and the question uppermost in the minds of participants is whether the government will be able to protect Indian interests by resisting pressure from multinational drug giants.

As the amendment to the Patent Act comes before parliament in the weeks ahead, the crucial battle between the contending interests is between exclusive marketing rights demanded by the multinationals and compulsory licensing which the Indian companies want.

Exclusive marketing rights for the drugs still under patent would mean that the patent holding companies would retain the exclusive right to import or locally manufacture the drugs. They could keep production down to push prices up, says T R Gopalakrishnan, assistant secretary-general of the Indian Drug Manufacturers Association (IDMA).

Making drugs for the poor

Compulsory licensing would imply that any company would have the right to manufacture a generic (non-branded) version of the drug, provided it pays the patent holder a royalty. It would also allow Indian companies to export much-needed patented drugs to the less developed countries which need them but don't have manufacturing facilities.

Another anxiety voiced by Indian companies is that the bill may do away with the pre-grant opposition procedure. This is a mechanism to stop frivolous patents which could otherwise take years to defeat in the courts. In the absence of pre-grant opposition, around 6,000 applications are pending which would escape public scrutiny.

A petition to the prime minister signed by several health-related NGOs states that public scrutiny is crucial in light of the fact that less than 500 drugs have been granted marketing approvals in India between 1995-2004 -- indicating that the rest are trivial applications.

Hence, pre-grant opposition is absolutely essential for blocking trivial patents. The 1970 Patent Act and the thrust it gave to making drugs through another route was a watershed in the Indian pharmaceutical industry. Though only some 50 patented drugs are currently manufactured in the country they are widely used and account for around a fifth of total drugs sold in the country.

More important, the reverse engineering has helped develop the kind of expertise which the Indian pharma industry now has and which could take it to the top in a couple of decades. Indian companies are adopting a number of strategies to get there.

One way used by leading companies like Ranbaxy and Dr Reddy's is to challenge in US courts a patent for a popular drug which has expired but which the patent holder has extended beyond the normal 20-year patent period by the stratagem of making a minor change.

They have been helped in this by a ruling of the US Food and Drug Administration (FDA), which gives exclusive generic marketing rights for six months to a company which is successful in prevailing over a branded drug maker in court.

Generic drug manufacturers around the world led by the giant Israeli company Teva are increasingly adopting this strategy. In 2002, around 83 such cases were filed by generics companies. In 2001, Dr Reddy won a case against the giant Eli Lilly over a patent on its anti-depressant Prozac.

Though it cost the company over US$1 million to fight the case, it earned around US$70 million in those six months. Similarly, Ranbaxy challenged Glaxo SmithKline over the patent for the anti-biotic Ceftin. When it won, the rewards were tremendous for Ceftin now accounts for 40 per cent of all Ranbaxy's sales in the US.

These are not the only successes. A notable achievement has been that of Cipla, the Indian firm that did groundbreaking work in developing an affordable Aids treatment mode. Western companies were marketing their anti-AIDS drugs for US$12,000 per person per year.

Cipla came out with a formulation for US$350 and it kept reducing the price. Their drug is now used in over 90 countries.

The major driving force is globalisation, using India as the manufacturing base, noted Y K Hamied, chairman of Cipla in a recent speech. Once the Patent Act is amended, many multinational companies will see the great advantage in using India as a manufacturing and research base.

With a low-cost labour force and readily available technical skills, drug manufacturing costs in India are less than half of what they are in the West. The drug giants would not only manufacture here for the local market but also for export.

Exports now account for sales of around 140 billion rupees, says Mr Gopalakrishnan, or around 35 per cent of the total industry turnover, up nearly ten times from 14.9 billion rupees in 1993. This may increase, but multinationals manufacturing for export would eat into the share of Indian companies. R&D and the development of new molecules is another area of growth.

It costs around US$500-600 million to develop and clinically test a new drug. This could be done in India for as little as US$15-20 million, says Mr Gopalakrishnan. While only a handful of Indian companies can currently risk spending such amounts, many of the drug giants are likely to shift part of their R&D efforts to India.

Other growth areas are indigenous medical systems like ayurveda and health tourism. The plants needed for ayurvedic medicines need careful cultivation and cannot be done on the large scale that the drug giants would need.

And, while their efficacy has been demonstrated over the centuries, they are unlikely to meet the strict reproducible needs of modern medical science. It will be left to Indian companies to use ayurvedic medicines.

Though still small, medical tourism, with people coming to India for the low-cost medical treatment and operations is also growing. The new high-tech hospitals being built around the country are already being used by foreign patients.

Despite the possibilities, the risks cannot be dismissed. Dr Hamied expressed it with sadness: 'The achievements of the indigenous pharmaceutical industry over the past few decades have been outstanding. However, all this is likely to be diluted by India's agreeing to adopt Trips by January 2005. Our government has unfortunately failed to appreciate the far-reaching implications of its action.'