F

From the mid-1980s, the developed nations, led by the US, started pushing the issue of intellectual property rights (IPRs) as a part of the Uruguay round of multilateral trade negotiations. In 1988 Congress passed the Omnibus Trade and Competitveness Act which authorised the US government to take retaliatory action against countries which did not provide protection to intellectual property rights. All the members of General Agreement on Tariffs and Trade (GATT) ultimately had to amend their laws and recognise product patents. The conflicts over patent policies have been resolved more through bargaining power than equity considerations

In India the IPA 1970 has been amended thrice since India committed to the World Trade Organisation (WTO) to honour the agreement signed in 1995 to comply with the relevant clauses under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) by January 2005.The first amendment to IPA 1970 was in 1999 which introduced mailbox provisions to receive product patent applications; exclusive marketing rights (EMRs) were made retrospective from January 1, 1995. The second amendment in 2002 extended the term of patent to 20 years, imposed the burden of proof on the infringer as opposed to the patent holder, along with changes in the stipulations governing compulsory licensing. The last amendment in 2005 finally recognised product patents as well.

This paper attempts to recognise and focus on the factors that are influencing the structure and growth of the Indian pharmaceutical industry in the new scenario and how some large domestic and multinational companies are preparing themselves to compete and survive. We focus on the different strategies adopted by the top 15 companies since 1995 with respect to their export orientation, import dependence, investment, option of manufacturing versus marketing (i e, bulk drugs versus formulations) and stimulus to research and development. Section I discusses the transformation of Indian pharmaceutical industry since 1970 in brief. Section II covers various policy measures and initiatives responsible for the growth of the industry. Section III discusses the changing strategies of big firms in consolidating their businesses to face the tighter patent regime. This study covers 15 large firms in terms of net sales, including a few MNCs. The sample contributes as much as 64 per cent of the total bulk drug production in the country. The main source of data are the annual reports of these companies, the Indian Drug Manu factu rers’ Association (IDMA) databank, the Organisation of Pharmaceutical Producers of India (OPPI) Pharmaceutical Compendium, the Bulk Drug Manufacturers’ Association (BDMA) reports, and the Directorate General of Commercial Intelligence and Statistics (DGCIS) export import data. Section IV concludes the study.

I Transformation of the Indian Pharmaceutical Industry

The Indian pharmaceutical industry is one of the largest among the developing countries. It contributes 8 per cent in volume terms but only 1 per cent in value terms to global pharmaceutical sales. India’s small share in value terms is attributable to the relatively lower prices of drugs in the country. Its strength lies in manufacturing generics, i e, off-patented drugs and its major exports belong to the anti-infectives segment. Since India did not recognise product patents, it is also a major supplier of generic versions of patented drugs, especially life-saving drugs for HIV-AIDS to less developed countries like South Africa at affordable prices. In 2006, products with sales in excess of $18 billion lost their patent protection in seven key markets (US, Canada, France, Spain, Italy, Germany and the UK). The US represents more than $14 billion of these sales.1 Generics represented more than half of the volume of pharmaceutical products sold in these seven key markets. With lower-cost therapies replacing branded products in classes such as lipid regulators, anti-depressants, platelet aggre gation inhibitors and respiratory agents, generics are assuming a more central role2 and India is slated to be a major beneficiary of this change. According to IMS Health report, India was one of the fastest growing markets in 2006, with pharmaceutical sales increasing 17.5 per cent to $ 7.3 billion.

II Law and Public Policy

Table 1: Compound Annual Growth Rates of Production in the Pharmaceutical Industry (1980-81 to 2004-05)

(Per cent)

Bulk Drugs Formulations

Table 2: Proportions of Bulk Drugs and Formulations in Pharmaceutical Production, Exports and Imports

United States Food and Drugs Administration (USFDA) and the United Kingdom Medicines and Healthcare Products Regulatory Agency (UKMHRA). This has resulted in India being a net exporter of pharmaceuticals to both developed and developing countries.3 The share of bulk drugs in total pharmaceutical exports has almost doubled from 1985-86 to 2003-04 (Table 2). In 1985-86 out of total pharmaceutical exports, the share of bulk drugs was 24 per cent. This share increased to 53 per cent in 1990-91 as patents on many drugs expired in the late 1980s and several companies started filing drug master files4 to get approvals for their manufacturing facilities in the US and other international markets. While the share of bulk drugs has risen in exports, there is a fall in its share in total pharmaceutical imports. Imports are largely sourced from the European Union (60 per cent) followed by north America (16 per cent) and the Asia Pacific and Latin America (with 5 per cent each) (Source: UN COMTRADE Statistics). The share of bulk drug imports in total pharmaceutical imports fell from 93 per cent in 1985-86 to 70 per cent in 2003-04. However, with declining import duties, the import component in domestic consumption of bulk drugs has gone up.

If one looks at the import penetration ratio, the dependence on imports of bulk drugs for domestic consumption has increased with reduced import duties. The import penetration ratio, defined as the import-apparent consumption ratio, for bulk drugs is as high as 70 per cent, risen from 50 per cent in 1990-91, while the formulations imports in total apparent consumption is around 6 per cent (Table 3).

Let us now turn to the sample study of 15 large manufacturers in the Indian drugs industry to assess the comparative trends in domestic firms and multinational corporations.

III Evidence for Large Domestic and Foreign Enterprises

Multinational companies import either bulk drugs or some life saving, new generation, under patent formulations from their parent companies, to India. The share of bulk drugs and finished goods in total imports is consistently increasing for MNCs. Since 1994 when the ratio requirement for bulk drugs-formulations was abolished, many foreign companies closed down their bulk drugs manufacturing plants in India. GSK closed its manufacturing unit for Ranitidine in Surat which was a base for providing the drug not only in India but also to its subsidiaries. The MNCs are engaging in simply importing rather than undertaking investment or subcontracting the production of bulk drugs in the country. For instance, in 2004, Pfizer exported finished goods and bulk materials to its other subsidiaries worth Rs 286 lakh, where as it imported into India other finished goods worth Rs 1,574 lakh (Annual Report, 2004). It has also ceased its operations in Ankleshwar, Hyderabad and Chandigarh plants and is relying on small-scale units for its requirements. Similarly, GSK is increasingly relying on imports: in 2004, it imported materials from its subsidiaries in UK and Belgium worth Rs 7,300 lakh but sold to its subsidiaries finished goods and materials only worth Rs 1,200 lakh. The share of bulk drugs and finished goods in total imports has been consistently rising for MNCs. In 2005, 94 per cent of Novartis’ total imports comprised of goods for resale (Table 7). Also apart from relying on third party under loan licensing for its total production,5 47 per cent of its turnover came from purchases from other manufacturers in 2006. These purchases, which are over and above the orders under loan licensing, form roughly 10 per cent of the total sales for domestic companies but average around 30 per cent for MNCs (based on calculations from the annual reports of domestic companies and MNCs for the year 2005). The trends in import dependence for bulk drugs are similar for some domestic firms like Nicholas Piramal, as shown in Table 7.

The domestic companies including Nicholas Piramal (NPIL) and Cadila and now Ranbaxy have increased their bulk drugs imports in total imports. NPIL has entered into a licensing agreement with Biogen Idec, USA for marketing the latter’s products in India. Similarly, Ranbaxy has formalised two out-licensing deals with a French company, Ethypharm to supply two of the latter’s drugs (one painkiller and a drug to control cholesterol levels) to the Indian market. In an earlier study [Subramanian and Pillai 1979], it was observed that the import intensity (average) in raw material consumption was higher among foreign controlled companies (16.2 per cent) and it was lowest among Indian firms with no or very low foreign association (5.12 per cent). But now, MNCs, rather than producing the bulk drugs and relying on imported raw material, import finished goods. In fact it is the domestic companies that are making bulk drugs and hence go for cheaper raw materials by importing them. In our sample, one observes that import intensity in raw material consumption of domestic firms is higher than that for MNCs (Chart 1).The multinational companies are focusing more on finished goods from their parent or subsidiaries rather than manufacturing bulk drugs – hence their raw material requirements are limited compared to Indian firms which are still manufacturing a major part of their bulk drug requirements. With import liberalisation, the domestic companies’ import content is going up.

The fear that the domestic market will be gradually controlled by MNCs as they bring their patented drugs is forcing domestic firms to export and to set up affiliates abroad. This is the main reason why big companies like Ranbaxy, Dr Reddy’s and Cipla have started raising revenues through exports in the last 10 years in the huge off-patent global drugs market. The generics market offers immense opportunities to developing countries where cheap labour and low material cost give them an absolute cost advantage. India can test, develop, manufacture and market a generic medicine at a cost which is 20-40 per cent of what it

18

16

14

12

10

8

6

4

2

0

Dom

MNCs

Source: Calculated from the annual reports of the sample firms.

player who won the challenge as the competition intensifies and the six-month exclusivity is not granted. In 2005, Ranbaxy suffered a major setback on its sales and profits on account of sharp price erosion in the US generic market. Not only did the profit after tax declined from 13 per cent as a proportion of its consolidated sales in 2004 to a mere 5 per cent in 2005,the gross sales actually declined in absolute terms from Rs 36.14 billion to Rs 35.36 billion. The sales in the US were lower by 25 per cent at $ 328 million (Annual Report 2005, p 22). Similarly, Dr Reddy’s sales to the US declined in 2004-05 and the loss could not be made up by sales to European countries; the consolidated sales dropped by 3 per cent in one year. The German government has passed the Economic Optimisation of the Pharma ceutical Case Act, effective from May 2006, which tries to contain the cost increase in the area of pharmaceuticals and thus the advantage of higher prices cannot be enjoyed as before. All these factors are going to hinder the flow of export revenues for the large pharmaceutical companies of India.

Market Concentration

As the Indian pharmaceutical industry faces a stricter patent regime, the capital requirements to undertake research are forcing many firms to go for mergers and acquisitions. Apart from this, many companies are consolidating their business by acquiring the manufacturing facilities/brands of other firms. MNCs are also consolidating their business through mergers, though they have not yet started acquiring local companies. This trend of acquiring local firms was observed in other developing countries like Argentina, Mexico and Brazil, where on recognising product patents, consolidation of the industry through mergers and acquisitions picked up [Maskus 2000]. In Argentina, after the enactment of a new patent law in 1995, MNCs like Bristol Myers Squibb, Novartis, Smithkline Beecham, Ivax Corporation and Merck have acquired many local companies’ stakes. Table 8 shows some mergers and acquisitions in the Indian pharma ceutical industry.

Apart from these mergers, some Indian companies have acquired company brands and stakes in some companies

1995 2000 2005

Chart 2: Total Number of USFDA Approvals (by August 2006)

0 10 20 30 40 50 60 70 ANDAs DMFs

overseas. In 2002, Dr Reddy’s acquired BMS Laboratories in the UK, Ranbaxy acquired a 10 per cent stake in Nihon Pharmaceutical Industry, Japan. Ranbaxy acquired RPG Aventis in France, Terapia (Romania), Ethimed (Belgium) and Allen (Italy) and many others in 2006 alone. Wockhardt acquired Espharma in Germany. More recently, Nicholas Piramal India acquired Pfizer’s manufacturing unit in Morpeth, UK while Dr Reddy’s acquired Roche’s active pharmaceutical ingredients unit in Mexico in 2005 and Betapharm of Germany. Overseas buys have become an integral part of the strategies of all leading domestic companies, though the objectives may vary – some firms use them as an entry vehicle into a new market while others use them to get access to manufacturing assets.

There is also a shift in the focus from bulk drugs to higher margin formulations, and a shift towards high growth therapeutic segments like anti-diabetes, CVS, CNS. All these changes have increased concentration at the top in the pharmaceutical industry. According to OPPI, the top 10 companies controlled 27.2 per cent of the pharmaceutical market in India in 1995. Concentration has increased over time and now the top 10 companies’ cumulative share is around 42 per cent (Table 9). The domestic retail formulations market (which is 70 per cent of the total market) shows a similar trend.

The individual market share of the companies does not reveal the actual intensity of competition. The actual competition takes place within therapeutic segments which cater to distinct diseases of any population. On the basis of retail formulations data for the month of February 2006 from ORG IMS, the level of competition can be observed for some drugs, including drugs like ciprofloxacin, which is a drug under DPCO. All these drugs are sold as off patented drugs since they entered India much before 2005.

Table 10 shows that the prices within various therapeutic categories reflect an oligopolistic structure despite generic competition. This is because the formulations market cannot be a perfectly competitive market or even close to it as the consumer and the decision-maker for consumption are not the same people. Most of the drugs are prescription drugs and the doctor who prescribes the drug, is quite insensitive to price and is mainly guided by brand. That is why if one looks at the share of advertising and marketing expenditure as a proportion of total sales of the drug companies, it is much higher than their R&D expenditure as a proportion of total sales.

From the early 1960s, the investment of foreign controlled rupee companies (FCRC) and foreign branches in medicines and pharmaceuticals as a proportion of total foreign investment increased steadily 4.1 per cent in 1964, 7.6 per cent in 1974, 9.8 per cent in 1978 and 11.35 per cent in 1980. (RBI Bulletin, India’s International Position, July 1975, March 1978 and April 1985). This increase in foreign investment, despite greater restrictions on the activities of foreign companies, can be explained only through the stipulations under the Drug Policy of 1978. The government gave production licences to FERA companies only if they were involved in high technology bulk drugs and related formulations, provided half of the bulk drug manufacture was sold to other formulators. Also, they were required to produce bulk drugs and formulations in the ratio 1:5 which was further made more restrictive in the Drug Policy of 1986 by changing the ratio requirement to 1:4.Thus foreign investment increased in a period of stringent regulations along with an increase in productive capacity – though no new MNCs entered the Indian

Year Acquirer Acquired

2005 Torrent Heumann Pharma, Germany 2004 Sun Pharma Phlox Pharma 2004 GSK GSK and Burroughs Welcome (India) merged 2003 Pfizer Business of Parke Davis 2003 Nicholas Piramal Joint venture with Sarabhai Piramal 2002 Matrix Laboratories Merged Medicorp Technologies 2002 Wockhardt Stake of Rhein Stake in German Remedies 2001 Aventis Pharma Merger of Hoechst Marrion and Rhone

Poulenc Rorer 2000 Dr Reddy’s Acquisition of America Remedies 1997 Ranbaxy Lab Merger with Croslands Research Labs

Company 1995 2000 2005

Ranbaxy 7.69 8.88 8.69 Cipla 3.64 4.00 5.80 Dr Reddys 2.14 2.44 3.71 GSK 9.72 4.86 3.84 Aurobindo 0.91 3.72 2.80 Sun 0.72 2.45 2.53 Nicholas Piramal 1.00 2.52 3.14 Wockhardt 0.00 2.89 2.57 Lupin 0.5 4.5 3.2 Cadila -2.41 2.77 Combined share of top 10 firms 26.47 36.97 38.84

Sources: (i) Annual Reports of Companies.

Name of the Drug Therapeutic No of Share of Top Category Brands 4 Brands (Per Cent)

Ciprofloxacin Quinolones 200 60 Levofloxacin Quinolones 45 48 Chloroquine Anti-Malaria 43 93 Quinine Anti-Malaria 24 85 Rh Adults Anti-Tuberculosis 63 79 RHEZ FD (Rifampicin +Isoniazid+

Pyrazinamide) Anti-Tuberculosis 40 70 RHE(Rifampicin +Isoniazid+

Ethambutol) Anti-Tuberculosis 42 65 Atorvastatin Statins 75 47 Simvastatin Statins 25 84 Lovastatin Statins 15 98

Note: *The drugs categories include all dosages and forms of individual brands.

Chart 3: Comparisons between R&D Expenditure and Selling Expenditure

(as a percentage of sales)

35

30

25

20

15

10

5

0

Ranbaxy Dr Reddy’s Cipla Nicholas Sun

'

R&D

Selling

Source: Annual Reports of Companies, 2004.

pharma ceutical sector but many big companies like Ciba-Geigy, Pfizer, Glaxo and Johnson and Johnson continued and increased their manufacturing activities. Since 1991, the liberal policies invited foreign direct investment into various sectors. FDI up to 100 per cent is permitted on the automatic route for manufacture of drugs and pharmaceuticals, provided the activity does not attract compulsory licensing or involve use of recombinant DNA techno logy, and specific cell/tissue targeted formulations. However, the opening up on the FDI front coincided with dilution of ratio-requirement of bulk drugs-formulations production in 1994. From 1992-93 to 1995-96, the share of FDI inflows to pharmaceuticals was 4.1 per cent of the total FDI inflows, which declined to 2.5 per cent from 1998-99 to 2001-02 and has now again picked up and is 4.6 per cent in the period 2002-03 to 2005-06. The cumulative share over the last 15 years is around 3 per cent of the total FDI.

But whether the liberalised industrial and FDI policies along with the signing of the TRIPS agreement to introduce product patents in 2005 have actually resulted in increase in investment in physical assets by MNCs or not is what we now turn to. The shareholding pattern of the MNCs in our sample has not changed much in the last 10 years. Except Astra Zeneca whose foreign shareholdings have increased from 50 per cent to 90 per cent in 2006, the rest have shareholdings to the tune of 40 per cent to 51 per cent. There is however a shift in their investment patterns. Though both domestic and multinational companies have increased their investments in government securities and company shares, MNCs’ ratio of total fixed assets to investment in financial securities has dwindled in the last few years. If we look at Table 13, it is apparent that though their physical assets are increasing, their financial investment is growing much faster so that, in absolute terms, the value of gross block which comprises of fixed assets like plant and machinery, buildings, land, etc, is less than investment in financial securities for the last three years; in contrast, gross block was twice the amount of investment in financial securities in 1995 (Table 12). This is indicative of their relative reluctance to invest in production capacity. The growth rates of domestic companies’ gross block and net block (excluding depreciation) are comparable with their investments in financial securities of government and other companies but MNCs’ preference for financial securities over physical assets is obvious from a much higher growth rate of these investments relative to gross block and net block over the period 1995-2005. Out of all the MNCs, Aventis has increased its investment in physical assets in the last few years. GSK also has a high level of investment though it is on the decline from 2001. The common factor among all the MNCs, except Astra Zeneca, is that their financial investments are increasing rapidly. Astra Zeneca is the only foreign company which has divested its financial securities. It is the only MNC which has production capacity in a few bulk drugs and an R&D unit in Bangalore for drug discovery and development for various indications, especially for tuberculosis. Among domestic firms, Lupin has reduced its financial investments. Other companies are increasing their financial portfolio but their physical assets build up is rising almost at the same rate if not faster.

by major pharmaceutical companies. Mansfield (1995) found that 27 per cent of new products in the pharmaceutical industry in the US could not have been developed without underlying academic research and an additional 29 per cent were “significantly facilitated” by academic research.

The first stage of drug product cycle is discovery which entails identifying the biological targets (i e, a protein or other biopolymer) known to be involved in the disease’s etiology, and then discover the compound, or compounds, that have an effective and specific therapeutic capability and a minimum number of side-effects. This stage requires relatively lower investment and some of the large Indian companies have set up research laboratories to conduct research in the face of competition from global players. Earlier, Indian firms skipped this part entailing basic research and invested in process reengineering and NDDS (Novel Drug Delivery Systems). With the new patent regime, some firms have demerged their R&D units from the manufacturing set-ups to concentrate solely on the innovative part of the drug. Sun Pharmaceuticals has demerged from its R&D unit, Sun Pharmaceuticals Advanced Research Co (SPARC) to undertake independent research for the company. Similarly, Dr Reddy’s in March 2006 joined hands with Citigroup venture and ICICI venture to form an integrated drug development company called Perelecan Pharma to accelerate the development of its four discovery molecules in the area of cardiovascular and metabolic disorders (Annual Reports, 2006).

India is also becoming a favoured destination for clinical research for many multinationals. The clinical trials (CTs) on human subjects have to be conducted under strict guidelines to test safety and efficacy of the molecule before granting production and marketing approvals. Clinical trials are exacting and consequently expensive to administer. With increasing pressure on R&D expenditure amongst the big global pharma companies, India’s large and relatively poor and uneducated patient population is well suited for clinical trials. Phase I of clinical trials involves testing of new compounds on 20-80 healthy human beings. Phases II and III test the compound on a larger number of patient volunteers for safety and efficacy and determine the best dosage mechanism. On successful completion of clinical trials, the company gets the regulator’s approval to market the drug. Table 14 presents the extent and the areas of focus in clinical trials by MNCs.

In multicentric trials, MNCs carry out trials in various centres across the globe focusing on drugs suitable to the needs of the developed world. That is why one observes a bias towards lifestyle related diseases. Except trials in visceral leishmaniasis by GSK, all trials belong to global diseases. The subsidiaries of MNCs in India are using India as a centre for clinical studies and not for any basic research. Apart from a few collaborative arrangements with some local companies, MNCs are basically tapping India’s population for clinical trials as it is extremely difficult to get registration for CTs in their parent and other developed countries. GSK earned 37.5 per cent of its foreign exchange on account of clinical research and data management in 2005. Three-fourths of Pfizer India’s clinical research relates to phase II and phase III studies executed on behalf of Pfizer Global Research and Development (PGRD) worldwide teams. Only AstraZeneca among MNCs has set up a research unit in Hyderabad for tuberculosis. GSK, Novartis and Merck are spending less than 0.5 per cent of their sales on R&D. As phase II and phase III of clinical trials involve major expenditure and are beyond the financial capabilities of most Indian companies, they have to opt for licensing out their molecules rather than undertake clinical trials on their own. Ranbaxy, Dr Reddy’s and Cadila are entering into such agreements with global majors where they are licensing out molecules. Recently Wockhardt acquired an innovative French company, Negma-Lerads for $ 265m (€195.4m). This is the first ever takeover of an innovative firm by an Indian company to facilitate its research programmes.

Table 15 provides a picture of research strategies undertaken by Indian firms. Most of the companies started drug development in new molecules since 1995 and have development partners for their research programmes, especially in the later stages of drug development. The Table 15 cites a few research programmes carried out on new chemical entities. It is apparent that apart from one project on an anti-malarial drug by Ranbaxy and a study on tuberculosis by Lupin, all other drugs being developed in the country either belongs to lifestyle-related drugs like drugs for the central nervous system, cardiovascular system, diabetes or respiratory diseases. Most of the projects have to be licensed out to multinationals or contract research organisations for later stage developments, namely, clinical trials. And that is not simply because of limited capital but also inadequate training to conduct clinical trials, inadequate good clinical practice (GCP) conforming facilities and expertise of clinicians, clinical pharmacologists, toxicologists and analy tical chemists, which

Year Gross Block Net Block Investments in Securities DOM MNC DOM MNC DOM MNC

1995 710.4 433.9 512.6 204.2 303.5 221.0 1996 897.3 439.1 708.6 203.3 239.5 110.7 1997 1,167.5 428.0 905.0 212.4 328.2 106.5 1998 1,568.0 454.1 1,214.5 212.6 382.4 124.5 1999 1,524.3 463.6 1,128.3 209.4 492.7 119.2 2000 1,738.6 502.3 1,224.1 230.0 454.7 147.9 2001 2,292.7 653.9 1,618.5 367.4 670.5 157.8 2002 2,706.2 652.3 1,941.9 344.2 646.3 154.8 2003 3,412.3 647.2 2,586.7 318.4 749.2 340.6 2004 4,033.8 631.4 2,973.5 251.2 1,550.2 593.1 2005 4,560.3 598.2 3,324.8 224.7 1,503.6 668.1 Compound annual

Note: All variables, gross block, net block and investments are indexed by the GFCF deflator.

Firm Number of Trials Areas

Bristol Myers Squibb 20 CVS,CNS,Diabetes,Cancer, Hepatitis-B Eli Lilly 17 Diabetes, Cancer, CNS Pfizer 14 CVS,CNS,Diabetes, Renal disorder GlaxoSmithKline 12 CNS, Arthiritis, Cancer,

Visceral Leishmaniasis Aventis 11 CVS, Cancer, Diabetes, Gastroentritis Astra Zeneca 9 CVS, CNS,Cancer Novartis 8 Hypertension, Hepatitis, CVS Merck 7 Fungal infection, HIV, Cancer, Diarrhea Bayer 5 CVS Boehringer Ingelheim 2 CVS

Source: www.clinicaltrials.gov

IV Conclusions

In honouring the WTO mandated product patent regime, the Indian pharmaceutical industry is shifting its focus away from the domestic market to the generics market in the developed world which is going to expand in the next two years when many drugs are going to be off patent. Although India has become a net exporter of pharmaceuticals, the import dependence on bulk drugs, which is the manufacturing segment, has steadily increased over the last 10 years. There is a shift away from bulk drugs towards high valued formulations by both domestic companies and MNCs. Even though some domestic firms are becoming dependent on bulk drugs imports, they are net foreign exchange earners; some of the big companies earn more than half of their revenues from exports. As far as MNCs are concerned, their share in both bulk drugs and formulations is declining and investment preferences are heavily tilted towards financial securities. The MNCs want to bring in their patented drugs without any domestic competition. The new patent regime will prove to be detrimental for both the patients due to high costs of drugs and for domestic manufacturers as they will be unable to manu facture any post-1995 patented drugs through alternative processes. This is the main reason why big companies like Ranbaxy, Dr Reddy’s, and Cipla have started raising revenues through exports in the last 10 years in the huge off-patent global drugs market.

Unless the government uses the flexibilities provided in Articles 30 and 31 of TRIPS like compulsory licensing for essential drugs, there will be serious repercussions on future access to essential drugs not only in India but around the world at affordable prices. The pharmaceutical industry is undergoing a process of consolidation whereby there is concentration at the top due to mergers and acquisitions to tap the opportunities emerging in the domestic as well as the global market in the various stages of the value chain such as R&D, manufacturing and marketing. Given the structural bottlenecks and the risk and time involved, big domestic firms do not and cannot spend the required amounts on R&D. Cost, in effect, is the crux of the issue. Estimates of the costs of drug development vary, but one widely quoted figure is $1 billion per drug, which is staggering by third world standards. Only one in five drugs that start human trials reaches the market. This high investment in R&D – with its attendant risks – is one reason why the pharmaceutical industry has shown a noticeable lack of incentive to invest in developing medicines and therapies for “non-profitable” diseases that plague the poorer countries. In the face of intense competition from MNCs post-2005, some companies have raised their investment in research though they need to out-licence their molecules to multinationals for clinical trials. By itself, no Indian domestic company is equipped to bring out a drug from the investigational stage to final marketing stage. Therefore there are a number of collaborations between MNCs and domestic companies, apart from licensing agreements. This has resulted in the bias in drug development. The MNCs are obviously in favour of developing drugs which are more suitable for the developed world. Thus barring a few cases, much of the research is undertaken for lifestyle-related diseases. Here the role of the government is of utmost importance. Even most deve loped countries’ pharmaceutical industries rely on the government-funded laboratories and academic research for R&D in this sector. The breakthrough drugs typically come out of government-funded laboratories. Therefore, governmentfunded research organisations have to expand their role by partnering with the private sector.

Notes

C/0,2777,6025_3665_79210022,00.html

(ii) http://www.imshealth.com/ims/portal/front/article

1.12 per cent at $ 23,18.1 million.

References

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