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Problems related to Indian pharmaceutical industry

An analytical approach


Ashish Bansal DMS 17




List of contents

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Abstract 1. Introduction 1.1 The Growth Senario 1.2 Steps to strengthen the industry 2. History 2.1. Indian pharmaceutical history 2.2. Global pharmaceutical history 3. Problems 3.1. Pollution 3.1.1 Analysis 3.2. Problems regarding price control 3.2.1 Analysis 3.3. Intellectual property related problems 3.3.1 Analysis 3.4. Investment from foreign investors 3.4.1 Analysis 4. Research questions 4.1. Related to pollution 4.2. Related to price control 4.3. Related to intellectual property 4.4. Related to foreign investment 5. Aim 6. Limitations 7. Methodology 7.1. Data collection 7.1.1. Primary data 7.1.2. Secondary data 7.2. Data analysis 7.3. Data presentation 7.4. Alternative methods 8. Result 9. Conclusion 10. Future research 11. Bibliography


Indian pharmaceutical industry seems to be showing a tremendous amount of energy and is growing as never before, it can be inferred through the research that every problem has its solution and that the problems are being dealt with a right attitude and that the growth of pharmaceutical industry in India is expected to show upward trend in future.

The Indian pharmaceutical industry is a success story providing employment for millions and ensuring that essential drugs at affordable prices are available to the vast population of this sub-continent. Richard Gerster

The Indian Pharmaceutical Industry today is in the front rank of Indias science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously. Playing a key role in promoting and sustaining development in the vital field of medicines, Indian Pharmaceutical Industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world. The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price control. The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the complete range of pharmaceutical formulations, i.e., medicines ready for consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production of pharmaceutical formulations. Technologically strong and totally self-reliant, the pharmaceutical industry in India has low costs of production, low R&D costs, original

scientific manpower, strength of national laboratories and an increasing balance of trade. The Pharmaceutical Industry, with its rich scientific talents and research capabilities, supported by Intellectual Property Protection regime is well set to take on the international market. The Indian pharmaceutical industry is highly fragmented -- there are now more than 20,000 domestic manufacturers of end-use pharmaceuticals, particularly because of the industry's low capital requirement and the lack of product patents. Only about 300 of these are in the organized sector. This structure causes intense competition, especially in the bulk drug markets, with profitability falling as demand expands. For value purposes, drugs in India are generally classified into two categories -- bulk drugs and formulations. Due to India's low overhead costs, bulk drugs comprise the largest sector in the country's pharmaceutical market. Indias bulk drug sector also makes up about 6% of the international bulk drug market. Drug intermediates are used as raw materials for the production of bulk drugs, which are either sold directly or retained by companies for the production of formulations. Formulations can be subdivided into generic drugs and branded or "ethical" drugs, the latter of which are made under process patent and sold under a separate brand name. Expected short-term growth for the two types of drugs has been 20% for bulk drugs and 15% for formulations. The import of finished pharmaceuticals is almost negligible, and confined to very specific types like anti-cancer drugs. In 1994, the import of drugs, pharmaceuticals and intermediates was estimated at $450 million, and included the following: antibiotics, penicillin and its salts, erythromycin and its preparations, vitamins and provitamins, vaccines (polio, human and veterinary), preparations containing insulin, caustic and other hormones, and tetracycline and its preparations. Essential drugs comprised of antibiotics, antibacterial, anti-TB, antiparasitic, and cardiovascular constitute a major portion of turnover of the industry. Indian companies dominate this class of drugs with a market share of 71%. Multinational companies are reluctant to enter these markets as most of them are under government price controls.

1.1 THE GROWTH SCENARIO India's US$ 3.1 billion pharmaceutical industry is growing at the rate of 14 percent per year. It is one of the largest and most advanced among the developing countries. Over 20,000 registered pharmaceutical manufacturers exist in the country. The domestic pharmaceuticals industry output is expected to exceed Rs260 billion in the financial year 2002, which accounts for merely 1.3% of the global pharmaceutical sector. Of this, bulk drugs will account for Rs 54 bn (21%) and formulations, the remaining Rs 210 bn (79%). In financial year 2001, imports were Rs 20 bn while exports were Rs87 bn. 1.2STEPS TO STRENGTHEN THE INDUSTRY Indian companies, in an effort to consolidate their position, will have to increasingly look at merger and acquisition options of either companies or products. This would help them to offset loss of new product options, improve their R&D efforts and improve distribution to penetrate markets. Research and development has always taken the back seat amongst Indian pharmaceutical companies. In order to stay competitive in the future, Indian companies will have to refocus and invest heavily in R&D. The Indian pharmaceutical industry grew at a very slow pace from 1947 to 1970, largely due to the lack of incentives and the failure of the government to set-up a concrete regulatory framework. Today, the industry is characterized by numerous governmental regulations and policy changes, stifling price controls, rigorous controls on formulations, and an absence of international patent protection. During 1970, the Indian Patents Act (IPA) and the Drug Price Control Order (Dpco) were passed. Although the Dpco acted as a buffer against pharmaceutical companies making free pricing illegal, it fulfilled the goal of providing quality drugs to the public at reasonable rates. The introduction of the IPA - which did not recognize product patents but only process patents - provided a major thrust to the industry and its companies, which, through the process of reverse-engineering, began to produce bulk drugs and formulations at lower costs. This led to high fragmentation in the industry, due to the emergence of a number of small firms.

The Indian pharmaceutical industry is passing through a wave of consolidation, with the objective to strengthen their brand equity and distribution in what is essentially a branded-generics market.



2.1Indian pharmaceutical history

The first Indian pharmaceutical company, Bengal Chemicals and Pharmaceutical Works, which still exists today as one of 5 governmentowned drug manufacturers, appeared in Calcutta in 1930. For the next 60 years, most of the drugs in India were imported by multinationals either in fully-formulated or bulk form. The government started to encourage the growth of drug manufacturing by Indian companies in the early 1960s, and with the Patents Act in 1970, enabled the industry to become what it its today. This patent act removed composition patents from food and drugs, and though it kept process patents, these were shortened to a period of five to seven years. The lack of patent protection made the Indian market undesirable to the multinational companies that had dominated the market, and while they streamed out, Indian companies started to take their places. They carved a niche in both the Indian and world markets with their expertise in reverseengineering new processes for manufacturing drugs at low costs. Although some of the larger companies have taken baby steps towards drug innovation, the industry as a whole has been following this business model until the present.

2.2Global pharmaceutical history

By the end of World War II, the chemical and pharmaceutical industries were transformed by the commercializing of new learning, the petrochemical and the antibiotic revolutions. But by the 1970s, chemical science was no longer providing the new learning necessary to commercialize more products, although new directions flourished in the pharmaceutical industries. In the 1980s, major drug companies, including Eli Lilly, Merck, and Schering Plough, commercialized the first

biotechnology products, and as the twenty-first century began, the infrastructure of this biotechnology revolution was comparable to that of the second industrial revolution just before World War I and the information revolution of the 1960s. Shaping the Industrial Century is a major contribution to our understanding of the most dynamic industries of the modern era.

3. Problems 3.1Pollution 3.1.1Analysis

For some time now, the pharmaceutical industry in India has been considered with a dubious distinction of having maximum number of issues related pollution control. It is not that the industry is unaware of the controlling measures stipulated by the government. However, it seems to be a bit slow in adopting serious steps to comply with the norms. Due to this, a number of companies in the sector have been received even closure notices from the concerned Pollution Control Boards across the country. However, the companies'' negative approach towards engaging professional agencies in pollution control measures too a major factor in this regard. World's highest pharmaceutical pollution is measured in India itself. As the researchers analyzed vials of treated wastewater taken from plant where about 90 Indian drug factories dump their residues, they were shocked and surprised. Too much of single, powerful antibiotic was being dumped into the stream each day to treat every person in a city of 90,000. That particular Indian factories produce drugs for much of the world, including many Americans. The result: Some of India's poor population was consuming an array of chemicals that may be harmful, and could lead to the proliferation of drug-resistant bacteria. Last year, The Associated Press reported that concentrations of pharmaceuticals had been found in drinking water provided to at least 46 million Americans. But the wastewater downstream from the Indian plants contained 150 times the highest levels detected in the U.S. The Indian Pharma industry is characterized by large plants with highly advanced technology. Usually the cleaner production improvements come from redesigning processes or from recycling of major waste streams such as solvents. Case studies are the best sources of information for these solutions. The low-cost options such as improved housekeeping, dry cleaning, and solvent substitution maintenance can also offer significant savings and reduce waste. Cleaner production requires pollution guides for the chemical industries, for hospitals and medical research organizations which have to renew according to timely gaps. Most of the Environment Health and Safety reports are found in

the websites which provide many good ideas by number of the leading pharmaceutical companies There is a serious ethical dimension to the ecological problem, too. We are exporting many of the worst effects of our desire for cheap pills to the developing world, in particular to India and China, where so many of these medicines are now made. Joakim Larsson, an associate professor at Gothenburg University, Sweden, has, over a number of years, tested river water at the pharmaceutical industry zone of Patancheru, near Hyderabad, central India. His recent report, published in the journal Nature in February 2009, revealed the presence of unprecedented levels of drugs. Larsson's team found that the plant discharges an estimated 45kg of the antibiotic ciprofloxacin in one day, equivalent to five times the daily consumption of Sweden. Water from 90 Indian pharmaceutical factories goes through a water-treatment plant before discharge into the river, but Larsson's data showed that the supposedly cleaned water was a soup of 21 different active pharmaceutical ingredients, used in generic (i.e. nonbranded) drugs for the treatment of hypertension, heart disease, chronic liver ailments, depression, gonorrhoea, ulcers and other ailments. Half of the drugs measured at the highest levels ever detected in the environment. India has become one of the world's leading pharmaceutical exporters, with most of its products going to the US and Europe. Half of the 242 generics on the Swedish market examined by Larsson's team contained substances from India. We can't tell what precise proportion of Indian pharmaceuticals are used in British generic drugs, because the UK Government does not monitor this. According to a spokesman for the Department of Health: The sourcing of generic medicines from outside the UK is a matter for individual licensed importers'. Reports a reputed journal.

3.2Problems regarding price control 3.2.1Analysis

The impact of the administered prices on the Industry was felt so acutely in the 70''s resulting in the profitability of the industry plummeting to all time lows. Several litigations against Companies for ''alleged'' realization of unintended profits led to the creation of Drug Price Equalisation Account (DPEA), an issue which is still unresolved, notwithstanding Court rulings against many Companies. On the other hand, due to a variety of positive developments, including the Indian Patents Act 1970 and the emergence of multiple suppliers for the same product ensured the lowest possible prices for most drugs, once again proving the point that market forces when allowed a free play are perhaps the best levellers of prices. In fact for many drugs, the market witnessed prices much lower than those permitted under the price control system. Since 1961, pharmaceuticals in India have fallen under heavy price regulation. Domestic drug prices in India are among the lowest in the world; the Organization of Pharmaceutical Producers of India (OPPI) says that year-on-year price increases for pharmaceuticals in the country are lower than the wholesale price index each year and considerably lower than the CPI. This applies to both controlled and decontrolled drugs, where increases were just 1.1% and 3.6% respectively for 1997 over 1996. This has severely affected the profitability of the industry, especially since the prices of basic raw materials and the costs of packing have shot up over the past five years. Pharmaceutical manufacturers have also suffered from high transaction costs, including obstacles and difficulties associated with administrative processes, dishonesty of public agents, delays in obtaining finance, and transportation bottlenecks. Price controls are implemented under a Drug Price Control Orders (DPCO). Under Section 3 of the Essential Commodities Act, there have been four major revisions of DPCOs in 1970, 1979, 1987 and 1995. In 1995, the DPCO was revised twice -- once on January 6th and again on July 19th -- to coordinate the price descriptions of controlled and decontrolled formulations. Drugs falling under DPCO are generally either of the following: 1) those that have a minimum annual turnover of Rs 4 crore (US$1 million), and 2) those of popular use in which there is a monopoly situation (a monopoly

in India exists if for any bulk drug, with an annual turnover of US$250,000 or more, there is a single formulator with a market share of 90% or more). For drugs where there is "sufficient" market competition, i.e. where there are at least five bulk drug producers and at least 10 formulators, and where none has more than a 40% market share in retail trade, price control is not mandated by the government. Such drugs not falling under government price control are called "decontrolled" drugs. Aside from lowering profitability and constraining the market, there are many administrative problems with DPCOs that have been worsening as the Indian drug industry expands. The government often fails to update the financial data on which it bases its criteria for inclusion, aggravated by the long time lag between the collection of data and announcement of new pricing policy. As a result, basis data for determining prices is at least three months old at the time of approval, and the price benchmarks used end up being historical instead of prospective. Furthermore, there are serious problems with the way the government calculates the fixed prices for many drugs. For example, it does not take raw material price volatility or exchange fluctuations into account when calculating prices. Also, the government determines drug prices solely upon cost, not quality, of production (no distinction in pricing is made, therefore, between a drug produced under Good Manufacturing Practices (GMP) and one that is not). The DPCO has also been gradually losing importance due to the emergence of a large number of manufacturers in the bulk drug industry. Thus, to improve its efforts at drug price control, the government set up the National Pharmaceutical Pricing Authority (NPPA) in August 1997 to update the list of bulk drugs covered under DPCO 1995 by inclusion or exclusion on the basis of established criteria and guidelines. The NPPA was also authorized to fix and revise prices of controlled bulk drugs and monitor the prices of decontrolled drugs and formulations and oversee the implementation of DPCO 1995. The government's stance on price control has been mixed. Although it has set up organizations like NPPA, the number of drugs under price control has gradually been reduced over time (see Figure 1 below), and sources in India's Ministry of Health have stated that the price control system may undergo further changes depending on the emergence of a much wider and much more assertive medical insurance system in the country.

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. For treatment Depression Antibiotic Antibiotic Anti T.B.drugs -do-doAnaesthetic Gastritis Packing 10 4 10 10 10 10 30 ml. 10 Price 1995 3.13 1998 9.50 Percentage increase 204% 80% 151% 457% 167% 176% 198% 158% 77%

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

Oxyfedrine Hcl Discopyramide Phosphate Dipyridamole

Angina pectoris


10.44 21.41 16.50 50.46 2.00 4.73

105% 206% 137%

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 Mesco Pharma 50 mg Strength Pack 100 mg 4 tablets 250 mg 14 capsules 200 mg 6 tablets 50 ml 28 tablets Vial 12 tablets 2 ml. vial Price 173.00 1247.00 154.00 1225.00 215.78 180.00 210.00 165.00 140.00 Sporanox Ethnor

1 mg/ml capsule 141.00

Adnoject Inca Roxisara Sarabhai Celex Glaxo

300 mg 6 tablets 250 mg 4 tablets

(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.

3.3Intellectual property related problem 3.3.1Analysis

Pharmaceutical, chemical and biotechnology industries the patent normally equals the product, and protects the extensive investment in research and clinical testing required before placing it on the market. Patent protection for chemical and pharmaceutical products is especially important compared with other industries because the actual manufacturing process is often easy to replicate and can be copied with a fraction of the investment of that required for the research and clinical testing. The extensive cost required to produce a new pharmaceutical product has meant that private sector investment in pharmaceutical innovation has been disproportionately directed to products meeting the needs of patients in developed countries, particularly in the United States, which combines strong patent protection with a market free of price controls. Until the TRIPS Agreement in 1994 many developing countries provided no patent protection for pharmaceutical products. And, while countries that have joined the WTO have obligated themselves to provide such protection, least developed countries are not required to meet this obligation until 2016. The continuing lack of patent protection for pharmaceutical products makes it very difficult to establish research-based industries in most developing countries. Most medical research in these countries takes place in the public sector. The lack of any means of patenting these inventions and the related lack of experience in licensing them to the private sector, suppresses the development of commercial enterprises focused on alleviating the disease burdens common to developing countries. After two years of discussion, the WTO Council recently affirmed that the TRIPS Agreement permits such compulsory licenses in health emergencies, even in cases where the compulsory license is for an imported product. However, to date, no compulsory licenses actually have


been issued, even though the threat of compulsory licensing has been used as a means of seeking lower prices. One danger in compulsory licensing is that it will discourage further the commercial R & D necessary to new drugs to fight global epidemics. Another danger is that compulsory licensing can be used to seek price levels below what a given national market is capable of supporting, further concentrating the burden of financing pharmaceutical innovation on developed country consumers and discouraging development of drugs targeted at the disease burdens of countries using compulsory licenses. Managing the IP assets of a company in the pharmaceutical industry is more than just acquiring the formal IP rights through the national or regional IP office. Patent or trademark rights are not worth much unless they are adequately exploited. Moreover, some types of valuable IP (such as trade secrets) do not require formal registration but call for other practical measures for their protection (e.g. confidentiality agreements). Finally, the enforcement of IP rights might be crucial to ensure that the IP rights are respected in the marketplace. For example, Prescription drugs worth $40 billion in the U.S. and $25 billion in Europe are due to lose patent protection by 2007-08. Indian firms will likely take around 30 percent of the increasing global generics market, the Associated Chambers of Commerce and Industry of India (Assocham) forecast. Currently, the Indian industry is estimated to account for 22 percent of the generics world market. Companies in the pharmaceutical industry willing to extract full value from their know-how, innovation and creativity should, therefore, take adequate steps to develop an IP strategy for their business and seek to integrate it within their overall business strategy. This implies, for example, including IP considerations when drafting business plans and marketing strategies. Understanding the relationship between the IP system and the system for obtaining marketing approval for new drugs by the relevant public health regulatory body is also important. IP rights may be exploited in a variety of ways. These may include the commercialization of IP-protected pharmaceutical products benefiting from the exclusive rights provided by the IP system; the entering into exclusive and/or non-exclusive licensing agreements with one or more other companies; the sale or assignment of IP assets to other firms; the creation of joint ventures or strategic alliances in order to exploit complementary IP assets of other companies; the use of IP rights to obtain access to other companies' technology through cross-licensing agreements; and/or the use of IP rights to support an application for obtaining funds to take a patented product to market. Companies should decide in each case how they may best exploit their IP assets both domestically and internationally while


ensuring that they have freedom to operate and do not unnecessarily run into trouble by infringing the IP rights of others. India is becoming an integral part of the global pharmaceutical value chain and many Indian companies are participating in this global growth potential through their organic as well as in organic initiatives. Going forward, as India further increases its dominance in the world pharmaceutical market, Pharmaceutical industry with its growth enablers and strong building blocks can become a global pharmaceutical hub. However, this would attract call for enormous change in mindset and transformation to attract global capital talent. The path to globalization is full of opportunities but also fought with risks. 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 selfsufficient 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.

3.4Investment from foreign investors 3.4.1Analysis

Cost advantages, a growing well-educated workforce, and enormous longterm market potential are a few of the reasons why large multi-national corporations are trying to understand and overcome the complexities of operating in China and India. But a new survey commissioned by Ernst & Young LLP shows that concerns over leveraging these benefits, coupled with the efforts required to protect company reputation, intellectual capital and customer confidence, are causing multinational pharmaceutical manufacturers to take a more cautious approach to the region than companies in other industries. Bringing a new drug into the market costs a company an average of about $800 to $900 million. Some estimates show that patient recruitment and medical personnel account for nearly 70 per cent of the clinical costs that are required to bring a drug to market. The less expensive means to raise research productivity is outsourcing research to low cost havens such as

India and China. The global pharmaceutical outsourcing market stands at $10 billion (2004). Pharma multinationals have maintained a low-key presence in Indian market due to absence of product patents and rigid price controls. Pharmaceutical industry did not receive significant foreign direct investment (FDI). From August 1991 to December 1998 this industry accounted for a meager 0.44% of the total FDI. Introduction of product patents will see multinationals strengthening their presence in the country. The second largest population in the world, a growing economy and rising income levels makes Indian market difficult to ignore. Global companies would be reluctant to invest in a country where there is no IPR protection. Eli Lilly (world's 7th Largest Pharma Firm) has its clinical research focus in the country and had spent considerable amounts over the last 2-3 years. But we would be only maintaining the quantum and will not expand even though there is huge potential. Global companies face the same frustration. So the main activity of the company in the country would be to introduce products from the parent pipeline.mIn the domestic market, the share of Indian companies has steadily increased from around 20 per cent in 1970 to 70 percent now. Ranbaxy Laboratories is the market leader in terms of revenues followed by Cipla and Dr Reddys Laboratories. Glaxo is the only multinational to figure among the top ten pharma companies in India. In India, 97 per cent of drugs are off patent and are manufactured by a vast number of companies. The key therapeutic segments include antiinfectives, cardio vascular and central nervous system drugs. Anti-infective comprise the largest therapeutic segment in India, accounting for about 26 per cent of the market. Globally, pharmaceutical industry grew at a compounded annual growth rate of 9.1 per cent in the last 23 years to $491 billion propelled by a string of innovative blockbusters. Multinationals were reshaped by mergers and acquisitions as a way of fattening their research pipelines. This at best represents a short-term solution. With a slew of brand name drugs losing patent protection in the next few years and the pressure building for pharmaceuticals to cut price, these giants find themselves under immense strain to find new drugs and reduce price. So, from the above discussion it's very evident that before any proper IPR regime specially in the absence of "Product patent" in India it was not a judicious decision for the international Pharma companies to invest here in India. FDI cap was raised from 74% to 100% in 2001 only but we didn't find any change in the pattern of FDI in Pharma Sector.


Impact after 2005? India a signatory to the WTO resolution on TRIPS Agreement India was thus committed to recognising product patents by amending The Indian Patents Act 1970. As per the minimum standards mentioned in the TRIPS agreement, patent shall be granted for any inventions, whether products or processes, in all fields of technology provided they are new, involve an inventive step and are capable of industrial application without any discrimination to the place of invention or to the fact that products are locally produced or imported. Accordingly, now patents will have to be granted in all areas including pharmaceuticals and the effective period of protection is for twenty years from the date of filing the application. With the implementation of TRIPS agreement by most of the developing countries by 2005, a stronger patent regime or product patents will be uniformly applicable on the pharmaceutical innovations among the member countries of the World Trade Organisation. The implications of TRIPS for the pharmaceutical sector are that: patents will be granted both for products and processes for all the inventions in all fields of technology; the patent term will be twenty years from the date of the application (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; 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. In the case of a dispute on infringement the responsibility (to prove that a process other than the one used in the patented product has actually been used in the disputed product) lies with the accused rather than with the patent holder (in the 1970 Act, the responsibility is with the patent holder). This is the broad framework, which will guide the pharmaceutical industry of India in the WTO regime ( i.e. post 2005 period). In order to increase the global prospects of the pharmaceutical industry in the post 2005 period, the Central Government has fixed the deadline of December 2003, to comply with the Good Manufacturing Practices set by World Health Organisation. Since this is mandatory for all the units, it means incurring expenditures that could range from Rs. 15 lakhs to 1 crore per unit. In some cases, it would involve shifting to new premises altogether. A few units might exit from business because of this. As


contract manufacturers it is essential that both the parent unit and the loan licensee meet these requirements in cases where the production is meant for exports. While these standards improve the quality on par with international standards, it will also act as potential entry barriers for new firms to enter. The strength of the Indian pharmaceutical industry is in reverse engineering. Such units by utilising the provisions under compulsory licensing, exceptions to exclusive rights and the Bolar exception 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. It is suggested that 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. One of the concerns regarding product patents is the access to patented products. Some of the provisions within the TRIPS agreement 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. It appears that `who patents the product' matters more for the government than what is patented. In the recently concluded Doha meeting, a separate declaration on the TRIPS agreement has clarified that members have the right to grant compulsory licence in the area of pharmaceuticals and that they have the freedom to determine the ground upon which such licenses are granted, which can have a considerable impact on the availability as well as on their prices. However, the amendments made by the Government of India, make the procedures very cumbersome which needs to be revised in the third amendment to the Patents Act. While parallel trade in pharmaceutical may facilitate access to medicine, yet compulsory licence will be the only course of option to facilitate flow of technology and R&D. Scherer and Watal (2001) suggest that tax concessions should be provided to the pharmaceutical manufacturers to encourage them to donate the high


technology drugs to the less developed and developing countries which is a viable option. 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. Currently only a handful of pharmaceutical firms in India invest in R&D which needs to be improved. The Pharmaceutical Research and Development Committee (1999) has suggested that a mandatory collection and contribution of 1 per cent of MRP of all formulations sold within the country to a fund called pharmaceutical R&D support fund for attracting R&D towards high cost-low-return areas and be administered by the Drug Development Promotion Foundation. The domestic universities and other academic institutions can play the role of research boutiques or contract research organisations (CRO), which can supply the technical know-how and manpower. Units that already have such facilities can also function as a CRO for other firms. In the post TRIPS era, the government will have to 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. Governments at various levels should take active part in disseminating knowledge about the IPRs and the possible strategies that can be adopted by the industry. This will remove some of the impediments. Lessons should be drawn from the Chinese experiences where systematic efforts were taken to educate the bureaucrats, policy makers and the industry about the WTO and product patents in the pharmaceutical industry. India will have to strengthen the patent examination process and speed up the processing procedures. This will help in checking the products that may enter the country utilising the import monopoly route provided by the EMR. Besides a strong institutional and judicial framework will have to be set up for monitoring the prices, to prevent infringement and trade dress cases of patented products respectively.


As far as India's pharmaceutical industry is concerned, various options are possible in the WTO regime. These are to: (a) manufacture off patented generic drugs, (b) produce patented drugs under compulsory licensing or cross licensing, (c) invest in R&D to engage in new product development, (d) produce patented and other drugs on contract basis, (e) explore the possibilities of new drug delivery mechanisms and alternative use of existing drugs, and (f) collaborate with multinationals to engage in R&D, clinical trials, product development or marketing the patented product on a contract basis and so on. Besides these strategies, India's strength lies in process development skills. This expertise utilised within the WTO framework with emphasis on quality standards will provide India a competitive advantage over other Asian countries. To conclude we can anticipate more FDI nature of investment in India in the field of Pharma Sector? It's a question which requires more time to be answered, but we can draw inferences from the facts & data discussed above. As from the above discussion it is obvious that Pharma industry is high investment seeking industry, & the other most important fact about it is that it require enormous R&D. The new Patent regime brings both opportunities and challenges to the domestic pharma industry. Even larger Indian companies lack the financial muscle to be major international player in basic R&D, that involves discovery of new chemical entities (NCEs). They would be helped by the government's decision not to restrict patenting to NCEs. The Patent Ordinance issued recently defines the term patentability as per the TRIPS guidelines but does not exclude patenting of incremental inventions like new drug delivery systems, polymorphs etc, brightening the chances of Indian companies to benefit from the patent regime, but it may act as a disincentive for the international Pharma firms to invest in India. Again if we look at the patent amendment act there are certain provisions of this Act which are discouraging the FDI in Pharma sector like 1. Deletion of the provisions relating to Exclusive Marketing Rights (EMRs) (which would now become redundant), and introduction of a transitional provision for safeguarding EMRs already granted. 2. a) Conditional grant of patent (Section 47) : Empowers the Government to import, make or use any patent for its own purpose. For drugs, it also empowers import for public health distribution.


3. Revocation of patent in public interest (Section 66): Empowers the Government to revoke a patent where it is found to be mischievous to the State or prejudicial to the public. 4. Grant of compulsory licence (Sections 82 to 94): Chapter XVI deals with the general principles and circumstances for grant of compulsory licences in order to protect public interest particularly public health and nutrition. These provisions check the abuse of patent rights. They can be invoked if the reasonable requirements of the public with respect to patented inventions have not been satisfied, and the patented invention is not available for public at a reasonably affordable price, and if the patented invention is not worked in the territory of India. Section 92 of this law provides for action in case of national emergency, extreme urgency and public non-commercial use, and can be invoked without the grace period of 3 years from grant of patent. 5. Use of invention for the purpose of Government [Sections 100 & 101]: Compliments Section 47. 6. Acquisition of invention and patent for public purpose [Section 102]: Empowers the Government to acquire a patent to meet national requirements. 7. Bolar provision [Section 107 (A) (a)]: Facilitates production and marketing of patented products immediately after expiry of the term of patent protection by permitting preparatory action by non patentees during the life of the patent. 8. Parallel import [Section 107 (A) (b)]: Provides for import so that patented product can become available at the lowest international price. These provisions are basically public interest provisions but these are anti FDI in nature because in a sector of high investment & high uncertainty every investing firm need complete protection & patronage but here it is not guaranteed. So we can anticipate that product patent is going to have a very little impact on the FDI scenario in a country like India. The current Foreign Direct Investment Policy of the government of India allows


- FDI up to 74 per cent in the case of bulk drugs, their intermediates and formulations (except those produced by the use of recombinant DNA technology) would be covered under automatic route. - FDI above 75 per cent for manufacturing of bulk drugs will be considered by the Government on case to case basis for manufacture of bulk drugs from basic stages and their intermediates and bulk drugs produced by the use of recombinant DNA technology as well as the specific cell/tissue targeted formulations provided it involves manufacturing from basic stage.


4. Research questions Pollution

Q.1 There are increased cases of pharmaceutical companies have been served notices by respective pollution control boards directing for taking effective pollution control measures or closure of plants. Still, why companies have not been mainly targeting this industrial segment? Q.2It is mentioned that some of the companies engaged in pollution control are to be blamed for ignoring the pharmaceutical companies, that do you means , that companies never tried attempting to adopt new technologies and improve their expertise that could have helped them in working close with pharmaceutical companies? Q.3Given the situation prevailing now, do we foresee companies making a big difference, especially for the pharmaceutical companies, in the coming years ? Q.4Do we foresee Indian pharmaceutical companies having a pollution management company as partner throughout akin to foreign pharmaceutical companies? Q.5Do we also foresee increase in the number of Indian companies engaged in the pollution control given the fact that in the coming years, pollution norms would be on top of the agenda and stringent at that? What role does the government need to play in helping promote this segment?

4.2 Problems regarding price control

Q.1 Drugs at Affordable Prices? Q.2 Do We Need a Drug Price Control Regime? Q.3 How Then Can We Ensure Fair Prices To the Consumers? Q.4 How can we protect the interests of manufacturers while providing the life saving drugs at affordable prices to the masses of India?


4.3 Intellectual property related problem

Q.1what is the Special Problems of Pharmaceuticals Patent? Q.2what is the liabilities of Patents and Research and Development in Developing Countries like India? Q.3 Why and how Inadequate Patent Protection Discourages the Development of a Market for Pharmaceuticals Addressed to the Disease Burden of Developing Countries like India?

4.4 Investment from foreign investors

Q.1 what are the aspects for foreign investment in India? Q.2 which factors are playing important role in deterring foreign companies to invest in India? Q.3 what are the steps taken by he government for addressing the specific problems?


5. Aim
The aim of this report is to analyse various problems related to the pharmaceutical industry of India. A methodical approach is adopted in the research so as to find a fruitful outcome through each problem and to suggest an appropriate measure to be taken so as to minimise the effect of problems in the growth of Indian pharmaceutical industry. This report also aims to give a brief account about the present pharmaceutical senior of Indian pharmaceutical industry and various turbulence factors in its growth such as factors related to pollution, drug price control, patent laws and foreign investments. This report will try to come up with results and some suggestions regarding the improvement and changes required for sorting out the problems in the policies and approach taken towards these problems .


1. Lack of time 2. limitations of words 3. just dealt with few or selective problems of India pharmaceutical companies 4. Has not seen global aspect 5. limitation of money 6. Limitation of contacting people many people were unable to reply on research work. 7. Limitation of data available.


7. Methodology
The methodology I have adopted is quite evident from my report. I have taken certain problems quite wide spread in Indian pharmaceutical industry. I have analysed those particular problems through a methodical approach, have prepared certain questions and questioners based on problem analysis and have than collected primary and secondary data pertaining to those questions and with the help of those questionnaires ,analysed them and than has concluded my report on the base of data analysis.

7.1 Data collection 7.1.1 Primary data:Primary data has been collected by mailing a questionnaire to certain members of Indian pharmaceutical industry. These are the people who are associated to Indian pharmaceutical industry from a long time and have a deep and abbreviated knowledge of the industry. They keep close watch to the changes taking place in the pharmaceutical industry and can be considered as masters of their field.

7.1.2 Secondary data:Secondary data has been collected from the various web sites, pharmaceutical journals and books.

7.2 Data analysis

Data analysis and interpretation is done solely through personal interpretation, although to some extend advice and guidance was seek through my professor and people working in pharmaceutical industry in India.


7.3 Data presentation

Most of the data presented is in theoretical form although proper statistics and tabular data are provided where ever it was necessary.

7.4 Alternative methods

The alternative methods for this research are through various books and journals. Also we can use various web sites available, or we can use government data available for the same in governments pharmaceutical department.


8. Result
Every problem takes its own time to get solve as India is a growing economy with many hurdles in between but members of Indian pharmaceutical industry especially big players like Ranbaxy, Nicolus & Piramal, etc. have shown solidarity and cooperation in solving the problems. They have cumulatively with government assistant have taken some forward steps to overcome various problems of Indian pharmaceutical industry. It is foreseen that in coming future the problems related to this particular industry will take a back seat and industry will drive to success with full thrush and would play a major role in Indias economical growth.

9. Conclusion
Hereby, I conclude my report by saying that during this research I have reviewed lot of data regarding the problems related to Indian pharmaceutical industry and I can conclude my results with 3 points: Great potential recognised in the industry to be the world leader in pharmaceutical. Though with lots of problems pharmaceutical industry is coping well. Government should be more cooperative towards the industry and should formulate its policies not forgetting small scale industries.


10. Future research

This report has a vast opportunity for future or further research. In this report I have only dealt with four basic problems of Indian pharmaceutical industry but there are other problems which can be included in the scope of research such as problems related to quality, problems related to productivity, problems related to research and development, problems related to finance or capitalisation. To add further, this research can be expanded to the problems related to the global pharmaceutical industry. The research can also go more deep into the problems dealt in this report as this research cannot be consider complete due to the limitation of time and words.


11. Bibliography
Web sites:1. as on 10-9-2006 2. as on 20-9-2006 Books:1.The Indian Pharmaceutical Sector: Issues and Options for Health sector reform. By Ramesh Govindray, Jonna Lewis, Gnaraj Chellaraj. 2.Itellectual Rights and Global capitalism. By Donald G Richards. Special Thanks To:1.Mr. S.K Sinha M.D. Ranbaxy Laboratories ltd. 2.Mr. Arbindakshaya Mishra- Q.A. Manager, Ranbaxy Laboratories ltd. 3.Mr. Pradeep Bansal-M.D. Aarsh Remedies. India 4.Dr.Ajay Bansal- Chairman, Anand Mangal Hospital 5.Mr. Sanjeev Gupta- Pharmacist, Anand Mangal Hospital