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SPEAKING
FREELY
Testing times for India's pharma
industry
By Kannan Sivaprakasam
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click here
if you are interested in
contributing.
The March 22, 2005
amendment of the Indian patent act of 1970 marked
the end of a protected era and signaled a new
phase in the integration of India into the global
pharmaceutical market. The new amendment seeks to
make copying of post-1995 patented drugs illegal.
As India enters the new product patent regime, how
will it affect the Indian pharmaceutical industry,
healthcare industry, legal machinery enforcing the
regulations, and most importantly, patients in
India and the developing world, given that Indian
drugs are exported to more than 65 countries?
A regulatory system focused only on
process patents helped to establish the foundation
of a strong and highly competitive domestic
pharmaceutical industry which, in the grip of a
rigid price control framework, transformed into a
world supplier of bulk drugs and medicines at
affordable prices to the common man, both in India
and the developing world. The introduction of
product patents will, however, mark the end of a
golden age for the Indian pharmaceutical industry.
The new regulations will reshape the
landscape of the industry, forcing significant
changes and divisions within the industry. A look
into the Organization of Pharmaceutical Producers
of India (OPPI) directory shows only 300 units out
of 10,000 registered companies are in the
organized sector. While process patents helped the
Indian pharma industry to flourish into a
world-class generics industry, the product patent
regime will filter the best from the pack and be
favorable to players with built-in scientific and
technical resources.
The impact of the new
regulations will not deter the Indian pharma
majors, as they are already doing roaring business
in the very countries where these patent laws are
strictly enforced. Export markets increasingly
drive the Indian pharmaceutical industry. Out of
an annual turnover of US$5 billion, exports
constitute $3.2 billion, and the industry is
poised to grow to $25 billion by 2010, according
to consulting firm McKinsey.
The share of
the Indian pharmaceutical industry in the global
market is 1% (ranked 13th) in value, but 8%
(ranked 4th) in volume terms. The global market
for generic drugs was estimated at $27 billion in
2001, and the expiry of patents on drugs will be
worth $80 billion, offering a huge opportunity to
the Indian industry. India today has the largest
number of US Food & Drug Administration
(FDA)-approved drug manufacturing facilities
outside the US. Drug Master Files (DMFs), which
have to be approved by the FDA before a drug can
enter the US market, filed by Indian companies
total 126 - higher than Spain, Italy, China and
Israel put together.
Research &
Development (R&D) is a key to the strength of
the pharmaceutical industry, especially in a
product patent regime. The global pharmaceutical
industry spent $30.4 billion in 2001 on R&D.
The R&D expenditures as a percentage of
turnover of the Indian pharmaceutical industry are
low (1.9%) when compared to global giants
(10-16%). With the transition into the new regime,
many Indian companies are mobilizing their
resources war chest with massive increases in
their R&D budgets. The government has
encouraged R&D in pharmaceutical companies by
extending a 10-year tax holiday to this sector.
Besides, India's Planning Commission has earmarked
$34 million toward a drug industry R&D
promotion fund in its Tenth Plan.
Globally, the pharmaceutical industry grew
at a compounded annual growth rate of 9.1% in the
last 23 years to $491 billion, propelled by a
string of innovative blockbusters. Multinationals
have been reshaped recently by mergers and
acquisitions as a way of fattening their research
pipelines. But this at best represented a
short-term solution to their problems; with a slew
of brand-name drugs losing patent protection in
the next few years, and the pressure building to
cut soaring drug prices, these giants find
themselves under immense strain to find new drugs
and reduce prices simultaneously.
Bringing
a new drug onto the market costs a company an
average of about $800 to $900 million. Some
estimates show that patient recruitment and
medical personnel costs account for nearly 70% of
the clinical costs required to bring a drug to the
market. A less expensive means to raise research
productivity is outsourcing research to low-cost
havens such as India and China, and predictably,
the global pharmaceutical outsourcing market stood
at $10 billion in 2004.
Pharma
multinationals have maintained a low-key presence
in the Indian market due to the absence of product
patents and rigid price controls. The Indian
pharmaceutical industry has not received
significant foreign direct investment (FDI). From
August 1991 to December 1998, this industry
accounted for a meager 0.44% of the total FDI
inflow. The introduction of product patents will
see multinationals strengthening their presence in
the country. The second-largest population in the
world, a growing economy and rising income levels
make the Indian market difficult to ignore.
In the domestic market, the share of
Indian companies has steadily increased from
around 20% in 1970 to 70% now. Ranbaxy
Laboratories is the market leader in terms of
revenues, followed by Cipla and Dr Reddy's
Laboratories. Glaxo is the only multinational to
figure among the top 10 pharma companies in India.
In India, 97% of drugs are off-patent and are
manufactured by a vast number of companies. The
key therapeutic segments include anti-infectives,
cardiovascular and central nervous system drugs.
Anti-infectives comprise the largest therapeutic
segment in India, accounting for about 26% of the
market.
Let's look at a few specific cases
to explore how the new rules will affect the
pharma business in India. One effect of the new
regulations is a dispute about the anti-blood
cancer drug Gleevec, sold by Novartis for $2,750
per month when the prohibited generics used to
cost less than one-tenth of the price. In India
24,000 new cases of this disease are reported each
year with about 18,000 patients succumbing to it.
The country does not have a strong health
insurance sector as in the US to cushion rising
healthcare costs. In addition, most patients pay
for medicines themselves and are not backed by
medical insurance schemes. The private sector
provides 80% of the country's health care and the
government role is limited with a budget of only
$215 million as per 2005-06 budget estimates.
Since 1986, when the first case of AIDS was
reported in India, the affected population has
grown to 4.5 million in the late 2002. The impact
of the recent amendments will be felt in the
developing world as well, since half the AIDS
patients in the third world rely on India's
generic drug industry. Cipla, Ranbaxy
Laboratories, Matrix Laboratories, and Hetero
Drugs recently announced an agreement with the
Clinton Foundation to provide drugs to four
African and nine Caribbean countries at a per
capita cost of about $0.37 per day.
India's Ministry of Health is negotiating
a final price with generic drug manufacturers in
an effort to obtain drugs for India at a price
even lower than that. The 12 ARVs (anti-retroviral
drugs) used for AIDS and manufactured in India are
pre-1995 period inventions. As AIDS patients
develop resistance to old drugs, new treatments
will become less affordable.
If a drug is
desperately needed, the new law allows the
government, like the rest of the world, to declare
an emergency and cancel its patent. India has
never declared such an emergency, and for years
resisted admitting that it had an AIDS problem.
India is also home to 2.5 million
dementia/Alzheimer's disease (AD) patients. As
most of the anti-cholinesterase drugs for AD are
recent, the price of these medicines would
automatically go up.
The government-run
patent office will come under pressure for the
first time in several years to streamline the
entire process. As with any new administrative or
legal system, the transition to a new regime will
not be smooth. Can the enormously strained Indian
legal system bear the additional pressures as the
country enters the product patent world?
The decades of incubation and shielding of
the industry by favorable government policies and
absence of foreign competition is over. It is now
at a crossroads and staring at a new world full of
opportunities - and threats.
Kannan
Sivaprakasam is a
Research Associate at Cornell University, US. The
author can be reached at ksri67@yahoo.com
.
(Copyright 2005
Kannan Sivaprakasam)
Speaking Freely
is an Asia Times Online feature that allows guest
writers to have their say. Please click here
if you are interested in
contributing. |
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