The Indian patent act of 1970 amended on March 22, 2005 marks the end of a protected era and signals 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 product patent regime how will it affect the Indian pharmaceutical industry (IPI), health care industry, legal machinery enforcing the regulations and most importantly patients in India and the developing world given the fact Indian drugs are exported to more than 65 countries?
With 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 common man in India and the developing world. Introduction of product patents will, however, mark the end of a golden age for IPI. The new regulations will reshape the landscape of IPI forcing significant changes and divide within the industry. A look into 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 patent helped to flourish IPI into a world-class generics industry, product patent regime will filter the best from the pack and would 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 in force.
Export markets increasingly drive IPI: in a turnover of US$5 billion, exports constitute $3.2 billion and the industry is poised to grow to $25 billion by 2010 (McKinsey). The share of IPI in world pharmaceutical market is 1.0% (ranks 13th) in value and 8% (ranks 4th) in volume terms. The global market for generic drugs is estimated at $27 billion (2001) and the expiry of patents on drugs will be worth $80 billion (2005) offers a huge opportunity to IPI.
India today has the largest number of US Food & Drug Administration (FDA) approved drug manufacturing facilities outside the US. In addition, Drug Master Files (DMFs) filed by Indian companies with the FDA is 126 higher than Spain, Italy, China and Israel put together. DMF has to be approved by FDA for a drug to enter the US market.
Research & Development (R&D) is a key to the strength of pharmaceutical industry especially in the product patent period. The global pharmaceutical industry spent $30.4 billion (2001) on R&D. The R&D expenditure (as a percentage of turnover) by the IPI is low (1.9%) when compared global giants (1016%). With transition into the new regime many Indian companies are mobilizing their resources war chest with an increase in their R&D budget. Government of India (GOI) encouraged the R&D in pharmaceutical companies by extending 10 year tax holiday to this sector. Besides, planning commission has earmarked $34 million towards drug industry R&D promotion fund for the tenth plan.
Globally, pharmaceutical industry grew at a compounded annual growth rate of 9.1 per cent in the last 23 years to $491 billion propelled by a string of innovative blockbusters. Multinationals were reshaped by mergers and acquisitions as a way of fattening their research pipelines. This at best represents a short-term solution. With a slew of brand name drugs losing patent protection in the next few years and the pressure building for pharmaceuticals to cut price, these giants find themselves under immense strain to find new drugs and reduce price. Bringing a new drug into the market costs a company an average of about $800 to $900 million. Some estimates show that patient recruitment and medical personnel account for nearly 70 per cent of the clinical costs that are required to bring a drug to market. The less expensive means to raise research productivity is outsourcing research to low cost havens such as India and China. The global pharmaceutical outsourcing market stands at $10 billion (2004).
Pharma multinationals have maintained a low-key presence in Indian market due to absence of product patents and rigid price controls. Pharmaceutical industry did not receive significant foreign direct investment (FDI). From August 1991 to December 1998 this industry accounted for a meager 0.44% of the total FDI. 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 makes Indian market difficult to ignore.
In the domestic market, the share of Indian companies has steadily increased from around 20 per cent in 1970 to 70 percent now. Ranbaxy Laboratories is the market leader in terms of revenues followed by Cipla and Dr Reddys Laboratories. Glaxo is the only multinational to figure among the top ten pharma companies in India.
In India, 97 per cent of drugs are off patent and are manufactured by a vast number of companies. The key therapeutic segments include anti-infectives, cardio vascular and central nervous system drugs. Anti-infectives comprise the largest therapeutic segment in India, accounting for about 26 per cent of the market.
Lets take a look at how and whom does the new rules affect with a few specific cases. A symptom of the new regulation is a dispute about the anti-blood cancer drug, Gleevac, sold by Novartis for $2750 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 the rising healthcare cost. In addition most patients pay for medicines through their own funding and is not backed by medical insurance schemes. Private sector provides 80% of the countrys health care and the government role is limited with a budget of only $215 million as per the 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 developing world as well as 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 the generic drug manufacturers in an effort to obtain drugs for India at a price even lower than that. The 12 ARVs (anti retro-viral 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 had 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/Alzheimers disease patients. As most of the anti- holinesterse drugs 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, transition to a new regime will not be smooth. Can the enormously strained Indian legal system bear the additional pressures as we enter the product patent world?
The decades of incubation and shielding of IPI by favorable government policies and absence of foreign competition is over. IPI is in the cross roads now and staring at a new world full of opportunities and threats.