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Policy Reforms in the Indian Pharmaceutical Sector since 1994

Liberalisation measures in the pharmaceutical sector have brought about major changes in the industrial licensing policy, import restrictions, foreign direct investment and production controls. It was feared that firms would shift from indigenous production to imports, especially of bulk drugs, and this concern was aggravated with the change in the patent law. This paper finds that these apprehensions have only partly come true. Exports of formulations have grown faster while their imports have not registered any jump, keeping the balance of trade positive. But there has been a decline in domestic production of bulk drugs and a growth in imports because the industry is moving away from intermediates and is focusing on bulk drugs at the high end of the value chain.

SPECIAL ARTICLE

Policy Reforms in the Indian Pharmaceutical Sector since 1994

Impact on Exports and Imports

Reji K Joseph

Liberalisation measures in the pharmaceutical sector have brought about major changes in the industrial licensing policy, import restrictions, foreign direct investment and production controls. It was feared that firms would shift from indigenous production to imports, especially of bulk drugs, and this concern was aggravated with the change in the patent law. This paper finds that these apprehensions have only partly come true. Exports of formulations have grown faster while their imports have not registered any jump, keeping the balance of trade positive. But there has been a decline in domestic production of bulk drugs and a growth in imports because the industry is moving away from intermediates and is focusing on bulk drugs at the high end of the value chain.

This article is based on my PhD thesis and I gratefully acknowledge the direction provided by Jayati Ghosh and Biswajit Dhar in doing this study. I also thank the anonymous reviewer who provided me with very detailed and productive comments.

Reji K Joseph (rejikjoseph@ris.org.in) is at the Research and Information System for Developing Countries, New Delhi.

1 Introduction

T
he debate on the implications of liberalising import r estrictions and production controls on pharmaceutical products in India was rekindled with the decision to implement product patent rights. The removal of regulations that insisted on local production, placing pharmaceuticals in the open general licence (OGL) category and the abolition of restrictions on foreign firms were all expected to e ncourage imports of pharmaceutical products into India. With the new patent regime, it was apprehended that growth in exports would be limited due to restrictions on the scope of operations of g eneric producers, particularly their ability to export to preferred destinations, while imports would get a boost because of the constraints on domestic producers of patented medicines, thus causing the balance of trade to deteriorate. This paper provides an analysis of the trends and patterns in pharmaceutical exports and imports in the new policy era.

2 The Context

The liberalisation measures in the Industrial Licensing Policy Statement of July 1991 were implemented in the pharmaceutical sector in 1994 through the Modification in Drug Policy 1986. Key elements of the liberalisation measures were as follows:

(a) Abolition of industrial licensing for all bulk drugs and their intermediaries and for all formulations except specifi c cell/ tissue-targeted ones; (b) Elimination of the ratio parameter linking the production of formulations to that of indigenous production of bulk drugs from the basic stages; (c) Abolition of restrictions on import of drugs and pharmaceuticals and placing them in the OGL category; (d) Reduction in tariffs for the import of pharmaceuticals; (e) Automatic approval of foreign direct investment (FDI) up to 100%; and (f) Relaxation of the drug price control mechanism.

These measures essentially came about as a result of the e ndogenous policymaking process, but the most signifi cant policy change in the post-1994 period – the change in the patent regime – came about as an outcome of India’s obligations under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. The concern that liberalisation would r esult in an increased dependence on imports was aggravated by the decision to implement product patent rights in the p harmaceutical sector. Studies have established a positive

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correlation between the strengthening of patent rights in d eveloping countries and increased exports to these countries by companies based in developed countries. It was feared that the Indian pharmaceutical industry would no longer be able to export generics of on-patent drugs, which had been a thriving business in the past.

Maskus and Penubarti (1995) and Smith (1999) found a strong positive correlation between exports and the level of intellectual property protection in importing countries. Smith (1999) observed that strengthening patent rights in countries that pose a strong threat of imitation would expand exports, whereas strong patent rights in countries where the threat of imitation is weak would enhance market power. India was classified as a country with weak patent rights and strong imitative abilities where a strengthening of patent rights would bring about market expansion. Following this reasoning, it was expected that imports to India would expand with the implementation of product patent rights and this would adversely affect the balance of trade. The other view, however, was that the rise in imports of formulations would be offset by the growth in exports of bulk drugs (Lanjouw 1999). Further, the expiry of blockbuster patents was expected to provide Indian firms with new opportunities for exports. It was also expected that the cost advantages of production in India, compliance with good manufacturing practices and the expertise in reverse engineering would make Indian firms explore new o pportunities in low-volume, high-price regulated markets while retaining their traditional low-price, high-volume markets in Asia, Africa and Latin America (Grace 2004).

Chaudhuri (2005) showed that there has been a remarkable growth in Indian pharmaceutical exports, particularly after 2000. The growth in exports to regulated markets, especially the US, has been the major reason for the spurt. Exports to regulated markets accounted for 39% of the exports in 2001-02. Dhar and Gopakumar (2008) arrived at a similar conclusion. Chaudhuri also pointed out that in 2001-02, formulations c onstituted 52% of the exports with the remaining being bulk drugs.1 However, there are no major studies providing detailed analyses of imports of pharmaceuticals to India. This study a ttempts to fill the gap and also endeavours to capture the more recent trends in exports.

3 Methodology

The analysis is based on data accessed from COMTRADE.2 The advantage of this data is that it enables cross-country comparisons as it is based on an international classification, the Standard International Trade Classifi cation (SITC). Major international statistical publications, including the annual International Trade Statistics brought out by the World Trade Organisation (WTO), follow the SITC and use COMTRADE data to identify m ajor exporters and importers. As countries need not strictly follow the SITC for domestic purposes, there may be differences in the figures reported by COMTRADE and government sources. For example, while COMTRADE and International Trade Statistics report that India’s exports in pharmaceuticals

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in 2008 was $5.9 billion, the annual report of the union government’s department of pharmaceuticals reports a figure of $8.4 billion for 2008-09.3

Pharmaceutical products are classified into formulations (dosage forms) and bulk drugs (active pharmaceutical ingredients, or APIs). The European Medicines Agency (EMA) defi nes a formulation as “the physical manifestation that contains the active and/or inactive ingredients that deliver a dose of the medicinal product. The key defining characteristics of the dose form can be the state of matter, delivery method, release characteristics and the administration site or route for which the product is formulated. A pharmaceutical dose form is the form in which a pharmaceutical product is presented in the medicinal product package as supplied by the marketing authorisation holder/manufacturer/distributor”.4 The US Food and Drug Administration (FDA) defines a bulk drug as “any substance or mixture of substances intended to be used in the manufacture of a drug (medicinal) and that when used in its production becomes an active ingredient of the drug product. Such substances are intended to furnish pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment, or prevention of disease or to affect the structure and function of the body.”5 In India, these terms are defi ned in the Drugs Price Control Order (DPCO). The DPCO defines a formulation as “a medicine processed out of, or containing the use of any one or more bulk drug or drugs with or without pharmaceutical aids, for internal or external use for or in the diagnosis, treatment, mitigation or prevention of disease”6 and a bulk drug as “any pharmaceutical, chemical, biological or plant product including its salts, esters, stereo-isomers and derivatives, conforming to pharmacopoeial or other standards specified in the Second Schedule to the Drugs and Cosmetics Act, 1940 (23 of 1940), and which is used as such or as an ingredient in any formulation.”

The SITC does not explicitly use these terms (formulation and bulk drug), but classifies pharmaceutical products into two groups – code 541 “medicinal and pharmaceutical products, other than medicaments of group 542” representing bulk drugs and code 542 “medicaments (including veterinary medicaments)” representing formulations. Code 541 consists of s elected products from harmonised system (HS) chapters 26, 29 and 30. Code 542 consists of selected products from HS chapter 30 (3003 and 3004). HS chapter 30, which is on pharmaceutical products, has six sub-chapters (at four digits) and the term “‘medicaments” apply only to sub-chapters 30037 and 3004,8 indicating these two are d istinct from the other four sub-chapters. For this study, products coming under SITC code 541 (which in the HS classification are select products from chapters 26, 29 and the products under chapters 3001, 3002, 3005 and 3006) are considered bulk drugs and products coming under SITC code 542 (which in the HS classifi cation are products under chapters 3003 and 3004) are considered formulations. My interaction with officials of the Bulk Drug Manufacturers’ Association ( India), Hyderabad confi rmed that HS 3003 and 3004 are considered as formulations by the pharmaceutical Table 1: HS Codes for Bulk Drugs and Formulations (six-digit level) formulations, which accounted for 78% of the exports in 2009.

Bulk Drugs (SITC 541) Formulations (SITC 542)

However, in bulk drugs, the country has had a negative trade

263623 293721 293941 294130 300620 300310

balance in many years.

293121 293722 293942 294140 300630 300320

Most of the leading exporters of pharmaceuticals are

293610 293723 293943 294150 300640 300331

d omestic firms and they derive a substantial share of sales

293621 293729 293949 294190 300650 300339

from exports (Table 3).

293622 293731 293951 300110 300660 300340 293624 293739 293959 300120 300390 Table 3: Leading Exporters and Importers of Pharmaceuticals (Excluding Raw Materials)

293625 293740 293961 300190 300410

Exporters in 2008-09 Importers in 2008-09

293626 293790 293962 300210 300420

Company Exports % Company Imports % 293627 293810 293963 300220 300431 ($ million) Sales ($ million) Sales

293628 293890 293969 300230 300432 Ranbaxy Laboratories (F) 666.4 67.5 Rajat Pharmachem (I) 59.9 45.6 293629 293911 293991 300290 300439 Dr Reddy’s Laboratories (I) 629.9 63.8 Aventis Pharma (F) 15.7 5.9 293690 293919 293999 300510 300440 Cipla (I) 597.3 51.7 Novartis India (F) 15.7 11.2 293711 293929 294110 300590 300450 Aurobindo Pharma (I) 380.4 60.5 GlaxosmithKline

Pharmaceuticals (F) 13.4 3.0

293712 293930 294120 300610 300490 Lupin (I) 344.6 52.8 Wyeth (F) 12.8 14.6

Source: UNSD.9 Matrix Laboratories (F) 266.6 81.4 Fulford (India) (F) 11.4 24.1

i ndustry. Table 1 gives a detailed HS classification of bulk

Divi’s Laboratories (I) 240.3 91.7 Organon (India) (F) 10.2 24.6 drugs and f ormulations (at six-digit level). Orchid Chemicals and Amol

The study also uses, wherever relevant, data from the Indian Pharmaceuticals (I) 203.0 77.5 Pharmaceuticals (I) 8.6 57.2 Sun Pharmaceutical Cadila Healthcare (I) 6.0 1.5

Drug Manufacturers’ Association (IDMA) and the Prowess

Industries (I) 177.2 28.7

d atabase of the Centre for Monitoring Indian Economy (CMIE).

Serum Institute of India (I) 175.9 73.5 Abbott India (F) 5.9 3.3 Source: Prowess. 4 Trends in Pharmaceuticals Trade (I) = Indian, (F) = Foreign.

India ranks fifth in the world on the list of leading exporters of Ranbaxy and Matrix were flagship Indian pharmaceutical pharmaceuticals in the International Trade Statistics report. companies until they were taken over by multinational corpo-The 2009 report shows that India accounted for 1.4% of global rations (MNCs) a few years ago.11 There are a few more such exports. This is remarkable given that India’s ranking was firms that have substantial exports in their sales turnover.12 For sixth and its share in global pharmaceutical exports was 1% in this analysis, the taken-over companies are treated as a separate

Table 2: Export, Import and Balance of Trade in Pharmaceutical Products category. Figure 1 gives the export intensity, defined as the ex

($ million)

ports to sales ratio of MNCs, domestic firms and the taken-over

Bulk Drugs Formulations Total

firms. The taken-over firms are the most export-oriented and

Export Import BoT Export Import BoT Export Import BoT

MNCs are the least export-oriented. While the taken-over fi rms

1994 101.6 251.0 -149.4 484.2 47.5 436.7 585.8 298.5 287.3

had an exports-sales ratio of 71% in 2008-09, it was only 11% for

1995 141.2 348.1 -206.9 582.9 56.9 526.0 724.2 405.1 319.1

MNCs. That the MNCs operating in India do not have signifi cant

1996 174.3 269.3 -95.0 639.7 37.4 602.3 814.0 306.7 507.3 1997 222.6 324.2 -101.6 724.6 64.6 660.0 947.2 388.9 558.3 exports is contrary to the general understanding that foreign 1998 250.5 303.5 -53.0 683.2 80.7 602.5 933.7 384.3 549.4 firms will be more export-oriented. Firms investing abroad are 1999 265.3 290.2 -24.9 802.9 82.6 720.3 1,068.2 372.8 695.4 expected to show greater export competitiveness as their pres

2000 341.8 281.1 60.7 805.1 92.8 712.3 1,147.0 373.9 773.1 ence in foreign market ensures flexibility, reliability and time2001 363.3 303.0 60.3 959.1 97.6 861.5 1,322.4 400.5 921.9 liness in dealing with global buyers, which is crucial for export 2002 451.7 404.0 47.7 1,157.1 141.9 1,015.2 1,608.7 545.9 1,062.8

success (Kumar and Jayaprakash 2007). This expectation was

2003 516.5 468.8 47.7 1,455.4 141.2 1,314.2 1,971.9 609.9 1,362.0

explicitly mentioned in the Industrial Policy Statement of 1991,

2004 482.5 493.9 -11.4 1,789.1 186.4 1,602.7 2,271.6 680.3 1,591.3

which initiated liberalisation of FDI rules in the pharmaceuti

2005 543.0 662.4 -119.4 2,218.8 275.3 1,943.5 2,761.8 937.8 1,824.0

cal sector. The statement read, “Foreign investment would

2006 644.5 789.3 -144.8 2,771.6 392.2 2,379.4 3,416.1 1,181.5 2,234.6

bring attendant advantages of technology transfer, marketing

2007 900.8 1,101.2 -200.4 3,576.0 515.1 3,060.9 4,476.7 1,616.3 2,860.4

expertise, introduction of modern managerial techniques and

2008 1,015.0 1,203.5 -188.5 4,807.7 666.0 4,141.7 5,822.7 1,869.6 3,953.1 2009 1,322.1 1,312.4 9.7 4,599.4 735.5 3,863.9 5,921.5 2,047.9 3,873.6 Figure 1: Exports-Sales Ratio Source: COMTRADE.

80

the 2005 report. In the domestic export basket as well, the share of the pharmaceutical sector has been increasing – from 2.8% in 2005 to 3.3% in 2009.10 India does not have signifi cant imports of pharmaceuticals and the country does not fi gure in the list of leading importers in the WTO report. Table 2 shows trends in the export and import of pharmaceutical products since 1994. MNCs

The Indian pharmaceutical sector shows a steadily growing positive trade balance. The surplus has been contributed by 1990-91 1992-93 1994-95 1996-97 1998-99 2000-01 2002-03 2004-05 2006-07 2008-09

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70 60 50 40 30 20 10 0 Percentage Domestic Firms Taken-over Firms

new possibilities for promotion of exports.” From 2001, the year in which 100% FDI was permitted in the pharmaceutical sector, the exports-sales ratio of MNCs has grown only marginally – from 7% to 11% between 2000-01 and 2008-09.

The drying up of the pipeline of new drugs and the emphasis placed on generic drugs by a number of countries has forced MNCs to get into the generic business as well.13 They have opted for taking over leading players in the generic segment instead of doing it the organic way. This is precisely why the taken-over firms in India are the most export-oriented. Daiichi took over Ranbaxy when the government of Japan d ecided to take measures that would help increase the share of generic drugs from 17% to 30% by 2012. Daiichi now has its nose in front in the expanding generic market because it is getting Ranbaxy’s cheap, high-quality manufacturing facilities (Joseph 2008). MNCs taking over generic firms have not been limited to India. They have taken over domestic drug companies in other countries as well, such as Sanofi Aventis taking over Medley in Brazil and Zantiva in the Czech Republic and GSK taking over BMS in Egypt and Pakistan.14 A survey of 50 top industry executives quoted in the Financial Times reported that 65% of the executives considered that their sector was facing a “strategic crisis” and 67% saw diversification as a p otential solution.15 Sanofi Aventis has been the leading company in diversification over the last few years, boosting nonpatented drug sales from 5% to 12% between 2004 and 2009.

In imports of pharmaceutical goods (excluding raw materials), the leading players are foreign firms (Table 3). When firms in the Prowess database are categorised on the basis of their ownership, it is found that foreign firms have an importssales ratio of 40% whereas the ratio for domestic firms is only 5% (in 2009). The taken-over firms do not have any imports. There was a jump in the imports-sales ratio of MNCs in 1995-96 (from 13% in 1994-95 to 24% in the next year) after the restrictions on imports were eliminated. In 1994, the Modifi cation to the Drug Policy 1986 removed all the restrictions on the use of imported bulk drugs. Over the years, the import duty also came down drastically.16

Major changes have taken place in the destinations of exports and the sources of imports. In 1991, the Soviet Union was the single largest export destination. However, with the disintegration of the Soviet Union and the growing competence of Indian firms, the focus gradually shifted to the highly rewarding (lowvolume, high-margin) regulated markets, especially the US (Table 4). In imports, India used to source the bulk of its

Table 4: Top Five Destinations of Exports and Sources of Imports in 2009

(bulk drugs and formulations combined)

Destinations Exports Imports $ Million % Total Sources $ Million % Total Exports Imports

USA 1,320.7 22.3 China 708.2 34.6

Russian Federation 266.0 4.5 Switzerland 345.0 16.8

United Kingdom 251.4 4.2 USA 225.1 11.0

South Africa 193.5 3.3 Germany 117.9 5.8

Nigeria 180.6 3.0 Denmark 89.6 4.4

Others 3,709.3 62.6 Others 562.1 27.4

Source: COMTRADE.

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r equirements from the US, Italy and Germany, but, over the years, China has replaced these countries as the major supplier.

5 Exports of Bulk Drugs and Formulations

India’s pharmaceutical industry has increasingly become e xport-oriented and the share of exports in sales has steadily grown from 15% in 1993-94 to 41% in 2009-10.17 The rates of growth of exports of both bulk drugs and formulations suggest that the industry is doing better in the post-TRIPS period (after 2005). Figure 2 gives the annual rate of growth of bulk drugs and formulations during different time periods.

Figure 2: Annual Rate of Growth in Exports during Different Periods (CAGR) 25

Bulk Drugs

20 15 10 5 0 Rate of Growth (%) 1991-94 1995-2000 2001-05 2006-09 Formulations

Source: COMTRADE.

Two major changes in trends are seen in Figure 2. One, the rate of growth of exports of bulk drugs was higher than that of formulations during the 1990s, but the opposite is true in the current decade. Two, bulk drugs which showed a steady decline in the growth of exports between 2001 and 2005, reversed the trend in the post-2005 period. Formulations, on the other hand, exhibited a steady growth in exports throughout. On the whole, it may be concluded that exports of bulk drugs and formulations have been growing at higher rates in the post2005 period than in the 10 years of the post-1994 period.

An important factor contributing to the growth in exports of bulk drugs in the last few years has been the outsourcing of API production by MNCs. Table 5 (p 66) shows selected cases of outsourcing by MNCs.

Foreign companies are keen to outsource their production for containing costs. India has become a favourable destination as it has the largest number of FDA-approved plants outside the US. In 2005, India had 60 FDA-approved plants whereas its competitor China had only 22 (Pricewaterhouse-Coopers 2005). We do not have information on how many of the outsourced APIs are under patent protection to warrant reaching conclusions on the impact of new intellectual property rules on outsourcing.

However, the composition of exports shows that formulations account for more than four-fifths of pharmaceutical e xports. While bulk drugs have shown an increase in rate of growth of exports in the post-2005 period, their share in exports has consistently declined since 2000 (30% in 2000 to 17% 2008). This raises the question whether the acceleration in the growth of exports of bulk drugs in the recent past has had any significance for the pharmaceutical industry. Table 6 (p 66) gives the top 10 export destinations for bulk drugs and formulations.

Table 5: Outsourcing by MNCs skin medicine Valtrex under 180-day mar-

Indian Partner MNC Outsourced Products
Cadila Healthcare Altana (Germany) Two intermediates for Altana’s under-patent molecule Protonix (pantoprazole)
Boehringer Ingelheim (Germany) Gastrointestinal and cardiovascular products
Mayne (Australia) Intermediates for oncology products
Hikal Degussa (Germany) Pharmaceutical intermediates and APIs
Nicholas Piramal Advanced Medical Optics (US A) Neutralising tablets and sterile FFS packs (product name not disclosed)
Allergan (USA) APIs For Levobunolol (Betagen) and
Brimonidine (Alphagan and Alphagan-D)
AstraZenica (Sweden) APIs
Pfizer (USA) APIs

Dishman Pharma Solvay (Belgium) Six projects. Main one being for starting material and advanced intermediate for Tevetan (eprosartan maleate)

AstraZeneca (UK) Intermediate for Nexium (esomeprazole)

GSK (UK) Intermediates and APIs

Merck (USA) Intermediate for Losartan (to be supplied to its contract manufacturer in Japan)

ket exclusivity, which enabled the company to secure 74% of the $1,400 million market before the expiry of exclusivity.19 The launch of generic Aricept (an Alzheimer’s drug, patent held by Eisai Co) after its patent expired on 25 November 2010 is expected to earn Ranbaxy about $200 million.20 Similarly, Atorvastatin, the generic version of Lipitor, the single largest selling prescription drug in the world, is expected to fetch Ranbaxy more than $2 billion in the coming five years. Table 7 (p 67) gives some recent cases in which Indian companies have obtained 180-day exclusivity in the US.

Only a few companies, particularly Ran-

Shasun Chemicals GSK (UK) API for Ranitidine baxy and Dr Reddy’s, had ANDAs in their

Eli Lilly (USA) APIs for Nizatidine, Metohexital and names till recently. Companies like Cipla Cycloserine

had ANDAs in the names of their marketing

Reliant Pharma (USA) APIs

partners in the US. This situation has

Alpharma (USA) APIs and generics

changed dramatically in recent years and

Boots (South Africa) APIs

more companies are engaged in securing

Lupin Fujisawa (Japan) Cefixime Apotex (Canada) Cefuroxime Axetil, Lisinopril ANDAs. From 161 ANDAs filed by four com-

DMS (USA) APIs for cephalosporings panies – Ranbaxy, Dr Reddy’s, Wockhardt

Ipca Merck (USA) APIsand Lupin – in the last quarter of 2003, the Tillomed (UK) Atenelol

number went up to 701 ANDAs filed by 17

Biocon Bristol Myers Squibb (USA) APIs

companies in the second quarter of 2007

Source: KPMG (2006) and Linton and Nicholas (2007).

The US has become the most desired export destination for both bulk drugs and formulations. However, formulations a ccount for the lion’s share of exports to the US – 87% in 2009. To market a generic drug in the US, a company needs to file an abbreviated new drug application (ANDA). When fi ling an ANDA, the company has to certify that its product is not infringing any patent rights or that a patent is invalid (para IV certifi cation). If it successfully proves that a patent is invalid or if it is the first to get approval for the generic version, it gets market exclusivity for 180 days during which no other generic company is permitted to enter the market. This exclusivity is available under the Hatch-Waxman Act. A successful fi rst ANDA can bring immense profits to a company. For example, Dr Reddy’s, the first Indian company to market fluoxetine 40 mg in August 2001 under 180-day exclusivity saw its sale of generics increase from Rs 304 million in 2000-01 to Rs 4,066 million in 2001-02. Sale of fluoxetine was 81% of its total generic sales and about half of its operating profit in 2001-02 (Chaudhuri 2007). R anbaxy was the first to obtain 180 days exclusivity for this drug, but could not launch the product on time as the patent holder managed to obtain an injunction against it.18 Patent litigation under para IV is highly risky as failure would mean a loss of several years of hard work and huge legal expenses.

Encouraged by the success of Dr Reddy’s, a number of fi rms have taken steps to register themselves as first movers in generics, often gaining a huge market share. Ranbaxy, in November 2009, introduced the generic version of GlaxoSmithKline’s

(Chaudhuri 2007). ANDA approvals held by Indian firms as a percentage of total approvals went up sharply from 7% in 2001 to 21% in 2006 and 30% in 2008.21

Companies also work on developing a non-infringing process for ANDA filing. Matrix Laboratories was the fi rst Indian company to develop a non-infringing process for manufacturing citalopram. The company was able to reap huge benefi ts with its sales of the product amounting to Rs 5,600 million till 2005-06. Another commercially successful example is the c efotaxime process developed by Lupin (Chaudhuri 2007).

ANDAs and drug master fi les (DMFs) data from the FDA give indications of the extent to which Indian firms are seeking

o pportunities in the US market. The leading 10 firms in India got 537 ANDA approvals in the last decade, of which one-fourth carried 180-day market exclusivity. Details of ANDAs and DMFs

Table 6: Leading Export Destinations in 2009

Bulk Drugs Formulations

Country $ Mn % Exports Country $ Mn % Exports

US 167.4 12.7 US 1,153.3 25.1

Brazil 74.5 5.6 Russian Federation 259.9 5.7

Turkey 43.8 3.3 UK 227.3 4.9

China 42.2 3.2 South Africa 186.9 4.1

Bangladesh 40.9 3.1 Nigeria 146.7 3.2

Egypt 39.3 3.0 Ukraine 105.7 2.3

Thailand 35.9 2.7 Germany 97.5 2.1

Congo 35.3 2.7 Vietnam 92.8 2.0

Spain 34.5 2.6 Sri Lanka 86.7 1.9

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Table 7: Selected Drugs for Which Indian Companies Have 180-Day Market for bulk drugs is below unity, indicating a lack of comparative Exclusivity in the US

advantage. We saw that the share of bulk drugs in pharma-

Indian Company Year of Launch Brand Innovator Innovator

Sales/Year ($ Mn) ceutical exports began to decline after 2000. Two, the RCA Sun and Glenmark 2007 Trileptal Novartis 700 index for formulations shows a decline until 2005 and a Dr Reddy’s 2008 Imitrex GlaxoSmithKline 1,000 gradual acceleration from 2006. And the index never fell Sun 2008 Protonix Altana 2,300 below one.24 It is really startling that the comparative Lupin 2008 Ramipril Bayer 800

advantage indicator for formulations showed an upward

Sun 2009 Effexor XR Wyeth 2,300

movement in the post-2005 period. This is contrary to what

Ranbaxy 2009 Flomax Boehringer Ingelhiem 1,300

had been anticipated by many. In global rankings of RCA for

Ranbaxy 2010 Lipitor Pfizer 8,000 Ranbaxy 2010/11 Aricept Eisai 1,600 formulations, India ranks second after Switzerland among Glenmark 2010/11 Zetia Schering-Plough/Merck 1,200 the top five pharmaceutical exporting countries. India’s rank-Glenmark 2010/11 Tarka Abbot/Sanofi Aventis 72 ing has consistently been second to Switzerland since 1994. Glenmark 2010/11 Cutivate Nycomed 37

The RCA index for formulations showed a sudden decline in

Source: Compiled from company reports and media reports.

2009. This may have been because of a decline in the export filed in the US by the top 10 Indian pharmaceutical companies of formulations in 2009 primarily because of the seizure of are given in Table 8 (p 68). Indian generics in European ports while in transit for alleged

The bulk of these activities were carried out by three fi rms, infringement of patent rights.25 The seizures have added to Aurobindo, Ranbaxy and Dr Reddy’s. Ranbaxy and Dr Reddy’s the cost of exporters as they have had to look for alternative stand out for their aggressive approach to challenging patents trade routes to avoid European ports. and obtaining market exclusivity. A large Figure 3: RCA of Pharmaceuticals

percentage of Ranbaxy’s (57%) and Dr Reddy’s (37%) ANDA approvals had market exclusivity against the average of 23% for all the leading fi rms. Para IV filings involving patent litigations are a high-risk, high-return strategy. A failure could r esult in huge losses and legal expenses. The leading firms also have a large number of DMF filings, an indication of their interest in the US market. These 10 firms account for nearly half of all DMF fi lings made by all pharmaceutical fi rms from India.23

An analysis of revealed comparative advantage (RCA) suggests that India’s advantage lies in formulations (Figure 3). The RCA

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Bulk Drugs 0.5 0.5 0.6 0.7 0.8 1.0 1.2 1.4 1.3 1.6 1.4 1.4 1.3 1.0 0.8 0.9 0.9 0.8 0.7 Formulations 3.1 2.1 2.1 2.0 2.0 2.0 2.0 1.7 1.6 1.6 1.4 1.2 1.2 1.1 1.1 1.1 1.2 1.3 1.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 RCA Indices

Source: COMTRADE.

is an index of the export performance of a

country with respect to a particular commodity which captures the comparative advantage of that commodity. The RCA of a particular commodity is measured by the share of that industry in the country’s total exports relative to the country’s share in total world exports. The RCA index may take values from zero to infinity, with values greater than unity indicating the existence of an RCA.

The RCA index for ith product for jth country in year t is defi ned as, W(t)/XioW(t)/XW(t))]

RCA ij (t) = [(XijW(t))/(Xoj

oo

The change in export dynamics has had a direct bearing on the production dynamics of the pharmaceutical industry. Figure 4 shows that there has been a decline in the growth of bulk drugs production in the post-2005 period – it declined from around 15% during the pre-2005 period to 9% in the post2005 period. The formulations segment shows an acceleration in production during the post-2005 period compared to the previous periods.

Figure 4: Growth (CAGR) in the Production (at Current Prices)

Xijw (t) = Export of ith product by the jth country to the world in the year t. Xiow (t) = Total export of the ith product by all countries in the world in the year t.

16 14 12 10 8 6 4 2 0 Percentage 1990-91/1994-95 1995-96/1999-2000 2000-01/2004-05 2005-06/2008-09 Bulk Drugs Formulations

Xojw (t) = Total export of the country j to the world in the year t. w (t) = Total export of all products by all countries in the

oo

world in the year t.

Figure 3 gives two indications of the changing dynamics of

the Indian pharmaceutical industry. One, the RCA index for bulk drugs shows an upward movement until 2000 and a d ecline since 2001. Since 2004, the value of the RCA index Source: IDMA.

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may 5, 2012 vol xlviI no 18

Table 8: ANDA Approvals, First-Time Generic Approvals (180-Day Exclusivity) and DMF Filings in the US by Leading to concentrate on the produc-Indian Firms

tion and export of formulations

Company 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total DMF#

Aurobindo 0 0 0 0 0 0 2 1 7 2 9 1 27 1 19 3 18 3 17 0 99 11 144
Dr Reddy’s 5 1 4 2 3 0 3 3 6 2 14 4 13 2 13 1 17 4 11 6 83 31 153
Ranbaxy 3 1 11 3 15 9 14 5 15 5 6 2 14 6 3 1 7 3 3 1 81 46 101
Sun 0 0 0 0 0 0 0 0 0 0 7 0 10 3 21 2 17 5 12 0 67 10 70
Wockhardt 0 0 0 0 4 0 0 0 4 1 6 0 13 1 18 0 14 1 5 0 64 3 43
Glenmark 0 0 0 0 0 0 0 0 0 0 4 0 9 2 5 0 9 1 19 3 46 6 45
Lupin 0 0 0 0 3 0 2 2 5 0 6 3 7 2 4 1 1 0 12 3 40 11 100
Orchid 0 0 0 0 0 0 0 0 9 0 9 0 4 1 3 0 3 2 2 0 30 3 77
Matrix 0 0 0 0 0 0 1 0 0 0 0 0 1 0 2 1 3 1 10 1 17 3 139
Cipla 0 0 0 0 0 0 0 0 0 0 0 0 2 0 4 0 3 1 1 0 10 1 90
Total 8 2 15 5 25 9 22 11 46 10 61 10 100 18 92 9 92 21 92 14 537 125 962
while engaging in imports to source cheap raw materials.

It appears that bulk drugs are no more a major area of f ocus of the Indian pharmaceutical industry and it has adopted a different strategy in the bulk drugs segment in the post-TRIPS era. Bulk drugs as an export category do not enjoy a comparative ad-

Figures in the shaded columns indicate first-time generic approvals; # Type II DMF. Source: US FDA.22 vantage anymore though the An expansion in exports of bulk drugs and a decline in pro-rate of growth of exports has accelerated in recent years. duction indicate more imports. Firms are increasingly import-Production for companies in foreign countries has been an ing bulk drugs, their intermediates and fine chemicals against important factor that has maintained the pace of exports. relying on indigenous production as they used to do. Data on The growth in i ndigenous production of bulk drugs has dethe import of raw materials from the Prowess database shows clined in the post-2005 period and the industry is increasthat the share of raw materials imported in sales turnover ingly meeting its requirements of bulk drugs, intermediates grew from 9% in 1990-91 to 11% in 2000-01 and 14% in 2008-09. and other raw materials through imports. There are different levels of value addition in bulk drugs The destinations of exports of formulations (regionm anufacturing and the Indian bulk drugs industry seems to wise) have changed in a major way in the last two decades focus on the higher end of the value chain. The abolition of the (Table 9). The share of Europe drastically declined from ratio parameter linking the production of formulations to indi-about two-thirds in 1991 to a quarter in 2009. On the other genously produced bulk drugs from basic stages and reduc-hand, Africa and America are increasingly becoming major tions in import duty have eased constraints on imports of bulk export destinations. More than 80% of the exports to drugs and other raw materials. The import duty on organic America are destined for North America, especially the US. chemicals, including bulk drugs, was reduced from 120% in Tables 9 and 10 show that exports to Asia and its subregions 1990-91 to 7.5% in 2007-08.26 Another important factor con-have fallen in this decade. Exports to IBSA partners (Brazil tributing to the decline in domestic production has been the and South Africa) have shown a growing trend. Overall, implementation of Schedule M (good manufacturing prac-the drivers of pharmaceutical exports have been North tices) of the Drugs and Cosmetics Act since July 2005. As a America, Africa and the IBSA partners. South America and consequence, a number of small and medium enterprises Asia, including the subregions and regional arrangements (SMEs) manufacturing bulk drugs have had to shut down oper-within Asia, seem to be relatively less significant to pharmaations. The SME sector has ceutical exports.

Table 9: Region-wise Share in Exports of Formulations been a major producer of Table 10: Share in Exports (Formulations) – Selected Regions and Groupings

Year Europe Africa America Asia Oceania bulk drugs in India. Year N America S America W Asia SAARC BIMSTEC ASEAN IBSA

1991 63.8 8.0 7.1 20.6 0.6

The bulk drugs seg-1991 6.6 2.5 7.4 7.3 7.4 4.5 0.1 1992 51.3 16.7 7.3 23.7 1.0

ment is highly competi-1993 6.9 5.3 8.6 8.0 8.6 5.3 1.6 1993 48.6 15.8 8.4 26.2 1.1

tive with a large number 1995 8.4 6.0 8.0 7.4 8.0 8.7 1.2 1994 45.8 15.1 8.9 29.6 0.7

1997 6.8 6.1 8.3 8.0 8.3 8.0 2.3

of players, making returns

1995 41.1 16.2 10.8 31.2 0.6

1999 6.9 6.8 9.3 7.9 9.3 10.6 2.5

very low. The Hathi Com

1996 41.5 15.5 10.8 31.5 0.8

2001 14.2 5.1 8.6 7.4 8.6 8.6 3.7

mittee (1975) had worked

1997 39.8 17.4 10.2 31.9 0.8

2003 22.2 4.6 7.5 7.6 7.5 6.8 3.4 1998 28.2 21.3 12.4 37.0 1.1 out the capital invested

2005 13.2 6.4 6.7 6.7 6.7 6.6 4.7 1999 31.8 19.3 11.3 36.1 1.5 turnover ratio for bulk 2007 25.1 3.9 5.6 5.2 5.6 5.8 5.3 2000 31.2 22.6 12.3 32.4 1.5 drugs and formulations 2009 26.2 4.0 5.2 4.5 5.2 6.4 5.9 2001 28.2 21.1 20.3 29.1 1.3 manufacturing. It esti-

Source: COMTRADE.

2002 28.5 22.3 22.2 25.6 1.1

mated 1:1 for bulk drugs The renewed vigour worldwide to enforce intellectual prop

2003 27.7 19.1 27.1 24.8 1.0

at its best and 1:2.6 for erty rights will have implications for the Indian pharmaceuti

2004 30.8 20.1 25.1 22.8 1.0

formulations on an aver-cal industry given that Africa is a major export focus. Recent

2005 33.2 20.8 20.3 24.1 1.5

age, which in some cases anti-counterfeit initiatives at various levels – the World Health

2006 29.6 23.1 25.5 20.6 1.2

would be as high as 1:7.2. Organisation (WHO), the Anti-Counterfeiting Trade Agree

2007 27.7 21.5 31.4 18.2 1.2

Due to this, with the ratio ment (ACTA) and some free trade agreements (FTAs) with the

2008 31.5 23.3 27.7 16.3 1.3

parameter no more in European Union (EU) – attempt to eliminate the distinction

2009 24.6 23.5 31.8 18.0 2.0 Source: COMTRADE. force, firms in India tend b etween substandard (quality issue), counterfeit (trademark

68 may 5, 2012 vol xlviI no 18

issue) and generic (patent issue) drugs. In the process, legitimate generics (for which no patent exists in the exporting country or importing country) have been targeted under the counterfeit label. Such initiatives, supported by pharmaceutical lobbies and the EU, have found takers in developing countries, especially in east Africa. The east African region has recently seen a few policies and legislations coming up to address the counterfeit drug problem. Kenya adopted the Kenya Anti-Counterfeit Act in 200827 and Tanzania and Uganda propose to enact similar laws. The culmination of all these initiatives has been a regional anti-counterfeit policy and law – the East African Community Policy on Anti-Counterfeiting, Anti-Piracy and Other Intellectual Property Rights Violations28 and the East African Community Anti-Counterfeit Bill, 2010 (Musungu 2010).

The Kenyan law raised considerable public debate on how such laws might affect access to generic drugs. It states that copies or generic versions of all products having patent protection in Kenya or elsewhere can be considered “counterfeit” in case of an intellectual property dispute with the patent holder. This may classify a genuine drug exported from India to Kenya as a counterfeit drug if a company that does not hold a patent for that particular drug either in India or Kenya but in some third country raises a dispute over it. The Kenyan law, however, was challenged in the country’s high court29 by three people living with HIV/AIDS on the grounds that it would adversely affect their access to affordable generic HIV drugs. The petitioners held that the Act confused quality and intellectual property rights issues, thereby defi ning legitimate generic drugs as counterfeits. Satisfied with the petition, Justice Mwendoh issued interlocutory orders on 23 April 2010 suspending the powers of the anti-counterfeit agency to interfere with the import and distribution of generic medicines in Kenya.30 Indian pharmaceutical exporters have expressed concern that legislations like that of Kenya could seriously a ffect the country’s exports.31

6 Imports of Bulk Drugs and Formulations

The import substitution policy adopted by the pharmaceuti

cal sector successfully eliminated a heavy dependence on

imports. Currently, the dependence is around 11% of the

production (Table 11). However, in the bulk drugs segment,

the industry still has a high Table 11: Imports-Production Ratio

dependence on imports, Year Bulk Drugs Formulations Total
which account for 40% of 1991 32 5 9
the production.32 The high 1995 72 2 13
import-production ratio is because of the increase in 20002005 32 32 3 4 8 10
the value of imports as well 20062007 33 41 5 5 11 13
as the decline in the growth 2008 35 5 11
of domestic production. In 2009 40 5 11
contrast, in formulations, Source: COMTRADE and IDMA.

imports account for only 5% of the production. Unlike in the case of exports where formulations had a major share (78% in 2009), bulk drugs account for the lion’s share in imports, often exceeding two-thirds of the total (Table 2).

100

0

Indian Firms MNCs

1990-91 1992-93 1994-95 1996-97 1998-99 2000-01 2002-03 2004-05 2006-07 2008-09 Source: Prowess.

The view that the increasing emphasis being placed on the export of formulations is resulting in increased imports of bulk drugs, intermediates and other raw materials is further strengthened by the observation that there is a positive association between exports and imports of raw materials. The r atio of exports to imports of raw materials shows that the taken-over firms, the most export-oriented firms, have the highest ratio (Figure 5). And the MNCs, which are the least e xport-oriented, have the lowest ratio.

Percentage

300

200

The increasing dependence on imports of bulk drugs, which prima facie seems to be undesirable, needs to be seen in the context of the changing dynamics of the industry. Import d ependence of the pharmaceutical industry five decades ago was because of the lack of manufacturing capabilities. The situation has changed and the increasing dependence of the present time is not due to lack of capabilities, but due to the availability of cheaper intermediates and bulk drugs in foreign countries. The increasing export-orientation of the industry has forced firms to look for cheaper inputs to maintain their competitive advantage in the international market. The increasing dependence on bulk drugs, intermediates and other raw materials is an outcome of the shift in the orientation of the export composition of the industry – it is becoming more and more formulations-oriented, and that too with the brand India image (good quality at a low price).33

When firms are oriented towards the domestic market, there are few incentives to reduce the cost of production because about 50% of the drugs in the retail market in India are under a cost-based price control system (100% of the drugs were under price control in 1970, which came down to 90% in 1979, 70% in 1987 and 50% in 1995) that assures companies a predefined rate of return. The incentives go to promoting products rather than innovating to reduce cost, which explains why high amounts are spent on advertising and marketing instead of research and development (R&D) by both MNCs and Indian fi rms. The Indian pharmaceutical industry spent 4.8% of its sales turnover on R&D in 2008-09 whereas its spending on advertisements and marketing was 6%.34 As fi rms increasingly enter foreign markets, cost becomes a critical factor and they import cheaper raw materials to curtail the cost of production. As the industry gradually sheds its focus on bulk drugs in its external orientation, there is little to gain from the brand India image in the case of formulations and therefore no compulsions for production within India.

Figure 5: Ratio of Exports to Imports of Raw Materials

500 Taken-over Firms

400

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may 5, 2012 vol xlviI no 18

Leading producers of bulk drugs have recently entered the units have been shut down while others have cut down manuformulations business in partnership with foreign fi rms. facturing of loss-making drug categories.37 India’s dependence A urobindo Pharma, a major producer of bulk drugs, entered into on China is such that it does not have adequate domestic agreements with AstraZenica in 2010 and Pfizer in 2009 for m anufacturing capacity to meet the demand for intermediates the supply of a number of formulations, which are expected to and bulk drugs if supplies from the neighbour cease for fetch it $350-$500 million in the coming years.35 To meet the u nforeseen reasons. demand, the company is increasingly engaged in the import of Cost advantage is the factor driving Indian manufacturers raw materials. The share of imports of raw materials in the to shun indigenous production and engage in imports. For ex

company’s sales turnover increased from 31% in 2000-01 to 42% in 2008-09. Table 12: Largest Importers of Raw Materials in 2008-09 Company Imports % ample, theophiline from China is 10% cheaper compared to the cost of indig-
Table 12 lists the leading importers of $ Mn in Sales enous production. Chinese fi rms are
raw materials in the pharmaceuticals Aurobindo Pharma 260.8 41.5 able to sell bulk drugs at lower prices
sector in India. Most of the top exporters Cipla 209.9 18.2 not only due to subsidies (for exam
of pharmaceuticals (fi nished goods; Table 3) figure in the list of top 10 importers of raw materials. Ranbaxy Laboratories Dr Reddy’s Laboratories Lupin Panacea Biotec 152.8 120.6 108.2 99.6 15.5 12.2 16.6 58.6 ple, power subsidies), but also due to better technologies. For example, in fermentation (an essential process in
Though we do not have precise data Matrix Laboratories 74.0 22.6 the production of bulk drugs), Indian
to back this view, the available indica- Nectar Lifesciences 67.4 39.5 firms still use sugar whereas the tech
tions suggest that the industry is fo- Orchid Chemicals and Pharmaceuticals 61.5 23.5 nology in China enables its fi rms to
cusing on the higher end of the value Hetero Drugs 59.8 23.1 use cauliflower, which is much
Others (26.4%) Germany (3%) Denmark (52.2%)

Source: Prowess.

chain in the production of bulk drugs. There are no data available separately on the production of final bulk drugs and their intermediates. But the increase in imports of pharmaceutical raw materials and the fast growth of exports of APIs in recent years, especially to the US, indicate that imported raw materials and intermediates are processed in FDA-approved plants into fi nal APIs and then exported to clients in the US and other countries. This strategy makes economic sense, but it may place the industry in trouble if an adequate supply of raw materials cannot be guaranteed in the long term. The threat becomes more serious when

Figure 6: Import of bulk drugs -Leading sources in 2009

imports are sourced from a Figure 6: Import of Bulk Drugs – Leading Sources in 2009

single country – an inter-

China

ruption in the supply from a single country can put the whole industry in jeopardy. India’s dependence on imports (for bulk drugs and other raw materials) is increasingly shifting to a single country – China. In 2009, imports from China accounted for 52% ($686

United States Switzerland (3.4%)

million) of the total imports (3.9%) (11%) of bulk drugs (Figure 6).

Source: COMTRADE.

The report of the task force on the strategy for enhancing exports of pharmaceutical products36 has pointed out that the Indian pharmaceutical sector has been sourcing its requirement of chemical intermediates and bulk drugs in large quantities from China for some time; at times almost 60% to 70% of our requirement of intermediates. A recent crackdown on the chemical industry in China to enforce environmental legislation resulted in a shortage of supply and a hike in prices, affecting not only the bottom lines of Indian companies but also the very existence of many firms. Due to shortage of raw materials and their rising prices, about 50 bulk drug manufacturing

cheaper.38

To revive the domestic production of bulk drugs, concerted efforts need to be undertaken on various fronts. A task force of the Department of Commerce (2008) on the strategy for increasing exports of pharmaceutical products suggested that India create a policy environment that enables its small and medium chemical industry to position itself to address the back-end needs of the pharmaceutical industry. Reviving the production of bulk drugs also needs new environment-friendly technologies. Basic drugs and pharmaceuticals are among the 17 high-polluting industries identified by the Central Pollution Control Board. Technologies such as biocatalysts reduce the number of chemical processes and hence the amount of pollution. Although this technology is in use in food production and environmental management in developed countries, it hardly exists in drug production. Since the developed countries have systematically outsourced bulk drug production to developing countries such as India and China, we need not expect they are going to pass on such technologies as well (Department of Commerce 2008).

In formulations, however, the country did not face any spurt in imports with the change in the patent law. Imports of f ormulations continue to account for 5% of its production and this ratio was the same even before the TRIPS provisions were fully implemented. MNCs have been the major importers and Switzerland is the major source of supply, accounting for 39% in 2009. Though it may take some more time to know how exactly the new intellectual property rights regime is going to affect imports of formulations, our patent law has sufficient safeguards to prevent frivolous patents and evergreening, which has been a major reason for the restricted operability of generic firms in countries such as the US. To the extent that India is able to prevent frivolous patents and Indian firms are able to produce generics, the threat of increased imports of formulations is diluted. Importing generic formulations will not be a viable strategy for MNCs to compete

may 5, 2012 vol xlviI no 18

with producers of generics in India. The FDA approved 305 remains at a relatively lower level. Africa being a major destinew medical entities (NMEs) between 1995 and 2004. Of nation of exports, an overzealous drive to enforce intellectual these, patents for 298 had expired before 1995 and Indian property rights under the guise of an anti-counterfeit initiative firms will be able to produce them. Of the remaining seven in the region, especially in east Africa, is a cause of concern for NMEs, Indian firms had obtained marketing approval in the Indian pharmaceutical industry. India for three before 2005.39 The Indian Patents Act provides The change in the export orientation has resulted in a that those drugs for which significant investment has gone change in the production structure. To maintain their price into production and marketing will continue to be produced competitiveness in the international market, Indian fi rms have and marketed with payment of royalties in case they (applica-had to look at options for reducing cost, a compulsion they did tion in the mail-box) get patents after 2005. In 2010, there not face when they were mainly focused on the domestic marwere only four NMEs that were candidates for patent protec-ket. The drug price control system that covered a substantial tion in India. If India continues to apply a high threshold part of the retail medicine market assured them a predefi ned for patents, there will not be too many patented drugs for rate of profits. Hence the incentive was not directed towards which domestic production cannot provide generic substi-reducing costs but promoting products. As a result, imports tutes. If generic substitutes are available, it is less likely that from cheaper sources of bulk drugs, their intermediates and MNCs will import the drugs from their parent fi rms. There-other raw materials began to increase, while domestic producfore, the threat of a spurt in imports of formulations may not tion from basic stages began to decline. More than 50% of bulk be a real in the near future. drugs and other raw materials are now imported from China. A

heavy dependence on a single country for raw materials puts 7 Conclusions the industry at risk. As imports of bulk drugs and other raw The export orientation of the Indian pharmaceutical industry materials continue to grow, the industry continues to have a has undergone a change with the amendment in the intellec-negative trade balance in the bulk drugs category. However, in tual property rights regime. There are two aspects to this. formulations, the industry has a substantial surplus, which off-First, it has become more export-oriented in order to counter sets the deficit of the bulk drugs segment. Overall the industry the threat of reduced domestic operability and to remain in thus has a trade surplus. In formulations, imports have not business. Second, of the two export categories – bulk drugs surged because adequate safeguards have been built into the and formulations – the focus has shifted to formulations. The Patents Act. These protections limit the number of patented acceleration in the export of formulations has mostly been drugs in the country and also provide space for generic compedriven by the US, Africa and IBSA partners and the growth in tition. Imports of formulations, though very limited, are done exports to neighbouring countries and to Latin America mostly by the MNCs.

Notes

1 He used the data provided by the Directorate General of Commercial Intelligence and Statistics (DGCI&S) using the harmonised system (HS) of commodity classification. HS chapter 30 was used to classify formulations and a list of 359 products (at eight-digit level) consisting of items from HS chapters 15, 17, 28 and 29 was used to classify bulk drugs.

2 COMTRADE is the trade database managed by United Nations Statistics Division (SIDC). All member countries of the UN report export and import values to the UNSD based on the Standard International Trade Classifi cation (SITC). In India, the DGCI&S is the nodal agency r eporting data on exports and imports.

3 This variation is due to the differences in year endings as well as the differences in products included in the classification. For COMTRADE/ SITC, pharmaceutical products consist of products from HS chapters 26, 29 and 30 whereas for the department of pharmaceuticals it consists of products from HS chapters 15, 17, 28, 29, 30, 35, 38, 56 and 96.

4 European Medicines Agency (2005), “Note for Guidance on Data Elements and Standards for Drug Dictionaries”, (EMEA/CHM)/ICH/168535/ 2005).

5 USFDA (2001), “Guidance for Industry: Q7A Good Manufacturing Practice Guidance for A ctive Pharmaceutical Ingredients”, Centre for Drug Evaluation and Research and Centre for Biologics Evaluation and Research.

6 As the DPCO is aimed at price control of essential medicines, medicines for the treatment of animas and those coming under the ayurveda, sidha, unani and homeo systems have been e xcluded from its purview.

7 “Medicaments (excluding goods of heading 3002, 3005 or 3006) consisting of two or more constituents which have been mixed together for therapeutic or prophylactic uses, not put up in measured doses or in forms or packings for retail sale.”

8 “Medicaments (excluding goods of heading 3002, 3005 or 3006) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale.”

9 The correspondence between SITC Rev 3 and

HS 2002.

10 Based on COMTRADE data.

11 Matrix was taken over by Mylan Inc (USA) in August 2006 and Ranbaxy by Daiichi (Japan) in July 2008.

12 Dabur was taken over by Fresenius Kabi (Singapore) in April 2008 and Shanta Biotech by Sanofi Aventis (France) in July 2008.

13 Leading global pharmaceutical firms are expected to suffer substantial erosion in their sales from the competition they will face from generic producers. Industry estimates indicate that in 2010, 68% of the sales of market leader Pfi zer included products whose patents will expire in the next three years. For Eli Lilly, the risk from generic competition in the next three years will be as high as 66% of total sales in 2010 (Dhar 2011).

14 Department of Industrial Promotion and Policy discussion paper on “Compulsory Licensing”, 2010.

15 “Drugs Groups Diversify Away From Patents”, Financial Times, 21 October 2010.

16 Import duty of organic chemicals, including bulk drugs, was reduced from 120% in 1990-91 to 7.5% in 2007-08 (Jha 2007).

17 Based on Prowess data.

18 Ranbaxy was successful in challenging GSK’s patent on Ceftin (antibiotic). GSK filed a suit in the district court of New Jersey in October 2000 and the court issued a preliminary injunction that prevented Ranbaxy from marketing its generic version. However, in 2001, Ranbaxy commercially launched its product after the Court of Appeals for the Federal Circuit vacated the preliminary injunction. After a full trial, the district court ruled that Ranbaxy’s product did not infringe GSK’s patent and that Ranbaxy was not required to pay any damages.

19 “Innovation Has Helped Drug Firms Take on Big Pharma”, Mint, 9 September 2010.

20 “Ranbaxy Gets Nod to Sell Popular Generic in US”, Economic Times, 22 September 2010.

21 See Chaudhuri (2007) and “USFDA Door Wide Open for Indian Pharma Cos”, Business Standard, 6 March 2009.

22 http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedand Approved/Drug andBiologicApprovalReports/ ANDAGenericDrugApprovals/ucm050527.htm; data for ANDA approvals (not fi rst-time generics) since 2007 was accessed from http://www.accessdata.fda.gov/scripts/cder/drugsatfda/index. cfm?fuseaction=Reports.ReportsMenu; and the DMF data was downloaded from http://www. fda.gov/Drugs/DevelopmentApprovalProcess/

EPW
may 5, 2012 vol xlviI no 18

FormsSubmissionRequirements/DrugMasterFilesDMFs/default.htm#download on 21 February 2011.

23 According to FDA reports, firms from India had 1,735 DMF filings as of 2008. The top 10 Indian firms had 831 DMF filings as of March 2009.

24 Owing to developments outside India, 2009 was an exceptional year.

25 Since 2008, more than 20 seizures of Indian shipments of medicines (formulations) have been reported at European ports while they were in transit on the grounds of counterfeiting/infringing patent rights. The seizures took place when EU customs authorities enforced a 2003 European Commission directive that allows the seizure of goods suspected of infringing intellectual property rights even when they are in transit. The Indian shipments were of a uthorised generics that did not have valid patents either in India or in the importing countries.

26 Jha (2007).

27 The law is available at http://www.kenyalaw. org/Downloads/Bills/2008/The_Anti-Counterfeit_Bill_2008.pdf.

28 Came out in September 2009.

29 Petition No 409/2009, Patricia Asero Ochieng’, Maurine Atieno and Joseph Munyi versus The Attorney General and the Anti-Counterfeit Agency.

30 See http://www.managingip.com/Article/ 2633026/East-African-anti-counterfeiting.html.

31 See http://www.eac.int/customs/component/ content/article/56/56.html.

32 This analysis has been based on COMTRADE data on imports and IDMA data on production. Though these data are not strictly comparable because they have different year endings, the analysis provides us with a broad indication of how the industry is moving.

33 India launched a massive brand India campaign in African countries to gain their confi dence in the wake of MNC initiatives to equate Indian generics with counterfeits.

34 Based on the Prowess database.

35 “Aurobindo Inks Pact with AstraZenica for G enerics”, Economic Times, 7 September 2010.

36 See Department of Commerce (2008).

37 “Sick Bulk Drug Cos May Get Life Support”,

Economic Times, 15 August 2008.

38 These points came out during an interaction with the IDMA, New Delhi.

39 Based on Gopakumar (2010).

References

Chaudhuri, Sudip (2005): The WTO and India’s Pharmaceuticals Industry (New Delhi: Oxford University Press).

– (2007): “Is Product Patent Protection Necessary in Developing Countries for Innovation? R&D by Indian Pharmaceutical Companies A fter TRIPS”, Working Paper 614, Indian Institute of Management, Kolkota.

Department of Commerce (2008): “Strategy for Enhancing Exports of Pharmaceutical Products”, Government of India, New Delhi.

Dhar, Biswajit and K M Gopakumar (2008): “Effect of Product Patents on Indian Pharmaceutical Industry”, http://wtocentre.iift.ac.in/Papers/ 3.pdf, accessed on 2 May 2011.

Dhar, Biswajit (2011): “A Pill for Generic Trouble”, Live Mint, 29 March.

Gopakumar, K M (2010): “The Landscape of Pharmaceutical Patent Applications in India and Implications for Access to Medicines” in Five Years into the Product Patent Regime: India’s R esponse, UNDP, New York.

Grace, Chery (2004): The Effect of Changing Intellectual Property on Pharmaeutical Industry Prospects in India and China, DFID Health Systems Resources Centre, London.

Hathi Committee (1975): “Report of the Committee in Drugs and Pharmaceutical Industry”, Ministry of Petroleum and Chemicals, New Delhi.

Jha, Ravinder (2007): “Indian Pharmaceutical I ndustry: Growth, Innovation and Prices”, PhD thesis submitted to Jawaharlal Nehru University, New Delhi.

Joseph, Reji K (2008): “The Ranbaxy Model and Consolidation in Pharma Sector”, Economic Times, 24 June.

KPMG (2006): The Indian Pharmaceuticals Industry: Collaboration for Growth, KPMG, Delhi.

Kumar, Nagesh and Jayaprakash Pradhan (2007): “Knowledge-based Exports from India: Recent Trends, Patterns and Implications” in Nagesh Kumar and K J Joseph (ed.), International Competitiveness and Knowledge-based Industries in India (New Delhi: Oxford University Press).

Lanjouw, Jean O (1999): “Introduction of Pharmaceutical Product Patents in India: Heartless E xploitation of the Poor and Suffering”, NBER Working Paper No 6366, National Bureau of Economic Research, Cambridge, Massachusetts.

Linton, Katherine Connor and Corrado Nicholas (2007): “A Calibrated Approach: Pharmaceutical FDI and the Evolution of Indian Patent Law”, Journal of International Commerce and Economics, United States International Trade Commission, Washington DC, August.

Maskus, Keith E and Mohan Penubarti (1995): “How Trade-Related Are Intellectual Property Rights?”, Journal of International Economics, Vol 39, pp 227-48.

Musungu, Sisule F (2010): “The Potential Impact of the Proposed East African Community (EAC) Anti-Counterfeiting Policy and Bill on Access to Essential Medicines”, Discussion Paper, UNDP-BDP HIV/AIDS Practice/March.

PricewaterhouseCoopers (2005): “India: Prescription for Growth”, PwC, New Delhi.

Smith, Pamela J (1999): “Are Weak Patent Rights a Barrier to US Exports?”, Journal of International Economics, 48, pp 151-77.

EPWRF’s Online Data Base Services

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EPWRF has so far released six modules since early 2011-12: (i) Financial Markets; (ii) Banking Statistics;

  • (iii) Domestic Product of States of India; (iv) Price Indices; (v) Agricultural Statistics; and (vi) Power Sector.
  • Seven more modules will be released soon: (i) Industrial Production; (ii) Finances of Government of India;
  • (iii) Finances of State Governments; (iv) Combined Government Finances; (v) National Accounts Statistics;
  • (vi) Annual Survey of Industries; and (vii) External Sector.

    The other three modules, (i) Education; (ii) Health; and (iii) Insurance will be added thereafter.

    The demo version can be accessed by free registration. The existing members already registered with us and accessing member services at www.epwrf.in will require no fresh registration. To gain full access, very affordable subscription rates are available on our website.

    For any further details or clarifications, please contact: The Director, EPW Research Foundation, C-212, Akurli Industrial Estate, Akurli Road, Kandivli (East), Mumbai - 400 101 (phone: 91-22-2885 4995/4996) or mail: epwrf@vsnl.com

    may 5, 2012 vol xlviI no 18

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