Indian Pharmaceutical Sector

The pharmaceutical trade in India ranks third in the world in terms of revenue .The total
turnover of the pharmaceutical industry in India is around $21.04 billion between 2008
and 2009, according to Dept. of Pharmaceuticals, Ministry of Chemicals and Fertilizers.
The major hubs are Hyderabad, Mumbai and Bangalore & Ahmedabad. In 2013 the
worth of pharma Industry in the domestic market was $13.8 billion.
The impetus for the growth of pharma sector India started as early as 1960, and after
the patent act 1970. However, the major push came after the economic liberalization in
the 1990s. Due to weak patent laws in India, many multinational companies opted to
stay away from the Indian market this came as an advantage for the Indian companies
which through its reverse-engineering developed drugs for the Indian and world market
at a cheaper cost. Some of the major players in the Indian market have successfully
developed new drugs and invest a huge part of their revenue in research and
development.
A major part of the pharma Industry in India is controlled by foreign companies having
their own manufacturing base in India which reduces their manufacturing cost due to
cheap labor. 60% of the bulk drugs are exported to US and Russia and 85% of
formulation drugs sold in India. Currently, India holds 1-2% in the global market and
growing at a rate of 10% per year. India has gained experience in generic and active
pharmaceutical markets through innovation and research. In India there are around 74
US FDA approved manufacturing facilities more than any other country except the
United States.
After the enactment of an amendment to Indias patent laws on 1st January 2005,
product patent becomes necessary since 1972. This amendment took effect due to
WTOs TRIPS agreement, which stated protection of patent on both products and
process for 20 years.
This forced to adopt any new patent along with all those patent filed after 1st January
1995. Whatever Indian companies achieved after breaking these product patents will
lose more than $650 million to the patent holder.
This patent law amendment led to the creation of market segment with multinational
companies having the market share of 12% focusing upon high-end patients while the
Indian firms on targeting semi-urban and rural areas.

Significance of patents in pharmaceutical industry

In the pharmaceutical industry, innovation is a major pillar for the growth of the company
which impacts its current position in the market and future growth prospects. Therefore,
every pharmaceutical industry invests a lot on R& D to itself competitive. There is a
huge risk associated with innovation which can monetary or non-monetary. If the
company successfully develops the new drug then there is no guarantee for its success.
Innovation helps companies to distinguish themselves from the competitor and if the
new innovation gets successful it brings the high return on investment.
Due to rising innovation cost companies are looking for novel ways through which they
can monetize their innovation. Big players like Sun Pharma, Dr. Reddys, Lupin,
Novartis, Roche etc. are investing a lot in innovation and marketing to increase their
profit margin and to battle it out in this competitive market.
IPRs especially patents are the backbone of the pharma industry as the industry highly
depends on upon innovation which can be monetized in the future. Patents grant
exclusive rights to a person or an entity skilled in a particular field to produce and
market its product. According to an estimates, patents accounts to 70-80% revenues
earned by pharma sector industry.
The patent in pharma industry acts as an important product portfolio which generates
high return on investment. Patents are also critical as it helps in reinvesting money in
R&D and marketing for the future growth of the company. It is basically an asset for the
company which ensures it position in the market plus gives the competitive advantage
over competitors.
Lack of patent protection in developing countries like India suppresses the need for
innovation. Beside this, if there is a strong and effective protection then it the foster
development of research-intensive pharma industry. It helps in the innovation of life-
saving drugs which acts as a boom for the society and ensures effective protection from
challenging and incurable diseases.
Pharmaceutical industries have to face a lot of patent challenges due to different rules
in the different country. US government keeps forcing the Indian government to change
its IPR policy so that more of the US companies can invest in Indian market. Most of the
pharma industry in India produces the generic drug and through reverse engineering
have copied drugs of many MNCs. Since the cost of production for the Indian
companies are very low therefore they easily beat the foreign counterpart in terms of
market share. This led to the constant patent battle between many major
pharmaceutical companies.
The generic players dont invest in innovation instead they tweak the already innovated
product and gets the patent. This discourages the motivation for innovation and
therefore very few companies goes for the innovation of life-saving drugs which requires
the huge investment in R&D. Therefore, patents are necessary to promote innovation
and economic growth.

Patent Laws in India with regard to Pharmaceutical Sector

With regard to pharmaceuticals, substances that are capable or intended to be used as

food, drugs or medicines or substances produced by chemical processes, patents are
granted for the process involved in manufacturing such substances, not the substance
itself. Hence, currently under Indian law pharmaceutical products are not granted patent
protection.
India had product patent for all types of inventions except pharmaceutical products. This
ruling came into effect after the introduction of new patent act 1970. This exclusion was
granted to break away Indias dependence on imported drugs which was priced at a
very high cost not feasible for the Indian market. This promoted reverse engineering
and led to the growth of pharmaceutical industry in India.
The following facts are worth mentioning to gauge the impact of the introduction of
pharmaceutical patents in India:
1. It led to consistent growth rate of the Indian economy
2. Growing income levels
3. After allowing entry of private players there has been an increase in penetration of
insurance on all fronts
4. For the population below poverty line, who do not have access to costly
pharmaceuticals, price rise and demand sensitivity due to patent introduction is
irrelevant.
5. Since India is governed by a government which relies more on populist politics for
survival, therefore, the government works in the interest of common people instead of
buckling due to international pressure.

The NEW IPR POLICY (2016)

The new IPR policy (2016) approved by cabinet recently is in compliance with the
WTOs agreement on TRIPS. It clearly states India will continue to utilize the legislative
space and flexibilities available in international treaties and the TRIPS Agreement.
These flexibilities include the sovereign right of countries to use provisions such as
Section 3 (d) and CLs for ensuring the availability of essential and life-saving drugs at
affordable prices. Indias new IPR policy is carefully worded and appears open to
interpretation. With respect to the pharmaceutical sector, this policy clearly states that
India is not going to change its position. Many US companies have raised concern on
the use compulsory licensing for which government said that it rarely uses it. India has
used compulsory licensing for the manufacturing of cancer drugs.
As per the WTO norms, government can invoke CL allowing a company to produce a
patented product without the permission of the patent owner in the interest of public.
Under the Indian patent acts, the compulsory licensing can be issued to a company
seeking for the manufacture of the patented drug without the consent of the patent
owner if the patent is not able to provide the drugs at an affordable rate or is not able to
meet the required demand of the market within the three years from the patent of the
product. The patent owner will get the royalties for its product from the sale of the drug.
Some Famous Cases:
1) Bayer Compulsory Licensing Case:

Relevant section: Section 84 (1) of the Patents Act 1970

In 2008 Bayer obtained the patent for the anticancer drug Nexavar. On March 2012,
Nacto was granted the compulsory license for the manufacture and marketing of
Sorafenib tosylate. Bayers tablet cost INR 2500 while Natcos INR 75.
The reason for invoking CL: Bayer did not market the drug for 4 years after taking the
license. Due to lack of availability of life-saving cancer drugs to patients government
granted CL to Nacto. Bayer moved IPAB against the order of granting CL to Nacto. Rare
case of CL but a precedent in Indian patent legalese.
Implications: Most drug companies will ask for compulsory licenses if the patent holder
doesnt supply the drug at the affordable price and required demand. This move will
encourage other developing countries to go CL for life-saving drugs. The judgment was
fair because pricing a lifesaving drug at such an exorbitant price goes against the motto
of the patent owner Science for a better life. The court questioned What is the use of
science if it cant save the life of common people?

2) Novartis vs Natco:

Relevant section: Section 3(d) of Patents act 1970

Glivec an anti-cancer drug manufactured by Novartis. It is very expensive, the pack of
30 tablets costs $1100 while Nexavar (Generic version of Glivec) manufactured by
Nacto costs $1000 for 120 tablets. According to the survey, 16000 people preferred
Glivec while 300000 people preferred Nexavar.
Judgment: After expiry of the patent, Novartis applied for patent renewal by ever
greening but the application was rejected as ever greening is barred by Indian Patent
law, therefore no injustice was done to Novartis.
Since patent period expired, the law encourages the manufacturer of the generic drug
for the common good which meets the human rights to the highest ends.
References:

http://www.pharmabiz.com/ArticleDetails.aspx?aid=92383&sid=21

http://www.legalserviceindia.com/articles/Patents_Regime.htm

http://www.thehindu.com/business/all-you-need-to-know-about-the-intellectual-property-
rights-policy/article8600530.ece

http://www.thehindu.com/business/all-you-need-to-know-about-the-intellectual-property-
rights-policy/article8600530.ece

http://www.ictsd.org/bridges-news/bridges/news/india-grants-first-compulsory-license-to-
generic-drug-producer

http://swapsushias.blogspot.in/2014/02/decoding-novartis-natco-pharma-
issue.html#.V9hBiph97IU

http://www.thehindu.com/business/all-you-need-to-know-about-the-intellectual-property-
rights-policy/article8600530.ece

http://www.iucr.org/__data/iucr/iycr2014/summit/karachi/Day-1/Session-2/nangia.pptx

http://www.legalserviceindia.com/articles/Patents_Regime.htm

http://www.legalserviceindia.com/cyber/patent-law-India.htm