India is introducing new patent laws that will stop its drugs industry from making cheap versions of patented drugs. What this means for India's poor and other developing countries is uncertain.
Sometimes praised as heroes in the cut-throat world of pharmaceutical industries, India's drug companies are bracing themselves for an uncertain future after the government agreed to implement the World Trade Organization's patent regime by 2005.
Once India implements the WTO's Trade Related Intellectual Property Rights (TRIPS) regime, Indian drugs companies may no longer be able to produce and export cheap copies of patented life-saving drugs – something that has brought them plaudits from the world's poorest patients.
But come 2005, drugs produced and patented elsewhere will also have to be patented in India, and its companies will be unable to produce cheaper versions until the patents run out – typically after 20 years.
Recent TRIPS deliberations have introduced a degree of flexibility to members of the WTO. The so-called Doha Declaration on the TRIPS agreement says that governments faced with public health problems can allow local producers to take over a patent, produce a patented drug and sell it at affordable prices. The patent holder is paid a token sum.
This 'compulsory licensing' system, it is argued, could help the Indian industry break the monopoly of the patent holder over prices and supply in India. What is less clear is whether Indian companies will be able to produce drugs under compulsory license for other developing countries facing a health crisis.
The issue came into sharp focus in 2001 when the US protested a South African decision to import cheap Indian-made Anti Retroviral drugs. Although these drugs have proved to be effective in checking the symptoms of AIDS, the patented versions are so expensive as to be virtually beyond the means of most poor people in developing countries.
The Indian pharmaceutical industry has thrived since the Indian Patents law of 1970 relaxed patent protection and allowed processes – but not products – to be patented, although only for seven years. By 2000, the industry boasted some 26,000 private companies and domestic production accounted for over 70 per cent of the market. Exports of both bulk drugs and finished formulations posted a massive growth, so that almost half of India's drugs production is currently exported, nearly 65 per cent of it to the West.
Still, in terms of the global reach and turnover, Indian companies are tiny compared to Western multinationals. The largest Indian pharmaceutical, Cipla, for instance, has an annual turnover of $250 million in comparison to the multinational Glaxo SmithKline's – the largest pharmaceutical company operating in India – $27.2 billion.
Nevertheless, through the past quarter century India has emerged as one of the few developing countries with the know-how and capacity to produce and export cheap versions of patented products available in industrialised countries.
"We are able to offer cheaper prices mainly due to technological improvements that allow less costly processing," says Amar Lulla, managing director of Cipla, whose bouquet of 800 drugs are exported to 120 countries.
The potential problem for the future of the industry is that although companies like Cipla have made a fine art of reproducing drugs and developing new processing technology, they have a poor record of researching new drugs. On average, most Indian companies spend less than 0.25 per cent of their turnover on research and development, although this rises to 6 per cent for larger firms.
And, according to the Federation of Medical and Sales Representatives Association of India, the manufacturing and R&D capabilities of Indian firms are set to decline as a result of the fewer opportunities to produce new drugs.
"The drugs industry has not been too keen to invest hugely in R&D, because the patents regime has not provided that kind of incentive to the industry," says Balkrishan Keayla, Convenor of the National Working Group on Patent Rights, a non-official organisation.
Cipla's Lulla echoes this view from the standpoint of the industry: "The risks are large given the large investments involved. The rate of success in developing new molecules [inventions and processes] is quite low and industry has been shy of taking those risks," he says.
Keayla sees Indian companies in the future functioning as junior partners of multinationals. "Some of the large local companies with extensive marketing networks could find it more profitable to tie up with multinationals to market the latter's products in the country," he says.
Dr Meera Shiva of the Voluntary Health Association of India, an NGO, has no doubt that after 2005 generic equivalents of patented drugs will become out of reach for poor consumers.
"After 2005 Indian companies will function as mere traders for multinationals here," she says.
Within the industry, however, the jury is still out on the likely fallout of the TRIPS regime. Some senior executives in the drugs industry doggedly maintain that Indian companies have an advantage over Western multinationals – R&D costs are only 30 per cent of those in the United States.
But even this advantage is not enough to compete effectively on a global scale, says S K Raizada, vice president at Ranbaxy, another leading pharmaceutical that spends 6 per cent of its turnover on R&D.
Raizada says that it takes the average US company five to six years and $200-250 million to research and market a new drug. Indian companies may be at a disadvantage here, when one considers the simple fact that the entire Indian industry is worth no more than four billion dollars.
The good news is that the new patents regime does not necessarily spell the end of generic drugs – each year some twenty to forty medicines go 'off-patent', so there's plenty to copy and sell. In any case the Indian industry estimates that more than 95 per cent of drugs produced in India are off-patent, and that these serve most of the demand.
Future projections are that by 2010, 90 per cent of the drugs trade in India will still be in generics.
"Many drugs which are off-patent will be unaffected by the 2005 deadline for the product patent regime. And generic drugs will always offer possibilities," says Cipla's Amar Lulla, summing up the prospects for the Indian pharmaceutical industry.
Dr Amit Sengupta of the Delhi Science Forum, an NGO, feels that the cushion of off-patent drugs has been overemphasised. "There is no frozen list of essential drugs. With science and technology new drugs come into use, so to premise the future on a list of off-patent drugs is meaningless," he says.
"Basic research is always a risky proposition, while the companies only pick up the more profitable items for drug development. And as the experience of other countries like the US shows, government support is vital for basic research. In India the government is now spending much less on research."