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Big pharma's uncertain future in India

Multinationals are worried about the country's patent regime, but India is too big a market to be ignored

Sushmi Dey  |  New Delhi 

India's drive towards compulsory licensing, increasing challenges and denial of protection to anti-cancer drug have not gone down well with multinational drug makers who are grumbling that India has become a difficult market for them to operate, bring newer drugs and make investments in research. Their contention is patents are inadequately protected in India, which not just discourages research and development but also makes it a low-priority market for innovator

While earlier this year, the Intellectual Property Appellate Board upheld the compulsory licence granted to for manufacturing the generic version of Bayer's Nexavar, the Supreme Court denied protection to Novartis beginning of this month for This is not all. The government is also considering a proposal to invoke compulsory licences for three more patented drugs, while another drug maker, BDR Pharma, has approached the Patent Controller seeking a compulsory licence for US-based Bristol-Myers Squibb's anti-cancer drug Sprycel. BDR Pharma has offered to sell the cancer medicine at a price 95 per cent cheaper than that of the multinational. The latest is the legal battle between Merck Sharp & Dohme and Mumbai-based Glenmark. Merck has challenged Glenmark in the Delhi High Court alleging patent violation of its anti-diabetes drugs Januvia and Janumet.

The increasing number of conflicts in the intellectual property space has led to some multinationals warning India that they may divert investments to other markets or at least start acting "cautious" in their approach. Novartis has repeatedly said that if intellectual property is not adequately protected in India then it will be "cautious" while making investments in innovation here. Merck has also indicated that patent protection is essential for attracting investments from in research and development. "Strong intellectual property protection is essential for growing India's innovative capacity and economic growth. As an innovative pharmaceutical company, protection of our intellectual property is vital to ensure that we continue to assume the tremendous monetary risks associated with the discovery of innovative medicines," it had said after challenging Glenmark in the Delhi High Court recently.

Making a case for patent

Kewal Handa, former managing director of Pfizer India and currently promoter-director of Salus Lifecare, says the apex court's judgement against Novartis and various patent challenges against Roche, and other multinationals could be a huge setback to the innovation and research ecosystem of India. "We would be perceived by the world as a country that doesn't recognise, respect and reward research and innovation," Handa says. "This one judgement may have also larger consequences on global investments, particularly in the area of manufacturing, clinical research and BPO."

However, market analysts opine that all multinationals may not be as much impacted or discouraged by the latest moves. According to Nitin Agarwal of IDFC Securities, such as GlaxoSmithKline, Pfizer and Sanofi are seen to be less impacted as they already have a presence in India and have established their products. They have also made substantial gains from their patented products here. "So, their strategy and businesses may not be impacted much due to the latest developments or mood," he says.

Industry estimates show that multinationals have established their key brands over the years across therapies. Not all of these products are patented. In fact, the share of patented products is not more than 2 per cent of the total market, including those pushed by them through their own retail and access programmes. Foreign players such as Abbott, GlaxoSmithKline, Novartis and Pfizer account for five of the top-10 brands in the Indian market. According to a study conducted by IDFC Securities, Abbott's anti-diabetic drug Human Mixtard, which was launched in 1992 and currently occupies the top-slot of best-selling brands, garnered revenue of around Rs 219 crore last year. Similarly, Pfizer's cough medication Corex, launched a year later in 1993, clocked annual sales of Rs 215 crore in 2011. Even older brands like Voveran and Revital clocked significant sales. While Voveran earned Rs 194 crore for Novartis, Revital contributed Rs 182 crore towards Ranbaxy's sales last year. Abbott, which leads the top-300 list, now has 28 brands in that bracket aided by its acquisition of Piramal Healthcare's domestic formulations business.

  • HUMAN MIXTARD (Abbott)
  • JANUVIA (Merck)
  • JANUMET (Merck)
  • GALVUS MET (Novartis)
  • Patented drugs account for 2% of the market in India
  • MNCs control 30% of the domestic market, up from 21% in 2007

Change of plan
However, companies such as Roche and Bristol-Myers Squibb, which have just started making a foray into this market and are banking on patent protection for growth, may have to look around and adopt a new strategy. Experts opine multinationals may slow their pace of engagement for some time but India, given its size and growth, cannot be ignored for long. It's a country with a population of over1.2 billion and a pharmaceutical market worth Rs 70,000 crore which is growing at a pace of 12-14 per cent per annum, next only to China which is growing at 19 per cent. Analysts suggest the Indian pharmaceutical market could touch $29 billion in annual sales by 2016.

Besides, the market for oncology, diabetes, cardio-vascular and anti-retroviral drugs, which are the most preferred therapeutic areas of multinationals, are growing significantly here. "The domestic market in India is fairly significant and has also been growing at a fast clip. I think most companies would need to factor India in their plans. Over a period of time, the value of the overall Indian market will assume higher significance," says Utkarsh Palnitkar, partner and national head (life sciences practice), KPMG in India.

Some also argue that the issue of patent protection is unlikely to impact investments in India because patented drugs being sold by foreign firms in India are mostly imported. According to senior counsel and director of Lawyers Collective Anand Grover, foreign pharmaceutical companies had not invested on real invention in India for over a decade. Grover, who also represented Cancer Patients Aid Association in the Supreme Court recently against Novartis in the famous patent protection case, says: "Since 2000, all multinational pharmaceutical companies started disinvesting in India. Most companies no longer produce in India -they import the drugs. So this threat of not investing on R&D in India does not hold".

The primary investments undertaken by multinationals in such cases are on marketing and promotion. However, if a company is successful in securing a patent in India, the returns are high with almost the entire market available to the patent holder. The profitability from such drugs also far outweighs the risk involved in litigation. No wonder then, the share of multinationals in total pharmaceutical market has grown steadily to around 30 per cent now from 21 per cent in 2007, industry data shows.

When asked whether the recent developments can impact investments by multinationals in India, Palnitkar says: "I think the India opportunity is significant and has many dimensions, such as the market potential, talent pool for research and the like. Perhaps in the medium term there may be a rethink on strategy. However, I do not think it will have a long-term impact." He adds that "companies will have to devise ways and means of engaging with all stakeholders. Being sensitive to pricing in India is an imperative that cannot be ignored. An India-specific strategy will have to emerge in terms of addressing price sensitivity and taking into account volumes."

But even that may not be as easy as it appears. Many believe that after the recent hue and cry internationally, following the recent developments on Glivec, invocation of compulsory licence on Nexavar and more recently Merck's allegation against Glenmark of patent infringement of Januvia, prices of medicines in India are being seen as reference pricing by many other nations. "Such a thing may impact multinationals in a bigger way," says Praful Bohra, senior research analyst, Nirmal Bang. According to Bohra, with all developing countries eyeing India for benchmark pricing, multinationals are under the threat that their moves in India may also have to be replicated in other emerging and even in developed economies.

Even companies like Novartis have not completely turned away from the India market. Novartis has maintained that it will continue to file for patents and launch new products in India. "Products are launched in any country depending on market profile including unmet medical need. We would continue to consider these factors when launching products, including patented products, in India," Novartis India Vice-chairman and Managing Director Ranjit Shahani says. He adds that the company currently has more than 1100 patent applications for all kinds of inventions pending in India.

First Published: Tue, April 16 2013. 23:30 IST