An Indian government committee is reviewing patented drugs of foreign firms to see if so-called compulsory licences, which in effect break exclusivity rights, can be issued for some of them to bring down costs, two senior government officials told Reuters.
The drugs that are part of the review process are used for treating cancer, diabetes, hepatitis and HIV, said the sources, declining to give details.
No timeline has been given for completion of the review process.
Emerging markets, from South Africa to China and India, are battling to bring down healthcare costs and boost access to drugs to treat diseases such as cancer, HIV/AIDS and hepatitis.
Western drugmakers, including Pfizer Inc, Novartis AG,Roche Holding AG and Sanofi SA, covet a bigger share of the fast-growing drugs market in India. But they have been frustrated by a series of decisions on patents and pricing, as part of New Delhi's push to increase access to life-saving treatments where only 15 per cent of 1.2 billion people are covered by health insurance.
India is currently on the US government's Priority Watch List - countries whose practices on protecting intellectual property Washington believes should be monitored closely.
The US industry trade group Pharmaceutical Research and Manufacturers of America (PhRMA) believes Washington should take a tougher line by downgrading it to a Priority Foreign Country, a classification for the worst offenders, which may trigger possible actions, sources said.
"The multinational companies are exploring all options - from paring their investments in the country to forcing the US to take some actions," said a source in New Delhi, who is directly involved in the situation.
"Companies feel something should be done at the earliest to check the violations of their intellectual property in the country. They want government-to-government pressure to change things," he said.
All the sources declined to be named due to sensitivity of the matter. A PhRMA representative declined to comment.
If India gets relegated by the United States to Priority Foreign Country level, it will join Ukraine as the second country in that segment. Countries in the Priority Watch List include China, Indonesia, Pakistan, Russia, Thailand and Argentina.
"PhRMA makes submissions to the US government every year on trade issues but this year they really want to ratchet up the pressure on India," said one executive with a multinational drug company.
PhRMA is currently drawing up a submission to the US government ahead of a Friday deadline for filing concerns about countries to be included in the so-called Special 301 Report, which is prepared annually by the Office of the United States Trade Representative.
Making medicines cheaper is a politically sensitive issue in India where many patented drugs are too costly for most people, 40 per cent of whom earn less than $1.25 a day, and where patented drugs account for under 10 per cent of total drug sales.
Picking a fight with an emerging economy like India, where millions of people cannot afford basic healthcare, will not be easy and without risks.
The industry has recently run into fierce controversy in South Africa for taking on Pretoria over its plans to overhaul patent laws to favour cheaper generic drugs, leading some executives to urge a softer approach.
"I don't believe there is any need for any kind of more assertive stance. This is a situation where constructive engagement is the way forward," GlaxoSmithKline Plc Chief Executive Andrew Witty told Reuters.
With sales of patented drugs in Western countries slowing, emerging markets are a vital growth driver for companies. India, however, has so far failed to be much of a money-spinner for the world's top pharmaceutical companies.
India's $14 billion-a-year drugs market - driven these days by chronic diseases, such as diabetes, as well as infections - is expected to be worth $22-32 billion by 2017, which would rank it as the 11th largest globally, according to IMS Health.
"Any obstruction or action by the US government can have a very adverse impact on the trade relations between the two countries," said D.H. Pai Panandiker, president of New Delhi-based RPG Foundation, an economic think-tank. "So, both sides will be cautious, but to protect their own interests they won't hesitate to take actions under the WTO (World Trade Organisation) provisions."
In 2012, India issued its first ever compulsory licence to domestic drugmaker Natco Pharma on a kidney and liver cancer drug, Nexavar, patented by Germany's Bayer AG, in a move that it had said endangered pharmaceutical research.
AstraZeneca Plc last month decided to shut its R&D centre in Bangalore citing broader global business strategy. Some analysts expect a few other global drugmakers to pare R&D spending given the uncertainty about the patent regime.
"If the authorities are going haywire and looking to grant compulsory licences lock, stock and barrel, in that event you will lose the credibility in India as a system," Ameet Hariani, managing partner at Mumbai-based law firm Hariani & Co, said. "You are going to see much more litigation on this issue. People are going to be unwilling to introduce new drugs in the market," he said. "You can't expect to get a new drug at a price of an aspirin."