In This Issue


Price Control and Pharmaceutical Patents in India

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Pharmaceutical products are just chemical compounds that have specific effects on the human body and needs tremendous amount of money to develop. Since they are simply chemical compounds, they are easy to copy and manufacture to be sold at lower prices. On the other hand, the enormous amount of money needed to ensure drug efficacy and safety is the reason why legitimate pharmaceutical products need patent protection. It delays imitation which is always disadvantageous to the new product. Economically, patent also allow a period of above-normal profits for a successful product which of course stimulates further research and development. Patent protection is essential to the pharmaceutical industries because of the huge cost of drug development and the ease with which they can be copied. Patents temporarily allow the drug patent holder to be the only one who can sell the patented drug so they can charge enough to recover cost. More than any other industry, the pharmaceutical industry relies on the full protection of the patent to recover research and development, to stay in business and to continue making life-saving products. This means that patent-limiting provisions or any other regulations that may evade patent protection have a substantial negative impact on drug developers.

       Some countries express concern about the price of drugs sold in their market. A known fact is that some countries control the price of their pharmaceutical products to the extent that pharma companies has to sell it at a higher price in other countries to cover-up the losses. In fact, numerous researches were undertaken to determine the effects of strict price control of pharmaceutical products in one country and its effects on another. For citizens of a developing country whose purchasing power is not very strong, price control looks beneficial. Taking the worldwide picture, however, strict price control on patented products results to fewer pharmaceutical products coming to market and reduces availability worldwide which affects least developed countries especially those without pharmaceutical capabilities. In Europe for example, studies revealed that strict price control have negative social and economic implications and evidently circumvents patent laws and international treaties. This may be reasonable in small-scale in developing countries where low-income levels make full payment impossible. If the same practice of price control happens in developed countries where full price payment is possible, it gives the citizens the opportunity to pay less than their fair share.

       For decades, India has been in the forefront of the pharmaceutical industry, providing low cost medicine and formulations to its own people and the world. Contrary to the observations expressed by those who are against price control, the Indian Drug Policy of 1986 ensured the availability at reasonable prices of essential medicines in the Indian market. It also strengthened quality control and encouraged new investments in pharmaceuticals. So far, the initiative has been very successful in promoting the growth of the pharmaceutical industry. Both small and large scale units sprouted like mushrooms around the country to produce a complete range of formulations and medicine as well as chemicals with therapeutic value. Production of bulk drugs increased significantly providing for dependable export performance. The National Pharmaceutical Pricing Authority was created to ensure price fixation and to update the list of drugs under the established guidelines. In addition, India actively enforces patent rights.

       These are promising developments where a country uses patents to develop commercial pharmaceutical industries that produce products directed at local diseases and savailable at prices that patients in that country can afford. India doesn’t stand alone; Brazil, too was able to maximize patent protection yet practices price control on pharmaceutical products. These efforts show that developing countries can build research-intensive pharmaceutical industries capable of operating profitably in the local market. To help such industries to grow, effective patent protection must be available, commercialization of public-funded research must be encouraged and compulsory licensing kept minimal.

Being home to the world’s second largest pharmaceutical industry by volume, India is seen to lead this industry in the very near future. In fact, the government has encouraged the growth of Indian pharmaceutical companies with its Patents Act of 1970, into what it is today. The patent act removed composition patent from food and drugs, and though it kept the process patent, these were shortened to five to seven years only. Earlier, the lack of patent protection made the Indian market undesirable to multinational companies and when they left the country, then, Indian companies took their places. Their expertise in reverse-engineering new processes for low cost drugs placed the India in the world drug market.

       There were 20 000 registered drug manufacturers in India in as early as 2002, which sold $9 billion worth of formulations and bulk drugs. Most market players were small-to-medium enterprises and the largest companies controlled 70% of the Indian market. The Patents Act of 1970, enabled multinational to represent only 35% of the market. As of the present, there are 74 US FDA-approved manufacturing facilities in India, more than any other country outside the US.

The Indian central government and its state support R&D. They conferred tax deductions for expenses related to research and development. They granted other favors as well such as reduced interest rates for export financing and a cut in the number of drugs under the price control. Aside from government support, additionally, companies also have access to a highly developed IT industry that can partner with then in new molecule discovery.

       Despite the difficulty of opening and doing business in India, the multinationals doesn’t stop coming because India boasts of well-educated, English speaking labor force. There has been a reverse-brain drain effect in which scientists are returning from abroad to accept positions at lower salaries at Indian companies. Obviously, these foreign-trained scientists transfer knowledge and experience to all those who work around them. But India’s wealth of people extends beyond this. It benefited the other side of drug commercialization as well. It has the largest and most genetically diverse population in any single country. For one, a company can recruit for clinical trials more quickly and perform them more cheaply than in the countries in the West.

       There is a very well-defined relationship between the biotechnology and pharmaceutical industry in India as biotechnology is always a part of the pharmaceutical industry. The Indian biotech market is dominated by pharmaceuticals with vaccines leading the way. Biologics and large-molecule drugs tend to be more expensive than small-molecule drugs and India will likely dominate the market in biogenerics and contract manufacturing especially as soon as drugs go off patent and Indian companies upgrade their capabilities. In this regard, the government established the Department of Biotechnology in 1996. The science minister launched the program that provided tax incentives and grants for biotech start-ups and firms seeking to expand. Furthermore, states have started to vie with one another for biotech business by offering such goodies as exemption from VAT and other fees, financial assistance with patents and subsidies on everything ranging from investment to land utilities.

       There are actually a number of reasons why multinational companies come to India. Firstly, India is a huge market. It has a wide demand for different and new goods and services due to the increasing population and the varying consumer tastes. Secondly, it is one of the fastest growing economies in the world. Thirdly, the government continuous to relax many of its restrictive policies and FDI principles. Fourthly, market competition also as well as macro-economic stability drew MNC’s in. Lastly, India promises a very stable an competitive labor force with capability equal with but whose salary demand is much lower than the West.

       There are more challenges for India, but, right now it takes care of the most urgent matters at hand. The government is trying to initiate higher level of investments, reduces the technological gap, utilizes natural resources, reduces foreign exchange gap and boosts up the basic economic structure. These undoubtedly are the reasons why despite the strict price control on some drugs, India still is considered a haven for MNC's.

       If India and now, Brazil can do it then it is also possible for others. Consumers in all countries can share the burden of drug development equitably by paying for medicine at a price level consistent with their means, rather than shifting the costs of drug development to others.


Contributed by : Lisa Pineda Gacuma - Technical Expert
Editor in Chief : Roshni Parikh
Designed By : Vikash Singh

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