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 Terapia‟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 Asia-
Pacific. 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 1996-
97 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

 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
  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 Multinational Product

Lupin Laboratories Fujisawa Cefixime
Cefuroxime Axetil, Lisinopril
Apotex
(Bulk)
Nicholas Piramal Allergan Bulk and Formulations
Advanced Medical
Eye Products
Optics
Wockhardt Ivax Nizatidine (anti- ulcerant)
Dishman Solvay
Eprosartan Mesylate
Pharmaceuticals Pharmaceuticals
IPCA Labs Merck Bulk Drugs
Tillomed Atenelol
Orchid Chemicals and Cephalosporin and other
Apotex
Pharmaceuticals injectables
CVS products, anti-infective
Sun Pharma Eli Lilly
drugs and insulin
Synpac
Kopran Penicillin- G Bulk Drug
Pharmaceuticals
Cadila Healthcare Altana Pharma Intermediates for Pantoprazole
 Gastrointestinal and CVS
Boehringer Ingelheim
Products
Biocon Bristol Myers Squibb 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. Rajasthan Drugs & Pharmaceuticals Limited (RDPL)

2. Orissa Drugs & Chemicals Limited (ODCL)
3. Karnataka Antibiotics & Pharmaceuticals Limited (KAPL)
4. Maharashtra Antibiotics & Pharmaceuticals Ltd. (MAPL)
5. 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. Petrofils Cooperative Ltd,PO Petrofils,District-Vadodara,Gujarat.

2. Central Institute of Plastics Engineering & Technology,Guindy,Chennai.
3. Institute of Pesticides Formulation Technology,Gurgaon,Haryana.
4. 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 above-
mentioned 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 self-
reliance 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 0.2-
0.5% 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 WHO-
GMP certification

State No of units

Assam 1

Kerala 14

Gujarat 307

Maharashtra 136

Haryana 19

Uttar Pradesh 21

Andhra Pradesh 138

Karnataka 52

Goa 42

Daman 26

Pondicherry 10

Tamil Nadu 5

Rajasthan 4

Delhi 12

Uttarakhand 1

Punjab 7

Madhya Pradesh 24

Orissa 1

Bihar 5
 West Bengal 6

Total 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 $ 20 mn. < $10mn.

Phase 2 $ 50 mn. < $30mn.

Phase 3 $ 100mn. < $60mn.

Source: FICCI 2005

CLINCIAL TRIALS IN INDIA: A SWOT ANALYSIS

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

-Fast recruitment of large

number of patients

-Revamped regulatory
regime

-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 along with the rest of the
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).

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 self-
sufficient 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 Price Percentage
For treatment Packing
drug 1995 1998 increase
Diazepam Depression 10 3.13 9.50 204%
Ampicillin Antibiotic 4 12.85 23.15 80%
Cephalexin Antibiotic 10 45.07 113.15 151%
Ethambutol Anti T.B.drugs 10 5.92 33.00 457%
Rifampicin -do- 10 24.00 64.00 167%
Pirazinamide -do- 10 17.01 46.95 176%
Lignocaine Hcl Anaesthetic 30 ml. 4.16 12.40 198%
Promethaxine Hcl Anti allergic 10 1.25 3.23 158%
Antacid liq. Gastritis 200 ml. 13.00 23.00 77%
Oxyfedrine Hcl Angina pectoris 10 10.44 21.41 105%
Discopyramide Cardiac problems 10 16.50 50.46 206%
Phosphate
Dipyridamole Anti angina 10 2.00 4.73 137%

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 Company Strength Pack Price
Sporanox Ethnor 100 mg 4 tablets 173.00
Lumicil Novertis 250 mg 14 capsules 1247.00
Spariex Sun Pharma 200 mg 6 tablets 154.00
Rispid Panacea 50 ml 1 mg/ml capsule 141.00
Livial Infar 28 tablets 1225.00
Pipracil Cyanamid 2G Vial 215.78
Amate Mesco Pharma 50 mg 12 tablets 180.00
Adnoject Inca 3 mg 2 ml. vial 210.00
Roxisara Sarabhai 300 mg 6 tablets 165.00
 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 Year Reduction of work force
Glaxo 1995 1564
Hoechst 1996 1049
Knoll Pharma (Boots) 1995 600 (All workers)
Smith Kline Beecham 1995 208
E. Merck 1995 194
Rhone Poulenc 1996 700
Hindusthan Ciba Geigy 1993 907
Duphar Interfran 1996 154
Bayer 1996 590
Abbott 1996 All workers
Roche 1996 All 320 workers
Boehringer Mannheim 1997 All 335 workers
Park Davis 1997 All 650 workers
Pfizer 1995 215
Unichem 1997 All workers

(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
Year of Value of
Company Merger
merger merged company
Dow Chemicals Marion Labs 1986 $ 6.21 bn.
Bristol Myers Squibb Corp 1989 12.09 bn.
Beecham group Smith, Kline & French 1989 7.9 bn.
American Home Products American Cynamide 1994 9.7 bn.
Hoffman La Roche Syntex Lab. 1994 5.3 bn.
Eli Lyly PCS Health System 1994 4 bn.
Sandoz Gerber 1994 3.7 bn.
Smith Kline Beecham Sterling 1994 2.9 bn.
Glaxo Burroughs Wellcome 1995 14.2 bn.
Hoechst MMD Roussel 1995 7.2 bn.
Pharmacia Upjohn 1995 7 bn.
Rhone-Poulenc Rorers Fison 1995 2.7 bn.
BASF Boots 1995 1.3 bn.
Ciba Geigy Sandoz 1996 30.1 bn.
Hoffman la Roche Comage Ltd. 1997 11 bn.
Hoechst A.G. Rhone Poulenc 1998
Astra Zeneca 1998 67 bn.

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

Table V
Percentage of drug production and world population in some countries
% of world % of world
Country
drug production population
USA 28.2% 4.7%
Germany 7.7% 1.5%
France 7.1% 1.1%
U.K. 3.4% 1.1%
 Brazil 1.7% 2.8%
India 1.2% 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 people 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 | MYSTOCKS | | RSS

ADVERTISEMENT
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