Indian pharmaceutical industry received 1/1/2005 with mixed feelings. While, domestic and foreign markets were expanding, 1/1/2005 had ushered in the new era of product patents. The game board was the same, but the game had changed from ‘Checkers’ to ‘Chess.’ Indian pharma had thrived on process patents till 1/1/05, but now will have to contend with product patents. Some industry analysts were predicting that this ‘1/1’ will be a kind of a ‘9/11’ for Indian pharma.
So, how are we doing so far? What is on Indian pharma’s health chart? Is the pulse sinking? Was the product patent regime just a bitter medicine or a deadly poison?
INDIAN PHARMA: MEDICAL HISTORY
The Indian Patent Act, 1970, permitted the Indian pharmaceuticals companies to reverse-engineer (manufacture through a different process) the patented molecules and sell them in the domestic and certain foreign markets. Most of the pharma companies in the Indian pharmaceutical industry were able to register significant growth until 2005 because of a system of ‘process patents’ as against the Western countries, which were following the ‘product patent’ system. The process patent regime has enabled India to become a global and respected player in the pharmaceuticals industry. However, when the Indian Parliament passed the Patents (Amendment) Bill, 2005, on March 22, with retroactive effect to 1/1/2005, all of that changed.
INDIAN PHARMA: DIAGNOSIS
The highly organized Indian pharma industry is in the forefront of scientific industries, with a wide range of capabilities in the technological and drug manufacturing fields. The Indian pharma industry is estimated to be worth about $10 billion, with an 8-9% annual growth rate. It is one of the leading industries among the Third World countries, and is highly respected for its quality, technology, and range of drugs manufactured and supplied at competitive prices. The growth of the Indian pharma industry is primarily propelled by export markets. India exports its drugs to more than 65 countries. According to McKinsey, Indian pharma exports contribute US $3.2 billion out of the annual turnover of $5 billion, with the industry further assured to grow at $25 billion by 2010. Indian pharma industry’s share in value terms in the global market is estimated to be at 1% (13th rank), while in volume terms, it is 8% (4th rank). India also has the largest number (74) of US Food & Drug Administration (USFDA) approved drug manufacturing facilities outside the US. There were 126 Drug Master Files (DMFs)1 filed by Indian companies, which was higher than the combined DMFs of China, Italy, Spain and Israel. Indian companies, on an average, account for 35% of all DMF applications in the US. The Indian companies’ share in the domestic market has witnessed continuous growth from nearly 20% in 1970 to 70% in 2005. In terms of revenue, Ranbaxy Laboratories leads the Indian pharma companies, while Cipla and Dr. Reddy’s Laboratories stand second and third respectively.
With the size and foothold of the big Indian pharmaceuticals industry, some analysts feel that the impact of the new product patent regime will not be earth-shattering. As, Dr. Anji Reddy, Chairman, DRL, said, “We [in India] have brilliant people who are as good as or even better than anyone anywhere else in the world. We’re ready for 2005.”2
Big companies such as Dr. Reddy’s Labs, Cipla, and Ranbaxy are following a two-pronged strategy in the new product patent regime. In the domestic market, these companies are manufacturing generic drugs, or are using a different ‘process patent’ to boost their growth. In the global pharmaceuticals market they are targeting the US generics market, where $40 billion worth of drugs are about to go off patent in 2005 and another $70 billion drugs by 2008. Drugs with combined global annual sales of $80 billion will go off patent before 2012. The global generic market, growing at 10% annually, is expected to expand from $36 billion now to $50-55 billion3 by 2008, in which India will capture a significant share of the market. This will enable Indian companies to continue to grow at healthy rates. Opportunities under the new patent regime are immense for India as even the new MNCs such as Pfizer and GlaxoSmithKline are expanding their R&D bases in India. Mr. Uday Saxena, the Chief Scientific Officer of DRL, felt that opportunities in drug discovery were huge in India due to its low cost of R&D and clinical trials contrasted with burgeoning R&D costs in the US. According to Syngene, India’s highly successful contract research firm for pharmaceuticals, the cost of doing R&D in India is five times lower than the cost involved in new drug discovery in a developed country. The launch of a new molecule in India costs only about $100-200 million. Compare this to the US, where it is estimated that the average cost to develop a successful new drug is nearly $500-900 million, and the development period ranges between 10 and 12 years. Studies also reveal that patient recruitment and medical personnel costs constitute about 70% of the clinical trial costs expected in introducing a drug into the market. In 2001, the global pharmaceuticals industry spent $30.4 billion on R&D.
Obviously, the R&D costs will be recovered from the sale of those patented drugs. It is also true that the monopolistic conditions created by a patent influence the drug manufacturer’s pricing decisions. 3TC (Lamivudine), marketed by Glaxo, is priced in the US at $ 3,271 per patient per annum, while Indian generic producers such as Cipla and Hetero Drugs offer their generic versions at $190 and $98 per annum respectively. Similarly, Bristol Myers Squibb’s US price for Zerit (Stavudine) is $3,589 per patient per annum, as against Cipla’s $70 and Hetero Drugs’ $47 respectively. The price charged for Viramune (Nevirapine) by Boehringer Ingelheim in the US is $3,508 compared with Cipla and Hetero Drugs’ prices of $340 and $202 respectively. Cipla offered to supply a three-in-one combination of the aforementioned drugs for $350-600 per annum compared to US price of $10,000-15,000 for the patented drugs.
A ‘product patent’ regime does not really un-plug the ventilator of any country’s pharmaceutical industry. Actually, the pharmaceuticals industry thrives in countries where ‘product patents’ are strictly enforced. What then, is Indian pharmaceutical industry’s specific medical condition? Indian pharmaceutical industry is now undergoing a change. It needs to take certain actions to get in step with the joggers in the big-money park. Some Indian pharmaceuticals companies could seriously consider consolidation efforts with other companies to increase their R&D capabilities. Indian pharmaceuticals companies can also enter into licensing agreements and earn good revenues from licensed pharmaceuticals. In 2003, licensing deals contributed to 20% of total sales to pharmaceuticals companies, and this figure is set to increase to 40% by 2009. They can also obtain more contract manufacturing opportunities. There is also a huge global market for generic drugs, which the Indian companies are well poised to exploit. According to the research study by London-based researcher, Global Insight, India’s global share in the generic market, which is 4% now, will increase to 33% by 2007.
These strategic steps can enable Indian companies to become much bigger global players.However, the giant leap will be to emerge as the R&D leader. India can use its cost advantage to develop new drugs at a cheaper rate and a faster pace. In this manner, India will soon have its own, patented new drugs to dominate the global markets. Expressing his views on the new product patent regime, Homi Bhabha, Director, Organization of Pharmaceutical Producers of India (OPPI), said, “This is a big opportunity for Indian pharmaceutical industry, and should not be treated as a threat. The process patent regime which we had till January 2005 has really helped Indian industry to grow by leaps and bounds to become very cost effective producer of bulk drugs and medicines. The time has now come for the Indian industry to establish a global foot print by taking advantage of the Intellectual Property Rights (IPR) regime.”4
Indian pharmaceuticals industry has already embarked on the journey to benefit from the product patents. As opposed to earlier, when Indian companies invested only around 1% on R&D, they are now investing huge amounts on R&D. In 2003-04, the top 10 Indian pharma companies spent about $400 million on R&D. In 2004, Ranbaxy invested 7% of its $ 1 billion5sales on R&D, while Dr. Reddy’s Laboratories (DRL) spent 14% of its sales of $ 446 million6 on R&D. As Dr.Reddy, Chairman DRL, says, “Excelling in the basic business operations will be necessary, but not sufficient. To maintain a long-term presence in the global pharmaceuticals markets and to grow profitably will require companies to be even more focused on R&D and creation of successful IPRs [Intellectual Property Rights].”7
As the medical care persons acknowledge, everyone has a right to seek a second opinion. Let us review some other courses of action. Some companies invest heavily in R&D, with the strategy to create direct revenues from the patents through licensing. Andrx corporation,8which has approximately 100 US patents and 135 international patents pending in 2005, earned $11.9 million in 2005, and $12.5 million in 2004 in just one quarter through licensing. Isis Pharma has a portfolio of 1,500 patents, covering antisense9 and RNA-based drug discovery and development. Isis is the owner of largest antisense and RNA patent portfolio in the pharma industry. It holds key patents covering antisense mechanisms, biology, chemistry, inhibitors of gene expression, and production of antisense drugs. Isis successfully capitalized on its IP portfolio and generated about $70 million from licensing its patents. Isis exploited its IP by entering into strategic collaborations with other companies that leveraged its revenues and enabled it to offer new and useful products to patients. Isis Pharma’s broad patent portfolio enables them to grow into other areas of their core therapeutic focus, leading to increase in the number of antisense drugs under development, contributing to their commercial success of multiple drugs.
There is another popular opinion. Indian pharmaceuticals companies are also making strides in contract manufacturing and out-sourced research. Many small and medium-sized pharma companies in India can serve as research centres for MNCs abroad because of the low cost of research and large pool of talent in India. It is estimated that the global contract research accounts for $30 billion,10 of which a significant share can be captured by India. Moreover, India is now being widely looked upon by the world as the most preferred destination for clinical trials. Reinforcing India’s position in the new product patent regime, Habil Khorakiwala, Managing Director, Wockhardt, said, “India will be a research base for new drug discoveries and a hub for clinical trials. In the long term extensive research and clinical trials for new drugs will be conducted, considering the large population.”11 Global companies such as Astra Zeneca, Chiron, Bayer, Eli Lilly, Merck, GlaxoSmithKline, Novartis, Pfizer, Aventis, and Rosch have chosen India as a regional centre for conducting clinical trials and research. It is estimated that pharma companies globally spend $ 8-10 billion 12per annum on clinical research. According to some estimates, India gets $20 million13 worth of outsourced operations, which is further expected to increase to $2 billion over the next decade.
The global herbal market is estimated to be worth US$ 62 billion,14 offers a plethora of opportunities for the Indian pharma companies. India’s current share in the global herbal market is just $1 billion and a huge opportunity awaits the ingenious Indian pharmaceuticals, to be availed through innovation, patents, and trademarks. According to the World Bank, the global market for medicinal plants and products includes the potential sectors of pharmaceuticals, nutraceuticals, cosmetics, and agro-chemicals. India has enormous resources of medicinal and herbal plants. The pre-historic knowledge of Ayurveda and its applications to cure illnesses effectively hasn’t been explored fully by India. If this happens successfully, India could gain a very significant competitive edge in the global market, especially in the pharma, beauty care, and healthcare segments. Since this traditional knowledge of Ayurveda is not available to other countries, India could dominate in this sector. Reinforcing this idea, Dr. SPS Khannuja, Director, Central Institute of Medicinal and Aromatic Plants (CIMAP), Lucknow, said, “There is a lot of scope for India to achieve global leadership through export of quality produce and products from medicinal and aromatic plants.”15 But India seems to be lagging behind, and is ranked third in the herbal medicine category, with less than 2% of global market share, while China occupies nearly 30% of the market. According to an Ayurveda expert, Chinese herbal medicines, which rarely contain 10% scientific base when compared with the Indian Ayurvedic System, are doing better than India by fifty-fold.
India has the necessary resources and the ability both to cater to the ever-increasing demand for natural and herbal products in various segments such as perfumery, food, pharma, cosmetics, haircare, healthcare, etc. To give an idea of the kind of resources at the disposal of India, it has 10 bio-geographic regions and 25 biotic territories. India is also a haven for 8000 medicinal plants, of which 2200 possess therapeutic properties. Dr. BR Rajeswara Rao, Deputy Director of CIMAP, Hyderabad, echoed the thoughts of Khannuja and said that traditional knowledge, with a judicious mix of modern biotechnological and chemical tools, has the potential to leverage new drug discovery, resulting in the fusion of traditional and modern medicine. We have seen examples of successful companies, such as Himalaya Drug Company (HDC), Emami, Aswini, Ayur, Dabur, Cholayil Pharma, etc., who have patented their herbal/ayurvedic products in India and abroad. HDC patented its ‘Herbal Laxative’ preparation for treatment of constipation in February 2001 in the US. HDC’s products have been endorsed by more than 250,000 doctors worldwide, and the company exports its products to more than 60 countries. Today, HDC is the only phytopharmaceutical company whose ayurvedic products are registered as a‘pharmaceutical specialty’ in Switzerland. Emami has also filed a patent in India. Between 1995 and 2003, Dabur India Ltd., applied for 96 patents in India. Dabur, which owns 29 patents in the US, is amongst the leaders in healthcare. It became one of the only two companies in the world to introduce an anti-cancer drug, Intaxel (Paclitaxel). Dabur Research Foundation developed a unique eco-friendly process for extracting the drug from its plant source.
Other countries, such as China and Malaysia, are also recognizing the importance of natural/herbal products. The traditional medicine business in Malaysia is estimated to be US $ 1.19 billion (or Ringgit 4.5 billion) annually. In the last 5-10 years, most of the traditional health products originated from either China or India, but now, even Malaysia has entered the race. This proves that there is tremendous potential for natural/herbal products, whose formulations can be patented. It is no exaggeration to say that an ‘Herbal Revolution’ by India is just waiting to happen. India could truly become a global leader in the herbal medicine category by inventing and patenting medicines for several ailments by using a combination or mixture of herbal formulations.
In the present situation, Indian pharmaceuticals may have weathered the storm because of many factors. The ‘product patents’ of foreign companies may have expired, or may have a corresponding ‘process patent’ in India, or may not have been registered as patents in India. In all these situations, there is no cause for alarm. Indian pharmaceutical industry is still in good health, as seen by the results declared by the leading pharmaceutical companies (pharma sector sales up by about 20% year-on-year). However, prevention is better than cure. This is the best time to perform patent analysis, assess the situation of your patents and others’ patents, explore the possibilities of patent extensions, and licensing, and to understand the impact of product patents when new drugs will be introduced in future. This is the opportunity to create market advantage by patenting robust drug formulations and to create effective brands (trademarks) that can outlast patents. Now, more than ever, there is a need to define a growth-focused Intellectual Property Rights (IPR) strategy. Because, winning without a strategy is only possible in a lottery.
END NOTES AND BIBLIOGRAPHY:
1. A DMF is a submission to the USFDA and is used to provide confidential, detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of one or more human drugs. DMFs have to be approved by the USFDA before any drug enters the US market.
2. Tanzer, Andrew, “Pill Factory to the World,” www.forbes.com, October 12, 2001.
3. Naik, SD, “New Patent Regime – Discovering New Challenges,” www.thehindubusinessline.com, April 12, 2005.
4. “Drug Patent: A Viagra for Indian Pharmaceutical Industry,” www.deccanherald.com, April 4, 2005.
5. “What’s Driving India’s Rise as an R&D Hub?” www.knowledge.wharton.upenn.edu.
7. “What’s Driving India’s Rise as an R&D Hub?” www.knowledge.wharton.upenn.edu.
8. Founded in 1992, Andrx Corporation is a Florida-based pharma company with approx. 2,100 employees and total revenues of over $1000 million in fiscal 2004.
9. Antisense drugs are the first class of drugs targeted to control expression of genes through interactions with RNA.
10. Naik, SD, Op. Cit.
11. Panchal, Salil, “Patents Era: How Will Pharma Firms Cope?” www.ushome.rediff.com, April 7, 2005.
13. Naik, SD, Op. Cit.
14. Figures as quoted by Asia-Pacific Traditional Medicine and Herbal Technology Network (APTMNET). APTMNET was set up to enable information sharing and exchange on traditional medicine, and industrial and technical cooperation among R&D organizations in Asia-Pacific and across the world.
15. “India: Herbal Revolution Waiting to Happen,” www.apctt-tm.net, 25 May 2005.
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