Impact of WTO on Indian Agriculture

Introduction The World Trade Organisation (WTO) was formed

in 1994. At present it has 135 member countries including

India. The WTO was formed in lieu of GATT. The WTO deals with

the tariffs and quotas between the member countries so as to

remove any anomalies. Agriculture was also included in the

WTO (Agreement on Agriculture). India, being one of the

signatory of WTO and furthermore after losing its appeal in the

WTO, was forced to liberalise trade on agro-commodities as per

the WTO norms. The whole exercise will be completed in two

budgets starting 2000-2001.

Objective The objective of the Agreement of Agriculture is to

reform trade in the sector and to make policies more market

oriented. This would improve predictability and security for

importing and exporting countries like India. The WTO wishes to

liberalise trade barriers within member countries by reducing

the tariff and non-tariff barriers (e.g. quota restrictions).

Features of WTO Ø The WTO agreement requires the

conversion of all non-tariff barriers on agro-commodities trade

into equivalent tariffs. These tariff rates equivalent are to be

combined with existing tariffs and the resulting composite tariffs

are to be bound at that rate.

Ø Each country is given the flexibility in distributing the average

tariff cut over different commodities, as long as each individual

tariff is reduced by at least 15% (10% for the developing

countries) over the relevant period.

Ø Where the resulting tariff is prohibitive, a minimum level of

imports, equal to 3% of domestic consumption is to be

guaranteed. These "minimum access" quotas will rise to 5% of

domestic consumption after six years.

Ø The minimum allocation quotas for developing countries

constitute 2% of domestic consumption moving up to 4% after

10 years.

Ø The agreement also provides for a cut in the subsidies from

the 1986-90 levels by 36% (24% for the developing countries)

over six years (ten years for the developing countries) in equal

annual installments.

Ø Developed countries are also required to reduce the volume of

exports of each subsidized commodity by 21% over six years

with average export levels of 1986-90. A corresponding

reduction by 14% is required for the developing countries.

What the critics have to say…….

Ø Foreign Exchange Shortage: First, India suffers from the

chronic shortage of foreign exchange (though current situation

is an exception). Dependence on imports for its staple food in

such a situation may cause difficulties and uncertainties in the

availability of food.

Ø Inflation: Coupled with the privatization of agricultural trade,

dependence on imports of food may also cause serious

uncertainties and frequent high-rise in the prices of the staple

food products.
Ø Sovereignty: Dependence on imports for the staple food may

reduce the foreign policy options of a country, at least on critical

occasions, thus constraining its sovereignty in external

relations.

Ø Non-commercial farming: Most of the farmers have

subsistence level of production and the activity is non-

commercial in nature. It is extremely difficult to harmonize

these special characteristics in India with the operation of the

price mechanism and the commercial nature of agriculture,

which are the basic underlying principles in the Agreement on

Agriculture. The livelihood of the farming households may be

threatened on a colossal scale in India, if these farmers are

exposed to international competition in agricultural products.

Ø High tariffs in developed countries: In the process of

tariffication, several developed countries like Japan, European

Union have kept the tariffs in their schedules very high. It

makes import prospects really dim.

Ø Correctness of schedules: The modality paper (which formed

the basis for the calculation of the commitments of countries)

has not been made a part of the Agreement; as such the

provisions included therein are not enforceable. The time for

verification was also short. Hence one cannot be sure that the

provisions of the modality paper have been fully implemented.

Ø Discrimination in due-restraint provision: The subsidies like

crop, income insurance programmes, generally prevalent in

developed countries, have been exempt from countervailing

duty and countermeasures. The subsidies like investment and

input subsidies, which are important subsidies of developing

countries like India, has not got such an exemption.

But is the picture really so gloomy? Ø Reduction in export

subsidies on farm products in developed countries will make

Indian agricultural exports more competitive.

Ø The exports will increase to $ 1.5 billion by 2005. Fruits, oil

seeds, cotton, milk products will be benefited due to subsidy

reductions.

Ø There will be higher price realizations, which will help in

improving the standard of living of farmers.

Ø The countries will be forced to produce only what they’re best

at. This will mean increased efficiency and higher productivity

throughout India. The increase in allocation to cotton – related

agriculture research shows that India is to concentrate on a few

commodities where it leads.

Ø Environmental programmes are exempt from cuts in subsidies

so that the environment protection programmes continue

unabated.

Ø India does not have to cut their subsidies or lower their tariffs

as much as developed countries and it has been given enough

time to complete its obligations.

Ø Distortions in the market place would reduce, which would

benefit the end consumer.

Conclusion

In the emerging post-WTO world economic order, one thing is

certain that the direct competition from imported goods can’t be

prevented. While one can argue on the merits and demerits of

exposure of the Indian agriculture to foreign invasion, the

relevant question is whether we can really stop the imported

agricultural products from getting into the Indian markets? The

answer is a clear ‘no’. With the eventual dismantling of the

quantitative restrictions and reductions of industrial tariffs our

choice of warding off foreign competition is nothing more than

wishful thinking. So we must focus on how India can use the

changed conditions to earn benefits. For this, first and foremost

the economy has to identify and develop a modern

infrastructure to facilitate the agricultural exports. The post

harvest technology and the storage facilities need to be

upgraded. There is a need to commercialise the farm operations

by improving the management and marketing techniques. This

can be achieved by establishing mutually beneficial linkages

with the industry. Thus there is plenty of scope for Indian to

change from a mere producer to an exporter of value-added and

processed farm products and high quality seeds.

Critical evaluation of the Export - Import policy of the Coal

Industry

COAL AS A SOURCE OF ENERGY

The energy need in India is met by commercial and non-

commercial energy sources. Coal, oil, natural fuel, and hydro-

electricity are among primary commercial energy sources

whereas non- commercial energy sources include agricultural

residue, firewood and animal waste.

Coal is a basic source of energy and heating and is expected to

provide long-term energy security to India in future. It is also

one of the most financially viable options for thermal power

generation at various locations in the country. Currently the

share of coal in the commercial energy sector of India is over

60%.

TYPES OF COAL
1. Anthracite or Land Coal (90% Carbon): It is restricted in

distribution and used almost exclusively for domestic heating.

2. Bituminous or Soft Coal (80% Carbon): It is the most desired

and the most used coal in the world.

3. Lignite and Cannel Coal (67% Carbon): It has low heating

value and is subject to spontaneous combustion.

4. Coking Coal: It is that coal which contains very low ash, that

is, from 9 – 21 %. Its coking index is high. Impurities are less

in it.

5. Non-Coking Coal: All other Bituminous class of coal other

than coking coal is non-coking coal.

WTO and its Impact on the Indian Pharmaceutical

Industries

THE INDIAN PHARMACEUTICAL INDUSTRY

Protecting the infant

In the post-independence era, over 90% of the Indian

pharmaceutical industry’s market foreign companies dominated

share and ownership. This made the country increasingly

dependent on imports for bulk drugs and formulations. As a

result, drug prices were amongst the highest in the world.

In 1970, the government took two important steps to break the

multinational domination and foster a self-reliant indigenous

industry. It introduced a Drug Price Control Order (DPCO) to

protect consumers against high prices. Ceilings were set on the

retail prices of essential drugs and those required to treat

common diseases. In an attempt to stimulate domestic industry,

new drugs manufactured through indigenous technology were

exempt from price controls for five years.

A far more significant reform was the Indian Patent Act of 1970,

which recognised process patents (patenting the process used

to make a particular drug formulation), but not product patents

(patenting the product itself). These reforms made new drugs

available cheaply and promoted import substitution by

encouraging local firms to make copies of the drugs by

developing their own processes, followed by bulk drug

production.

The Patent Act effectively served to legalise “copying” of drugs

that were patentable in developed countries as newly invented

products, but were unprotected in India. Exempt from paying for

licenses and royalties, Indian companies could now access the

newest molecules from all over the world and reformulate them

for sale in the domestic market. The limited patent protection

for product processes was valid for seven years, which meant by

the time an application for patent protection was processed, the

duration of protection was almost over.

Moreover, high tariffs at 80% encouraged Indian firms to

develop a manufacturing base from the basic stages and

produce cost efficient bulk drugs (raw materials) and

formulations (finished product). As a result, the Indian market

accounts for US$2.3bn. Annually, shared among 16,000 licensed

drug companies.

The pendulum has swung towards domestic production, which

meets 70% of the bulk drug requirements and 90% of its

formulations. Today, Indian companies enjoy market shares of

70% for domestic formulations and 85% for bulk drugs.

The reversal of fortunes in the pharmaceutical industry has

created a dominant position for local firms. Many of the foreign

multinationals have slowly opted out of the Indian market, as a

result of the disadvantages they face, compared to their local

rivals. Firstly, the lack of patent protection means that while

these firms had to pay royalties for international drugs, their

Indian counterparts got away with cheap imitations. Therefore,

foreign companies are strong advocates of a strengthened

intellectual property regime in India.

Secondly, several other government policies discriminated

against foreign firms, as a means of protecting the domestic

sector. The Foreign Exchange Regulation Act of the 1970s for

instance, severely limited the investment choices of companies

whose foreign equity exceeded 40%. Other restrictions such as

price controls served as a further disincentive to invest in the

Indian market.

Present Scenario
Currently the Indian pharmaceutical industry is a vibrant, high

technology based and high growth oriented industry-attracting

attention the world over for its immense potential to produce

high quality drugs and pharmaceutical formulations. The

Pharmaceutical industry is among the most highly R&D

intensive industry.

The new millennium brings both new opportunities and new

prospects on the one hand and on the other hand emergence of

a radically altered Pharmaceutical Order, post2005. The industry

is characterized by:

· Very intense competition with about 24,000companies – large,

big, medium and small fighting for their own place under the

sun in more than Rs. 17,000 crore market.

· Continuous drug discovery and rapid introduction of new

products.

· The seemingly ever-increasing and almost never-ending

governmental regulations and policy changes.

· Stifling price controls, eroding profits and consequently a

vanishing bottom line.

· Rigorous controls on formulations and an absence of

international patent protection resulting in me-too maze of

products with little or no product differentiation.

· Increasing health awareness among the people and importance

given to mediclaim.

· Increasing dominance of trade associations and their constant

demand for increase in trade margins.

TRIPS (Trade Related aspects of Intellectual Property Rights) is

an important aspect of phasing out of quantitative restrictions

and latest international developments are likely to have a far

reaching impact on the pharmaceutical industry. On July 2,

1996 the United States requested WTO dispute consultations

with India regarding India's lack of compliance to TRIPS. A

panel was formed and recently the panel concluded that India

has not complied with its obligations for few important facts like

failure to establish a mechanism that adequately preserves

novelty and priority in respect of application for product patents

in the field of pharmaceutical and agricultural chemical

inventions.

The panel recommends that the dispute settlement body

request India to bring its transitional regime for patent

protection of pharmaceutical and agricultural chemical products

into conformity with its obligations under the TRIPs agreement.

As per TRIPs article 70.9, the transitional arrangements for

developing countries, an exclusive marketing right had to be

granted only for a maximum period of five years. This five-year

period corresponded to the five-year period by which developing

country members might delay the application of the provisions

on product patents in areas of technology not protectable on 1

January 1996, i.e. the period between 1st January 2000 and 1st

January 2005. The purpose of article was thus to give inventors

of pharmaceutical and agrochemical products the economic

privilege of EMRs for the five year period preceding 1st January

2005,if their products were denied patentability even beyond

the normal five-year transitional period for developing countries.

Common sense and practical experience indicated that all these

steps took a long time and normally the products in question

would not get on the market in a developing country before the

expiry of the ten-year transitional period. The provisions had

been made for the grant of exclusive marketing rights of up to

five years only to tide over the gap between the obtaining of

marketing approval and the grant of patent protection for the

product in question in a developing country benefiting from the

ten-year transitional period. The inventions that met the criteria

for patentability on or after the date of entry into force of the

agreement would become eligible for protection in such

countries by the time that protection became of commercial

significance, either by the grant of a patent after the expiration

of the ten year period or by an exclusive marketing right for

products getting marketing approval before that time.

Although it was difficult to provide evidence or state with

absolute certainty when products would start becoming eligible

for exclusive marketing rights under article 70.9, a delay of ten

or more years between the date of filing of application for

patents and the grant of marketing approvals seemed likely. In

India registration and approval of new drugs required

submission of technical data on safety and efficacy as well as

analytical specifications in relation to steps of manufacture, in

process control and marketing status in other countries clinical

trial data generated within the country and examination labels

and package inserts. The technical data were examined in

consultation with the experts. The final bulk drug was required

to be tested at the central drug laboratory, Calcutta as per

analytical specifications furnished. A new drug derived out of

cell-line and recombinant DNA based products also needed

approval from the ministry of science and technology and the

ministry of environment.

If a new drug was already marketed in a number of countries

and preclinical and clinical data generation was adequate, phase

III multicentric clinic trial was required to be carried out on a

protocol approved by the drugs controller general of India. If the

data were complete, as per the requirements of schedule of the

drugs and cosmetics rules, an average time of three years was

taken for approval and registration of new molecules with a

maximum period of eight to ten years. Discovery of drugs in

India for the purpose of registration and approval took much

longer as, at that point of time; there might not be access to

scientific data available on the drug published in international

journals and literature.

IMPACT OF TRIPS ON THE INDUSTRY

The inclusion of Trade-Related Intellectual Property Rights

(TRIPS) into the mainstream of the WTO system establishes

new disciplines for many countries in copyright, trademarks,

industrial designs and patents.

Two groups of issues dominate the debate on intellectual

property in India —patents for pharmaceuticals and agricultural

chemicals; and the implications of the WTO agreement on

products based on local species.

In India, there is one big paradox. The Indian drug industry has

been protected from foreign competition for two decades. And

yet it is one of the most competitive in the world. Indian drug

exports grew by 35% annually over the past decade to reach

$71m in 1994.
It has been said that India was violating its obligations on

pharmaceutical and agricultural chemicals patents.

Broadly speaking, the issue was a technicality concerning the

transition to full patent protection, although it does have serious

implications. But behind it lies an intense debate within India,

not least within the Indian drug industry itself.

Patent protection for pharmaceuticals raises the following

distinct issues:

1. What are the impacts for public health? Some say patenting

drugs raises costs, puts them out of the reach of the poor (in

this case most of the country), and therefore damages public

health. Others counter that it encourages the introduction of

new drugs, either by directly encouraging invention in the

country (in India) or through newly invented imports that are

protected, or through foreign investment in production (and

possibly research) in India. (India’s size might make this a more

attractive prospect than investing in a smaller country.)

2. What are the impacts for Indian manufacturing and the

Indian economy? The small players, which have been making

copies, fear that they will not have sufficient capital or

technology to invent new drugs that can be patented. As a

result, they feel the market will be polarized in favour of foreign

multinationals. The larger firms on the other hand, are in full

support of patents, which they hope will attract foreign

investment, and thereby stimulate joint ventures and research.

With full implementation still several years away, concrete

evidence to support either side is not yet available. But there is

already plenty to think about.

The Governments Point of view While the government — along

with foreign multinationals — is keen to implement the

agreement, it has faced resistance from local drug

manufacturers and consumers.

The Indian Drug Manufacturers Association (IDMA) protested in

1994 “prices of drugs shall go up by 5 to 20 times as a

consequence of accepting the TRIPS [Trade-Related Aspects of

Intellectual Property Rights] proposals”

However, the government claimed, “once the crutches of weak

patent law are removed, we can successfully negotiate with

research-based international companies ... to boost export

earnings, create more employment ... and benefit from the

transfer of technology” .The government had some reservations

about the TRIPS Agreement. But it signed the deal, taking the

view that the package of agreements in all areas of trade — the

result of the 1986-94 Uruguay round of negotiations — was on

balance in India’s interests.

“The crux of the matter is that when the world is moving in one

direction, it makes no sense for India to move in the opposite

direction. At best, India can seek amelioration, which it has

done successfully”, said A.V. Ganesan, Indian commerce

secretary, in 1993.

This is not happening overnight. As a developing country, India

has a 10-year transitional period (until 2005) for giving full

patent protection for pharmaceutical and agro-chemical

products. It also has until 2000 to comply with other aspects of

the TRIPS agreement. These provisions are designed to allow

India and other developing countries time to adjust.

The fear: drug prices to rise dramatically?

In 1975, then Prime Minister Indira Gandhi, declared, “medical

discoveries will be free of patents and there will be no

profiteering from life and death”. Some Indians fear that costs

of medicines will rise as a result of royalty payments and

increased prices for products manufactured under license. Local

companies could face foreign competition.

After India ratified the WTO agreements, the press accused the

government of “selling out to rapacious multinationals” and

“making Indian patients pay for the sell out”.

However, recent evidence suggests that these gloomy

predictions are largely unfounded.

Firstly, as mentioned earlier, India has been granted breathing

space in the form of a 10-year transitional period before it is

obliged to enforce patent protection for drugs.

However, from 1995, developing countries that do not provide

patent protection for pharmaceuticals and agricultural chemicals

still have to do two things. They have to set up a mechanism

(known informally as a “mailbox”) that allows inventions to be

notified to the patent authorities — this is a way of establishing

that the invention is “new”, an important criterion for granting a

patent once the system for patent protection is eventually set

up. And if the country allows the new drug to be marketed, the

right has to be given exclusively for a period to the company

that invented it.

The EU and US have filed two separate cases against India in

the WTO on the grounds that it has not fulfilled these

obligations under the TRIPS Agreement. Cases are pending —

rulings have been made, and the disputes are in the stage when

India is required to take action to conform to its commitments

under the TRIPS Agreement.

However, one result of the transitional clause is that patent

protection will have limited impact on the Indian drug industry

until the year 2005. Even then, the impact will be limited as
India is starting from a point of virtually zero patent protection

in the sector.

One recent estimate suggests that only 15% of the Indian drug

market will be covered by patents after 2005 and be subjected

to price premiums as a result. The remaining 85% of the market

will continue to be exposed to “the full impact of generic [i.e.

non-brand name drugs] competition, to which patented products

will themselves ultimately contribute when their patents

expire”.

Moreover, as the TRIPS Agreement does not allow for

backdating, drugs already in the market will be exempt from

patenting.

TRADE RELATED INTELLECTUAL PROPERTY RIGHTS

(TRIPS)

Intellectual Property has particularly received special attention

since the Uruguay Round of negotiations discussed trade related

intellectual property rights. The Uruguay Round covered seven

different forms of intellectual property-patents, copyrights and

related rights, trademarks, industrial designs, geographical

indications, integrated circuits and undisclosed information.

What are intellectual property rights?

Intellectual property rights are the rights given to persons over

the “creations” of their minds. They usually give the creator an

exclusive right over the use of his/her creation for a certain

period of time.

Intellectual property rights are customarily divided into two

main areas:

(i) Copyright and rights related to copyright. The rights of

authors of literary and artistic works (such as books and other

writings, musical compositions, paintings, sculpture, computer

programs and films) are protected by copyright, for a minimum

period of 50 years after the death of the author. Also protected

through copyright and related (sometimes referred to as

"neighboring") rights are the rights of performers (e.g. actors,

singers and musicians), producers of phonograms (sound

recordings) and broadcasting organizations. The main social

purpose of protection of copyright and related rights is to

encourage and reward creative work.

(ii) Industrial property. Industrial property can usefully be

divided into two main areas:

- One area can be characterized as the protection of distinctive

signs, in particular trademarks (which distinguish the goods or

services of one undertaking from those of other undertakings)

and geographical indications (which identify a good as

originating in a place where a given characteristic of the good is

essentially attributable to its geographical origin). The

protection of such distinctive signs aims to stimulate and ensure

fair competition and to protect consumers, by enabling them to

make informed choices between various goods and services. The

protection may last indefinitely, provided the sign in question

continues to be distinctive.

- Other types of industrial property are protected primarily to

stimulate innovation, design and the creation of technology. In

this category fall inventions (protected by patents), industrial

designs and trade secrets. The social purpose is to provide

protection for the results of investment in the development of

new technology, thus giving the incentive and means to finance

research and development activities. A functioning intellectual

property regime should also facilitate the transfer of technology

in the form of foreign direct investment, joint ventures and

licensing. The protection is usually given for a finite term

(typically 20 years in the case of patents).

While the basic social objectives of intellectual property

protection are as outlined above, it should also be noted that

the exclusive rights given are generally subject to a number of

limitations and exceptions, aimed at fine-tuning the balance

that has to be found between the legitimate interests of right

holders and of users.

Main features of the TRIPS Agreement

The TRIPS Agreement, which came into effect on 1 January

1995, is to date the most comprehensive multilateral agreement

on intellectual property. The three main features of the

Agreement are:
(i) Standards. In respect of each of the main areas of

intellectual property covered by the TRIPS Agreement, the

Agreement sets out the minimum standards of protection to be

provided by each Member. Each of the main elements of

protection is defined, namely the subject matter to be

protected, the rights to be conferred and permissible exceptions

to those rights, and the minimum duration of protection. The

Agreement sets these standards by requiring, first, that the

substantive obligations of the main conventions of the WIPO,

the Paris Convention for the Protection of Industrial Property

(Paris Convention) and the Berne Convention for the Protection

of Literary and Artistic Works (Berne Convention) in their most

recent versions, must be complied with. With the exception of

the provisions of the Berne Convention on moral rights, all the

main substantive provisions of these conventions are

incorporated by reference and thus become obligations under

the TRIPS Agreement between TRIPS Member countries. The

relevant provisions are to be found in Articles 2.1 and 9.1 of the

TRIPS Agreement, which relate, respectively, to the Paris

Convention and to the Berne Convention. Secondly, the TRIPS

Agreement adds a substantial number of additional obligations

on matters where the pre-existing conventions are silent or

were seen as being inadequate. The TRIPS Agreement is thus

sometimes referred to as a Berne and Paris-plus agreement.

(ii) Enforcement. The second main set of provisions deals with

domestic procedures and remedies for the enforcement of

intellectual property rights. The Agreement lays down certain

general principles applicable to all IPR enforcement procedures.

In addition, it contains provisions on civil and administrative

procedures and remedies, provisional measures, special

requirements related to border measures and criminal

procedures, which specify, in a certain amount of detail, the

procedures and remedies that must be available so that right

holders can effectively enforce their rights.

(iii) Dispute settlement. The Agreement makes disputes

between WTO Members about the respect of the TRIPS

obligations subject to the WTO's dispute settlement procedures.

In addition the Agreement provides for certain basic principles,

such as national and most-favoured-nation treatment, and some

general rules to ensure that procedural difficulties in acquiring

or maintaining IPRs do not nullify the substantive benefits that

should flow from the Agreement. The obligations under the

Agreement will apply equally to all Member countries, but

developing countries will have a longer period to phase them in.

Special transition arrangements operate in the situation where a

developing country does not presently provide product patent

protection in the area of pharmaceuticals.

The TRIPS Agreement is a minimum standards agreement,

which allows Members to provide more extensive protection of

intellectual property if they so wish. Members are left free to

determine the appropriate method of implementing the

provisions of the Agreement within their own legal system and

practice.

The Global Pharmaceutical Industry: An insight

Pharmaceuticals industry is driven by a global need to conquer

disease. Medicines are developed to treat new diseases or

improve upon the existing treatment. An in-depth

understanding of human physiology and disease mechanism is a

pre-requisite to pharma R&D.

Pharmaceuticals are medicinally effective chemicals, which are

converted to dosage forms suitable for patients to imbibe. In its

basic chemical form, pharmaceuticals are called bulk drugs and

the final dosage forms are known as formulations.

Usage of pharmaceuticals is governed by the underlying medical

science. The four primary medical sciences are as under.

· Allopathy or modern medicine has gained global popularity.

· Ayurveda, an ancient Indian science, mainly uses herbal

remedies.

· Unani, having Chinese origin, is prevalent in South East Asia.

· Homeopathy, founded by a German physician, was fairly

popular in the early 19th century.

World-over, the pharmaceuticals industry is focused on

Allopathy, the most modern medical science. Other modes of

medical treatment such as Homeopathy, Ayurveda and Unani

are more prevalent in third world countries.

What are Bulk drugs?

Bulk drugs are medicinally effective chemicals. They are derived

from 4 types of intermediates (raw materials), namely

· Plant derivatives (herbal products)

· Animal derivatives e.g. Insulin extracted from bovine pancreas

· Synthetic chemicals

· Biogenetic (human) derivatives e.g. Human insulin

Bulk drug discovery requires intensive and expensive research.

The innovator to ensure commercial gains on his R&D

investment patents these new drugs. When a drug goes off

patent it becomes generic. Bulk drugs can be broadly

categorised as:

· Under patent

· Generic or off patent.

A patent provides exclusivity of manufacturing/ licensing to the

discoverer i.e. patent holder for a stipulated time period.

What are Formulations?

Doctors, post-diagnosis to cure a disease or disorder in the

patient primarily prescribes formulations. To prevent misuse/

incorrect administration, most formulations are disbursed by

pharmacies only under medical prescription and these are called

ethical products. However, some formulations such as pain

balms, health tonics etc can also be purchased by users directly.

These are called over-the-counter (OTC) products.

Formulations can be categorised as per the route of

administration to patients, viz.

· Oral i.e. tablets, syrups, capsules, powders etc taken

internally.

· Topical i.e. ointments, creams, liquids, aerosols that are

applied on the skin.

· Parenterals i.e. sterile solutions injected in an intravenous or

intramuscular fashion.

· Others such as eye-drops, pessaries, surgical dressings etc.

Manufacturing process

Bulk drugs are prepared by appropriate chemical reactions of

natural/ synthetic intermediates under controlled conditions.

Formulations manufacture is a batch mixing process. Right

dosage of the bulk drug (active ingredient) is compounded with

compatible substances, to make the formulation palatable.

Packed as per the physical form - bottles (for liquids), blister

strips (for tablets/ capsules) or ampoules (for powders), each

formulation pack has the expiry date and storage instructions

printed on it. Stringent quality control is exercised at all stages.

Basic vs. process R&D

Basic research deals with discovery/ invention of a new

medicinally effective chemical. Process R&D is basically reverse

engineering of a molecule through slight process modifications.

Basic research is both time and cost intensive. Hundreds of

molecules need to be analyzed to determine possible

effectiveness. Following such laboratory testing, actual clinical

trials are then carried out to determine the drug’s efficacy on

patients. The process thus requires around 12-15 years and

costs US$350-400mn per new chemical entity (NCE). Process

R&D is far easier and costs are negligible compared to basic

research.

Patents

Patents are a vital aspect of the global pharma industry. Patent

protection is essential to spur basic R&D and make it

commercially viable. But, only the developed nations endorse

product patents. Most third world countries have patent laws but

enforcement is totally lax. Some developing nations like India,

Egypt and Argentina allow only process patent registration. As a

result pharma R&D is concentrated amongst the pharma MNCs

in USA, Japan and Europe. The leading MNCs have a

geographically widespread market reach spanning almost the

entire globe; hence their high R&D costs can be spread over a

large user base.

A researcher undertakes patent registration once a molecule

shows some promise of therapeutic effectiveness. Patent life

counter starts running from the day the patent application is

made. The patent office then starts the process of establishing

that the molecule is unique. The steps involved are:

· Within 18 months of filing the application, a brief write up of

the molecular structure and its therapeutic utility is published as

a public document.

· Patent office thereby invites objections, if any, from third

parties e.g. competitors.

· Objections received are conveyed to the applicant who has a

chance to defend or modify his claim to originality.

· The modified claims are republished and once again objections

are invited.
· Once the patent office is satisfied about the applicant’s claim,

it grants the patent.

The whole process takes 4-5 years due to significant backlog in

the patent registration office. Once a patent is granted in one of

the developed nations, it is relatively easier to get it in other

countries. Also, certain patent authorities have coverage over

many nations e.g. European Patent Office covers a large part of

the European sub-continent.

New Drug Approval (NDA)

Prior to launching its products in any country, a pharma

company undertakes patent registration to protect its own

interests. To protect the interests of the consumers, it is

necessary that the drug authorities in that country approve the

product. Mostly the process for seeking approval is initiated

alongside the patent registration process. An NDA (New Drug

Application) is filed with the drug authorities - such as FDA in

US or Drug Controller in India, detailing the new molecules’

therapeutic properties. Then, clinical trials are carried out in 3

stages.
· Animal toxicity (Testing on animals).

· Trials on a few select volunteers.

· Trials on a larger scale in hospitals/ institutions.

Drug authorities approval has to be taken at each stage and

only when all three trial stages are successfully completed can

the product be launched. Once a new product has been launched

in any of the developed countries like USA, Japan or Europe, it

takes relatively lesser time to get approval from drug authorities

in other countries.

Global price variations...

Drug prices vary from country to country for a number of

reasons including patent regulations, government controls,

income differences, currency exchange fluctuations etc.

· Patent regulation: Patents provide the innovator exclusivity of

manufacture over the life of the patent. To maximise gains,

pharmaceutical companies charge high premium on their under

patent products. As patent laws are stringent only in the

developed nations, accordingly formulation prices too are much

higher in these markets.

· Government control: Due to lax of patent laws in developing

countries, local players are able to infringe upon the original

patent holder’s rights without payment of royalty. Hence, the

cost of manufacture of reverse engineered pharmaceuticals is

significantly reduced. To prevent undue profiteering by local

pharmaceutical companies, the Governments in such countries

often impose price controls on popularly used drugs and

formulations. Even some major industrialized countries of

Europe distort the market mechanism by imposing price

controls. This in turn causes higher prices in free markets like

USA, as companies try to enhance sales/ profits by charging

what the traffic bears.

· Income disparity: In developing nations with low per capita

income and low standard of living, pharma MNCs are faced with

the choice of either selling products at artificially low prices or

denying patients the benefits of the drugs.

...Its impact

· Due to fear of piracy and low product prices in third world

countries, most MNCs are reluctant to introduce their top-of-

the-line products in these places. So, patients in these countries

compulsorily lose out on better treatment options.

· Majority of the MNCs’ conduct research on those diseases that

affect the population in developed nations while tropical

diseases get low priority.

· Wide variations in pharma prices between developed and

developing nations have resulted in increasing resistance to

runaway healthcare costs in the developed nations, especially

USA. Within a therapeutic segment, generic substitutes to the

under-patent drugs generally exist. Though often-lesser

effective, they are able to reduce the cost of treatment

significantly. This methodology has been gaining popularity in

last few years. Managed Healthcare, as it is called, is akin to

medical insurance and it usually follows the principle of

encouraging generic substitutes to curtail medical expenses.

· Developing nations that impose price controls reduce the

competitiveness of pharma companies in these countries. Price

& volume controls provide few incentives for innovation. While

price controls lower drug prices, they do not necessarily reduce

healthcare costs. A more expensive drug may mean faster

recovery, possibly eliminating future hospitalisation and hence,

overall it may prove cost effective.

The Role of WTO

Due to pressure from the developed countries, across the world

uniformity in patent laws is being implemented under WTO

(World Trade Organisation - earlier GATT i.e. General

Agreement on Tariffs & Trade). Presently, different countries

have different patent types and life period. WTO has decided

upon a product patent life of 20 years in all countries. However,

to ensure a smooth transition and provide local players in the

developing countries, ample time for gearing themselves, a

moratorium up to the year

2005/AD has been provided. So, new products i.e. drugs

introduced after this date will have to be accorded product

patent protection even in countries like India or Argentina.

However, existing pharmaceuticals and new products that will

be introduced in the interim period will all continue to be

reverse engineered in nations which do not have product patent

laws.

TRIPs and the Developing Countries

Several groups raised concern on the negative impact of TRIPs

on the pharmaceutical sector in developing countries. Both

empirical data and recent research indicate that prices of drugs

will increase and production will concentrate in industrialized

countries. As multinational firms will be free to export finished

products, there will be little or no transfer of technology or

foreign investment to developing countries. France, Germany,

Japan, Switzerland, Italy and Sweden introduced patents only

after development of their own industry. Countries such as

India, Brazil, Mexico were acquiring basic technology through

reverse engineering, as they patented only product, not process.

The TRIPs agreement will automatically prevent such

development and the growing pharmaceutical industry in

developing countries is likely to collapse.

While the patent system was seen as a way to generate

incentives for innovation, member states were given a certain

amount of freedom in modifying their regulation in order to

adopt measures necessary to protect public health and prevent

abuse by the patent holder. Thus member states may, in their

laws, provide limited exceptions to the patent holder's exclusive

rights e.g. through issuing of compulsory licensing, advanced

generic registration and parallel importation of protected

products as provided for in the agreement.

If developing countries could implement the TRIPs as it is, some

of the concerns could be minimized. However, this is not so:

increasingly they are facing political pressure and threats

particularly from the US government, preventing them from

implementing what is legally allowed. In the last two years,

South Africa passed legislation to permit generic substitution

and parallel imports in pharmaceuticals, a practice common in

Europe and allowed under TRIPs. The US government, at the

request of the pharmaceutical industry, using trade threats, has

asked South Africa to repeal its legislation. Similarly Thailand,

which had a statute allowing compulsory, licensing, has been

threatened by US government and has repealed its own

regulation! There are other examples in which the US

government is opposing countries trying to enact laws that are

identical to US laws! And the pharmaceutical industry is

lobbying the US government to put pressure and possible

economic punishment on countries for implementing TRIPs as it

is. Eighty percent of the pharmaceutical industry is based in the

USA and the US government appears to be lobbying for

pharmaceutical company commercial interests.

These developments raise a major question: Is the TRIPs

agreement going to be used by the powerful to protect corporate

profit regardless of the cost in human life? How the TRIPs

agreement can be used to ensure access to innovation and

affordability of pharmaceuticals is the challenge that WHO,

governments, NGOs, consumers and all people interested

THE INDIAN PHARMACEUTICAL INDUSTRY

Protecting the infant

In the post-independence era, over 90% of the Indian

pharmaceutical industry’s market foreign companies dominated

share and ownership. This made the country increasingly

dependent on imports for bulk drugs and formulations. As a

result, drug prices were amongst the highest in the world.

In 1970, the government took two important steps to break the

multinational domination and foster a self-reliant indigenous

industry. It introduced a Drug Price Control Order (DPCO) to

protect consumers against high prices. Ceilings were set on the

retail prices of essential drugs and those required to treat

common diseases. In an attempt to stimulate domestic industry,

new drugs manufactured through indigenous technology were

exempt from price controls for five years.

A far more significant reform was the Indian Patent Act of 1970,

which recognised process patents (patenting the process used

to make a particular drug formulation), but not product patents

(patenting the product itself). These reforms made new drugs

available cheaply and promoted import substitution by

encouraging local firms to make copies of the drugs by

developing their own processes, followed by bulk drug

production.

The Patent Act effectively served to legalise “copying” of drugs

that were patentable in developed countries as newly invented

products, but were unprotected in India. Exempt from paying for

licenses and royalties, Indian companies could now access the

newest molecules from all over the world and reformulate them

for sale in the domestic market. The limited patent protection

for product processes was valid for seven years, which meant by

the time an application for patent protection was processed, the

duration of protection was almost over.

Moreover, high tariffs at 80% encouraged Indian firms to

develop a manufacturing base from the basic stages and

produce cost efficient bulk drugs (raw materials) and

formulations (finished product). As a result, the Indian market

accounts for US$2.3bn. Annually, shared among 16,000 licensed

drug companies.
The pendulum has swung towards domestic production, which

meets 70% of the bulk drug requirements and 90% of its

formulations. Today, Indian companies enjoy market shares of

70% for domestic formulations and 85% for bulk drugs.

The reversal of fortunes in the pharmaceutical industry has

created a dominant position for local firms. Many of the foreign

multinationals have slowly opted out of the Indian market, as a

result of the disadvantages they face, compared to their local

rivals. Firstly, the lack of patent protection means that while

these firms had to pay royalties for international drugs, their

Indian counterparts got away with cheap imitations. Therefore,

foreign companies are strong advocates of a strengthened

intellectual property regime in India.

Secondly, several other government policies discriminated

against foreign firms, as a means of protecting the domestic

sector. The Foreign Exchange Regulation Act of the 1970s for

instance, severely limited the investment choices of companies

whose foreign equity exceeded 40%. Other restrictions such as

price controls served as a further disincentive to invest in the

Indian market.

Present Scenario Currently the Indian pharmaceutical industry is

a vibrant, high technology based and high growth oriented

industry-attracting attention the world over for its immense

potential to produce high quality drugs and pharmaceutical

formulations. The Pharmaceutical industry is among the most

highly R&D intensive industry.

The new millennium brings both new opportunities and new

prospects on the one hand and on the other hand emergence of

a radically altered Pharmaceutical Order, post2005. The industry

is characterized by:

· Very intense competition with about 24,000companies – large,

big, medium and small fighting for their own place under the

sun in more than Rs. 17,000 crore market.

· Continuous drug discovery and rapid introduction of new

products.
· The seemingly ever-increasing and almost never-ending

governmental regulations and policy changes.

· Stifling price controls, eroding profits and consequently a

vanishing bottom line.

· Rigorous controls on formulations and an absence of

international patent protection resulting in me-too maze of

products with little or no product differentiation.

· Increasing health awareness among the people and importance

given to mediclaim.

· Increasing dominance of trade associations and their constant

demand for increase in trade margins.

TRIPS (Trade Related aspects of Intellectual Property Rights) is

an important aspect of phasing out of quantitative restrictions

and latest international developments are likely to have a far

reaching impact on the pharmaceutical industry. On July 2,

1996 the United States requested WTO dispute consultations

with India regarding India's lack of compliance to TRIPS. A

panel was formed and recently the panel concluded that India

has not complied with its obligations for few important facts like

failure to establish a mechanism that adequately preserves

novelty and priority in respect of application for product patents

in the field of pharmaceutical and agricultural chemical

inventions.

The panel recommends that the dispute settlement body

request India to bring its transitional regime for patent

protection of pharmaceutical and agricultural chemical products

into conformity with its obligations under the TRIPs agreement.

As per TRIPs article 70.9, the transitional arrangements for

developing countries, an exclusive marketing right had to be

granted only for a maximum period of five years. This five-year

period corresponded to the five-year period by which developing

country members might delay the application of the provisions

on product patents in areas of technology not protectable on 1

January 1996, i.e. the period between 1st January 2000 and 1st

January 2005. The purpose of article was thus to give inventors

of pharmaceutical and agrochemical products the economic

privilege of EMRs for the five year period preceding 1st January

2005,if their products were denied patentability even beyond

the normal five-year transitional period for developing countries.

Common sense and practical experience indicated that all these

steps took a long time and normally the products in question

would not get on the market in a developing country before the

expiry of the ten-year transitional period. The provisions had

been made for the grant of exclusive marketing rights of up to

five years only to tide over the gap between the obtaining of

marketing approval and the grant of patent protection for the

product in question in a developing country benefiting from the

ten-year transitional period. The inventions that met the criteria

for patentability on or after the date of entry into force of the

agreement would become eligible for protection in such

countries by the time that protection became of commercial

significance, either by the grant of a patent after the expiration

of the ten year period or by an exclusive marketing right for

products getting marketing approval before that time.

Although it was difficult to provide evidence or state with

absolute certainty when products would start becoming eligible

for exclusive marketing rights under article 70.9, a delay of ten

or more years between the date of filing of application for

patents and the grant of marketing approvals seemed likely. In

India registration and approval of new drugs required

submission of technical data on safety and efficacy as well as

analytical specifications in relation to steps of manufacture, in

process control and marketing status in other countries clinical

trial data generated within the country and examination labels

and package inserts. The technical data were examined in

consultation with the experts. The final bulk drug was required

to be tested at the central drug laboratory, Calcutta as per

analytical specifications furnished. A new drug derived out of

cell-line and recombinant DNA based products also needed

approval from the ministry of science and technology and the

ministry of environment.

If a new drug was already marketed in a number of countries

and preclinical and clinical data generation was adequate, phase

III multicentric clinic trial was required to be carried out on a

protocol approved by the drugs controller general of India. If the

data were complete, as per the requirements of schedule of the

drugs and cosmetics rules, an average time of three years was

taken for approval and registration of new molecules with a

maximum period of eight to ten years. Discovery of drugs in

India for the purpose of registration and approval took much

longer as, at that point of time; there might not be access to

scientific data available on the drug published in international

journals and literature.

IMPACT OF TRIPS ON THE INDUSTRY The inclusion of Trade-

Related Intellectual Property Rights (TRIPS) into the

mainstream of the WTO system establishes new disciplines for

many countries in copyright, trademarks, industrial designs and

patents.

Two groups of issues dominate the debate on intellectual

property in India —patents for pharmaceuticals and agricultural

chemicals; and the implications of the WTO agreement on

products based on local species.

In India, there is one big paradox. The Indian drug industry has

been protected from foreign competition for two decades. And

yet it is one of the most competitive in the world. Indian drug

exports grew by 35% annually over the past decade to reach

$71m in 1994.

It has been said that India was violating its obligations on

pharmaceutical and agricultural chemicals patents.

Broadly speaking, the issue was a technicality concerning the

transition to full patent protection, although it does have serious

implications. But behind it lies an intense debate within India,

not least within the Indian drug industry itself.

Patent protection for pharmaceuticals raises the following

distinct issues:

1. What are the impacts for public health? Some say patenting

drugs raises costs, puts them out of the reach of the poor (in

this case most of the country), and therefore damages public

health. Others counter that it encourages the introduction of

new drugs, either by directly encouraging invention in the

country (in India) or through newly invented imports that are

protected, or through foreign investment in production (and

possibly research) in India. (India’s size might make this a more

attractive prospect than investing in a smaller country.)

2. What are the impacts for Indian manufacturing and the

Indian economy? The small players, which have been making

copies, fear that they will not have sufficient capital or

technology to invent new drugs that can be patented. As a

result, they feel the market will be polarized in favour of foreign

multinationals. The larger firms on the other hand, are in full

support of patents, which they hope will attract foreign

investment, and thereby stimulate joint ventures and research.

With full implementation still several years away, concrete

evidence to support either side is not yet available. But there is

already plenty to think about.

The Governments Point of view While the government — along

with foreign multinationals — is keen to implement the

agreement, it has faced resistance from local drug

manufacturers and consumers.

The Indian Drug Manufacturers Association (IDMA) protested in

1994 “prices of drugs shall go up by 5 to 20 times as a

consequence of accepting the TRIPS [Trade-Related Aspects of

Intellectual Property Rights] proposals”

However, the government claimed, “once the crutches of weak

patent law are removed, we can successfully negotiate with

research-based international companies ... to boost export

earnings, create more employment ... and benefit from the

transfer of technology” .The government had some reservations

about the TRIPS Agreement. But it signed the deal, taking the

view that the package of agreements in all areas of trade — the

result of the 1986-94 Uruguay round of negotiations — was on

balance in India’s interests.

“The crux of the matter is that when the world is moving in one

direction, it makes no sense for India to move in the opposite

direction. At best, India can seek amelioration, which it has

done successfully”, said A.V. Ganesan, Indian commerce

secretary, in 1993.
This is not happening overnight. As a developing country, India

has a 10-year transitional period (until 2005) for giving full

patent protection for pharmaceutical and agro-chemical

products. It also has until 2000 to comply with other aspects of

the TRIPS agreement. These provisions are designed to allow

India and other developing countries time to adjust.

The fear: drug prices to rise dramatically?

In 1975, then Prime Minister Indira Gandhi, declared, “medical

discoveries will be free of patents and there will be no

profiteering from life and death”. Some Indians fear that costs

of medicines will rise as a result of royalty payments and

increased prices for products manufactured under license. Local

companies could face foreign competition.

After India ratified the WTO agreements, the press accused the

government of “selling out to rapacious multinationals” and

“making Indian patients pay for the sell out”.

However, recent evidence suggests that these gloomy

predictions are largely unfounded.

Firstly, as mentioned earlier, India has been granted breathing

space in the form of a 10-year transitional period before it is

obliged to enforce patent protection for drugs.

However, from 1995, developing countries that do not provide

patent protection for pharmaceuticals and agricultural chemicals

still have to do two things. They have to set up a mechanism

(known informally as a “mailbox”) that allows inventions to be

notified to the patent authorities — this is a way of establishing

that the invention is “new”, an important criterion for granting a

patent once the system for patent protection is eventually set

up. And if the country allows the new drug to be marketed, the

right has to be given exclusively for a period to the company

that invented it.

The EU and US have filed two separate cases against India in

the WTO on the grounds that it has not fulfilled these

obligations under the TRIPS Agreement. Cases are pending —

rulings have been made, and the disputes are in the stage when

India is required to take action to conform to its commitments

under the TRIPS Agreement.

However, one result of the transitional clause is that patent

protection will have limited impact on the Indian drug industry

until the year 2005. Even then, the impact will be limited as

India is starting from a point of virtually zero patent protection

in the sector.

One recent estimate suggests that only 15% of the Indian drug

market will be covered by patents after 2005 and be subjected

to price premiums as a result. The remaining 85% of the market

will continue to be exposed to “the full impact of generic [i.e.

non-brand name drugs] competition, to which patented products

will themselves ultimately contribute when their patents

expire”.

Moreover, as the TRIPS Agreement does not allow for

backdating, drugs already in the market will be exempt from

patenting.

FUTURE OF THE PHARMACEUTICAL INDUSTRY IN THE

NEW IPR REGIME

What the market will bear

Will drug prices rise dramatically? On the one hand, there are

several checks and balances within the Indian drug market that

could prevent this from happening, such as India’s low

purchasing power, the government’s price control mechanism

and competition in the drug market itself.

Whilst India comprises 16% of the world’s population, it

accounts for a mere 1% of global healthcare spending. Its per

capita consumption of drugs amounts to less than US$3 per

annum, compared to US$191 in the US. India’s domestic

healthcare system only covers 3.7% of its population of over

980m. Therefore 75% of expenditure on medicines is borne

privately by patients. Given these circumstances and the low

per capita incomes, prices have to be maintained at an

affordable level. If they exceed the threshold of affordability,

the government price control mechanism will keep prices in

check.

In other words, “the self paying Indian pharmaceutical market

will in effect be self-regulating in terms of drug pricing, without

the need for government intervention”.

Moreover, competition amongst multiple producers of the same

drug has resulted in lowering the price of drugs in India, to the

extent that they are now amongst the cheapest in the world.

Drugs outside the price control mechanism have experienced a

particularly dramatic fall in prices, owing to competition.

“The antibacterial Ciprofloxacin created pharma history, by

capturing a Rs 2.6bn market in less than five years after being

introduced”, says Surendra Somani, managing director of

Kopran Ltd, a major Indian drug manufacturer.

Fierce competition between manufacturers pushed prices down

phenomenally. When it was launched in 1989, the bulk drug

cost Rs 25,000 per kg. Today, it costs Rs 4,000 and prices of

formulations have fallen from Rs 14 per tablet in 1990, to Rs 9

in 1993. Industrialists predict that competition between firms

will continue to act as a safeguard against price escalations

resulting from patent protection.

Other forces at play

On the other hand, there are other pressures that could indeed

cause prices to rise. One, ironically, is the government’s new

drug pricing policy — and not patent protection. In a bid to

attract foreign investment, the government has ended laws that

used to discriminate against multinationals, including some

price controls. Now, most drugs are exempt from industrial

licensing and the number of price-controlled drugs has been

reduced from 142 to 73.

The underlying rationale behind the 1994 policy is in line with

the free market ethos of the country’s reform process .It is

argued that the decontrolling will in itself lead to a hike in drug

prices, irrespective of whether a new intellectual property

regime is introduced.

This has created a major dilemma for the government.

Deregulation and patent protection are considered necessary

encouragements for research and development because they

allow companies to recover the costs. But their immediate

impact could be social upheaval, resulting from an increase in

the price of essential drugs; and it is the lifting of price controls

that could have a more serious impact on drug consumers.

Recent market trends seem to confirm this. The price of

Alludrox an ant-acid and Lanoxin a cardio-vascular drug rose by

114% and 105% after the new drug policy was implemented.

A boom in generic drugs

For Indian companies, the new policies offer three options:

· To try to compete with the multinationals by producing their

own inventions;

· To produce patented drugs under license

· To make drugs that are free from patents, in particular the

generics — drugs identified by chemical formulation (such as

aspirin) and not by brand name. The prospects for generics in

particular look good.

According to a recent study by the Indian Drug Manufacturers

Association, within the next 10 years, patents of most of the

world’s top 10 drugs will expire. The market for generic drugs

will correspondingly increase.

The global market for generic drugs is estimated around

US$20bn currently and is forecast to rise to US$30bn by 2000.

“With well established capabilities in the manufacture of bulk

drugs, India can meet the challenge from the ‘hard’ patent

regime, by invading Western markets with generic drugs”,

claims Y.K. Hamied, chairman of the Rs 2.5bn Cipla corporation

(Business India, 1994).

The most dynamic prospects for growth for Indian drug

manufacturers is through the export market. Since 1990, India’s

drug exports have overtaken imports and in 1992, exports

amounted to Rs 12.8bn compared to imports of Rs 8bn.

Ranbaxy for instance has increased its exports from just 8% of

turnover in 1983, to 38% in 1994, totaling Rs 2.2bn. It has also

begun to diversify its export markets from the CIS countries, to

capture new markets in Europe and the US.

Indian firms have established an international niche. Ranbaxy is

already the world’s second largest manufacturer of cefaclor (the

world’s largest selling antibiotic at US$1bn a year). Similarly,

Lupin is the world’s largest producer of ethambutol, an anti TB

drug and DRL is the second largest producer of ranitidine, an

anti-ulcerant.

These companies indicate the potential for other firms to

successfully exploit the international generics market. If the

giant multinationals aggressively market patented drugs in

India, Indian companies can enjoy strong sales in the opposite

direction by exporting generics that are by definition beyond

patentability.

End of a copying culture?

In a recent World Bank study, 81% of US research-based

pharmaceutical companies complained, “intellectual property

protection is too weak in India to permit licensing of their

newest or most effective technology and zero percent would

invest in R&D [research and development]”.

Therefore, strengthened patent protection is expected to

encourage foreign direct investment in India. The study stresses

that an environment hospitable to foreign innovative technology

sets in motion a range of other dynamics such as licensing, co-

marketing and joint ventures, generating multiplier effects that

benefit local drug manufacturers.

In Malaysia for instance, the level of foreign direct investment

increased significantly as a consequence of enforcing the TRIPS

Agreement and is currently 11 times the amount India has

managed to attract.

Patent protection could improve the quality of medical care in

India, as the country progresses from a copying culture, to one

that induces local innovation.

However, the extent that a new intellectual property regime will

have a direct impact in stimulating research and development in

India remains open to debate.

Research and development spending among most Indian drug

firms still averages a mere 2% of total turnover, compared to

16% in the US. Under a new intellectual property regime this

could rise to 7% in India according to the World Bank.

Some fear that patent protection will discriminate against local

firms in favour of foreign companies that can afford the

enormous funding required for research and development.

Optimists suggest that the profits derived from patent protection

be invested in research and development by local Indian firms,

thereby stimulating indigenous innovation and competitiveness.

Industrialists claim that whilst India may currently lack the

resources for conceptual research, it can generate some

research and development through molecular restructuring,

which involves varying an existing molecule.

For instance, Glaxo’s anti-ulcerant ranitidine, is conceptually the

same molecule as SKBs cemitidine and both work by inhibiting

acid release in the stomach. With increasing patent protection,

Indian firms can earn royalties on sales in new molecular

varieties .
The case of Japan provides an insight into ways in which India’s

research and development industry can profit from TRIPS. In

1970, Japan was in a similar situation as India today. As a

result of introducing patent protection, research and

development expenditure amongst top Japanese drug firms rose

from 6% of sales in 1975, to 10.8% in 1990. During the same

period, their net profit margins rose from 3.6% of sales to

6.7%. In the 20 years preceding the new patent legislation,

Japanese companies introduced 4 new major global drugs. By

contrast, during the 10 years following the introduction of

patent protection, Japanese drug companies introduced 25 new

major global drugs into the market. Foreign investment in Japan

also rose dramatically during the new patent regime.

The Japanese case suggests that product patents are a

prerequisite to achieving a successful transformation from a

copying and parasitic culture, to one of indigenous design and

innovation. But the question is does India have the capital and

level of technology that Japan had to invest in research and

development?
Perhaps. India’s ongoing liberalisation programme has

stimulated the process by encouraging further foreign direct

investment and capital accumulation in the burgeoning private

sector, which can be channeled into research and development

projects.

What do the Corporates say?

B.K. Raizada and Ajit Yadav,

Vice-President and Legal Services Director, Ranbaxy

What was the Indian pharmaceutical industry like in the

1970s?

In the 1970s, India was a closed economy based on self-

reliance. There was some research and development based on

chemical processing. As local expertise developed over time,

there was a growing need for intellectual property rights. In

1988, our chairman declared that the time had come to provide

product patents and increase the life of process patents from

seven years. In 10 years time, India would come up with

indigenous formulas and innovation that would need to be

protected. This process was complemented by the government’s

first attempt at liberalization in 1985. For the first time, India

began to be integrated into the world economy and had to abide

by the global trading regime.

What impact has liberalization had on drug companies?

It has made Ranbaxy more competitive and efficient, as well as

increasing our quality control strategies. Delicensing has meant

that we can now produce as much as we want and export freely.

Thus a major obstacle to our growth in India has been removed.

The industry has been opened up to a set of rules that are

governed internationally. Companies can now invest abroad

more freely and remit funds to foreign partners, enabling Indian

business to grow internationally.

But bureaucratic obstacles and mindsets remain. Indian

corporate houses still lack the financial resources to compete

with global giants. Ranbaxy for instance cannot compete with

Glaxo. This has led to major mergers with foreign multinationals

that have the resources for economies of scale. The government

can help by providing research and development support. The

whole question of patents needs to reconsidered to reflect a

science and technology perspective that will encourage

indigenous innovation and consolidate the Indian drug industry.

Why are people in India against the new TRIPS

agreement?

Intellectual property rights will have an impact on drugs and

agro-chemicals through patents. These are very sensitive

industries in India and therefore the TRIPS Agreement has been

hotly debated within India, developing into a highly emotional

issue for the country. The opposition to TRIPS is related to the

broad socio-economic conditioning of the country. In the post

Nehru era, the state continued to own most industries. Drug

prices were also regulated, which is a very touchy subject in

India.

Despite liberalization, we still have the same mindset in India

today, given the low per capita incomes and lack of national

health care. Product patenting is perceived as a symbol of

Western domination. This line of argument leads one to believe

that Indian industry lacks the capital to compete and the

patentee will have monopolistic rights over new drugs.

What is Ranbaxy’s line on TRIPS?

India is one of Ranbaxy’s global markets, where we have to

compete with international quality standards and prices. You

definitely need research and development to compete

effectively, but this is dependent on protection. India currently

has a deficient system as far as providing intellectual protection

goes, therefore we see the need for a radical change.

Prices on the whole, will not go up because of protection. Yes

some drug prices will increase, but others will go down. Market

forces, not intellectual property, drive prices. Therefore you

need to reform the government’s price control mechanism to

combat market domination and monopolistic trends. If prices go

up in the future, the drug price control order can regulate them

to create equilibrium. In any case, market forces don’t permit

profiteering for too long. Sooner or later, a cheaper competitor

will break your monopoly. It is a myopic view that

multinationals will dominate the industry, as players are

emerging at all levels.

What is the government doing to implement the TRIPS

Agreement?

In 1995 the Congress government introduced amendments

through an ordinance to provide product patents and exclusive

marketing rights. This raised a major outcry and parliament

could not pass the Bill and the law regressed back to 1970. For

six months a mailbox system was set up to receive applications

for exclusive marketing rights, while the ordinance was being

debated. After that it became redundant because the Bill was

not passed. The case is still pending with the WTO. The

government has set up an expert group including Ranbaxy to

examine what changes are needed for India to comply with the

WTO.

O. P. Grover, Director,

Indian Drug Manufacturers Association

How has the pharmaceutical industry developed in India?

In the period before the 1970 Patent Act, the pharmaceutical

industry in India had no indigenous capability and everything

had to be imported. The 1970 Patent Act injected considerable

dynamism into the industry, by recognizing process patents, but

not product patents. This enabled the local industry to develop

its indigenous technology and formulations, which was further

stimulated by the protection granted to industry by the

government.

Today India exports more than it imports and supplies 500 bulk

drugs, out of which 400 are made domestically. Local companies

are now carrying out 70% of total production. India is almost

totally self reliant in formulations, except for drugs needed to

cure cancer and AIDS. There are 4,000 units in the organized

sector and around 13,000 units in the small-scale sector. In

1970 all drugs were under the Drug Price Control Order (DPCO),

which determined market prices. Today, this has been reduced

to 74 drugs, which account for 50% of the market, with the

largest turnover.
Total expenditure in research and development remains low

(1.6% of total turnover). Moreover, total investment in the

industry amounts to Rs 1bn, which is the amount, it costs to set

up one power plant, a very small amount for an entire industry.

The industry continues to be stunted by little investment, being

fragmented and regulated by price controls.

What impact has liberalization had on the industry?

Delicensing and tariff reductions have had a major impact on

the drug industry. On the one hand drug manufacturers are now

free to manufacture and export any quantity of drugs, but on

the other they are being hit by foreign competition. Production

costs remain high in India, for power and interest rates (at

18%). Therefore the incentive to import drugs is greater than to

manufacture domestically. Small producers are importing the

raw materials and merely formulating the drug locally. As a

result, local manufacturers are unable to compete with the

influx of cheaper imports. The small players are struggling to

survive without protection. The industry is being forced to

increase productivity and lower production costs. Liberalization

has exposed the industry to international competition? and it?

Remains unable to compete with the major global players.

The result is that the small-scale units have slowed down

production and diversified into non-pharmaceutical products and

those that are not under price controls. There is little new

investment being injected into the industry. While the big

companies such as Ranbaxy have the resources to invest in joint

ventures with foreign multinationals, the small scale sector

remains limited to the production of generic drugs? i.e. drugs

using basic chemical formulas, not brand names?. If these

trends continue, there will be no indigenous innovation, creating

a stagnant industry in years to come.

How has India reacted to the TRIPS agreement?

It is commonly felt that the bureaucrats quietly went to Geneva

and signed the agreement, without consulting the people. There

was no public debate on the issue. The Indian Patent Act made

local production of drugs cheaper than imports. The prices of

ant-acids for instance were lowest in India compared to Pakistan

or the USA. Every company works on a process of their own,

which is cost effective, making these drugs available to the poor

at an affordable price. The invention of a new drug should be

rewarded with royalties, but we should be allowed to

manufacture it locally and are against exclusive monopolistic

rights. India has begun to comply with the new TRIPS

agreement by providing exclusive marketing rights and creating

a mailbox system for patent applications. We have already

received 1,300 applications to date.

What will be the impact of patent protection on the drug

industry?

The indigenous capability will be hit hard. Consumers will have

to pay higher prices. The infrastructure created by local industry

will remain unutilized. Local production will be confined to

making age-old drugs, denying the benefits of new drugs and

innovation. Local producers will have to wait 20 years for the

patent to expire on a new drug, before they can start to

manufacture it, by which time a new drug in the market will

probably undermine its value.

India will revert back to a pre-1970 scenario, where everything

was being imported. Today while India is under increasing

pressure to provide market access to foreign companies, India

can’t export its drugs to Western markets due to non-tariff

barriers in the form of social and environmental regulations.

This is undermining India’s comparative advantage by way of

lower prices. Recently, the EU threatened to impose

countervailing duties on Indian drug exports because they were

cheaper than locally produced drugs. Thus while our generic

drugs are subjected to non-tariff barriers, our consumers will be

hit by higher prices for new drugs.

Will investment, research and development be stimulated

by TRIPS?

Thirty years ago, there were 15 companies devoted to research

and develjopment in the US such as Glaxo. Today there are only

12, so no new players. Have these companies ever done any

new innovative research in any other country, except their own?

No. They will not go abroad to carry out research and

development, even if it’s cheaper, so why should they come to

India? This is false propaganda.

As far as investment goes, this has been limited to tonics and

vitamins. No new investment can be expected looking at the

past record of these companies. Even the technology transfers,

seldom contain the most recent inventions, its always older

material that is passed on to us.