Presentation on theme: "Industrial Policy, Globalization and Indias Pharmaceutical Industry Sudip Chaudhuri Indian Institute of Management Calcutta Conference on 'Post Liberalisation."— Presentation transcript:
Industrial Policy, Globalization and Indias Pharmaceutical Industry Sudip Chaudhuri Indian Institute of Management Calcutta Conference on 'Post Liberalisation Constraints on Macroeconomic Policies', organised by IDEAS and UNDP, Muttukadu, Chennai, January, 2006
Indias Industrial policy success in pharmaceuticals is well known: Product patents in drugs abolished in 1972 Remarkable growth of pharmaceutical industry since then India and Japan: only two countries where western MNCs do not dominate India: net exporter and self sufficient in drugs Drug prices among the lowest in the world Source of good quality cheap drugs for the rest of the world.
Status of Indias Pharmaceutical Industry Size of India s pharmaceutical market is $ 4.9 billion (2003). This constitutes about 1% of the global pharmaceutical sales and about 10% of total generic market in the world. In value terms, India is the 14 th largest market in the world. In volume terms, India s share is around 8% and is the 4 th largest after USA, Japan and China India is among the top five bulk drugs manufacturers of the world. India has the largest number of US FDA approved manufacturing facilities outside USA. India exported drugs worth $ 3.2 billion to more than 65 countries. India is the 14 th largest exporter of drugs in the world
To Comply with TRIPS, India has amended Patents Act, 1970 Patents (Amendment) Act, 1999 Patents (Amendment) Act, 2002 Patents (Amendment) Act, 2005
The Patents (Amendment) Act, 2005 Has introduced product patent protection for pharmaceuticals from 1 January, 2005 Hence unless otherwise authorized, Indian generic companies cannot produce new drugs developed abroad
It is widely believed that the Global product patenting of medicines will: Enhance the monopoly power of the MNCs and Result in higher prices and lesser access of medicines
But those in favour of TRIPS argue Countries such as India with developed generic companies can gain economically
How are Indian generic companies responding and what are the economic implications?
Options for Indian companies in post 2005 Develop new drugs Collaborate with MNCs as manufacturing and/or marketing partners for the new drugs developed by the MNCs Produce off-patent drugs: –In the domestic market –For exports
We concentrate here on … Generic exports
It is often argued that … Product patent protection will not have any negative consequences. In fact it will have some beneficial effects
Remarkable growth of pharmaceutical exports is the result of the confidence built up in our industry due to our progressive adherence to our IP commitments. Some 60 billion dollars worth of drugs are going off patent in the next few years. Indian industry can grab a lions share of this – provided we are a bona fide member of the international trading community. (Press Statement by the Minister on December 27, 2004)
Growth of Indias pharmaceutical exports Not the result of progressive adherence to our IP commitments As the chart shows, it was only after the abolition of product patent protection in 1972 that the export market developed
Growth of Exports Source: Sudip Chaudhuri, The WTO and Indias Pharmaceuticals Industry: Patent Protection TRIPS and Developing Countries, New Delhi, Oxford University Press, 2005.
Patents Act, 1970 Provided the Indian companies the opportunities to gain the necessary experience and earn/mobilize resources to enter and grow in the export markets
India developed as the home country for us and provided the financial base and skill sets to expand internationally. (Letter of the CEO & Managing Director Of Ranbaxy to Shareholders in Annual Report, 2001, p. 10).
Growth sequence Production for the domestic market Exports to un-regulated markets Exports to regulated markets other than USA Exports to USA Motivation at each stage: larger market and higher price realizations
Acceleration of pharmaceutical exports since mid-1990s Not the result of TRIPS but a response to it Anticipating shrinkage in opportunities of reverse engineering of new drugs for production in domestic market in the post-TRIPS regime Larger Indian companies have been aggressively focusing on generic exports since the mid-1990s, particularly to regulated markets such as USA
Export Intensity of selected Indian companies, CompanyExports as % of total sales Ranbaxy65.6 Dr Reddys60.1 Cipla39.4 Aurobindo50.6 Orchid82.5 Lupin39.0 Ipca60.0 Shasun69.9
Indian Generic Companies Are also increasingly targeting the export markets for patent expired drugs particularly in developed countries.
In Developed Countries Even when patents for the new chemical entity in the drugs expire Secondary patents prevent delay generic entry
Types of Patents New Chemical Entities (NCEs) New formulations, i.e., new dosage forms or routes of administration New combinations of existing NCEs New salts or esters of existing NCEs, i.e., new chemical derivatives of existing NCEs New uses of existing NCEs New processes of manufacturing
The Case of Omeprazole AstraZeneca obtained the patent for the anti-ulcer drug, omeprazole, the active ingredient in Prilosec on April 5, (In India Omez (Dr Reddys price – Rs 25/- for 10 tablets 10 mg, i.e., less than a $. In USA, the price has been several times more) Patent supposed to expire in 1999 Two formulations patents of AstraZeneca, which were filed in 1987, i.e., 8 years after the patent on the active ingredient was taken and hence expires later (in 2007). The formulations patents relate to the coating of the pill, which prevents drug from being degraded by stomach acids. Dr Reddys was prevented from entering into USA even after 1999 because the MNC argued that Dr Reddy vilated its formulation patent on the coating (another generic company proved that its formulation patent is independent and hence got the approval to enter.
Indian generic cos actually contributing to affordability in USA A number of Indian companies are involved in patent challenges to hasten entry of generics Tremendous competition among Indian companies
Indian generic companies Are increasingly fighting patent cases on these secondary patents Resulting in earlier generic entry And hence contributing to affordability of drugs in developed countries
Patent challenges in USA by Indian cos Fluoxetine (Dr Reddys against Eli Lilly) Cefuroxamine axetil (Ranbaxy against GSK) Amoldipine maleate (Dr Reddys against Pfizer) Loratidine (Morepan/Geneva against Schering plough)
Competition among Indian bulk drugs exporters to USA, 30/9/2003 No of Indian cos with DMFs Bulk drugs 10Cefuroxamine 9Ranitidine 8Fluconazole 6Ciprofloxacin, Metformin etc 5Ibuprofen, Clarithromycin etc 4Trimethoprim, Omeprazole etc 3Cephalexin, Famotidine etc
$ 60 billion off-patent market is exaggerated As generics enter, prices fall sharply. Assuming realistically that the prices would fall by about 90 per cent, a $ 60 billion market effectively becomes $ 6 billion Bulk drugs account for about 15 per cent of the price. Hence the total bulk drugs market, where primarily the Indian exporters are involved would be around $ 0.9 billion during the five year period, or $0.18 billion per year. (Indias current exports about $ 3 billion). Then there is competition among the Indian exporters and also from other countries such as Italy, Switzerland, Taiwan province of China, Brazil, Argentina and particularly China. Hence the beneficiaries would actually be the consumers in USA and other developed countries
Another factor Remarkable export growth of the larger Indian companies in recent years has been accompanied by equally remarkable domestic growth The top 15 Indian companies, for example have been growing at about 20% per annum in the domestic market in recent years
Annual compound rate of growth of domestic retail sales, (%) Cipla: 18.7 Ranbaxy: 16.6 Nicholas Piramal: 26.1 Sun Pharma:32.2 Dr Reddy's: 31.6 Zydus-Cadila:18.1 Aristo Pharma:20.2 Alkem Labs: 21.9 Lupin: 13.3 Source: ORG-MARG
Under TRIPS When Indian companies are prevented from producing the new drugs, their domestic growth will be adversely affected A steady and stable home market is of fundamental importance for success abroad It will be very difficult for Indian companies to sustain the export dynamism in the absence of a growing domestic market.
Thus Domestic space of operations is important In a product patent regime, this can be provided by an easy to use compulsory licensing system In such a licensing system, not only will the growth of the generic companies be faster both in the domestic and export markets Competition will drive down the prices of new drugs and make these more accessible
But Has India Used the Flexibility Under TRIPS to Introduce a Proper Compulsory Licensing Regime?
Article 31 of the TRIPS agreement dealing with CL Does not place any restriction on the grounds under which a CL can be given. In case there were any doubt, the Doha Declaration has made it clear that: Each member has the right to grant compulsory licence and the freedom to determine the grounds upon which such licences are granted.
Conditions listed in Article 31: that authorization of such use will have to be considered on its individual merits that before permitting such use (except in such cases as situations of national emergencies, extreme urgency, public non-commercial use), the proposed user will have to make efforts over a reasonable period of time to get a voluntary licence on reasonable commercial terms that the legal validity of the CL decision and the remuneration will be subject to judicial or other independent review
Not difficult to tackle these problems the grounds and the procedure can be so specified as to make these conditions less onerous than what these appear to be Guidelines can be issued for reasonable terms The maximum time period can also be stipulated The review can be a simple administrative process
Amended Patents Act has elaborate provisions on CL General provisions Also special provisions on notification by the central government
The Amended Act provides details of General principles applicable to working of patented inventions Grounds for grant of CL Matters to be taken into account by the Controller of patents while considering applications for CL The procedure for dealing with CL applications General purposes for granting CL Terms and conditions of CL.
The text of General principles includes excerpts from Article 7 of TRIPS on Objectives Article 8 of TRIPS on Principles and Para 4 of the Doha Declaration
General principles that patents are granted to encourage inventions and to secure that the invention are worked in India.. that they are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented article that the protection and enforcement of patent contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations that patents granted do not impede protection of public health and nutrition and should act as an instrument to promote public interest specially in sectors of vital importance for socio-economic and technological development of India That the patents granted do not in any way prohibit the Central Government in taking measures to protect public health
But … These have not been operationalised to have a simple and easy to administer CL system Article 1 of TRIPS - member countries are not obliged to implement in their laws more extensive protection than is required by this Agreement.... But the government has preferred to adopt a stricter CL regime than what is required under TRIPS.
Difficulties the procedure specified is cumbrous. The procedure is open-ended without any time limit imposed for the grant of CL the copy of the CL application will have to be advertised in the official gazette, though this is not required under TRIPS the patentee or any other person may oppose the application and will have to be given adequate time for doing so the Controller will decide only after giving both the parties an opportunity to be heard. A CL granted by the Controller can be opposed. Such appeals will be considered by an Appellate Board before a CL is ultimately permitted.
Difficulties the grounds of reasonable requirements of the public or reasonably affordable price can easily be challenged by the patentees. then arguments and counter-arguments will follow. After all these are heard by the Controller and then by the Appellate Board, in case of an appeal, it may be years before a CL is granted, if at all. The entire process is excessively legalistic and provides the patentees the opportunity to manipulate by litigation. The huge expenses involved in fighting the large pharmaceutical companies holding the patents may dissuade the non-patentees from applying for licences in the first place.
Not mere theoretical possibilities The current CL procedure has been inherited from the British Act of 1911 Till 1972 when the Act of 1911 was in force, there were only five CL cases: –Granted in only two cases –Refused in two cases –Ultimately, application withdrawn in one case
Special CL provisions Any time after the sealing of the patent, an application for a CL can also be made under Section 92 for a patent notified by the Central Government. Such a notification can be made in circumstances of national emergency, extreme urgency, or public non-commercial use The procedure mentioned need not be followed if the emergency, or extreme urgency or public non-commercial use is due to public health crises related to AIDS, tuberculosis, malaria or other epidemics.
Section 92 is a potentially important provision. But no simple and easy to use procedure has been elaborated in the Rules
A National CL Policy Rather than adopting a case by case approach, the Central Government may notify the list of medicines eligible for CL in public health crises The inclusion of any drug in the list cannot be a ground for opposition and appeal. Guidelines may be issued for the royalty to be paid to the patent holders in case of CL. For any drug in the public health list, the Controller may immediately after receiving an application, grant the CL, fixing a royalty rate using the royalty guidelines
Any opposition or appeal against the grant of a CL in this case can only relate to the royalty rate fixed. The opposition to the rate fixed should not hold up the use of CL. While this is being adjudicated, the non-patentee could begin to use the patent on the basis of an undertaking that the royalty rate finally decided will be paid in full The case by case consideration of the royalty rates payable and the opportunity to oppose and appeal against the royalty rate fixed will satisfy the Article 31 clauses (a), (i) and (j) relating to consideration of individual merits and review of the CL decision.