Pill fight heads for a bitter finish

The latest government bid to control prices of bulk drugs has added another dimension to the ongoing battle for supremacy in the pharma market.

Published: 26th May 2013 12:00 AM  |   Last Updated: 24th May 2013 08:18 AM   |  A+A-

Savitri Saxena (58) was diagnosed with cancer even as her family celebrated her grandson’s admission in a prestigious Delhi college. Numbed by the news, Savitri was shocked further when she learnt that the prescribed medicine would cost at least Rs 20 lakh a year, before she could move to safer and cheaper drugs.

Rajarshi Mantri (38) urgently required stents for his heart condition. The electrical engineer was told the cost would be anything between Rs 80,000 and Rs 3 lakh. Bulk buyers get the same stents for Rs 30,000.

An arbitrary pricing regime has put medicines out of reach for many, and with Western pharma giants twisting the arm further by re-patenting essential drugs and preventing local companies from bringing out generic variants, healthcare has taken on nightmarish proportions for those without the cushion of insurance. There is hope in sight however. A new drug policy that was notified recently widened the ambit of a 1995 order that regulated prices of only 74 bulk drugs. The department of pharmaceuticals notified the Drugs (Prices Control) Order 2013 under which prices of 348 medicines in the National List of Essential Medicines (NLEM) have been brought under price control. The order proposes that retail price of 348 drugs will be fixed at the simple average price of brands that have more than 1 per cent market share.

The new pricing policy has evoked mixed reactions from the pharmaceutical industry. While hailing the policy, industry  heavyweights have said reducing prices of drugs alone will not be enough to make healthcare affordable. The move to regulate  prices comes at a time when margins of the Indian pharma industry are under pressure owing to an uneven playing field in the face of imports, rising costs and competition.

Big brothers loom

Ever since 2005, the Indian pharmaceutical sector has been yielding ground rapidly to pharma giants from the West. The MNC share of the market has increased from 5-6 per cent in 1995 to 30 per cent today. The basic reason has been most Indian drug manufacturers don’t have the wherewithal to produce or compete with the MNCs—whether it is in research, producing new molecules or patent. Though thriving, the Indian pharma sector is still a bastion of generic drug companies, the desi manufacturers who can at best replicate drugs researched and produced by the Big Brothers from the US and Europe—Novartis, Merck, Pfizer and Roche. In a $400-billion world market, Indians contribute only $10 billion worth of pharmaceutical drugs.

 It’s a market closely monitored and minutely controlled by the Big Brothers. All drugs are patented and re-patented. The monopoly maze is so intricate that no country can access drugs that the Big Brothers don’t want them to. These may be absolutely essential ones for communicable diseases or evolved ones for lifestyle afflictions. For instance, AstraZeneca extended its patent over the heartburn pill Prilosec by slightly altering the chemical structure and then renaming the medicine Nexium. Both Prilosec and Nexium are among the highest-selling instant relief acid busters in the US and AstraZeneca managed to hold on to the patents for more than 30 years. Other companies keep patents for as many as 25 years after coming into the market. Patents are granted for 20 years from the date of application and medicines usually appear in the market within five years of an application. A result of this practice is that the United States pays the highest drug prices in the world.

 Take the case of Viagra, its patent should have expired this year, but Pfizer has found new ways to extend it till 2020. The pretext is that the company is researching a new innovation which may be useful for treating heart disease in children by slightly altering the composition of Viagra. And while we can hardly clamour for a desi Viagra given our population profile, the principle of it has to be kept in mind. Viagra costs Rs 600 per pill in the market while a generic version can easily be produced for less than Rs 30. But sustained pressure from the Big Brothers who make heavy election contributions in the US made sure that India signed the WTO and became more conscious of Intellectual Property Rights.

Generic edge

India’s booming pharmaceutical sector owes much of its success to generic drugs as the Indian government does not recognise pre-1995 patent rights of MNCs.

The same generic drugs keep 57-year-old Sandhya Udgirkar going. Diagnosed with breast cancer three years ago, Udgirkar experienced no symptoms whatsoever until it reached third stage. After undergoing chemotherapy and radiation, she was prescribed the drug Anastrazole 1mg for a period of five years to be taken once a day. At present, Udgirkar is using Cipla’s generic version, which is priced `495 for a strip of 10 tablets. The doctor had initially prescribed Astrazeneca’s Armidex, which costs eight times more. Like Cipla, almost 10-15 generic versions are now available in the market including Altraz by Alkem Labs which is priced `700 for 14 tablets.

 The TRIPS agreement under the WTO charter allows countries to issue compulsory licences for drugs which are either not being produced in their country or are too expensive. India makes use of this law to the fullest under Section 84 of the Act. Compulsory licences are routinely given to generic drug companies so that life saving drugs can be made available at reasonable prices. Pharma companies, which make almost a third of their sales in the highly-priced US market, have actually seen a drop in sales in India in the past two years. No wonder, they have long been pressurising the US government to enforce stricter patent laws worldwide.

 Several countries are now set to adopt Indian laws on patents, particularly Section 3 of the Indian Patents Act 1970 in the light of the judgment in the Novartis case. Argentina and the Philippines have already passed similar laws while Brazil, China, Thailand, Malaysia and Indonesia are mulling changes. India, Brazil and China together account for 20 per cent of global pharma spending which is set to go up to about 40 per cent by 2016. Consulting firm PricewaterhouseCoopers forecasts India’s pharmaceutical market to grow to at least $48.8 billion in sales by 2020.

 The generic pharma lobby is hopeful that the Supreme Court judgment in the Novartis case will actually lead to a fresh thrust in research. In the words of the Supreme Court itself, Section 3(d) leaves “the door open for true and genuine inventions but, at the same time, to check any attempt at repetitive patenting or extension of the patent term on spurious grounds.”

 Dr P Bhaskara Narayana, Director & CFO, Natco Pharma Ltd, says: “India is gearing up its R&D activities and time is not too far when we can see an Indian developed molecule in the markets. One must understand that in research activities all over the world, contribution by Indian scientists is noteworthy. Highly populated countries like India, with little or no social security benefits—especially medical insurance—would be compelled to develop their own molecules.”

This becomes more relevant, if, as threatened, MNCs pull out their R&D efforts from India. Narayana feels that it is unlikely to happen as carrying out R&D in India is not only cheaper but there are abundant competent and knowledgeable human resources.

 Dr Krishna Ella, CMD, Bharat Biotech International Ltd, agrees. “MNCs certainly cannot ignore the Indian market, which is tipped to be the eighth largest market for medicines by 2016. Importantly, India offers abundant skilled talent to undertake R&D,” he says.

 Besides, research firm IMS Health estimates that over-the-counter (OTC) or non-prescription drugs are expected to offer business potential with an estimated growth of $24-$34 billion by 2016. So emerging markets, particularly India, are important business locations for the pharma giants.

 Dr Narayana’s worries lie elsewhere. Fake drugs. “We need to tremendously improve our infrastructure and manpower to prevent fake drugs from entering the market. The administration should be conscious and committed. Technology should be fully made use of—like bar-coding etc. Last but not the least, patient population must be made aware of the danger of spurious drugs and should always check the genuineness of the drugs,” he says.

Patent hurdle

Two recent judgments by Indian courts can also bring about a shift in our understanding of patent rights held by MNCs. The rulings in the Novartis case by the Supreme Court and in the Merck case by the Delhi High Court caused ripples in making, marketing and even patent protection laws for drugs. It is now clear that India, though a signatory to the 2005 WTO agreement, will not allow “evergreening” or perpetuation of patents of the type possible in the US.

 “First and foremost, we should cut this talk about India being unfair towards Intellectual Property Rights and so foreign investment will go down. The Supreme Court judgment relates only to Section 3(d) which is one of kind provision in patent acts worldwide. It prohibits patenting in perpetuity under a bogus pretext,” says Pratibha Singh, a lawyer who won both the cases for her clients. She clarifies that 70 per cent of cases relate to new patents and original research which remain unaffected. What the courts have decried is the tendency to file new patents for “known substances” by tweaking composition.

 Section 3(d) says “mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus will not qualify as a reason for new patents.” In the United States, companies can get a new patent for a drug by altering its formula or changing its dosage. Even minor improvements in medicines—changing a pill dosage to once a day instead of twice a day—can be reason for extension of patents. In the Novartis case, the company had filed at least eight patents in Delhi and Chennai using beta form, K form, or crystalline and amorphous forms as reasons for extension of patents on the same known product. In normal course, the Glevec patent would have expired in 2013, but Novartis wanted to extend it to 2026 through such clever devices.

There are, however, genuine difficulties also which prevent some drugs to be produced as a bio-copy.

 Swati’s 10-year-old son was diagnosed with Type II diabetes. A Delhi schoolboy, he has been on insulin for the past three years. Swati has to buy the vials marketed by Abbott labs, US, which come at an exorbitant Rs 460 per vial and her boy needs at least four vials every month. Unfortunately, insulin cannot be produced by generic companies. It is the first pharmaceutical biologic with a formula requiring the use of active biological organisms. Generic firms can produce bio-similar drugs but then lacking in living organism, they are not as effective. All patents for insulin expired this year but she will have to wait for a while before Indian firms produce their own version.

 There are two other issues to be considered in the patenting and market monopoly debate and India’s attempt to fight back. One is expansion of mechanism of price control and two, award of more compulsory licences to produce generic versions of life saving drugs.

 Under Section 84 of the Patents Act 1970, compulsory licences can be awarded to applicants if they prove that a certain lifesaving drug is not available in India or is far too expensive to produce or import in original form. Since 2005, however, only one compulsory licence has been issued, to Natco. This has to improve where original patents are not in question. This comes in the background of Cipla being toasted by UNHRC for having produced the cheapest generic version of an AIDS drugs.

“The Cipla pills which are soluble in water and can be ingested twice a day has literally saved the sub-Saharan countries from reeling under the oppressive AIDS virus,” says Suraj Kumar of Unicef.

India’s low-cost pharmacy sector is a darling of international organisations like Unicef and Medicines Sans Frontiers. It is the leading supplier of affordable HIV and tuberculosis medications and is the second leading provider of medicines distributed by Unicef in the developing world. Most African countries would not be able to run AIDS elimination programmes without the twice-a-day water soluble generic drug manufactured by Cipla available for as little as $150 a month. Stavudine and Nevirapine on the other hand cost $10,000 a year. Glevec, for which Novartis lost the case in the Supreme Court, used for treating cancer, costs something like $72,000 for a year’s treatment while its generic form costs only $2,500 a year.

One limiting factor in the coming years for the Indian generic firms could be that no big drugs are going to lose patent rights in immediate future in the US. More investment in R&D is now almost a necessity. In the past five years, Indian firms have cumulatively put in more than `3,000 crore in research. It has not yet yielded a big molecule but it may just be around the corner.

India fghts back

* A PwC report says the Indian pharmaceutical sector is expected to grow at an annual rate of 14-17% over  the next four years. By 2020, it is likely to touch $48 billion in sales from about $11 billion in 2012.

* Another report by ICRA and Moody’s pegs the domestic formulations market at Rs 58,300 crore, which is tenth in terms of value globally.

*  Trade body Pharmexcil has pegged export of drugs, pharmaceutical and fine chemicals growth at 27 per cent to Rs 60,000 crore for the year ended March 2012. Last year saw the Commerce Ministry embarking on an ambitious strategy to double exports from $10.4 billion in 2009-10 to $25 billion by 2013-14.

* Generics will continue to dominate the market while patent-protected products are likely to constitute 10 per cent of the pie till 2015, according to the McKinsey report, India Pharma 2015 - Unlocking the potential of Indian Pharmaceuticals Market.

* India will see the largest number of merger and acquisitions in the pharmaceutical and healthcare sector, according to consulting firm Grant Thornton.

* The cumulative drugs and pharmaceuticals sector attracted foreign direct investments worth US$ 9,776 million between April 2000 and November 2012, according to the latest data published by the Department of Industrial Policy and Promotion.

* Recruitment in India during 2013 is expected to be driven by information technology and pharmaceutical/life sciences sectors, according to executive job search and career portal,

* Riding on increasing sales of generic medicines, continued growth in chronic therapies and a greater penetration in rural markets, the domestic pharmaceutical market is expected to register a strong double-digit growth of 13-14 per cent in 2013. The year 2012 closed with a growth of 12 per cent, according to data from research firm IMS Health.

Killing competition

The pharma giants may have come up with a smart plan to blow away the small generic manufacturers. Suddenly, there is a rush to acquire smart generic manufacturers in India. The FIPB has received 60 applications this year alone from foreign companies looking to acquire Indian firms. The idea seems to be to block future expansion of the generic pharmaceuticals in their domain. If one side owns both operations, then it’s simpler.

Since 2002, when the proposal to attract 100 per cent investment in the pharma sector was taken, almost all big Indian companies have been bought by MNCs. Piramal was bought by Abbott Labs of the US and Dabur and Shanta Biotech were bought by French and German majors.

This has alerted the health ministry. “We will have to look deeper into these acquisition clearances. It could inhibit the growth of domestic companies,” says a joint secretary in the ministry. The rush to takeover Indian generic pharma industry by pharma majors from the US, Europe and Japan is now up against a twin block. The first being the health ministry’s interest and the second, the sub-standard manufacturing processes at some of the targeted companies. The USFDA has found grave anomalies in some of them which might render their acquisition infructuous to some extent.

Ranbaxy which was acquired by Daiichi-Sankyo in 2008 has now agreed to pay $500 million or Rs 2,700 crore to settle civil cases in the US. The Ranbaxy plants in Dewas (MP) and Paonta Sahib (HP) were inspected by the USFDA and found to be sub-standard and the records of research and testing maintained at these plants were at best scratchy and at worst dubious. The most important drug being produced at the Dewas plant was Ciprofloxin which was found to be of low quality.

“The expiry of several patents in US in the coming years has been the reason for US pharma majors’ interest in Indian companies,” says lawyer Pratibha Singh. Most US patents for important drugs will expire by 2020. The only way Indian companies can fight back is by investing more in research. Bigger ones have started—from almost nothing in 2002 to Rs 3,000 crore in 2012. It’s a long way to go but that’s the only way left.


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