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Big pharma's patent push

Generic drugs will continue to dominate the Indian pharma market over the next five years, but multinational companies are lobbying to shape patent laws to protect their profitability over the long term. How far will they succeed?

By Balaji Chandramouli and Aman Malik         Print Edition: July 29, 2007

MNCs like Pfizer, Novartis and Eli Lilly, who control about 28 per cent of the market, have made little headway in convincing the government on issues ranging from patents to profit margins. 
Now we know how long it takes for Chemicals & Fertilizer Minister Ram Vilas Paswan to lose his patience-after waiting two months, he shot off a letter, late last month, to Cabinet colleague and Agriculture Minister Sharad Pawar, who heads the Group of Ministers (GoM) set up to examine the pharmaceutical policy. Reason: Pawar has held only a single meeting since its inception. This may not be accidental. The GoM was a result of the Cabinet's unwillingness to go along with Paswan's regressive proposal to expand the scope of price regulation in the pharma industry-from the current level of 20 per cent to 32 per cent, according to government estimates. The private sector's estimates are much higher; it says the figure is as high as 70 per cent. The impasse also reflects the industry's ability to unite and lobby against a policy that promotes regulation and control. "The attempt by the Ministry of Chemicals and Fertilizers to increase the span of price control on drugs in an intrusive manner is an area of concern," laments Ramesh Adige, Executive Director, Gobal-Corporate Affairs & Communications, Ranbaxy. "Today, the Indian pharma industry is at an inflection point and such a move will only be detrimental to its growth."

Beyond this issue, multinational pharma majors like Pfizer, Novartis and Eli Lilly, who control about 28 per cent of the Rs 35,000 crore market, don't see eye to eye with domestic players like Ranbaxy Laboratories and Dr. Reddy's Laboratories. So, it's not surprising that they have made little headway in convincing the government on issues ranging from patents to profit margins (See What They Want).

Says Ranjit Shahani, Vice Chairman and Managing Director, Novartis India: "The patent law in India is not fully compliant with internationally accepted best practices; for one, there is no clear definition of patentability." The Swiss drug major is currently contesting certain sections of the patent law in the Madras High Court. This follows the rejection of a patent application for its cancer drug Glivec. The government's Patent Office turned down the application on the grounds that the innovation in the new drug was only incremental in nature. Hence, others who are able to develop the molecule, can also sell a similar drug (generic version). The judgment, which is due any time, is expected to set the tone of things to follow in the Indian pharmaceutical industry, since the MNC pipeline of new blockbuster patent drugs is running dry and, globally, the number of drugs going off patent is on the rise. Not surprisingly, the MNCs are clutching at every straw to obtain patents even on existing molecules they have simply tweaked around.

"For some time to come, it can safely be said that generics will account for up to 95 per cent of the market in India"
Ranjit Shahani
Vice Chairman and Managing Director, Novartis
Importantly for them, the issue of patents on such molecules delays the arrival of generics in the market, thus, extending the period during which they can milk it. For this, they are lobbying the government to allow a five-year "data exclusivity" period, which will allow them to withhold data on clinical research from the public domain (which generics manufacturers, then, cannot access). The government, however, remains non-committal on the issue.

Small Market

For all the dust that has been generated in this space, the market size for patented drugs in India will remain minuscule, at least, in the medium term. Says Shahani: "For some time to come, it can safely be said that generics will account for up to 95 per cent of the market in India." But the patent law-and the Madras High Court verdict-will determine profitability in the long term, and new molecules hold the key to this.

But India is more than just a market; it also offers an inexpensive manufacturing base. Says Harinder Sikka, Director, Corporate Affairs, Nicholas Piramal: "Over the last five years, our exports have risen from 10 per cent of our turnover to 50 per cent." What is driving this trend is regulation. "We can safely say that if government brings in 356 drugs under National List of Essential Medicines (NLEM), most companies will have to entirely shift their focus abroad," he adds.

Future Tense

Though MNC yields in India from patented drugs is dismal at present, that could change quite dramatically in future. Here's why: during the decade ending 2005, the government installed a "mail box" to collect MNC patent claims on drugs in the market. In line with its policy, the claims have begun to be processed over the last two years. And, here's the catch: if an MNC's claim predates the manufacture of the drug in the country by a local player, the patent will hold, and the manufacturer will have to close shop; alternatively, the domestic manufacturer can pay a token royalty and carry on. This has turned the spotlight on Tenvir, Cipla's anti-aids drug, since the us-based Gilead had submitted its application in the mail box well before Cipla began producing it. The first line of treatment is already losing efficacy with several patients. Hence, it remains to be seen whether the government accords a patent or invokes its power to compulsorily license the product under a provision in WTO norms that allows government to deny patent rights in extreme cases, such as medical emergencies.

Also, domestic companies are growing faster than the MNCs in the generics space. But the question is: is the domestic pharmaceutical industry looking beyond the generics business? Says Utkarsh Palnitkar, Partner & Industry Leader, Life Sciences, Ernst & Young: "In India, there are three classes of companies-patent challengers (in overseas markets) like Dr Reddy's and Ranbaxy; those engaged entirely in the generics business (Cipla); and companies like Nicholas Piramal that have excellent research and development (R&D) backbone and which see themselves as partners of fast change."

Companies like Ranbaxy are growing faster than the MNCs in the generics space. But is the domestic pharma industry looking beyond that?
Malvinder Singh
CEO & Managing Director, Ranbaxy
Over the long term, the only model that can deliver sustainable growth is one that relies on developing new molecules. But Indian companies realise that this cannot come at the expense of neglecting the generics market.

Regulatory Issues

While regulation on intellectual property is key to investments in R&D, there are other market regulatory issues that remain to be resolved. Unlike in developed countries, regulation of the pharma industry in India occurs both at the state level as well as at the Centre. "The lack of central control over the industry has led issues such as manufacture of spurious drugs in the country," says a senior government official. Adds Nicolas Piramal's Sikka: "The European Union has blamed India for spurious drugs entering the market. The country produces some of the cheapest drugs in the world and most spurious drugs entering the market come from mid-sized and small companies."

Clearly, a low-cost manufacturing base cuts both ways; it promotes contract manufacturing, but in the absence of strict monitoring, it also spawns spurious drugs. The pharma policy seeks to put in place a regulator to improve matters in this regard. Further, the government plans to withdraw licensing powers that the states at present enjoy. This will ensure standardisation of the approval process for new manufacturing units. "Today, a manufacturer, rejected by one state, can simply move to another. Not only this, he can even sell his products in the state that refused him permission to set up shop," says a senior Chemicals and Fertilizer Ministry official, referring to what is euphemistically called "mis-branding" in industry parlance.

What emerges is a picture where the government needs to get its house in order and tighten the implementation of existing regulations, rather than look at raising the level of regulation. "By checking prices, the government is addressing the issue of affordability in a lopsided manner. The best method for that would have been dual pricing. There is no rationale behind everyone paying the same rates for medication," argues Palnitkar.

For that to happen, the government delivery needs to improve. For the moment at least, it is barking up the wrong tree-that of raising the number of drugs under price regulation-to meets its so-called "socialist" objectives.

 

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