India's Pharma Wars

The Swiss pharmaceutical giant Novartis and German drug maker Bayer are challenging the Indian establishment over the country’s drug-patent rules, an affair that frames the larger confrontation between the global pharmaceutical industry and the governments of the emerging economies.

With pharmaceutical sales growth slowing in the West, multinationals are seeking access in developing markets where rising affluence and rising rates of so-called affluence-related ailments is setting the stage for exponential growth.

PriceWaterhouseCoopers, a consultancy, estimates that from US$12 billion in 2010, Indian drug market trade is likely to rise to US$74 billion by 2020.

However, legal wrangling over the terms and conditions under which such commerce can thrive has also become commonplace. The situation is particularly significant in India – known as the pharmacy of the developing world -- where big pharma is struggling to forge new avenues for growth.

Novartis, for instance, has been challenging India since 2006 for denying a patent for Glivec, or imatinib mesylate, its populart blood cancer drug which has global sales in excess of US$4 billion. The Indian patent office has refused Novartis’s application for a patent on Glivec on the grounds that it is only a slightly modified molecular version of an original patent that dates from 1993. The product has long been produced as a generic and marketed in India by local companies at a fraction of Novartis’ price of approximately US$ 2,000 for a month’s supply, making it unaffordable for most of India’s 1.2 billion people.

Novartis’ case has now reached the Supreme Court, which has the other multinational pharmaceutical manufacturers on tenterhooks. If Novartis wins, no other brands of imatinib mesylate can either be supplied within or exported from India. The case also has larger ramifications in terms of what price India’s 1.2 billion people will have to pay for the new drugs.

Bayer is similarly locked in court combat with India’s patent drug controller, which in March ordered the company to license a drug to a local manufacturer. The controller has given a local firm the go-ahead to produce a generic version of Nexavar, a cancer drug developed and sold by Bayer, despite the German pharmaceutical giant’s protests.

Multinational companies are fully cognizant that having little or no penetration in a key emerging market can damaging to their business ambitions. The standoff in India thus carries global resonance. The focus on generics – cheaper copies of expensive branded medicines whose patents have expired – will have a ripple effect on both affordability and the dynamics of India's pharmaceutical market.

Generics accounted for around 90 percent of India’s drug sales in 2010. The gulf between the cost of branded drugs and generic alternatives is often vast. For instance, industry estimates suggest that over 80 percent of the antiretroviral medicines (ARVs) used by MSF (Médecins Sans Frontières) or Doctors Without Borders in its HIV/AIDS programs come from producers of generics based in India. Similarly, 80 percent of the ARVs purchased with donor funds globally come from India. MSF also relies on Indian generics for malaria and tuberculosis treatments.

India became the key producer of affordable medicines because until 2005, it did not grant patents on medicines. This enabled generic manufacturers to freely produce more affordable versions of medicines patented elsewhere.

However, to spur the domestic drug industry and the supply of more affordable medicines to the consumers, India annulled product patents for pharmaceuticals under the Patents Act of 1970. Only patents for processes were recognized, for a maximum of seven years. This resulted in the mushrooming of thousands of thriving Indian pharma companies.

After joining the World Trade Organization (WTO) in 1995, however, India was forced to reframe its patent policy. Its new system, in place since 2005, includes special protections for both patients and generic manufacturers.

“Indian firms are currently allowed to continue production of drugs marketed before 2005,” said Sarbjeet Singh, a New Delhi-based lawyer and a consultant with the Ranbaxy group, “But they can’t produce generic versions of medicines patented in India after 2005. A violation can trigger high monopoly prices for many more years for new products unless countermeasures are taken in the interest of public health.”

Adding to the intricacies are India’s nascent drug-patent laws. While the Indian government is keen to encourage generics and keep prices down, ambiguity and loopholes in the current drug legislation offer no clear guidelines.

Faced with dwindling prospects for profiteering, big pharmaceutical establishments behind the original products are sometimes employing strongarm tactics to bring Indian manufacturers of generic products in line. Novartis, for instance, cancelled its plans to build a US100-million research center after it lost a court case in the southern city of Chennai against the compulsory license clause in India patent legislation.

Experts reckon that in the future, the controversial Anti-Counterfeiting Trade Agreement (ACTA) could also make export on the part of Indian manufacturers even more difficult.

The larger question arising from the current controversy is: how should governments in emerging economies reconcile the advent of foreign players with a fool-proof legal framework that not only protects domestic players but also assures economically-priced drugs for the consumers? A sustainable and workable solution, analysts say, should factor in the government’s concerns on access and affordability without threatening the long-term growth of the pharmaceutical industry.

The controversy grow with America seeking new protection for drug makers and China keen on allowing compulsory licensing. “An amicable way out,” suggests Singh, “is for western giants to be more flexible about pricing.” He points out the example of Roche, another Swiss firm, which is slashing the price of four drugs in India. It is re-branding them and using a local packager to distinguish the Indian products from those sold elsewhere.

Even so, mounting litigation between the pharma giants and the Indian government hints at the twisted complexities of doing business in emerging markets. An economic slowdown, cutthroat local competition, the governments' efforts to control health-care costs and support local firms, have hit the prospects of top drug makers.

Be that as it may, analysts conclude that such markets can still be a fertile playground if mechanisms are put in place to ensure a level playing field for all stakeholders and the rights of the consumers are protected.

(Neeta Lal is a Delhi-based senior journalist; neetalal@hotmail.com)