what guidelines are to be followed by indian pharmaceutical companies to trade in CIS countries?

Overview

Indian pharma companies are growing strong and going global. Once the Indian pharma market was dominated by foreign MNCs. From a stage of being nowhere, Indian pharma companies today are not only dominating the domestic market but have also begun to dominate some of the world markets. One of the main reasons for Indian pharma companies‟ success is the support from the Government. Without the Government intervention Indian pharma companies would not have grown to this great level. Various policies followed by the Indian Government initially sowed the seed of development of the Indian pharma industry. The Indian Patent Act, 1970, allowed pharma companies to reverse-engineer the already available product i.e., the act recognized process patents and not the product patents unlike in the western world. This enabled Indian companies to flourish, and at the same time demotivated foreign companies from doing business in India. Liberalization of Indian economy to some extent motivated foreign companies to enter India. When the foreign MNCs entered India, Indian companies established technical and marketing alliances and learnt expertise in those areas from foreign MNCs. Relaxation of limits in overseas foreign direct investment motivated Indian companies to go global. Even though Indian companies began to internationalize during 1960s, it gained significant momentum only during 1990s. Today, Indian pharma companies are going global through exports, joint venture, mergers & acquisitions, CRAMS and out-licensing. Many Indian players are using these strategies according to their needs. For example, most of the Indian companies prefer the acquisition strategy to enter Europe and the Greenfield Investment strategy to enter the US market. The strategic reason behind this is that the valuation of European companies is lower than that of US companies. Moreover, by acquiring European firms they can also establish their presence in the US market because most of the European firms have a good presence in the US market too. Also, many more pharma companies are available for acquisition in Europe than in the US. Indian companies are not only targeting developed and regulated markets like the US, Europe and Japan but have also begun to exploit the opportunities in developing markets like South Africa, Mexico and China. One of the main reasons behind the success of Indian companies both in the domestic and

international markets is that India offers many advantages to Indian firms. India has a larger number of US FDA approved plants compared to any other country in the world. India has 75 US FDA approved plants, Italy has 55 and China is lagging behind with 27 plants. India also has a large pool of scientific talent with cheaper cost that puts Indian companies ahead of their competitors. Even though going global offers many advantages for Indian firms it is not without challenges. Indian companies have had to tackle many challenges in going global. Political challenges, cultural challenges and integration challenges are faced by Indian pharma, but these challenges are common to companies in every sector. The unique challenges faced by pharma companies are litigation challenges. Most Indian companies are generic players and they have many productions in the pipeline. So, litigation will be one of the biggest challenges for Indian pharma companies. In order to become successful in the highly competitive pharma market, Indian companies have to invest more on R&D and come out with innovative products. Even though none of the Indian companies is in the list of 50 global majors, they will become strong contenders globally if they innovate. This book has been divided into three sections. The first section „Growth Trends‟ gives insights into different strategies followed by Indian companies like exports, joint ventures, mergers & acquisitions, greenfield investment, CRAMS and out-licensing. The second section „Expanding Global Foot Print‟ analyses different markets in which Indian companies are doing business like the US, Europe, Mexico, Africa and Russia. The third section „Corporate Experiences‟ highlights the globalization experiences of Indian companies like Ranbaxy, Dr.Reddy‟s Lab, Wockhardt, Cipla, Dishman Pharma and Sun Pharma. Section I: Growth Trends The first article “The Growth and Globalization of Indian Pharma” authored by B V S Prasad and R Puratchimani traces the evolution of Indian pharma industry, its growth over the years and its globalization. The evolution of the industry can be traced to 1901 when Bengal Chemical and Pharmaceutical Works Ltd. was established in Kolkata by Professor Prafulla Chandra Roy. The Patent Act 1970 played a significant role in promoting the pharma industry in India. This Act ignored product patents and recognized only the process patents. This allowed Indian companies to produce even the existing products using different production process methods. This strengthened Indian pharma‟s R&D activities. Following the efforts of the Indian Government, pharma firms began meeting the demands of the domestic market in the 1980s. It also marked its globalization by exporting its drugs to foreign countries. Apart from exports, Indian pharma uses JV, brownfield or M&A and greenfield investment to go global. The article also highlights some of the globalization challenges faced by Indian companies like intense competition and litigation. The article explores the growth opportunities available for Indian firms. The next article “Mergers and Acquisitions Trends in the Pharmaceutical Sector” is authored by Shivani Shukla. The author states that “besides consolidation in the domestic industry and investments by the US and European firms, the spate of mergers and acquisitions by Indian companies has ushered in an era of the „Indian Pharmaceutical MNC‟.” After traversing

the learning curve through partnerships and alliances with international pharmaceutical firms, Indian pharmaceutical companies have now moved up a step in the value chain and are looking at the inorganic route to growth through acquisitions. The lack of research and development (R&D) productivity, expiring patents, generic competition and high profile product recalls are driving the mergers and acquisitions (M&A) activity in the global pharmaceutical and biotech sector. Indian companies are looking at front-end integration as building a front-end distribution set-up from scratch could take a significant amount of time. Acquisitions are the quickest way to front-end access. What is interesting is the fact that apart from market access, i.e., marketing and distribution infrastructure, the acquiring company also gets an established customer base as well as some amount of product integration (the acquired entities generally have a basket of products) without the accompanying regulatory hurdles. The third article “India Inc.’s Overseas Acquisitions in Pharma Sector” is written by R Vijaya. In this article the author discusses overseas acquisitions by Indian pharma majors like Ranbaxy, Dr. Reddy‟s and Wockhardt besides briefing the challenges faced by pharma firms like reduced client base, cost etc. Among the Indian players, Ranbaxy Labs, India‟s largest drug firm, has been the leading acquirer. The major deal has been the acquisition of Terapia, the largest independent generic Romanian company. Ranbaxy acquired 96.7 percent stake in Terapia, thus gaining two manufacturing units, bioequivalence centres, 60 products and access to Terapi a‟s client base of almost 4000 pharmacies and 450 hospitals in Romania. India‟s biggest foreign acquisition in the pharma sector ever was made by Dr. Reddy‟s Labs in 2006. India‟s second largest pharma company bought out German generic company Betapharm from UK‟s private equity firm 3i for an incredible USD 576 million in an all-cash deal. Betapharm expects to expand its growth further and also help Dr. Reddy‟s global product development and entry into the European generics market. India‟s major pharma and biotechnology company Wockhardt also joined the acquisition mode by acquiring the Pinewood Laboratories Limited, the largest and fastest growing branded generic pharmaceutical company in Ireland. The deal was to the tune USD 150 million, all in cash. The next article “Bucking the Trend” authored by Gauri Kamath is sourced from Businessworld. In this article the author discusses the overseas acquisitions by the Indian Contract Research and Manufacturing Services (CRAMS) players. The author states a paradox facing India‟s outsourcing industry. Its low cost location is its raison d‟etre. But to stay in the game, it also has to be where the customer is, often an expensive site in Western Europe or the US. First, India‟s IT services industry began to buy Western companies. Now, India‟s drug makers are following suit. Indian pharma outsourcing companies are buying up high cost operations in the West. In the last years, three Indian companies – Nicholas Piramal, Dishman Pharmaceuticals and Chemicals, and Shasun – have acquired European contract research and manufacturing (CRAM) outfits. The reasons for this are sound: Indian companies have found that Big Pharma is either wary of offshoring some key, patent-sensitive activities to India or lacks adequate incentive to do so. This article discusses in detail the pros and cons of acquiring CRAMS firms overseas. The last article in the first section is “White Paper on Indian Pharma Industry: Quest for Global Leadership” sourced from Cygnus Consulting. This article gives an overview about the Indian pharma industry and highlights as to how it is poised to emerge as global leader. It gives a

note about India‟s globally competitive strategy, policy and pricing framework, industry partnership and alliances, CRAMS and clinical trials, strong R&D of Indian firms and data exclusivity issues. Indian pharma industry is emerging as globally competitive because today it is a preferred manufacturing base due to its larger number of US FDA approved plants outside the US, increasing number of regulatory filings by Indian firms and Special Economic Zones. Moreover, Indian pharma establishes global presence through acquisition and the new patent regime attracts more investments. With the implementation of product patents in India in January, 2005, investing in R&D became inevitable for the Indian pharma companies to compete globally and survive in the long run. The benefits reaped by a few companies such as Ranbaxy and Dr. Reddy‟s in the R&D field have attracted others to follow suit. Most of the Indian pharmaceutical companies, including Cipla, Lupin, Wockhardt, Nicholas Piramal and Torrent, are actively involved in R&D activities. Foreign MNCs also establish their R&D centers in India. Section II: Expanding Global Footprint The first article in the section is “Indian Pharma: Globalizing via China” authored by N Janardhan Rao and Feroz Zaheer. The authors state that India Inc., aims at having a global presence and it is doing this via the China route. Indian pharmaceutical industry has ventured into China in order to make it their base and then, gradually supply their products and services world over. It gets easier for Indian companies to tap other Asian and European markets by making China their manufacturing base. Moreover, China itself, being a promising option offering a huge market with economical manufacturing and labor costs, which are in fact lower than India, is also attracting India Inc. The Chinese pharmaceutical market is currently the seventh largest in the world (worth $14 bn), and by the year 2010, it is estimated to be the fifth largest. Considering the Chinese economic boom and the pace with which the country is growing, it is surely a market which cannot be ignored. The article also highlights Chinese operations of Indian pharma like Ranbaxy, Dr. Reddy‟s, Orchid and Aurobindo Pharma. The Chinese pharmaceutical market, though very attractive, poses significant challenges to the Indian firms. Perhaps, the biggest challenge for the Indian players, and even MNCs, is the lack of or limited patent protection of drugs in China. Even though the country has joined the WTO (World Trade Organization) and claims to be TRIPS compliant, it still lacks proper enforcement and implementation of the norms. The authors say that to succeed in China, India Inc. should analyze the cultural, political, economic factors and market characteristics not only to enjoy a profitable foray into China but also boost their globalization efforts. The next article also on China presents an experts‟ panel views on doing business in China titled “Indian Pharma Companies: Doing Business in China”. This panel is coordinated by Feroz Zaheer. The experts share their views on reasons for Indian companies to venture into China like huge domestic demand, low operational cost etc. They discuss as to how Chinese pharma market is different from the rest of the world and the Indian companies have competitive advantage over domestic companies like credibility in terms of quality, regulatory experience in developed markets like the US and the UK and strong R&D. The experts also share their views on likely challenges to be faced by Indian companies like domestic competition, not so conducive regulatory environment and the strategies to be adopted. The panel also points out that playing well in China means succeeding in the largest market of the world. With all the barriers, Indian companies that are doing well in China are qualifying themselves to have a major say even in the

regulated and developed markets. The third article in this section “Indian Pharmaceuticals – Aiming for the US Market” is authored by Dhandapani Alagiri. India ranks fourth in terms of production volume and thirteenth in terms of production value in the world. The Indian pharmaceutical industry has grown from a virtual non-entity to a leading industry, especially in the production of generic drugs over the last few decades. The Indian pharmaceutical companies have made inroads into the US market even though their share in the market is meager as of now. The USA is the world‟s largest pharmaceutical market, accounting for around 48% of the world total. The strength of the Indian pharmaceutical companies lay in their strength of reverse engineering, and the large number of US FDA approved labs. India has also been very aggressive in filing for patents. As 30 of the best selling US patent-protected drugs go off patent by 2010, Indian companies are positioning themselves to offer generic versions of these drugs. But the Indian companies also face tough competition from other players, especially China. But with the strength of a more sophisticated technology and manpower, India can get a major share of the US pharmaceutical market in the coming years. The next article “Indian Pharmaceutical Companies Eye European Market” is written by P Sivarajadhanavel. The author says that Indian Pharmaceutical companies look beyond the Indian market moving towards Europe as the market has greater potential business for growth. It gives an overview of the European pharmaceutical markets where Indian companies have greater opportunities to grow compared to the US and other markets in terms of value. Europe is the most preferred acquisition destination for Indian pharma firms. In the last three years Europe has accounted for 60 percent of Indian pharmaceutical acquisitions. Acquiring European firms offer distinctive advantages over acquiring Indian firms. The valuations of the EU-based firms are low compared to US-based firms and, moreover, these European firms also have strong presence in the US apart from Europe. By acquiring European firms, Indian pharma firms spread their tentacles to both Europe and the US simultaneously. The author also discusses the issues related to patent rights where Indian firms have a smaller number of patent rights compared to their competitors in the European market, and highlights cases of some of the Indian pharmaceuticals in Europe like Ranbaxy, Dr. Reddy‟s and Cipla. In the article “Indian Pharma Exports to Russia” by D M Banerjee, the author discusses the pharmaceutical exports to Russia. The author states that the Indian pharmaceutical industry is expanding its presence across the globe through a lot of mergers and acquisitions. India is one of the most preferred manufacturing bases due to its strong chemistry skill, and high skilled manpower at cheaper cost. India‟s pharma industry has been focusing on exports, given its superior manufacturing skills. The CIS countries are a prime target as they promise faster growth rates than the saturated US market. A Cygnus report shows that among the CIS countries, Russia is the largest export destination and is likely to remain so for the next few years. For the year ended March 31, 2005, exports to Russia accounted for 58.35% of the total exports to the CIS countries. Out of the total exports of Rs.7079.78 million to Russia, nearly 87.17% of the exports is of products related to formulations sector. Around 5% and 4.5% of the exports are related to ayurveda, herbal and homeopathic medicines and bulk drugs respectively. The last article in this section is “Mexico: Unraveling New Boundaries for the Indian

Pharma Industry”. The author Neeraj Mankad explores the untapped potential and opportunities in the Mexican pharmaceutical industry, and provides guidelines for Indian companies who wish to exploit this opportunity. The author, through his suggestions, tries to propel the Indian pharmaceutical companies towards success in this market, by identifying product segments based on the strengths of the Indian industry. The Mexican pharmaceutical market, valued at US$11.3 bn in 2005, is the leading Latin American market and the ninth largest worldwide. Commitment to improving access to high quality healthcare along with an equally high demand for modern medicines from its growing population is helping Mexico emerge as the leading pharmaceutical market in Latin America. With pharma majors like Ranbaxy and Wockhardt having already made a mark in the Mexican market, the pharma companies are now looking upon Mexico as a goldmine waiting to be tapped. The Mexican market offers a large, stable, lucrative and growing market both for trade and investment for Indian pharma companies. Mexico has the distinction of being the largest destination for Indian pharmaceutical exports in Latin America. Section III: Corporate Experiences The first article of the last section “Cipla: Capturing the Global AIDS Drugs Market” by Arun K, gives a detailed note on history of Cipla, how it seized generic opportunity, its globalization initiatives and its foray into South African and Malaysian markets with HIV drugs. Cipla‟s success was driven largely by its generic pharmaceutical business. Over the years, Cipla had produced generic version of Western medications that were on high-demand such as Viagra, Prozac, Diflucan, Prilosec and Norvasc, products that were originally patented or licensed by western multinationals, including Pfizer, Eli Lilly & Co. and Warner-Lambert Co. Cipla sold these products primarily in India, but looked for opportunities to export to developing countries with patent laws similar to those in India. Cipla entered into US market through a strategic alliance with US generics major Watson in late 2002 to develop and commercialize generic pharmaceuticals. Later, it also established alliance with major US firms like Ivax, Biogenerics. Cipla developed affordable AIDS drugs and captured markets like South Africa and Malaysia, besides facing many challenges. In recent times, Cipla has attracted considerable media attention because of its efforts to offer AIDS drugs globally at very low prices. But in its quest to capture this market, Cipla faces the might of global multinational corporations, which are doing all they can to protect and enforce their patent rights. This article also has a value addition “CIPLA‟s Global Presence”. It highlights Cipla‟s globalization initiatives after 2004 and its global presence. The next article “Ranbaxy Lab: Global Hunt for Growth” authored by Amit Singh Sisodiya and Sanghamitra Dhara, discusses how Ranbaxy Laboratories, India‟s top drug maker by sales, has become a truly global player. It announced splendid performance for the fiscal year 2006, with robust sales across markets of US, BRICS, Africa, Latin America, Middle East and AsiaPacific. Ranbaxy recently signed a new multi-year R&D agreement with GSK. Under this new agreement, which is the expansion of the terms of their strategic alliance signed in 2003, the Indian drug maker will garner over $100 mn in payments for a product developed by it and subsequently launched by GSK. To improve its chances in European markets, Ranbaxy is increasingly concentrating on leveraging its existing infrastructure to bolster its presence in these regions. Indian companies have also developed a considerable service industry for the global

pharmaceutical market. Nonetheless, for Ranbaxy, which has come a long way since being a fringe player in 1970s to survive under a protected regime to emerge as India‟s top drug maker, the battle for global big league is only going to intensify. The next article “Wockhardt: French Foray” by Amit Singh Sisodiya and Sanjoy De, discusses the Wockhardt entry into France. Continuing its mergers and acquisitions (M&A) spree in the European market, the Indian drug major Wockhardt recently acquired Negma Laboratories, the fourth largest independent and research-based pharmaceutical group in France, in a deal involving $265 mn. The all-cash deal marks the Indian firm‟s fifth acquisition in Europe after it acquired Wallis, CP Pharmaceuticals (both UK-based), Germany‟s Esparma and Ireland‟s Pinewood Laboratories. With the acquisition of Negma, more than 60% of Wockhardt‟s business comes from Europe, compared with 48% before the acquisition. Wockhardt has an impressive portfolio of 130 products in the European market and plans to launch 24 new products within one year. On the other hand, Negma possesses a strong research and lifecycle management capability. With a rich portfolio of 172 patents, the French company holds leading positions in osteoarthritis/rheumatology, phlebotonic and arterial hypertension segments, which is likely to complement the existing product portfolio of Wockhardt, and improve Wockhardt‟s business in Europe. Analysts say that Negma acquisition has all the ingredients to step up Wockhardt‟s sales as well as profits. Further, Wockhardt‟s impressive track record in M&As will also come in handy as it moves ahead in its French foray. In the article “Dr. Reddy’s Laboratories, the Leading Indian Pharmaceutical Company, in Europe: The Inorganic Growth Strategy” the author Satyakama Paul presents an overview of Dr. Reddy‟s growth and globalization, and discusses its inorganic growth strategy to enter Europe. In February, 2006, the Indian pharmaceutical company, Dr. Reddy‟s Laboratories Limited (DRL), announced that it would acquire Germany‟s fourth largest generic pharmaceutical, betapharm. The deal was settled at US$570 million. After the US, Europe was the second largest pharmaceutical market with Germany as its largest constituent. Moreover, it was the third largest generic market worldwide. The market trends showed that generics had a better market potential over their branded counterparts. In addition, the European generic market proved to be more lucrative than the US market because it had less governmental rules directed towards drug approvals and marketing. The author also analyses the synergies and possible challenges of such an acquisition and discusses the inorganic growth strategy of DRL that was aimed at penetration into the German and subsequently the European generic market. It also provides a brief overview of the two companies. The next article “Dishman Pharmaceuticals” is written by E Naveen Kumar. In this article, the author discusses its CRAMS business and its globalization initiatives. Dishman Pharmaceuticals and Chemicals Ltd., an integrated player in Contract Research & Manufacturing, headquartered in Ahmedabad and promoted by J Rajnikant Vyas, is a standard provider of commercial, high quality chemical services and products to the global pharmaceutical and chemical industry. Dishman is a globally-focused company oriented towards the production of QUATS, Active Pharmaceutical Ingredient (API), API intermediates and chemicals. It has established its presence in almost all countries including Eastern Europe, Holland, Turkey, United Kingdom, China, Japan, Africa and Middle East, with wholly-owned subsidiaries in the US, Europe, Holland and China. Since its inception, Dishman‟s strongest markets were Europe and the US,

establishing subsidiaries there, called Dishman Europe, Dishman Holland and Dishman USA. It has also achieved several contract research and manufacturing projects globally. Recently, Dishman acquired Belgium headquartered „Solutia‟ Europe‟s pharmaceutical services firm Carbogen-Amcis for $75 million. On account of this acquisition, Dishman would be the only Indian contract manufacturing organization with high-power manufacturing capability. The last article in this book is “Sun Pharmaceuticals in 2004” authored by B N Renuka Prasad and Srikant G. Sun Pharmaceutical Industries Ltd. (SPIL) is one of the leading companies in the Indian pharmaceutical industry. The company has used both organic and inorganic growth strategies to grow domestically and internationally. Most of its merged companies‟ facilities were approved by both US Food and Drug Administration (FDA) and UK Medical Controls Agency (MCA). SPIL was the pioneer in addressing and developing lifestyle therapeutic segments in India and also targeted the overseas-unregulated markets. The company‟s bulk drug exports grew at 25% of CAGR during 1997-2002 period. SPIL exported its products to some 36 countries. The company intends to focus and grow in the regulated markets by filing Drug Master Filings (DMFs) and supply bulk actives to US-based Caraco and others. In February, 2004, its US-based subsidiary Caraco Pharma entered into an agreement with two large shareholders by which SPIL‟s stake in Caraco increased to 61% from 40% in 2003. But till now SPIL was not happy as it lost $57 million, which was nearly half of net worth, due to wrong execution. The company‟s R&D competence was to play a crucial role in increasing its global presence. The company had been limited to the export of the bulk drugs to regulated markets and formulations to markets with loose regulatory regimes. However, SPIL‟s ambition is to cash in on the growing market for generics in the US market, which is lucrative. This article has a value addition, “Global Drive of Sun Pharma” written by D Thiyagarajan. The author covers the important events (post-2004) in the history of Sun Pharma and its globalization activities.

DRUGS & PHARMACEUTICALS Overview of Pharmaceutical Sector The Indian Pharmaceutical industry has been witnessing phenomenal growth in recent years, driven by rising consumption levels in the country and strong demand from export markets.This segment of Industry has shown tremendous progress in terms of infrastructure development, technology base and wide range of products. The industry now produces bulk drugs belonging to all major therapeutic groups requiring complicated manufacturing processes and has also developed excellent GMP (Good Manufacturing Practices) compliant facilities for the production of different dosage forms. The strength of the industry is in developing cost effective technologies in the shortest possible time for drug intermediates and bulk activities without compromising on quality. This is realized through the country's strengths in organic chemicals'

synthesis and process engineering. India is today recognized as one of the leading global players in pharmaceuticals. Europe accounts for the highest share of over 23% of Indian Pharma exports followed by North America and Asia. Exports to USA have crossed the land mark figure of US $1 billion during 2006-07. Internationally recognized as amongst the lowest-cost-producers of drugs, India holds fourth position in terms of volume and thirteenth position in terms of value of production in pharmaceuticals. It is estimated that by the year 2010, the Indian pharmaceutical industry has the potential to achieve over Rs.1,00,000 crore production of formulations and bulk drugs. The domestic Pharma Industry The domestic Pharma Industry has recently achieved some historic milestones through a leadership position and global presence as a world class cost effective generic drugs' manufacturer of AIDS medicines. Many Indian companies are part of an agreement where major AIDS drugs based on Lamivudine, Stavudine, Zidovudine, Nevirapine will be supplied to Mozambique, Rwanda, South Africa and Tanzania which have about 33% of all people living with AIDS in Africa. Yet another US Scheme envisages sourcing Anti Retrovirals from some Indian companies whose products are already US FDA approved. Many Indian companies maintain highest standards in Purity, Stability and International Safety, Health and Environmental (SHE) protection in production and supply of bulk drugs even to some innovator companies. This speaks of the high quality standards maintained by a large number of Indian Pharma companies as these bulk actives are used by the buyer companies in manufacture of dosage forms which are again subjected to stringent assessment by various regulatory authorities in the importing countries. More of Indian companies are now seeking regulatory approvals in USA in specialized segments like Anti-infectives, Cardiovasculars, CNS group. Along with Brazil & PR China, India has carved a niche for itself by being a top generic Pharma player. Increasing number of Indian pharmaceutical companies have been getting international regulatory approvals for their plants from agencies like USFDA (USA), MHRA (UK), TGA (Australia), MCC (South Africa), Health Canada etc. India has the largest number of USFDA approved plants for generic manufacture. Considering that the pharmaceutical industry involves sophisticated technology and stringent "Good Manufacturing Practice (GMP) requirements, major share of Indian Pharma exports going to highly developed western countries bears testimony to not only the excellent quality of Indian pharmaceuticals but also its price competitiveness. More than 50% share of exports is by way of dosage forms. Indian companies are now seeking more Abbreviated New Drug Approvals (ANDAs) in USA in specialized segments like anti-infective, cardio vascular and central nervous system groups. Exports According to the Quick Estimates of Directorate General of Commercial Intelligence and Statistics (DGCIS), Pharmaceuticals exports (valued in US dollar terms) registered an impressive growth rate at 30.7% terms during April-October,2008 compared to the corresponding period of the last year. This growth further increases to 38.5% when valued in rupees terms. Exports on

account of Pharmaceuticals have been consistently outstripping the value of corresponding imports during 1996-97 to 2007-08. The trade balance increased from Rs. 2157 crores in 199697 to Rs. 13893 crores in 2007-08. Exports of pharmaceuticals registered a growth at the rate of 16.22% during 2007-08. The share of exports of Pharmaceuticals products to the total national exports have been in excess of 2% during each of last 12 years ending 2007-08. It has exhibited a long-term upward trend from 2.01% in 1996-97 to 2.55% in 2007-08. Investment

According to Ministry of Commerce and Industry, Domestic investment in the Pharmaceuticals sector is estimated at Rs. 31.43 thousand crores, which is equivalent to US $ 7.14 billions. The Drugs and Pharmaceuticals sector has been able to attract FDI amounting to US $ 1428.96 million in the sector from April 2000 to December 2008. So far, as domestic industrial proposals between August 1991-March 2008 are concerned, total Industrial Entrepreneur Memorandum (IEMs) filed including Letter Of Intent (LOI) & Direct Industrial Licences (DIL) add upto Rs. 31257 crores in Drugs & Pharmaceutical Sector, according to Ministry of Commerce & Industry. According to the Ministry of Commerce & Industry, Pharmaceutical sector is estimated to have created 2.20 lakh employment opportunities. According to Centre For Monitoring Indian Economy (CMIE), the aggregate sectoral income grew by 18.9% during the quarter ending June 2008 while the growth in net profits during 2007-08 was 8.2%.

Recent Initiatives in Pharma sector Government has taken various policy initiatives for the Pharma sector
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Government has offered fiscal incentives to R&D units in Pharma sector Steps have been taken to streamline procedures covering development of new drug molecules, clinical research etc. A number of inhouse R&D units holding recognition of DSIR have come up in the Pharma sector. These units are eligible for weighted tax deduction@150% under Section 35 (2AB) of the Income Tax Act 1961 for the R&D expenditure incurred. Government has also come up with two new schemes specially targeted at drugs & pharmaceutical research.These are: 'The New Millennium Indian Technology Leadership Initiative' (NMITLI) and the 'Drugs and Pharmaceuticals Research Programme' (DPRP).

Key Strengths

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Strong manufacturing base Cost competitiveness Network of laboratories and R&D infrastructure Highly trained pool of scientists and professionals World-class quality products Strong marketing and distribution network Strong process development skills Potential ground for clinical trials Fast growing health care industry Rich biodiversity Growing biotechnology industry Highest Quality approvals from USFDA, EDQM, MHRA etc. Ranks 4th in the world, accounts 8% by volume and 2% by value. Very strong in Indian medicine systems of Ayurvedic, Homoepathy, Unani, Siddha and Herbals medicines An excellent center for clinical trials.

Research and Development In no other Industry segment innovative R&D is as critical as in Pharma industry. Here, the New Drug Discovery Research (NDDR) has to keep pace with the emerging pattern of diseases as well as responses in managing existing diseases where target organisms are becoming resistant to existing drugs. The NDDR is also an expensive activity. It is encouraging to observe that at least 10 Indian companies are into new drug discovery in the areas of infections, metabolic disorders like diabetes, inflammation, respiratory, obesity & cancer. Most of these companies have increased their R&D spending to over 5% of their respective sales turnovers. There is notable success from some Indian companies in out licensing new molecules in the asthma and diabetes segments to foreign companies. Introduction of Product Patent for Pharmaceuticals is an important feature for Indian Pharma R&D scenario. This has boosted the confidence of MNC Pharma companies in India where a number of western Pharma companies have already R&D collaborations with Indian Pharma companies in the field of NDDR. Some Indian companies have also got US-FDA approvals for their new molecules as Innovative New Drugs (lND). Western Pharma companies have recognized the attractiveness of India as a R&D outsourcing destination due to low cost scientific manpower, excellent infrastructure, top quality with capability to conduct modern research under GLP, GCP guidelines. Many of them have set up independent R&D centres in India. Clinical Trials to establish safety and efficacy of drugs constitute nearly 70% of R&D costs. Considering the low cost of Research and Development in India, several MNC Pharma companies as well as global Clinical Research Organizations are increasingly making India a clinical research hub. In conclusion new drug discovery in India has made a promising start wherein at least five to six potential candidates in the areas of Malaria, Obesity, Cancer, Diabetes and Infections are likely to reach Phase II clinical trials. Contract Manufacturing

Many global pharmaceutical majors are looking to outsource manufacturing from Indian companies, which enjoy much lower costs (both capital and recurring) than their western counterparts. Many Indian companies have made their plants cGMP compliant and India is also having the largest number of USFDA-approved plants outside USA. Indian companies are proving to be better at developing Active Pharmaceutical Ingredients (APIs) than their competitors from target markets and that too with non-infringing processes. Indian drugs are either entering in to strategic alliances with large generic companies in the world of off-patent molecules or entering in to contract manufacturing agreements with innovator companies for supplying complex under-patent molecules. Some of the companies like Dishman Pharma, Divis Labs and Matrix Labs have been undertaking contract jobs for MNCs in the US and Europe. Even Shasun Chemicals, Strides Arcolabs, Jubilant Organosys, Orchid Pharmaceuticals and many other large Indian companies started undertaking contract manufacturing of APIs as part of their additional revenue stream. Top MNCs like Pfizer, Merck, GSK, Sanofi Aventis, Novartis, Teva etc. are largely depending on Indian companies for many of their APIs and intermediates. The Boston Consulting Group estimated that the contract manufacturing market for global companies in India would touch $900 million by 2010. Selected Contract Manufacturing Deals in India Indian company Lupin Laboratories Multinational Fujisawa Apotex Nicholas Piramal Allergan Advanced Medical Optics Wockhardt Dishman Pharmaceuticals IPCA Labs Orchid Chemicals and Pharmaceuticals Sun Pharma Kopran Cadila Healthcare Ivax Solvay Pharmaceuticals Merck Tillomed Apotex Eli Lilly Synpac Pharmaceuticals Altana Pharma Product Cefixime Cefuroxime Axetil, Lisinopril (Bulk) Bulk and Formulations Eye Products Nizatidine (anti- ulcerant) Eprosartan Mesylate Bulk Drugs Atenelol Cephalosporin and other injectables CVS products, anti-infective drugs and insulin Penicillin- G Bulk Drug Intermediates for Pantoprazole

Boehringer Ingelheim Biocon Bristol Myers Squibb

Gastrointestinal and CVS Products Bulk Drugs

Public Sector Undertakings 1. Hindustan Organic Chemicals Ltd HOCL), Rasayani,Maharashtra. 2. Hindustan Insecticides Ltd,New Delhi. 3. Indian Drugs & Pharmaceuticals Ltd (IDPL),Dundahera Industrial Complex,Dundahera,Gurgaon,Haryana. 4. Hindustan Antibiotics Ltd (HAL),Pimpri,Pune,Maharashtra. 5. Smith Stanistreet Pharmaceuticals Ltd. (SSPL) ,Kolkata. 6. Bengal Chemicals & Pharmaceuticals Ltd (BCPL), Kolkata,West Bengal. 7. Bengal Immunity Limited (BIL) ,Kolkata,West Bengal. Joint Sector Undertakings 1. 2. 3. 4. 5. Rajasthan Drugs & Pharmaceuticals Limited (RDPL) Orissa Drugs & Chemicals Limited (ODCL) Karnataka Antibiotics & Pharmaceuticals Limited (KAPL) Maharashtra Antibiotics & Pharmaceuticals Ltd. (MAPL) Manipur State Drugs & Pharmaceuticals Limited (MSDPL)

Wholly Owned Subsidiaries 1. IDPL (Tamil Nadu) Limited,Chennai 2. Bihar Drugs & Organic chemicals Limited,Muzaffarpur Other Organisations 1. 2. 3. 4. Petrofils Cooperative Ltd,PO Petrofils,District-Vadodara,Gujarat. Central Institute of Plastics Engineering & Technology,Guindy,Chennai. Institute of Pesticides Formulation Technology,Gurgaon,Haryana. National Institute of Pharmaceuticals Education and Research,Mohali,Punjab.

Regulatory Issues in the Indian Pharmaceutical

Industry

Parvathi K. Iyer

This section undertakes a review and assessment of regulatory issues in the Indian pharmaceutical industry. Understanding the regulatory scenario in this sector is extremely crucial not only due to the rapid and ongoing changes at the global level, largely with reference to good manufacturing practices (GMP), good clinical practices (GCP) and good laboratory practices (GLP) but also due to the onus on the regulatory bodies to ensure a healthy supply of quality drugs at affordable prices to the Indian masses. The present section begins with a brief description of the major regulatory bodies monitoring the Indian pharmaceutical sector. It then undertakes a review of the prevailing mechanisms for drug regulation and temporal progression of some predominant policy measures and Acts. The section subsequently provides a comprehensive account of the status and key guidelines pertaining to the dimensions of drug pricing, patent related issues, GMP and clinical trials, in addition to a brief review of standards for medical devices and biotech products. It concludes with an assessment of the deficiencies of present regulatory regime and some new initiatives by the State to ensure the production and marketing of safe and efficacious drugs at affordable prices in the domestic sphere and to sustain current growth prospects in the global markets.

Major bodies regulating drugs and pharmaceuticals The principal regulatory bodies entrusted with the responsibility of ensuring the approval, production and marketing of quality drugs in India at reasonable prices are: The Central Drug Standards and Control Organization (CDSCO), located under the aegis of the Ministry of Health and Family Welfare. The CDSCO prescribes standards and measures for ensuring the safety, efficacy and quality of drugs, cosmetics, diagnostics and devices in the country; regulates the market authorization of new drugs and clinical trials standards; supervises drug imports and approves licences to manufacture the abovementioned products; The National Pharmaceutical Pricing Authority (NPPA), which was instituted in 1997 under the Department of Chemicals and Petrochemicals, which fixes or revises the prices of decontrolled bulk drugs and formulations at judicious intervals; periodically updates the list under price control through inclusion and exclusion of drugs in accordance with established guidelines; maintains data on production, exports and imports and market share of pharmaceutical firms; and enforces and monitors the availability of medicines in addition to imparting inputs to Parliament in issues pertaining to drug pricing. The Department of Chemicals and Petrochemicals also oversees policy, planning, development and regulatory activities pertaining to the chemicals, petrochemicals and pharmaceutical sector. The responsibilities assumed by this body are relatively broader and varied in comparison to the other two bodies. The main aspects of pharmaceutical regulation are thus divided between the above two ministries. The Ministry of Health and Family Welfare examines pharmaceutical issues within the larger context of public health while the focus of the Ministry of Chemicals and Fertilizers is on industrial

policy. However, other ministries also play a role in the regulation process. These include the Ministry of Environment and Forests, Ministry of Finance, Ministry of Commerce and Industry and the Ministry of Science and Technology. The process for drug approval entails the coordination of different departments, in addition to the DCGI, depending on whether the application in question is for a biological drug or one based on recombinant DNA technology. Issues related to industrial policy such as the regulation of patents, drug exports and government support to the industry are governed by the Department of Industrial Policy and Promotion and Directorate General of Foreign Trade, both under the aegis of Ministry of Commerce and Industry and the Ministry of Chemicals and Fertilizers. With respect to licencing and quality control issues, market authorization is regulated by the Central Drug Controller, Ministry of Health and Family Welfare, Department of Biotechnology, Ministry of Science and Technology (DST) and Department of Environment, Ministry of Environment and Forests. State drug controllers have the authority to issue licences for the manufacture of approved drugs and monitor quality control, along with the Central Drug Standards Control Organization (CDSCO).

Prevailing Mechanisms This sub-section primarily focuses on major regulatory policies and

mechanisms in relation to drug pricing and development of standards for ensuring safety and efficacy. In India, drug manufacturing, quality and marketing is regulated in accordance with the Drugs and Cosmetics Act of 1940 and Rules 1945. This act has witnessed several amendments over the last few decades. The Drugs Controller General of India (DCGI), who heads the Central Drugs Standards

Control Organization (CDSCO), assumes responsibility for the amendments to the Acts and Rules. Other major related Acts and Rules include the Pharmacy Act of 1948, The Drugs and Magic Remedies Act of 1954 and Drug Prices Control Order (DPCO) 1995 and various other policies instituted by the Department of Chemicals and Petrochemicals. Some of the important schedules of the Drugs and Cosmetic Acts i include: Schedule D: dealing with exemption in drug imports, Schedule M: which, deals with Good Manufacturing Practices involving premises and plants and Schedule Y: which, specifies guidelines for clinical trials, import and manufacture of new drugs In accordance with the Act of 1940, there exists a system of dual regulatory control or control at both Central and State government levels. The central regulatory authority undertakes approval of new drugs, clinical trials, standards setting, control over imported drugs and coordination of state bodies’ activities. State authorities assume responsibility for issuing licenses and monitoring manufacture, distribution and sale of drugs and other related products.

Source: Adapted from Dun & Bradstreet (D&B) 2007

Temporal Progression of Drug Policies & Acts

The Patents Act of 1970, Drug Price Control Order 1970 and Foreign Exchange Regulation Act 1973 played a significant role in terms of the building of indigenous capability with regard to manufacture of drugs. The New Drug Policy of 1978 provided an added thrust to indigenous selfreliance and availability of quality drugs at low prices.

DPCO 1987 heralded the increasing liberalization in the industry. One of the important features of this act was the reduction of the number of drugs under price control to 143. The major objective of DPCO 1995 was to decrease monopoly in any given market segment, further decrease the number of drugs under price control to 74 and the inclusion of products manufactured by small scale producers under price control list. In 1997, the National Pharmaceutical Pricing Authority was constituted in order to administer DPCO and deal with issues related to price revision. The Pharmaceutical Policy 2002 carried forward earlier governmental initiatives in terms of ensuring quality drugs at reasonable prices, strengthening of indigenous capability for cost-effective production, reducing trade barriers and providing active encouragement to in-house R&D efforts of domestic firms. In 2003, the Mashelkar Committee undertook a comprehensive examination of the problem of spurious and sub-standard drugs in the country and recommended a series of stringent measures at Central and state levels. The regulatory body came in for censure with the committee noting that there were only 17 quality-testing laboratories, of which only seven laboratories were fully

functional. The National Pharmaceuticals Policy 2006, among other initiatives, has proposed a slew of measures such as increasing the number of bulk drugs under regulation from 74 to 354, regulating trade margins and instituting a new framework for drug price negotiations in a move to make drugs more affordable for the Indian masses.

Drug Pricing As mentioned earlier, pricing policy and industry regulation constitutes one of the key responsibilities of the NPPA. Price control on medicines was first introduced in India in 1962 and has subsequently persisted through the Drug Price Control Order (DPCO). As per the directive of NPPA, the criterion for price regulation is based on the nature of the drug in terms of whether it enjoys mass consumption and in terms of whether there is lack of adequate competition for the drug. The year 1978 witnessed selective price controls based on disease burden and prevalence. The list of prices under DPCO subsequently witnessed a gradual decrease over a period of time. Around 80% of the market, with 342 drugs, was under price control in 1979. The number of drugs under DPCO decreased from 142 drugs in 1987 to 74 in 1995. Drugs with high sales and a market share of more than 50% are subjected to price regulation. These drugs are referred to as scheduled drugs. The NPPA also regulates the prices of bulk drugs. The MRP excise on medicines was levied by the Finance ministry in 2005. The objective was to increase revenue and lower prices of medicines by using fiscal deterrent on MRP. This

change may have had some impact in terms of magnifying the advantage to industries located in the excise free zones. This also succeeded in attracting some small pharmaceutical firms to these zones. (Gehl Sampath 2008, Srivastava 2008). As the report by NIPER, submitted to the Ministry of Chemicals and Fertilizers in 2007 points out, this may have led to tax disparities among firms located in tax exempt zones and tax non exempt areas. This has also led to small firms in non exempt areas requesting for tax subsidies from the government. For drugs not under price control, firms can set the Minimum Retail Price (MRP). The NPPA only intervenes in cases where drugs have significant sales and where the annual price increases by 10%. This is a recent development, which came into effect in 2007, as in the past the NPPA would intervene only if the annual price increases were more than 20%. This development indicates the heightened sensitivity of the government towards consumer access to medicines at reasonable prices and keeping a check on profit mongering by the industry. (ibid)

Fixed dose combinations and prevalence of counterfeit and spurious drugs Recently, 294 fixed dose combinations were withdrawn by the Central Drug Control Authority on grounds that these drugs were therapeutically irrational. The order was subsequently stayed by the Madras High court. The issue of the definition of counterfeit drugs is relevant in the context of different drug quality standards prevailing in the Indian market. While exported drugs were of a higher quality (WHO/FDA/EMEA/TGA), to meet the

required standards in the country of export, in the case of the domestic market, adherence to local quality standards, fixed by the regulatory body was sufficient. Also absence of transparency in licensing procedures has resulted in the market being flooded with counterfeit and substandard drugs. In this context, the Mashelkar Committee report has referred to a WHO study, which declared that nearly 30% of the Indian market was flooded with spurious, substandard or counterfeit drugs. The government’s own estimates have been in the range of 8-10% for substandard drugs and 0.20.5% for spurious drugs.

Patents and Data Protection related issues The Indian Patent Act, 1970 was amended through the Patents Amendment Act (2005). A technical expert group was constituted under the chairmanship of Dr R.A. Mashelkar, then Director General of the CSIR. The Committee decision was that it would be TRIPS incompatible to exclude microorganisms from patents and to limit the grant of the patent for pharmaceutical substance to a new chemical entity or a new medical entity involving one or more inventive steps. The committee also opposed the granting of frivolous patents and evergreening and recommended the formulation of detailed guidelines to ensure that only those patents proving ‘substantial human intervention’ and ‘utility’ were granted. As per the provisions of Article 39(3) of the TRIPS Agreement, member countries have to provide protection to regulatory data submitted for market approval of pharmaceutical products under specific circumstances. The government of India constituted an expert committee under the chairmanship of Mr Satwant Reddy to formulate adequate steps to deal with the issue of data protection. The Reddy Committee report, brought out in

2007, stated that in the context of pharmaceuticals, the present legal regime was inadequate to address the issues related to data protection with respect to Article 39(3) provisions. It also underscored the need for more clear and stringent mechanisms within the Drugs and Cosmetics Act to ensure that undisclosed test data was not put to unfair commercial use in India.

Good Manufacturing Practices Good Manufacturing Practices (GMP) constitute an international set of guidelines for the manufacture of drugs and medical devices in order to ensure the production of quality products. In recent years, GMP protocols are being adopted and followed in over 100 countries, either in the form of regulations (Japan, Korea and United States), or Directives (European Union) or Guides (United Kingdom) or Codes (Australia). The objective of GMPs is to minimize risks with reference to the manufacturing, packaging, testing, labeling, distributing and importing of drugs, cosmetics, medical devices, blood and blood products, food items etc. These protocols are largely concerned with parameters such as drug quality, safety, efficacy and potency. WHO GMP Protocols: World Health Organization GMP guidelines were

instituted in 1975 in order to assist regulatory authorities in different countries to ensure consistency in quality, safety and efficacy standards while importing and exporting drugs and related products. India is one of the signatories to the certification scheme. The WHO-GMP certification, which possesses two-year validity, may be granted both by CDSCO and state regulatory authorities after a thorough inspection of the manufacturing premises.

Schedule M Compliance: The requirements specified under the upgraded Schedule ‘M’ for GMP have become mandatory for pharmaceutical units in India w.e.f. July 1, 2005. Schedule M classifies the various statutory requirements mandatory for drugs, medical devices and other categories of products as per the current Good Manufacturing Practices (cGMP). Schedule M protocols have been revised to harmonize it along the lines of WHO and US-FDA protocols. These revised protocols include detailed specifications on infrastructure and premises, environmental safety and health measures, production and operation controls, quality control and assurance and stability and validation studies.ii Problems related to Schedule M compliance are mostly confined to small-scale pharmaceutical units as large-scale firms have shown greater willingness to comply with the revised norms in order to increase their competitiveness in the global arena. The Central Drugs Standards Control Organization has, however, yet to compile data on the extent of Schedule M compliance by the firms. The Najma Heptullah Committee on Subordinate Legislation, which tabled its report in Parliament recently, is scheduled to compile data on extent of Schedule M compliance shortly. However, according to state regulatory sources, units in states like Gujarat, Karnataka, Maharashtra and Andhra Pradesh have achieved a high percentage of Schedule M compliance in comparison to units in other states.
International regulatory certification for Indian manufacturing units: A principal

issue relating to good manufacturing practices is that WHO-GMP is no longer sufficient, particularly for exporting of drugs and related products to developed countries. Regulators from these countries visit Indian firms to carry out a thorough inspection of their manufacturing units before registering the concerned product. A large number of domestic players are seeking international regulatory approvals from agencies like US-FDA, MHRA UK, TGA Australia and MCC South Africa in order to export their products, mostly generics, in these markets. A large number of Indian firms are increasingly seeking at least WHO GMP approval in order to compete for exports to CIS countries and other Asian markets. India has the distinction of having the largest number of US-FDA approved manufacturing units, totaling 100, mainly for production of Active Pharmaceutical Ingredient (API), outside of the United States.

State-wise distribution of manufacturing units with WHOGMP certification State Assam Kerala Gujarat Maharashtra Haryana Uttar Pradesh Andhra Pradesh Karnataka Goa Daman Pondicherry Tamil Nadu Rajasthan Delhi Uttarakhand Punjab Madhya Pradesh Orissa Bihar No of units 1 14 307 136 19 21 138 52 42 26 10 5 4 12 1 7 24 1 5

West Bengal Total

6 814

Source: Central Drugs Standards Control Organization (CDSCO). Latest available figures.

THE RANBAXY EPISODE

In the context of the acquisition of international regulatory approvals, the Ranbaxy episode is significant since it provides an indication of the regulatory hurdles likely to be faced by Indian firms competing for the generics market in developed countries, notably United States and Europe. On July 3, 2008, the US Food and Drug Administration (FDA) filed a motion against Ranbaxy in a Maryland court, alleging that the firm had falsified documents submitted to it. This was subsequent to the FDA’s raiding of Ranbaxy’s offices in New Jersey in February 2007. The FDA officials’ allegations were to the effect that Ranbaxy had sold fake or adulterated versions of an HIV drug to patients in Africa. The regulatory body also made allegations about the quality and safety of the generic drugs the firm had sold in the United States and that the firm had refused to hand over documents relating to an audit of its manufacturing unit. The audit had been carried out by Parexel International, a US based pharmaceutical services firm. Ranbaxy subsequently denied the allegations, maintaining that it had made changes recommended by the audits and also referred to the attorney-client privilege, which it claimed, protects the audits. On August 3, 2008, the firm turned over some documents to the FDA. The legal investigation is a first of sorts for an

Indian firm and has caused concern among other major domestic Indian players that they would be accorded the same treatment as Chinese manufacturers after FDA officials reported 81 deaths due to production defects in Chinese made ingredients in Heparin. If the verdict goes against Ranbaxy, the onus lies on the firm to prove that the manufacturing process deficiencies relate to the plants in question rather than a system wide problem. The FDA’s order apply to supplies from the plants located in Ponta Saheb and Dewas.

Clinical Trials In recent years, India has positioned itself as one of the major players in the clinical trials arena. The recognition for India as a centre for clinical trials has mainly arisen through the providing of contract services to the international pharmaceutical industry in the form of clinical development services. Clinical trials to establish the safety and efficacy of drugs constitute nearly 70% of research and development costs and the total time taken for drug development constitutes nearly 7-10 years. Well-designed clinical trials provide the requisite data pertaining to safety and efficacy of drugs and impart meaningful results about a given therapeutic intervention in human beings. According to latest estimates made by the Tufts Centre for the Study of Drug Development, while total research costs have increased by 7.4% per year, the costs of clinical trials on human beings has risen by over 12 per cent. Considering the relatively low costs of R&D in India, several MNC pharmaceutical companies, as well as global clinical research organizations are increasingly making India a clinical research and development hub.

Fig 1: Phase-wise break-up of clinical trials carried out in India
Source: FICCI 2005

The clinical market in India is expected to grow at a consistent rate of 20-25 percent. The recent regulatory revisions in the pharmaceutical industry and stricter patent laws have made it easier to conduct trials, making it the fourth largest market in terms of volume. Figure 1 provides a phase-wise break up of clinical trials carried out in India. Phase I trials are essentially carried out to establish pharmacological indications and safety of the drug and are essentially exploratory in nature. Phase II trials provide information related to the efficacy and safety of the new drug in patients. Phase III trials are essentially multi-centric confirmatory trials carried out in larger groups of patients and healthy volunteers, while Phase IV trials involve post-marketing surveillance. The

chart clearly indicates that the majority of trials carried out in India fall under the Phase III category. India’s clinical development sector has witnessed a tremendous growth in recent times. In 2005, the revenues from contract R&D for international sponsors totaled $100 million and the sector enjoys an annual growth rate of about 40 per cent. Several global CROs have entered the Indian market in the last few years. Some of these have also entered into alliances with local CROs.

CLINICAL TRIAL COST DIFFERENCES IN INDIA & U.S.

United States

India

Phase 1 Phase 2 Phase 3

$ 20 mn. $ 50 mn. $ 100mn.

< $10mn. < $30mn. < $60mn.

Source: FICCI 2005

CLINCIAL TRIALS IN INDIA: A SWOT ANALYSIS Strengths Opportunities Weaknesses Threats / Challenges

-Resource pool of welltrained, qualified, English speaking manpower -Relaxation of duties on import of clinical trial samples -Diverse genetic pool and disease variation -Numerous government funded and private medical and pharmaceutical institutions with state of art facilities -Cost efficiency (up to 60%) in comparison to USA/ Europe -Fast recruitment of large number of patients -Revamped regulatory regime -Removal of phase lag and permission to conduct Phase I trials concurrently in India along with rest of the world - Lack of adequate mechanisms to safeguard illiterate and vulnerable patients, prevent informed consent violations and ensure proper functioning of institutional ethics committees -Need for expertise on data management related specialized services - Need for a strong centralized regulatory regime to effectively monitor GCP guidelines

-Establishment of Clinical Trial Registry

Policies relating to clinical trials In this context, it would also be useful to review prominent changes in policies related to clinical trials in the last few decades. Till about a decade

ago, regulatory and ethics based environment for the conduct of quality clinical trials in India were conspicuous by their absence. The Central Drugs Standards Control Organization (CDSCO) has played a critical role towards this end. The progression towards Good Clinical Practice (GCP) has largely been a gradual and slow process. It was in 1988 that local clinical trials for new drug introductions were first made mandatory in India. There was also a phase lag as permissions for trials were granted for one phase behind the rest of the world. Thus, Phase II and Phase III trials were permitted only after these had been carried out elsewhere in the world. The period before 2000 witnessed several incidents of ethical violations related to informed consent and conduct of trials by multinational firms and domestic players as well. In 2000, due to the proactive initiatives of regulators, the Central Ethics Committee on Human Research (CECHR) and Indian Council of Medical Research (ICMR) conceptualized and issued Ethical Guidelines for Biomedical Research on Human Subjects. In 2001, a Central Expert Committee was set up by Central Drugs Standards Control Organization (CDSCO) to develop Good Clinical Practice (GCP) guidelines in line with the latest WHO and ICH guidelines. Subsequently, the requirements of data submission on animal testing for permission to undertake Phase I, Phase II and Phase III clinical trials were laid down in the revised Schedule Y of the Drugs and Cosmetics rules. As per these revisions, the relevant data submitted to the Drugs Control General of India (DCGI), is evaluated with the assistance of expert clinicians & scientists. Similarly, for registration and approval of new drugs, which have already been registered and used in the country of origin, Phase II trials in about 100 patients is usually insisted upon by DCGI before allowing such products

to be marketed in India. Normally, new drug approval is usually granted for a period of about two years. The trials are conducted only after clearances are obtained from the Institutional Ethics Committees. Consent of patients for participation in such trials is an integral part of the regulatory framework. In 2005, Drugs Technical Advisory Board (DTAB) made GLP practices mandatory for all laboratories and in-house units of pharmaceutical firms and Contract Research Organizations (CROs). In 2007, norms pertaining to the Phase lag have also been revised and Schedule Y now permits Phase I trials to be carried out concurrently in India world. For an efficient and ethical growth of the clinical trials industry, the appropriate mechanisms to be adopted include the presence of a strong centralized regulatory regime to effectively monitor GCP guidelines and ensure transparency in the functioning of institutional ethics committees (IECs). along with the rest of the

Medical devices In June 2007, the DCGI formulated a new set of guidelines for the import and manufacture of medical devices in the country. The guidelines were the aftermath of the JJ Hospital controversy, involving the use of unapproved and untested stents on 60 patients and the subsequent recommendations made by the Mashelkar Committee in 2004. The immediate outcome of the JJ Hospital controversy was that the Department of Medical Education and Research (DMER) banned the use of unapproved stents and stressed on regulatory approvals from the country of manufacture or US-FDA approval for medical devices.

The Mashelkar Committee subsequently recommended the creation of a specific medical devices division within the CDSCO in order to address the management, approval, certification and quality assurance of all medical devices. This essentially consisted in alteration of the status of sterile medical devices, intended for internal or external use to medical drugs and creation of suitable provisions and amendments to the Drugs and Cosmetics Act of 1940. The Drugs Consultative Committee approved these recommendations in 2005, ensuring that in future all devices would be licensed for manufacture, distributed and sold by the CDSCO, with special evaluation committees in order to ensure that the concerned manufacturing units complied with the requisite GMP requirements. The principal provisions of these guidelines are as follows: Ten categories of sterile devices: cardiac and drug eluting stents, catheters, bone cement, heart valves, scalp vein sets, orthopedic implants, internal prosthetic replacements, IV cannulae and intraocular lenses; would be considered as drugs and consequently regulated. Importers would have to submit US-FDA clearance, the EU medical device directive or similar approvals from other countries as proof of adherence to quality standards. Expert committees would be set up for evaluation and granting of licences to locally manufactured devices, in the absence of international quality certification. The approval of the committees would be verified by both Central and State licensing committees. Some of the problems associated with compliance to these regulations include lack of awareness among smaller firms, high registration fees, delays

in granting of licences, restrictions in the entry of new players in the sector and lack of preparation by the firms with respect to documentation requirements.

TTK-Sree Chithra Tirunal Collaboration on medical devices

TTK Healthcare Ltd and Sree Chithra Tirunal Institute for Medical Sciences and Technology (SCTIMST) are jointly developing a tissue heart value or bioprosthetic for older patients. The device will be ready in around three years and will subsequently undergo clinical trials. These valves are used in patients above the age of 40 in India and patients above the age of 50 in the United States. The Chitra-TTK valves mechanical valves are sold at a price of Rs 25,000 each, about a quarter cheaper than the cost of similar imported valves. The tie-up is a significant move towards generating affordable indigenous technology in the wake of high registration fees of imported devices. The bioprosthetic device would have a shorter lifespan of around 15 years in comparison to the existing mechanical valve but the patient would need to take medication only for a period of 6 months in comparison to a longer duration of medication for patients fitted with mechanical valves.

Biotech Products The Ministry of Environment and Forests under the Environment (Protection) Act of 1986 have notified the rules for the manufacture, use, import, export and storage of hazardous microorganisms or genetically engineered organisms or cells. As per these rules, biological materials are regulated from the R&D stage to their release in the environment. The Institutional

BioSafety Committee (IBSC), Review Committee on Genetic Manipulation (RCGM) and the Genetic Engineering Approval Committee (GEAC) to monitor rDNA research, product development and commercialization. The ISBC functions as the nodal point for interaction within the institution for the implementation of the rDNA Biosafety guidelines. The RCGM essentially monitors the safety related aspects of activities involving genetically engineering organisms or hazardous microorganisms. The GEAC undertakes the responsibility of approval of activities involving large-scale use of genetically modified/ hazardous microorganisms and products thereof in research and industrial production and their safety in terms of environmental protection. In addition, the DCGI and state drug controllers as per the Drugs and Cosmetics Act 1945 and its subsequent amendments regulate biologicals.

Deficiencies and Limitations of the current regulatory regime:
    

Proliferation of spurious and substandard drugs in the Indian market Dual licencing mechanism acts as a deterrent to uniform implementation of regulatory procedures Lack of transparency in licencing procedures Inadequate regulatory expertise and testing facilities to implement uniform standards Need for greater thrust on institutional support to small scale firms to enable speedy implementation of Schedule M upgradation and standardization of drug quality Need for greater clarity on patentability of pharmaceutical substances and conditions under which firms can apply for compulsory licences to prevent legal battles between local firms, MNCs and civil rights groups. Need for greater coordination, accountability and transparency in functioning among different ministries concerned with drug regulation.

Recent regulatory initiatives:

  

Move to establish an integrated regulatory system through the constitution of a National Drug Authority so that quality regulation and price control is performed by the same agency Establishment of pharmacovigilance centres at national, zonal and regional levels to monitor adverse drug reactions Move to bring nearly 374 bulk drugs under price control and regulate trade margins Capability strengthening to monitor clinical trials, including the setting up of the Clinical Trials Registry of India (CTRI)

Globalisation and its Impact on the Indian Pharmaceutical Industry
D.P. Dubey Globalisation is a process which involves economic inter-dependence of countries world-wide removing all barriers for economic integration as if the whole world is a single village. Obviously, in this process, the rich nations with their superior financial power, control the scenario and the poor and the developing nations are forced to integrate surrendering their economic independence knowing fully well what they are forced to accept is really prejudicial to their own interest. In this process the world financial institutions like the World Bank, IMF and now the WTO advance the interest of the rich countries alone. The draconian policies of the World Bank and the IMF under the structural adjustment programme resulted in the net transfer of $178 billion between 1984 and 1990 from the poor countries to the commercial banks of rich nations. (UNDP Human Development Report, 1994). The Transnational Corporations (TNCs) of the rich nations are practically controlling the world finances. Today, the whole world is colonised by global finance and the TNCs supported by the neo-colonial structure including the World Bank, IMF and WTO are controlling the financial situation world-wide. The governments of third world countries are powerless against global finance and are unable to control its movement within their own national boundaries. The situation of the world drug industry is no different. 'Operating at the behest of the Pharmaceutical Research and Manufacturers' Association (PhRMA) for a decade and a half, the U.S.Government has waged a ruthless crusade to force third world countries to adopt strait jacketing intellectual property rules at the expense of protecting public health', says the editorial comment in the June 1998 issue of Multinational Monitor, a journal published from Washington.

The structural adjustment programme introduced by the government of India at the behest of the IMF, World Bank and WTO created a serious impact on India's drug industry, health care system, on the workers engaged in the industry and ultimately on the people of the country. These reform policies are mainly the reduced role of the Government, cut in subsidy in the social sector, increase in administered prices, liberalisation of trade by increasing tariff rates providing incentives for foreign investment, privatisation of the public sector, equating foreign companies with Indian companies, de-regulating the labour market etc. This is aimed at the withdrawal of the state initiative from the social and welfare sectors like health, education, public distribution etc. In this article I shall try to show how the workers of the drug industry and the people of our country are affected by the impact of globalisation. Drug industry situation prior to the Indian Patent Act, 1970 At the time of independence, the total drug production in our country was around Rs. 10 crores. At that time the MNCs taking the help of the colonial Patent and Designs Act, 1911 exploited the drug market of our country. They were engaged mainly in the import of drugs from their country of origin. Between 1947-57, 99% of the 1704 drugs and pharmaceutical patents in India were held by foreign MNCs. During that time the MNCs who were controlling 80% of the market did not come forward with financial investment and technological help to establish drug production centres in India. Drug prices in India were amongst the highest in the world. In 1954, the first public sector drug company Hindustan Antibiotic Ltd. (HAL) was established with the help of WHO and UNICEF. The Indian Drugs and Pharmaceutical Limited (IDPL) was established in 1961 with help from the Soviet Union. The establishment of these two public sector units and the coming into force of the Drug Policy of 1978 had been mainly responsible for the availability of drugs and medicines at relatively lower prices in India. The country became almost selfsufficient in the production of drugs. Indian Patent Act 1970 The Patent Bill was first introduced in Parliament in 1967, but the Patent Act, 1970 came into force only in 1972. The Indian Patent Act 1970 which is in operation in our country does not allow product patents on medicines, agricultural products and atomic energy. This is the most suitable patent act for the developing world. Here, process patents are allowed for 5-7 years. Mainly with the help of the Indian Patent Act 1970 India is today self-sufficient in the production of basic drugs covering various groups of drugs. Indian scientists developed new processes for 107 drugs. Indian companies are now among the world leaders in the production of bulk drugs from basic stages. At present, the prices of drugs in India are comparatively cheaper than many other countries. As per UNIDO, India is identified to produce its own drug needs with its own technology and manpower indigenously. After 1970, many new drug firms were established by Indian businessmen. At present, around 23 thousand small, big, and medium factories are producing drugs in India. Attempts to change the Indian Patent Act 1970 are a part of this globalisation programme. The imposition of an unequal trade treaty like the World Trade Organisation (WTO) is a step towards

globalisation in favour of the MNCs of rich nations. With its help, the market of the developing nations is forced open for the developed countries. Most of the developing countries were forced to sign the WTO agreement without realising its implication: as a result, the developed countries are the gainers. Already, at the dictates of the IMF, World Bank and WTO, the Government of India is slackening all checks and controls to invite the MNCs in all industries including the pharmaceutical industry. FERA and MRTP Acts have been amended. Customs duties and corporate taxes have been lowered. Relief, concessions and facilities have been extended to the MNCs as to Indian companies. All these, already, had an adverse impact on the indigenous drug industry. As per the requirement of WTO guidelines for the product patent regime, the availability of new drugs in our country may be delayed depending on the desire of the patent holders. As per the guidelines, a product patent is granted for 20 years and a process patent for another 20 years. At present, newer drugs are made available in our country within a 4-6 years period. Prices of drugs will go up by 5 to 10 times as it is evident from the prices of drugs in India and other countries like Pakistan, U.K. and U.S.A. where product patents are in force. Ranitidine is sold by Glaxo in India at Rs. 7.20. The same product is sold by the same company in Pakistan at Rs. 65 and in the U.S.A. at Rs. 545. Similarly, the anti-viral drug Aciclovir costs Rs. 33.75 in India while the same drug is sold in Pakistan at Rs. 363. There are many such examples. The drug prices in the U.S.A., U.K. and other developed countries have gone up so high that the health care expenditure in those countries is predominantly funded by insurance companies at a very high premium. In those countries people cannot think of treatment without insurance coverage. Product patent regime will definitely hamper India's drugs exports as countries will be forced to purchase from patent holders only. Dilution of Drug Policy and Drug Price Increase Unlike consumer goods, drugs are not purchased by the preference of a person, but on a doctors' prescription. Consumers have no choice of their own on this matter. Prices of drugs are increasing by leaps and bounds along with the prices of other commodities in recent times. The drug manufacturers are flouting the Drug Price Control Order (DPCO). The DPCO was first introduced in 1970. In 1970 most of the drugs were under price control. In 1987 this was diluted and the number of drugs which were restricted declined to 347, in 1987 it was brought down to 163 drugs and in 1994 only 73 drugs were under DPCO. Even then industry is not happy; they want the control to be abolished totally. They have already demanded decontrol of 17 bulk drugs and further recommended full decontrol within 3 years time (Economic Times, 28th September, 1998). Many developed countries of Europe control drug prices directly. In the U.K., the government determines the profit level of drugs supplied by individual companies.A company has to reimburse excess profits to the Department of Health. A recent study shows that the prices of many life-saving bulk drugs have gone up steeply. Drugs policies in our country are decided not by the need of our people, the pattern of diseases or by the purchasing capacity of the people, but by the profit motive of the industry and the Central Government is playing the role of a silent onlooker. We are giving below the prices of twelve essential drugs before the liberal decontrol of DPCO in 1995 and today.

Table 1 Name of drug Diazepam Ampicillin Cephalexin Ethambutol Rifampicin Pirazinamide Lignocaine Hcl Antacid liq. Oxyfedrine Hcl Discopyramide Phosphate Dipyridamole For treatment Depression Antibiotic Antibiotic Anti T.B.drugs -do-doAnaesthetic Gastritis Angina pectoris Packing 10 4 10 10 10 10 30 ml. 10 10 Price 1995 3.13 Percentage 1998 increase 9.50 204% 80% 151% 457% 167% 176% 198% 158% 77% 105% 206% 137%

12.85 23.15 45.07 113.15 5.92 33.00 24.00 64.00 17.01 46.95 4.16 12.40 1.25 3.23

Promethaxine Hcl Anti allergic

200 ml. 13.00 23.00 10.44 21.41 16.50 50.46 2.00 4.73

Cardiac problems 10 Anti angina 10

The above list is only indicative. Hundreds of such examples can be given. Further, under the WTO agreement and the imposition of a products patent regime, the prices of all new drugs (patented) will go up without any control of domestic law. The DPCO will become further irrelevant and Indian people's accessibility to newer drugs will be restricted only to the rich of the country. We are giving below the high prices of some of the new drugs introduced in 1997 in the Indian market. Table II Drug Lumicil Spariex Rispid Livial Pipracil Amate Company Novertis Sun Pharma Panacea Infar Cyanamid 2G 3 mg 300 mg Mesco Pharma 50 mg Strength Pack 100 mg 250 mg 200 mg 50 ml 4 tablets 14 capsules 6 tablets 28 tablets Vial 12 tablets 2 ml. vial 6 tablets Price 173.00 1247.00 154.00 1225.00 215.78 180.00 210.00 165.00 Sporanox Ethnor

1 mg/ml capsule 141.00

Adnoject Inca Roxisara Sarabhai

Celex

Glaxo

250 mg

4 tablets

140.00

(Source: Paper of A. Guha, in the seminar held at Delhi in May, 1998) World-wide concern has been expressed about the sharp rise of drug prices. The WHO's goal of Health for All by 2000 AD will remain a distant dream. Moreover, with the rapid development in technology, a greater number of new drugs are being introduced. Experts say that very few of them are having therapeutic advantages over the existing drugs. 'Out of 348 new drugs introduced by 25 big US companies during 1981 to 1988 only 3 per cent made important potential contribution while 84 percent made little or no potential contribution' said the US federal authority. Hence the introduction of new costly drugs should be properly monitored by the central government. Mass Ending of Jobs With the reduction of the customs duties on foreign imports many drugs manufactured in India have become unviable compared to the foreign goods in the Indian market. As a result, the owner of these factories are closing down their units and throwing the workers out of employment. Messrs. Boehringer Mannheim, and Parks Davis who were the lone producers of Chloramphenicol in India stopped their production as its prices in the international market were cheaper than the cost of production in India. M/s. Sarabhai Chemicals closed their Vitamin 'C' plant for a similar reason. Like Chloramphenicol and vitamin 'C' many other drugs like paracetamol, metronidazole, ampicillin, amoxycillin etc. are available at a cheaper price in our country from abroad because of the lowering of the customs duties so that Indian factories have closed and workers are on the streets. For the above drugs our country has became dependent on foreign supply. In their attempt to shift the production to the third party manufacturing already, Hindustan Ciba Geigy, Roche, Abbot, Boehringer Mannheim, Boots, Park Davis, Unichem etc. have closed their factories and offered a voluntary retiring scheme to workers and they have sold the land of their factory premises at a premium price. Apart from these closures, Pfizer, Rhone Poulenc, Hoechst, Glaxo etc. have reduced their work force. Crores of rupees have been spent to give VRS. These companies are manufacturing their products with the help of loan licences. Some of the companies have opened new smaller factories in new places and appointed workers with lower wages and more workload. More casual workers are being appointed. In the last two years in the Mumbai Thane region of Maharashtra around 30,000 workers have lost their jobs in the pharmaceutical industry. Apart from the factory workers the distribution workers are gradually being replaced by Cost & Freight agency system. In this system, the original company does not have any responsibility for the workers. They are employed by agents with more workload and lower wages. In the last decade around 15 thousand distribution workers have lost their jobs in the pharmaceutical industry. Moreover, through the agency system the Government is deprived of sales tax.

In marketing also the field workers or the sales promotion employees are facing tremendous attacks in the name of franchise, co-marketing, appointment of communicators etc. many permanent sales promotion employees are losing their jobs. Many others are appointed in the name of so-called executives to remove them from the fold of the union. More casual and contractual workers are being recruited. Table III Company Glaxo Hoechst Knoll Pharma (Boots) Smith Kline Beecham E. Merck Rhone Poulenc Duphar Interfran Bayer Abbott Roche Park Davis Pfizer Unichem Year Reduction of work force 1995 1996 1995 1995 1995 1996 1996 1996 1996 1996 1997 1995 1997 1564 1049 600 (All workers) 208 194 700 907 154 590 All workers All 320 workers All 335 workers All 650 workers 215 All workers

Hindusthan Ciba Geigy 1993

Boehringer Mannheim 1997

(Source : Annual reports of respective companies and interaction with the office bearers of Unions). Thus, the total payment on voluntary retirement schemes by firms like Glaxo, Hoechst, Pfizer, Knoll Pharma, Rhone Poulenc, Park Davis, Smith Kline Beecham, Duphar, Bayer etc. are more than Rs. 200 crores in the last three financial years. The main important thing is that employment opportunities in these units have been reduced for ever. Impact on Public Sector With the reduced role of the state under globalisation the public sector drug companies are faced with serious problems including imminent closures. Public sector drug companies like Indian Drugs and Pharmaceuticals Ltd. (IDPL), Hindustan Antibiotics Ltd. (HAL), Bengal Chemicals and Pharmaceuticals Ltd. (BCPL), Bengal Immunity (BI) and Smith Stanistreet Pharmaceuticals Ltd. (SSPL) played an important role in the production of essential drugs at affordable prices. Under the globalisation process the role of the public sector has been marginalised and they have

been made sick. Attempts have been made to either privatise or close them. The Penicillin Plant in HAL, the biggest in the country, has been handed over to private hands. Its Streptomycin plant also has been leased to a private company for manufacture of other drugs. IDPL which is having the biggest pharmaceutical plant in Asia is closed from 1996 for want of proper financial assistance from the government. The public sector drug companies used to supply raw materials to the small scale sector companies. Now, these companies are facing difficulties in procuring raw materials. Similar is the fate of BCPL, B.I. and SSPL. These three units were taken over by the government after they were made sick by the private owners. Proper utilisation of their capacity could not be made due to lack of will on the part of the government, mismanagement at the administrative level and high level corruption. It is not because of any inherent weakness but due to the lack of political will, deliberate efforts to destroy them, corruption and mismanagement that these public sector units have been rendered commercially unviable. Moreover, the number of workers engaged in these units have been reduced drastically. When IDPL was established it had a strength of more than 15,000 workers. Today, it has been reduced to less than 7,000. With the pharmaceutical industry taking a leap towards biotechnology development world-wide, only the public sector drug companies, with the backing of the Central Government, could have faced the challenge effectively from the MNCs in the new situation. Mergers and Acquisitions International and national level mergers, acquisitions and takeovers have now become a common phenomenon in the pharmaceutical industry. Internationally American Home Product merged with Cyanamid, SKB with Sterling, Rhone Poulenc took over Fashions, BSF with Boots, Glaxo with Burroughs Welcome, Ciba Geigy with Sandoz, Warner Hindustan with Parke Davis, Hoechst with Rhone Poulenc etc. are some of the examples of big take overs. By mergers and acquisitions these companies became even larger with more financial power at their disposal over their competitors. (See Table IV for the top pharmaceuticals of the world). In coming days, with the help of international financial companies the MNCs will capture and take control of Indian companies to control the Indian market. To match the situation created by international mergers and takeovers, Indian companies are adopting the same path. For example Wockhardt took over Merind and Tata Pharma, Ranbaxy took over Croslands, Nicholas Piramal took over Roche, Boehringer, Sumitra Pharma. The inevitable results are job loss of workers. Because of overlapping of jobs large numbers of workers are declared surplus. After merger Glaxo-Welcome and Ciba-Sandoz announced a reduction of 15 thousand and 10 thousand of their work force respectively world-wide. Upjohn and Pharmacia decided to close 24 of their 57 plants in different countries after their merger. Some countries are adopting the 'buy and grow' method. They are taking over some popular brands and increasing their business. SKB took over Crocin from Duphar, Ranbaxy took over 7

leading brands from Gufic, Dr. Reddy's Lab purchased 6 products of Dolphin and two each from Pfimex and SOL Pharma. Sun pharma purchased all leading brands of NATCO, after selling the popular brands the companies are becoming sick and closing their shutters throwing the workers on the street. The governments permission to the MNCs to come to India with 100% equity have threatened the existing companies with the same origin and their workers. Through the process of mergers, acquisitions and takeovers MNCs will gradually perpetuate their grip on the Indian industry by the creation of a limited number of mega companies having monopoly control and domination world wide. In the absence of competition people will have to pay any price as it happens in the sellers market. Conclusion The present government at the centre is bringing a bill in the winter session of Parliament to change the Indian Patent Act 1970. The change in the Act is not in the interest of the people of the country. Now patents have become an object of business instead of development. Considering the wide gap of industrial and technological development between developed and developing countries monopoly rights through the patent system should not be allowed to the rich nations. Today 85% of the patents are being controlled by the TNCs of the rich nations. 'Globalisation is hurting poor people, not just the poor countries. In this process poor countries and poor people will become increasingly marginalised', says the 1997 world development report of UNDP. The question is why this pressure and hurry? The main aim is to impose the conditionalities of WTO and to change the Indian Patent Act as MNCs need more markets and are eyeing Asia which is the largest continent of the world where 60% of the world population lives but contributes only 20% of the world pharmaceuticals business. With a high rate of population growth it is expected that the need of drugs will tremendously increase in the third world countries including India in the next millennium. India contributes 16.1% of the world population, but it produces only 1.2% of world drug production (See Table V). Hence the MNCs are trying to have more control over the pharmaceutical markets of the developing nations. Developed countries are backing their own big companies to capture markets in other countries even at the cost of the interest of the people there. The United States has successfully battled for the inclusion of strict intellectual property rules in international trade agreements such as NAFTA and GATT. Often the U.S. position has literally been drafted by PhRMA. These trade agreements disregard public health considerations and have forced dramatic changes in the intellectual property rules the world over. Still PhRMA is not satisfied. And when PhRMA is not happy the office of U.S. Trade Representative (USTR) is not happy, says the editorial comment of Multinational Monitor. The above comments clearly indicate the intention of the USA and other rich nations. Unfortunately, the Government of India is dancing to their tune. Against this, it is necessary to

develop and launch broad-based movements everywhere with the active support of people hailing from all walks of life to force the government to change their stand. Table IV Some top pharma company mergers in the world Company Dow Chemicals Bristol Myers Beecham group Hoffman La Roche Eli Lyly Sandoz Smith Kline Beecham Glaxo Hoechst Pharmacia Rhone-Poulenc Rorers BASF Ciba Geigy Hoffman la Roche Hoechst A.G. Astra Merger Marion Labs Squibb Corp Year of Value of merger merged company 1986 1989 1994 1994 1994 1994 1994 1995 1995 1995 1995 1995 1996 1997 1998 1998 67 bn. $ 6.21 bn. 12.09 bn. 7.9 bn. 9.7 bn. 5.3 bn. 4 bn. 3.7 bn. 2.9 bn. 14.2 bn. 7.2 bn. 7 bn. 2.7 bn. 1.3 bn. 30.1 bn. 11 bn.

Smith, Kline & French 1989 Syntex Lab. PCS Health System Gerber Sterling Burroughs Wellcome MMD Roussel Upjohn Fison Boots Sandoz Comage Ltd. Rhone Poulenc Zeneca

American Home Products American Cynamide

(Source: Compilation from reports published in various news papers at different times)

Table V Percentage of drug production and world population in some countries Country USA Germany France U.K. % of world drug production 28.2% 7.7% 7.1% 3.4% % of world population 4.7% 1.5% 1.1% 1.1%

Brazil India

1.7% 1.2%

2.8% 16.1%

(Source : Business Standard, February 19, 1997) The author is General Secretary of the Federation of Medical and Sales Representatives of India.

PRODUCT PATENT FOR THE INDIAN PHARMACEUTICAL SECTOR
(I) Introduction On May 8, 1981, Prime Minister, Late Mrs. Indira Gandhi, addressing the World Health Assembly in Geneva, said: Affluent societies are spending vast sums of money understandably on the search for new products and processes to alleviate suffering and to prolong life. In the process, drug manufactures have become a powerful industry. My idea of a better- ordered world is one in which medical discoveries would be free of patents and there would be no profiteering from life or death.- Quoted in B.K.Keayla, Conquest by Patents, 1998 The national sentiment on the issue of product patents is well captured in the above oft -quoted statement. But the Indian Patent Act of 1970 was amended on March 22, 2005, to fulfill its obligation under the TRIPS agreement, thus marking the end of a protected era and signaling a new phase in the integration of India into the global pharmaceutical market. It is indeed ironical, as the people who claim to represent her legacy foist a very different world on the people of this country, with the passing of the Patents (Amendment) Act, 2005(the Act). India, without a doubt, recognizes that there is perhaps no industry that relies as heavily on patents as the pharmaceutical industry. And now that the Patents (Amendment) Act, 2005 provides for the Trade Related Aspects of Intellectual Property Rights (TRIPS) regime, it is indeed very important to understand the impact it will have on the $4.5 billion Indian Pharmaceutical Industry representing 1.6% of the global market , and, also considering the fact that “patent” is a critical issue that impinges upon the life of every common man. (II) The Pharmaceutical Industry and the Indian Patent System The first Indian Patent Act was enacted in 1856 which was replaced by a more comprehensive Patents and Design Act in 1911. The Act of 1911 allowed for product-patents for drugs and medicines. The consequences of having strong intellectual property laws in place were that the foreign companies or the MNCs enjoyed a complete monopoly and charged exorbitant prices, and thus dominated the Indian drug market. They were engaged mainly in the import of drugs from their country of origin. During that time the MNCs who were controlling 80% of the market did not come forward with financial investment and technological help to establish drug production centres in India. An American Senate Committee headed by Senator Kefauver stated in 1959 in its report that in drugs, generally, India ranks amongst the highest priced nations of the world. The Indian Patents Act, 1970 was a response to the Patents Act, 1911, as according to one commentator, the 1970 Indian Patent Act stemmed from a 1959 Ayyangar Committee report that examined the reasons for the high cost of drugs in post - independence India and concluded that the high prices resulted from the monopoly control foreign based pharmaceutical companies exercised over the production of drugs. Thanks to the prevailing patent regime. To remedy this issue the Act of 1970 not only excluded drugs from the product claims category but also redefined the working of the patent as its commercial exploitation within India, and excluded any importation from abroad. It also introduced safeguards like the Automatic Right to License in the case of life-saving drugs. These safeguards along

with the Drug Price Control Order, 1970, which put a cap on the maximum price that could be charged, ensured that life-saving drugs are available at reasonable prices. The Act of 1970 was hailed by many developing countries and UNCTAD (United Nations Conference on Trade and Development) as one of the most progressive statutes which safeguards the interest of both the inventor and the consumer in a balanced manner. This Act was a product of deep consideration and long deliberation to synchronize with the Directive Principles of State Policy contained in the Constitution which provides in Article 39 that: ":39. The State shall, in particular, direct its policy towards securing (a) . (b) That the ownership and control of the material sources of the community are so distributed as best to sub serve the common good; and (c) That the operation of the economic system does not result in the concentration of wealth and means of production of the common detriment." With a regulatory system focused on process patents which encouraged local firms to come up with cheaper processes through reverse engineering, thus cutting the cost of production, helped to establish the foundation of a strong and highly competitive domestic pharmaceutical industry, and being in the grip of a rigid price control framework transformed into a world supplier of bulk drugs and medicines at affordable prices to common man in India and the developing world. The evolution of the domestic pharmaceutical industry constitutes one of success stories of the Indian economy. From being an import dependent industry in the 1950s, the Indian pharmaceutical sector has today achieved global recognition as a low-cost producer of high-quality pharmaceutical products and its annual exports turnover is in excess of $1.5 billion. This could be possible only because there was no product patent system for drugs and pharmaceuticals. But under the Patents (Amendment) Act, 2005 patents will be granted both for products and processes for all the inventions in all fields of technology. The other implications for the pharmaceutical sector under this new patent system are: (a) Term of the Patent: The patent term will be twenty years from the date of the application under Article 33 of the TRIPS agreement (compared to the seven years under the 1970 Act), which is applicable to all the member countries and thus rules out all the differences in the protection terms prevailed in different countries; (b) Authorization for use of Patented Product: Patents will be granted irrespective of the fact whether the drugs were produced locally or imported from another country; though the grant of the patent excludes unauthorized use, sale or manufacture of the patented item, yet there are clauses which provide manufacturing or other such rights of the patented item to a person other than the patent holder under Article 31. (c) Reversal of Burden of Proof: Under Article 34 the onus of proving on the legal complaint that process used by another enterprise is totally different than the patented process would lie with the defendant and he will have to prove that he is not guilty of infringement. (in the 1970 Act, the responsibility was with the patent holder). This is the broad framework, which will guide the pharmaceutical industry of India in the WTO regime. (III) Impact on the Pharmaceutical Sector on the Introduction of Product Patents This amendment to the Act of 1970 making the Indian Patent Act TRIPS compliant has accompanied intense debate and the striking feature of the continuing discussions about pharmaceutical product patents is the divergence between the strength of the claims made by both sides and the weakness of the empirical foundations for those claims. (a) Product Patents and Prices of Medicines Much of the debate on the impact of product patents on the pharmaceutical industry in India has centred on the issues of price of the patented product and their accessibility.

The AIDS epidemic has made evident the fact that the cost of health care and drugs is becoming prohibitive in the entire world as a result of implementing the product patent system. The debilitating immune disorder currently afflicts some 40 million people worldwide. The more telling fact in the data shown is that, while most new AIDS drugs are developed in North America more than 70 percent of AIDS patients live in sub-Saharan Africa, where few can afford the drugs they desperately need to survive . Effective antiretroviral (ARV) treatment to combat the disease can cost up to US$15,000 annually ; even the cheapest current costs is US$350 per year which exceeds the annual per capita incomes of many of the most severely affected areas. In poor countries, drug prices are closely connected to exclusive marketing rights (EMRs) and product patents, and patents preventing generic drug production, or cheap imports put drugs beyond the reach of the common people. For example, Flucanazole, an ARV, was not patented in Thailand. Pfizer was selling the drug for US $6.2 while the Thai manufacturer priced the drug for US$ 0.3, 207 times cheaper than Pfizer. In South Africa, the same drug was priced at US$ 21.4 because no generics were available. The prices of drugs in India are in fact much lower than the prices in other countries like Pakistan, U.K. and U.S.A., where product patents are in force. Ranitidine is sold by Glaxo in India at Rs. 7.20. The same product is sold by the same company in Pakistan at Rs. 65 and in the U.S.A. at Rs. 545. Similarly, the anti-viral drug Aciclovir costs Rs. 33.75 in India while the same drug is sold in Pakistan at Rs. 363. Irrespective of the competition, because of the socio-welfare implication of the pharmaceutical prices, all over the world other than in the US, the prices of medicines are subject to government regulations. In France and Italy, the manufacturer‟s price must be approved for a product to be reimbursed by the social insurance programme. In the absence of such health security schemes and with the very low purchasing power of the people in India, the Government of India has brought certain essential drugs under the price control. The price control along with the amendment of patent laws in early „70s resulted in a declining impact on prices. Based on India‟s own experience and on a selective comparison of prices of a few drugs in countries where product patents is in force, intellectuals forewarn that the stronger protection would result in increase in the prices of the drugs and thus medicines will be inaccessible to common people. One of the major advantages of the universal system is that, it would facilitate access to new medical products. While the welfare loss due to the possible price increase in the post WTO regime is highlighted in most of the studies, the welfare loss due to the non-introduction of new-patented drugs in India due to the weak protection regime is not discussed adequately. In this context, one of the advantages of the product patents is that the stronger patents will provide access to the latest inventions in drugs, which the developed world will not shy away from introducing in India. It is observed that, though Pakistan also has process patent regime, some of the new drugs that were introduced in Pakistan by the MNCs were not introduced in India at all even though these MNCs were present in the country. This is because the MNCs feared about the competition from the counterfeit products in India, whereas in Pakistan MNCs are stronger than the domestic firms. But it also argued that since the new patent regime would either raise the prices of new drugs to the international level or make the Indian population wait until the patent expires and drugs become cheaper, they in any case will be consuming old drugs, and the purpose of getting quicker access to new drugs will be defeated. So actually prices would increase without much welfare gains in terms of access to new drugs. It is also possible that higher prices charged by the MNCs may not really affect the consumers because; the research activities undertaken by the MNCs are totally different and not pertain to the Least Developed Country (LDC) market. Only 13 of 1373 new molecules developed during the last 30 years target diseases of tropical countries like India. Hence it can be said that the percentage of population affected by the price rise would be very less. A related issue is the wider use of cost effective generic drugs. In the US and some parts of Europe, the pharmacists are authorised to dispense generic drugs in the place of a prescription drugs, which will cost less than the prescription drug. Thus, the consumers have the option to choose between the generic and the branded drug. However, if the doctor writes it as `dispense as written‟ then the pharmacist cannot change the drug. Unlike the other consumer items, in the case of drugs, the consumer goes by what has been prescribed by the physician. Hence, in the post WTO regime, the physicians will play a crucial role in choosing between a patented drug and a generic drug, in cases where alternatives are available and help the consumers from being exploited by the market forces.

There is nothing in the GATT treaty, which prevents India from continuing to use price regulation to protect the consumers against exploitation through high prices. The drug price control mechanisms prevalent in India are applicable on the patented drugs too. (b) Product Patents and Research and Development One of the advantages of the universal patent regime is that private venture capital firms become willing to invest in technology based start up companies; technical knowledge flows more readily from university laboratories to the market place and local firms become willing to devote substantial resources to internal research. Available evidence shows that patents are important for chemicals and particularly for pharmaceuticals basically because of the huge R&D costs incurred by the firms . Also, the purpose of the patent is to provide a form of protection for the technological advances and thereby reward the innovator not only for the innovation but also for the development of an invention up to the point at which it is technologically feasible and marketable. The higher cost of the R&D proves to be an effective entry barrier for new firms and hence only firms with large flow of funds become responsible for industrial inventive activity . In developing countries, only a few firms have sophisticated R&D facilities and others benefit mainly from the spillovers of the resultant R&D. But, in order to move on to the higher echelon, firms need to invest in R&D. More often small firms shy away from investing in R&D because; financial risk is too high as there are more possibilities of failure than success. For instance, cost of developing one new drug in the US increased from $54 million in 1970 to $231 million in 1990. Recent studies indicate that 1 out of 5000 compounds synthesized during applied research eventually reaches the market. Other estimates indicate that of 100 drugs that enter the clinical testing phase I, about 70 complete phase I, 33 complete phase II, and 25-30 clear phase III. Only two-thirds of the drugs that enter phase III is ultimately marketed. According to a US FDA report 84 per cent of new drugs placed on the market by large US firms during the period 1981-88 had little or no potential therapeutic gain over existing drug therapies. Similarly in a study of 775 New Chemical Entities introduced in to the world during the period 1975-89, only 95 were rated to be truly innovative. Because of these reasons and due to the protected policy regime, the R&D investment in India has been very low and started picking up only in the early „90s .Of the Rs.1, 800 crores spent on R&D in 1998, 35 per cent belongs to the public and joint sector and that of the private sector is about 65 per cent. In spite of the growing investment in R&D, R&D as percentage of sales ratio stagnates around 2 per cent. Further of the 1261 Department of Science and Technology recognised R&D units, 256 have spent more than Rs. 1 crore every year. 350 have spent between Rs.25 lakhs and Rs. 1 crore and the remaining below Rs. 25 lakhs . This indicates that most of the R&D investment was perhaps directed towards process improvements and adapting the technology to local conditions thus resulting in technology spillovers rather than in new product developments. For instance, the UK multinational Glaxo was faced with several local competitors on the first day when its subsidiary marketed its proprietary drug Ranitidine in India , because the competitors enabled by the weaker patent regime were ready with the indigenous version of Ranitidine. The more recent case of adapting the technology developed elsewhere to local conditions enabled by the process patent regime is the case of Viagra introduced by Pfizer. A patent for this drug was granted by the US patent office to Pfizer in 1993. The company spent about 13 years and several millions of dollars to develop the drug. Apparently what took Pfizer 13 years and millions of dollars in R&D to perfect, the Indian firms have managed to do in weeks, for a fraction of costs. Of the 30 raw materials used in this drug, 26 are available locally. Utilising the information that was available on the Internet, US patent records and industry literature some of the Indian firms started their work on the indigenous version of Viagra, which was available in the market within weeks of Pfizer formally launching the product. Absence of stronger protection in the chemical and pharmaceutical sector in developing countries like India is cited as one of the reasons that holds back foreign investment especially from countries like the US, Japan and Germany . However, with the change in scenario, domestic companies, which had invested in biotechnology, were finding the lack of protection as a problem to commercialise their innovations , because in DNA recombinant technologies, novelty is the product. The process of discovery is complicated, but once the product is obtained, its propagation can be achieved in many ways. There has been an apprehension that in the wake of globalisation the focus of research in the LDCs could change and the major R&D firms may be more involved in drug discovery that addresses the global diseases and neglect the research that is more relevant for the LDCs. In this context Amit Sen Gupta, of the National Working Group on

Patent Laws, adds: “I think for me it‟s frightening that ten or twelve peopl e today are deciding what are the kind of drugs that need to be researched because clearly those drugs are being researched not because of the health needs but based on how much profits they can bring in. That‟s why you have research money going into drugs for baldness or Viagra but the last drug for tuberculosis was 30 years back. When you deny people cars or washing machines they don‟t die, when you deny people drugs they die and they die in millions. With transition into the new regime many Indian companies are mobilizing their resources war chest with an increase in their R&D budget. Government of India (GOI) encouraged the R&D in pharmaceutical companies by extending 10 year tax holiday to this sector. Besides, planning commission earmarked $34 million towards drug industry R&D promotion fund for the tenth plan. (c) Product Patents and Foreign Direct Investment One of the expected outcomes of strengthening the IPR is the increase in foreign direct investment (FDI) in R&D, direct manufacturing or joint ventures. However, the impact of stronger patents on FDI remains inconclusive from the available evidence since IPR is only one of the factors in attracting FDI. FDI flows depend on skills availability, technology status, R&D capacity, enterprise level competence and institutional and other supporting technological infrastructure . Highlighting the FDI flows to countries with allegedly low levels of IPR protection, Correa observes that the perceived inadequacies of intellectual property protection did not hinder FDI inflows in global terms. Thus FDI increased substantially in Brazil since 1970 until the debt crisis exploded in 1985, while in Thailand FDI boomed during the eighties. In contrast developing countries that had adopted stronger protection have not received significant FDI inflows. He further observes that FDI in the pharmaceutical industry outpaced FDI in most other sectors in Brazil after patent protection for medicines was abolished in that country. In Italy after the introduction of process patent protection in 1978, FDI increased. Myriam Orlenna, Executive Director of the Chilean National Industry Association declared, “The trade benefits and investments which were promised in exchange for the implementation of a US style patent law have never materialized.” Hence, it appears that patent production does not have significant impact on FDI. (d) Product Patents and Technology Transfer To qualify for the patent, an invention should be novel, non-obvious and capable of industrial application. As per this, the applicant reveals the content of the patent in the patent application, which is in the public domain. However, such disclosure could undermine the competitive advantage of the invention encouraging the innovator to protect the invention as a trade secret rather than with a patent. For as detailed earlier in the case of Viagra, it is possible to get access to patent information from the patent office of any of the countries and develop a new product based on the information obtained in the patent application form thanks to the rapid development of information technology. A sizeable level of technology currently available is due to `spill overs‟ or developing an alternative process that is very close to the existing one. This is the reason why the actual technology in a patent is often kept as a trade secret and which leads to entering in to a separate licensing agreement with the innovator for the transfer of that technology. The high cost of development and rapid obsolescence may prevent the transfer of technology and the patent holder may prefer direct exploitation or import of products than transferring the technology or know-how. Fear of competition also dissuades the transfer of technology or demands a high royalty for the transfer, but huge royalties may have a negative impact on the expenditure on R&D. In the case of India, though in the pre‟70s era, the technology transfer by the big TNCs did not support the indigenous technological abilities, yet in the post „70s, a large number of small and medium size firms have also been transferring their drug technologies to India, thus encouraging an atmosphere of competition in technology transfer . But India has encountered difficulties in getting access to technology for a component known as HFC 134 A, which is considered the best available replacement for certain chlorofluorocarbons. Patents and trade secrets cover this technology, and the companies that possess them are unwilling to transfer it without majority control over the ownership of the Indian company. (IV) Conclusion The strength of the Indian pharmaceutical industry is in reverse engineering. Such units by utilising the provisions under compulsory licensing and exceptions to exclusive rights under the TRIPS agreement should aim at producing the generic version of the patented product and those that are nearing patent expiry. Such firms should also be engaged in research leading to new drug delivery mechanisms and in identifying new uses of existing drugs. In this

context, it is also essential to protect the innovations that have been introduced by the technology spillovers. In order to develop domestic innovations, developing countries require utility models or petty patents. These petty patents can be available for a shorter period of time for process innovations made over an existing product. The TRIPS agreement leaves members to introduce such legislation, as there are no specific rules on this subject. Such patents will encourage the small firms. It is true that the impending WTO regime has stimulated the R&D investment in India. Some of the big units have started strengthening their R&D and have also filed number of applications for patents. There is some evidence available regarding the mergers and amalgamations to pool the human and financial resources to strengthen the R&D in new product development. These firms will definitely benefit by the stronger protection. Some of the R&D and manufacturing facilities set up in these firms meet the international standards, and they have already been approached by multinationals for conducting research and undertaking manufacturing on their behalf. Besides the R&D investment in traditional chemical based screening, some of the R&D firms are looking for breakthroughs in biotechnology research. One of the concerns regarding product patents is the access to patented products. Some of the provisions within the TRIPS agreement mentioned in the above paragraphs clearly indicate that price controls could be imposed on the patented products. However, exemptions from price controls has been suggested by the government for the products that are produced domestically using the domestic R&D and resources and are patented in India. Such exemptions will keep the prices high and make access to the drugs difficult. A majority of the population does not have access to the essential medicines (most of which are off patent) either in the government or private health care systems because they are not within their capacity to reach. Now that the percentage of drugs under price control has been reduced drastically it is essential to keep the prices of the essential drugs under check, especially those concerning the common diseases. Also the government should probe in to factors that contribute to the widening gap between the proposed FDI and the actual FDI and rectify these bottlenecks. Similarly the difference between the number of patents filed and the patents granted calls for a detailed analysis to figure out where the Indian firms are lacking. The real impact will be seen only over the next 2-3 years in the field of innovative drug discoveries: estimated to be only 3 per cent of the global formulations market. Foreign brokerage Refco Global Research commenting on the new product patent regime says, "The average developing time for such drugs is 10-12 years, so the earliest drugs are not likely to come through until 2006-07." Thus firm conclusions of the impact of the new IPR regime must await further implementation of the Act. As far as India‟s pharmaceutical industry is concerned, various options are possible in the WTO regime. But ultimately, the path currently being followed by international standards for patent protection moves inevitably toward a clash between public health and intellectual property. Despite the Doha Declaration‟s affirmation of public health as the paramount concern, it is not clear how such an objective would be achieved, because generic substitution is so instrumental in the effort to improve drug accessibility. Stringent intellectual property protection for pharmaceuticals would only retard public health initiatives in the coming years. Given the rapid evolution of the AIDS crisis throughout the world, with more than 35 million cases alone in India , a twenty-year term of market exclusivity for new treatments is not reasonable if we expect to make real progress in containing the disease. It might well be appropriate for a governing body to clearly define a list of essential medicines, such as antiretroviral (ARV) agents, that would be subject to somewhat more relaxed patent protection compared to other drugs. The critical point is that the pharmaceutical industry and trade negotiators alike should not forget the true goal of drug innovation: saving lives. Profit should always be a means to this end, not vice versa. Only by keeping this principle in mind and achieving a better understanding of the modern world health situation can we hope to effectively ensure the safety and well-being of the people of India and the world‟s population as a whole in the twenty-first century and beyond.

HUGE POTENTIAL FOR PHARMA INDIAN EXPORTERS IN THE CIS REGION INDO-CIS HEALTH SUMMIT HELD New Delhi: 25th February, 2005 The Indo-CIS (Commonwealth of Independent States) Health Summit organised by CHEMEXCIL (Basic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Council) concluded at Hyderabad today with a call to foster greater business partnership of Indian pharma companies in the CIS region. The two day summit was inaugurated by the Union Minister of State for Commerce and Industry Shri E.V.K.S. Elangovan yesterday. The event aimed at facilitating Indian pharma companies export drugs and formulation to the CIS countries. In his inaugural address, the Minister said that with lower production costs and indigenously available raw material base, Indian drugs were several times cheaper than their European counterparts. "With India fast emerging as the most cost effective health destination in the world, the CIS countries can outsource their drugs from India at much lower costs. With Indian investments by pharma companies in the CIS region, the cooperation can be mutually beneficial" he added. The CHEMEXCIL Chairman Mr. Satish Wagh said that the event helped to showcase Indian capabilities in the pharma and biotechnology sector, highlighting India’s capabilities to supply cost effective drugs, and also provided a unique opportunity for CIS leaders and healthcare professionals to interact with each other to foster greater business partnerships. As part of this, a ‘one to one meet’ was held today to facilitate technical and commercial cooperation in pharma and healthcare services like diagnostics, imaging, delivery systems etc. With big names in the pharma sector dotting their presence, the meet was hailed as a success by both Indian and foreign delegates as it was difficult for individual companies to meet many prospective clients at one stage. Buoyed by the success of the event, CHEMEXCIL has decided to organise similar events in Mumbai and Delhi in the forthcoming year. Factory visits of prospective buyers were another highlight of the summit. Mr. Wagh noted that with India emerging as a dependable source of drugs and formulation, there existed enormous potential to double the export of chemicals and pharmaceuticals in the next 3 years. Quoting from a WTO text, he observed, ‘Access to healthcare is the basic right of everyone and not the privilege of those in developed countries, and India has a major role to achieve this.’ ********** SB/SS/MRS PRESS INFORMATION BUREAU GOVERNMENT OF INDIA

INDIA –MOST EFFECTIVE HEALTH DESTINATION IN THE WORLD, SAYS ELANGOVAN COOPERATION WITH CIS COUNTRIES MUTUALLY BENEFICIAL, URGES EXPORTERS TO TAKE ADVANTAGE INDO –CIS HEALTH SUMMIT INAUGURATED

New Delhi: 24th February,2005. Shri EVKS Elangovan, Union Minister of State for Commerce and Industry said that India was emerging as the most effective health destination in the world. He was inaugurating the Indo-CIS Health Summit at Hyderabad today. By providing very efficient secondary and tertiary health care in the treatment cycle at affordable costs, India offers health care at par with international standards and the number of patients visiting India for treatment has grown to one lakh per annum bearing testimony to this" he said. The two-day summit is being organized by the Basic Chemicals, Pharmaceuticals and cosmetics Export Promotion Council (CHEMEXCIL). Shri Elangovan said that in this context cooperation of India pharma companies with CIS countries would be mutually beneficial. Indigenously manufactured raw materials and lower cost R&D will result in reduced production costs in India. Saying that India exported drugs worth Rs.950 crore to the CIS countries last year, he noted the enormous cost advantage for CIS countries if they outsource their requirements from India. Citing examples of several antibiotics, the minister said that their comparative costs in USA and Europe are about 50 times higher than that in India. Noting that Indian pharma industry is amongst the most advanced in the developing world, he said that India produces nearly 8.5 per cent of the world’s drug requirements in volume terms and ranks amongst the top 15-pharma manufacturing countries in the world. He observed that Indian pharma industry is valued at US $ 5 billion, registering a growth rate of 14 per cent per annum. The Minister said that Focus: CIS initiative was launched by the Ministry of Commerce to enhance India’s bilateral trade and economic ties with the countries in the CIS region. Encouraged by the initial good response the initiative was spread to all the 12 countries in the CIS region from last April. Recalling his visit to Uzbekistan and Kazakhstan as the head of Indian export delegation last month, the minister said that the response he received from local pharmaceutical industry is tremendous and our exporting community has to leverage on this by fostering joint ventures and manufacturing tie ups with the CIS countries. Speaking on the occasion the State Trading Corporation of India (STC), Chairman and Managing Director Mr.Arvind Pandalai observed that differing scientific standards followed by Indian and CIS countries hampers exports. Noting that CIS countries are passing through a phase of tremendous development, he emphasized the need to upgrade the banking infrastructure in these countries. He also observed the need for an Indian organisation coordinating the activities of various Indian companies in CIS region.

Releasing a business guide on Pharma industry in Focus:CIS countries, Mr.Satish Wagh, Chairman of CHEMIXCIL said that India is fast emerging as a powerhouse in pharmaceuticals and biotechnology and it is up to the business community to leverage on India’s strength. Apart from this Mr.Mahapatra, Director in the Ministry of Commerce, Government of India spoke on the occasion outlining the government’s major foreign trade policy initiatives for the CIS region.

PRESS INFORMATION BUREAU GOVERNMENT OF INDIA *** DIFFERING SCIENTIFIC STANDARDS HINDERING EXPORTS SAYS STC CHAIRMAN INDIAN PHARMA INDUSTRY WORTH US $ 10 BN INDO-CIS HEALTH SUMMIT INAUGURATED New Delhi: 24th February, 2005. Shri Arvind Pandalai, Chairman and Managing Director of the State Trading Corporation of India (STC) said that the different scientific standards pursued by India and the Commonwealth of Independent States (CIS) were hindering exports of drugs to those countries. He was speaking at the Indo-CIS Health Summit at Hyderabad this morning. Mr. Pandalai said that Indian pharma industry is worth US $ 10 billion and with her expertise in the manufacture of bulk drugs and formulations India has emerged as a world leader in the industry. In his presentation „Problems faced by Indian exporters to CIS countries‟, he observed that lack of available banking infrastructure in the CIS region hinders Indian export to those countries. Dwelling on the need to have an Indian organization in the region to coordinate the efforts of the Indian companies towards exports, he noted that World Pharma giants have long passed the stage of confrontation and that they are cooperating with each other for mutual benefit. "Indian exporters are also facing the problem of language-spending money and efforts in double translation from Russian to a second local language like Kazakh or Georgian, increasing the documentation work creating another hurdle for exports." Mr. Satish Wagh, Chairman of CHEMEXIL said that the summit will give a further momentum to India‟s ties with CIS countries deepening and diversifying the economic relations. He said that CHEMEXIL aims at promoting the export of drugs, pharmaceuticals, dies and cosmetics and the organization‟s exports touched US $ 5745 mn., registering a growth rate of over 22 per cent. Earlier, the summit was inaugurated by the Union Minister of State for Commerce and Industry Mr.EVKS Elangovan. Speaking on the occasion, he said that India is fast emerging as the most sought after health destination of the world and he exhorted the business community to take advantage of the increased business opportunities in the CIS region.

"If the top 15–20 Indian pharma companies don’t build a research base, who will? "
PHARMACEUTICALS SECTOR QUOTES

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A graduate from the Bombay University, Mr. Surendra Somani is the founder of the Parijat Group, which has interests inter

alia in pharmaceuticals. Kopran has had a sizeable presence, in the past, in the penicillin –based antibitotics but has, over the years, widened its ambit to gain a substantial share in cardiovascular and respiratory drugs. Last year, the company spun off the low margin yielding semi synthetic penicillin (SSP) business into a joint venture with Synpac Pharma one of the largest penicillin manufacturers in the world. Mr. Somani has been the driving force behind the restructuring initiative at Kopran. We spoke to him to get a first hand feel of how Kopran is gearing up to face the challenges of the new millennium. EQM: The generic export market is being touted as a big opportunity for the Indian pharmaceutical companies. However, isn’t it a fact that Indian companies have been able to capture hardly 5% of the CIS market, a market where Indian companies were presumed to have certain advantages. So, is the hype on the generic market warranted? Mr. Somani: You cannot compare the two markets. The CIS was primarily tapped because of the barter trade between the India and the former Soviet Union. The fact is that even the Russian market preferred US goods. The USA and European market are quality conscious and yet competitive. The Indian companies can synthesise bulk active substances at the least cost and meet highest standards. The opportunity also arises from the fact that the law does not prevent Indian companies from synthesing patented molecules. This has enabled us to be ready with the product and file a dossier for registration the moment the product goes off patent. We are the least cost producers due to relatively lower cost in terms of the capex required as well as the cost of manpower. Besides, for the purpose of exports, we can source raw materials at international costs. Of course, where integration is not complete Indian companies can tie up with foreign companies but the fact remains that we in India are producing the basic materials such as rifampicin, ampicillin etc. The issue for the Indian companies would basically be regulatory issues such as getting their plants and products approved

There will obviously be competition from companies from other parts of the world but India, like many other countries, such as Canada has an advantage of being able to develop products prior to their patent expiry and file for registration. They have to be in time to get approvals by the time the patent expires. The other advantage India has pertains to the integration advantage since we make the bulk actives too. EQM: The newer therapeutic areas such as gastro –entology, cardiovascular, CNS, diabetes, have shown almost 20% plus growth while antibiotics, vitamin supplements, quinolones seem to have struggled last year. Are we witnessing a structural change in domestic dosages? Mr. Somani: Yes we are. And the change is not complete. The fact is that antibiotics are becoming a commodity and the (pharmaceutical) industry is going through a major restructuring. We are also witnessing a difference in consumer behaviour between short course therapy diseases and chronic disorder. In the latter case, brand loyalty does exist for doctor prescriptions. As far as the short course therapy is concerned, the generic market has eaten into the brand market. How long will this continue and is this permanent? At this stage it’s a little premature to answer this. Abroad with health insurance in place there are companies, which are approved suppliers of generics for the Heath Management Organisations (HMO). Here, it’s a free for all as far as generics are concerned. At some point in time in the future there will be an issue of borderline quality. This could possibly lead the doctor as well as his patients demand a brand. Personally, I foresee a new segment of branded generics, which would have an element of doctor prescription and a competitive price. Pharma companies may not incur high sales promotion expenses for this segment. I foresee segments such as paracetomol, ibuprofen, cough and cold antibiotics be catered through this way. So pure generic companies may not have the cake. EQM: How much of an opportunity does the domestic OTC market represent? What would be the strategy required to be successful here? Mr. Somani:For allopathic drugs, the emergence of an OTC market would depend on the how soon the Drug Controller of India declares the list of drugs that do not form part of the scheduled drugs. The potential of the OTC market is huge. Our ‘Smyle’ has been a notable success as also some other domestic companies’ products. The growth of the segment would depend on the literacy levels and media exposure. Already we have seen products such as ‘Crocin’ ‘Dispirin’ and ‘Benadryl’ create niches for themselves in the OTC market. In future you may also see ibuprofen–based drugs also creating a niche for themselves in the OTC segment.

EQM: It is stated that it would be advantageous to conduct clinical trials in India keeping in mind the availability of volunteers, the quality of scientists and the cost of setting up infrastructure. But the results of clinical trials held in India are not accepted in quite a few countries. Do you expect this situation to change in the future? Mr. Somani: The fact is that the clinical trials that have been done in India are as per the Drug Controller of India. But if any company conducting clinical trials in India were to follow the protocol laid down by the US Food & Drug Administration there is no reason why the results of those trials will not be accepted in the USA. (The protocol basically specifies a checklist which lays down the number of volunteers, the analytical tools followed for the trial etc.) EQM: You demerged the bulk drug business of Kopran into a separate company last year. Could you elaborate on the scheme and the benefits that will accrue to the shareholders via the demerger? Mr. Somani: The demerger of the bulk drug business (semi–synthetic penicillin business of Kopran) was to facilitate a joint venture with Synpac Pharmaceuticals UK – one of the largest penicillin manufacturers in the world. Their biotechnology capability has been proven with the licensing of their 1st, DNA recombinant – Pompase–a drug for enzymatic deficiency in children which has fetched them a down payment of $ 19.5 m and would give them a revenue of $ 400m to $ 600m in the future. Hence the penicillin integration advantage and the biotechnology experience would provide a platform to enhance values in KDL Biotech. Every shareholder of Kopran Ltd. got one share of KDL Biotech free for two shares held in the nature of a bonus. Kopran Ltd. as an entity is now focused on value added business of formulations and specialty bulks primarily focused on five therapeutic areas – cardiovascular, respiratory, gastroenteritis, antibiotics and pain management. EQM: Do you anticipate any changes in the DPCO? What percentage of Kopran’s revenue accrues from products under the DPCO? Mr. Somani: Not in the near future at least. Of our domestic dosage sales around 20% accrues from products under the DPCO. EQM: Where do you see the Indian pharmaceutical market in general and Kopran in particular, five years down the line?

Mr. Somani: Our aim is to become research–based company with a strong brands in the five therapeutic areas that we operate in (cardiology, respiratory, gastrointestinal, antibiotics and pain management). Our research efforts are basically three pronged: the first is based on the development of new chemical entities (NCEs) and novel drug delivery systems (NDDS). The second is based on the synthesis of already developed molecules and thirdly we plan to develop new dosage forms development. We have developed a twice a day amoxycillin (antibiotic) dosage which we plan to license to another company possibly an MNC. We have also developed a zero impurity atenolol (cardiovascular). We will grow by around 25% in the current year and we expect this growth rate to continue in the future. As far as the Indian pharmaceutical companies are concerned, most of the companies are aiming to build a research base. If the top 15–20 companies don’t build a research base, who will? We cannot wish away one fact. That India has possesses some of the best scientists in the world. You give them infrastructure, ideas and they will deliver. I however foresee integrated companies who are players in the international market and have licenses/co–marketing agreements with MNCs emerging. Only some of the top fifty Indian pharmaceutical companies will exist in the shape that they are existing today. The biggest problem for achieving this vision would be the inadequacy of capital. When you look at the consolidation that is happening the world over, Indian companies look (in terms of their sales) relatively small vis-à-vis their international peers. EQM: Which are the personalities that have influenced you the most? And a word on your favourite books… Mr. Somani: As far as books are concerned Stephen Covey’s ‘Seven Habits of Highly Effective People’ is a favourite

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