In October 2013, at the pharmaceutical trade show CPhI in Frankfurt, Germany, officials from India announced a goal of raising that country’s drug exports from $15 billion per year currently to $25 billion by 2016. The goal is part of a larger campaign launched in 2012 to position India as the “pharmacy to the world.”
Considering the recent headlines about India’s drug industry, the campaign’s goal seems optimistic. In 2012, Ranbaxy Laboratories had to pay the U.S. a record fine of $500 million for manufacturing deficiencies at plants in northern India that ship products to the U.S. Later that year, the company recalled batches of cholesterol-lowering drugs sold in the U.S. after finding glass in some capsules. Just last week, Ranbaxy announced it had received another letter from the Food & Drug Administration outlining problems at a plant in Punjab.
And last year, another Indian drugmaker, Wockhardt, saw some of its drugs banned from the U.S. after FDA inspectors found serious problems at its plants.
If that isn’t enough headwind, India faces intense lobbying from the U.S. and Europe to change its patent regime, one of the foundations of its drug industry. Under the Indian system, many drugs that are patented in Western countries can be manufactured in India and sold as generics to other countries that don’t recognize the patents. If India adopted a Western-style patent system, its drug companies would be deprived of the profits generated by some of their latest products.
And yet, India’s growth ambitions are plausible. The country’s pharmaceutical industry relies on exports for roughly half of its sales. Already established as major suppliers of drugs to Africa and other parts of the developing world, India’s generic drug makers have found acceptance in the U.S. and other advanced countries that are, by value, their largest export markets. And although Indian firms would be harmed if the patent regime were changed, observers say it is unlikely to happen.
Before 1970, when it abandoned a patent system inherited from the British, India did not have much of a drug industry. The new patent regime gave what has become a formidable industry room to grow, with production costs that are a mere 40% of those in the West, according to India Brand Equity Foundation, a promoter of the “pharmacy to the world” campaign.
“India is supplying between 30 and 40% of the world’s generic medicines, which is really huge,” says André van Zyl, a quality consultant to many drug manufacturers in India. “Despite the patent fights with foreign countries, I expect this to continue.”
The discovery of quality problems at some companies should not tar the entire Indian pharmaceutical industry, van Zyl adds. “You can’t make blanket statements about countries or companies.”
The campaign to position India as the world’s drugstore was launched to correct several misperceptions, according to P. V. Appaji, executive director of the Pharmaceuticals Export Promotion Council of India, or Pharmexcil. “Our message is clear: Indian drugs are quality products,” he says. Foreign regulators and pharmaceutical procurement agencies are key target audiences for the campaign, he notes, as is the general public.
Through the campaign, Pharmexcil is highlighting India’s importance as a global drug supplier. About 55% of India’s drug exports last year went to highly regulated markets. The U.S alone bought more than 30% of India’s drug exports, Appaji notes. And because of their affordability, Indian drugs are often used against diseases such as tuberculosis and AIDS in poorer countries. International charities such as Doctors Without Borders have turned into fierce opponents of attempts to change India’s pharmaceutical patent regime.
A misconception Pharmexcil is addressing, Appaji says, is that India is a major manufacturer of counterfeit drugs. About two years ago, he notes, Western drug companies embarked on an effort to lump together in the public’s eyes fake drugs and drugs that don’t respect the patents of Western countries. “Even when our products do not comply with Western patents, they’re legitimate products that are highly suitable for the developing world,” he insists.
Pharmexcil is not claiming that the quality of Indian drugs is flawless. But, Appaji points out, drug regulators have discovered manufacturing deficiencies at many companies in many countries. “Even major innovator companies have encountered problems with FDA, not just the generic manufacturers,” he says. According to FDA, in the 12 months ending Sept. 30, 2013, seven out of the 26 warning letters the agency sent to foreign drug producers went to Indian firms.
It’s relatively easy for a drug company to fail to comply with some manufacturing standards, van Zyl notes. The rules known as current Good Manufacturing Practices that govern drug production in many countries include words such as “appropriate” to describe, for example, the conditions under which raw materials or finished products should be manufactured. “Appropriate may be considered vague, but it’s also understandable in context,” he says.
“Appropriate conditions for the manufacture of a topical ointment [that is merely applied to the skin] are not appropriate conditions for the manufacture of an injectable drug,” van Zyl says.
The problems FDA highlighted at Ranbaxy were egregious, Pharmexcil’s Appaji concedes. But most of the issues FDA identified with the company date as far back as 2006. As to the glass particles found a few months ago, “it’s Ranbaxy that found the problem itself,” he says.
Van Zyl, who operates under the banner of Van Zyl GMP International, has been inspecting drug manufacturers in India for more than 15 years, both as a Geneva-based professional employed by the World Health Organization and later as a consultant based in his home city of Cape Town.
He’s concluded that Indian manufacturers have numerous competitive strengths, not only in the area of production costs but also in their ability to understand and comply with difficult foreign regulations. “Indian companies often offer me complex assignments like developing their compliance with multiple national jurisdictions simultaneously,” he says.
That English is one of India’s official languages is a key asset that puts it ahead of competitors. China, for instance, is becoming an important exporter of bulk pharmaceutical ingredients. But China’s product range for export is relatively small, and the country hasn’t made much headway in the more profitable finished-dose business, in part because of language barriers, van Zyl says.
An important milestone in India’s international rise occurred in February 2001 when the company Cipla offered a cocktail of three antiretroviral drugs, used to treat HIV infection, to Doctors Without Borders for $350 per year per patient. The price in the U.S. was $10,000. Today, Cipla supplies antiretrovirals to roughly one-third of AIDS patients under treatment in Africa, according to Manoj Dorlikar, head of a Cipla manufacturing complex in Patalganga, India.
Foreign markets have transformed Cipla into a multinational firm, says Chairman Yusuf K. Hamied. India does remain a focus, he says, noting that the firm employs 9,000 salespeople who visit doctors and hospitals in the vast country. But whereas exports represented a mere 10% of Cipla’s sales in 1995, they are about 60% now, he says. The U.S. accounted for 17% of the firm’s sales in its latest fiscal year.
A big reason behind the growth of Cipla and others in India’s generic drug industry is the country’s patent system, Hamied argues. Should India adopt a patent regime that is similar to that of Western countries, it will affect bottom lines across the industry, he says. “It will obviously have an impact if our latest AIDS drugs aren’t approved for production in India,” he says.
In 2005, India implemented changes to its 1970 patent regime to make it comply with intellectual property provisions of the World Trade Organization. But for drugs patented earlier than 1995, the update does not allow companies to patent minor changes. On the basis of this provision, the Supreme Court of India last year rejected Novartis’s patent on the cancer drug Gleevec. The courts found that the active ingredient in Gleevec was a minor modification to a drug Novartis invented before 1995 but didn’t launch.
Since 2005, Hamied says, Cipla has been the firm that has challenged the largest number of patents on drugs sold in India by claiming that they are based on minor changes to pre-1995 drugs, and it has won all its cases, although most are still under appeal. In the future, however, he expects fewer opportunities to win because Cipla has already challenged the easy ones. The strategy is dying out, he comments.
To maintain Cipla’s growth, and also to provide patients with access to newer drugs, Hamied now lobbies for simplification of India’s compulsory licensing rules, which permit local firms to make cheaper versions of patented drugs without the originator’s consent, as long as they pay a royalty.
Compulsory, or forced, licensing is a cumbersome and rarely used legal process that is permitted by the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights, known as TRIPS. Within the TRIPS framework, several countries have adopted rules for compulsory licensing, which allows countries to break patents, under certain conditions, when facing a health emergency.
For example, India’s Natco Pharma successfully used the compulsory licensing law in 2012 to break Bayer’s patent on the cancer drug Nexavar. But it was a drawn-out process that took several years, according to Hamied. After long delays, Indian courts allowed Natco to produce generic Nexavar in India and pay a royalty to Bayer. “We need a simpler compulsory licensing system,” he says.
So far, the Indian government is not showing any interest in making it easier to break foreign drug patents with compulsory licensing. But were Indian regulators to start going down that road, they would likely face fierce opposition from Western countries, given that India’s patent system is already a source of international friction.
“Intellectual property protection is what’s holding up the signing of a free-trade agreement between India and Europe,” says Bryan Mercurio, a law professor at the Chinese University of Hong Kong who specializes in trade law and intellectual property rights. The European Union, which is India’s largest foreign market, has been discussing a free-trade agreement with India since 2007 without any results.
Western countries express their displeasure with India’s patent laws in various ways. In the U.S. last year, business chambers joined hands to form the Alliance for Fair Trade with India, a group lobbying the U.S. government to pressure India to make its patent laws similar to Western ones, among other objectives. The alliance is notably backed by Pharmaceutical Research & Manufacturers of America, the main pharma trade association in the U.S.
In recent years, European port authorities have gone so far as to seize Indian drugs. For example, in 2008, Dutch custom officials seized a shipment of a generic version of the Merck & Co. blood pressure drug Cozaar, patented by DuPont, that was on its way to Brazil.
One thing Western drug companies will refrain from doing is directly confronting the legality of India’s patent system through the World Trade Organization, Mercurio believes, because doing so would be too risky. “If the international drug industry challenges India on this, and then industry loses, it will open the door to other countries to emulate India’s patent regime.”
India, meanwhile, isn’t likely to make concessions unilaterally, Mercurio argues. Government officials have made numerous public statements in support of the 2005 patent regime, and changing it would likely cost jobs. “The drug industry employs a lot of people, especially if you add the chemical suppliers to the pharmaceutical companies,” he says. “It would require a really massive trade concession for India to change its stance.”
India’s government has a reputation for being indifferent, or even hostile, to industry. But by refusing to budge on drug patents, the government is proving uncharacteristically helpful to India’s generic drug industry. India may well be on its way to becoming the world’s drugstore, but it will be a controversial role.