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This Seminar Paper focuses on the impact of shift from process patent to product patent on Indian Pharma industry. The initial part of this paper gives an overview of the present scenario of Indian Pharma market. Then it tries to develop a basic understanding of patent laws and their applicability to the Pharma industry. Followed by that, this paper provides an insight into the changes that have occurred in the patent law and studies the impact of shifting from process to product patent on Indian Pharma markets.
Being an active member of World Trade Organization (WTO), India needs to comply by certain policies and rules applicable to all member nations. One such set of rules is defined by Agreement on Trade Related aspects of Intellectual Property Rights (TRIPS). It was under the aegis of TRIPS that India had to comply with certain changes in its Intellectual Property (IP) regulations. Shifting from process to product patent was one such change that affected the business community in general and the Pharma industry in particular. This change brought about the end of India's golden age of generic market (reverse-engineering) which had boomed during the process patent i.e. pre patent era. This period of process patent had resulted in development and progress of Indian Pharma industry to a great extent. Also the drugs available during this period were of economical prices that were affordable to Indian population and also to those of other developing countries.
If we look on the positive side of this product patent regime, it will not only help Indian Pharma industry to focus more on R&D but also attract MNCs to make considerable investments in the Indian Pharma market. This may lead to new collaborations, joint venture, and outsourcing to Indian firms thereby increasing the FDI inflows in country. Owing to better IP protection laws, MNCs may open research centres in India or they may outsource their production requirements as Indian firms has maximum number of FDA approved production facilities.
At present the Indian Pharma market is growing at 16 % per annum. The share of Indian Pharma industries in the market is 70 percent. The new patent regime will lead to a lot of positive changes in the industry viz low production costs, increased focus on R&D, well trained and innovative workforce, world-class laboratories and government support. All these will help Indian Pharma industry to grow and compete with other multinational companies in the long run.
Table of content
Statement of Problem
Objective of study
Impact on Indian Pharma Industry
An overview of Indian pharmaceutical industry:-
The Indian pharmaceutical sector is one of the highly organized sectors which is growing at about 16% annually and is estimated to be worth $ 4.5 billion. Worldwide it ranks 3rd in terms of volume and 13 in terms of value. It rank high in terms of technology, quality and the range ofÂ medicinesmanufactured,from simple headache pills to antibioticsÂ and the complex cardiac compounds, almost every type of medicine is now made indigenously.Â
Indian pharmaceutical sector is an extremely fragmented market which faces severe price competition and also the price control by the government.
The core of Indian pharmaceutical industry is formed by 250 large units and about 8000small scale units.a range of pharmaceutical products is being manufactured / produced by these units these are medicines ready for consumption and around 350 bulk drugs. The Indian Pharma industry meet about 70%of the country's need for bulk drugs, intermediates, capsules, orals, tablets, injectable and different formulations. India is becoming one of the leaders for API(active pharmaceutical ingredient) production. The strength of Indian Pharma industry is in developing cost-effective technologies for drug intermediates and bulk drugs in short period of time and also without compromising on quality.
As of date India has the largest number of US FDA (US Food & Drug Administration) approved manufacturing facilities outside the US. Also the DMFs (Drug Master Files) filed by Indian companies with FDA is higher as compared to most of the other countries. Indian companies have also established their foothold in overseas markets. India exports to more than 200 countries including highly regulated markets like US, Europe, Japan and Australia. In 2008-09 the exported drugs worth US$ 8 billion. Also, there has been a great surge in the number of patent applications filed in the recent times. A total of 35,218 patent applications were filed, 6040 from domestic and 29,178 from foreign applicants in the last fiscal year (Economic Times, Jan.7, 2009). Indian companies have also increased their R&D expenditure in the recent years which promote new drug discovery and making Indian Pharma industry a global hub for R&D activities. Government has allocated a provision of Rs. 150 crore under the pharmaceutical research & development support fund to encourage and support new drug discovery by the Pharma firms in the country.
Explained in most basic terms, "Patents are the exclusive rights granted by the state to an inventor over its invention". These are exclusive rights as they stop others from importing, selling, offering for sale, manufacturing or delivering products or services containing the patented invention. These are given for a limited period of time. The patent ensures just reward in terms of money and recognition for the inventor, for all the time and effort, knowledge and skills, money and other resources invested to come up with the invention. Patent is valid only in the country which grants it.
To get a patent over an invention, there are three basic requirements:-
1. Novelty- it should be new.
2. Inventive step (non-obviousness) - it should be non-obvious.
3. Utility (capable of industrial use) - it should have some industrial use.
All patents are published after 18 months of first filing and are available for public inspection. There are approximately 40 million patent documents worldwide. An additional 1 million are published every year. Patents act as an exchange between society and the inventor.
Need for patents in Pharmaceutical Industry:-
Patents are very much required and are important for pharmaceutical industries because a huge amount of investment is done in R&D by the firms. Also, it provides a form of protection for the technological being exploited by others also, as reward to the innovator for the development of an invention which it is technologically feasible and marketable.
Statement of the problem:-
Initially in India there was process patent regimen but after the recent change made in regimen as per TRIPs, the same was replaced by product patent.
Comparison of India's Patent Act and TRIPs:-
According to India's patent act only process and not the product is patented while according to TRIPs process and product both are patented.
According to India's patent act term of patent was 14 years,5-7 years for chemicals, drugs but according to TRIPs its 20 years.
According to India's patent act compulsory licensing can be granted while according to TRIPs there is limited compulsory licensing.
In India's patent act several areas were excluded from patents like method of agriculture, method of medicinal surgical or any treatment method etc. But in TRIPs almost all fields of technology are patentable excluding plant varieties and some areas in biotechnology and agriculture.
In India's patent act the government is allowed to use patented product to prevent scarcity while as per TRIPs there is very limited scope for the government to use patented products.
These changes lead to a definite impact on Indian Pharma industry and defined the direction of growth for the Indian Pharma companies' operative in the market over next 5 - 10 years.
Purpose/objective of the study:-
The objective of this study is to understand the impact of shift from process patent to product patent on Indian pharmaceutical industry and also to develop an understanding of its benefits and limitations.
An Ordinance on Patents Amendment was promulgated by the Government on December 26, 2004 to make the Indian patents law WTO (world trade organization) compliant and to fulfill India's commitment under TRIPS (trade related aspects of intellectual property rights) to introduce product patent protection for Drugs, Food and Chemicals with effect from January 1, 2005.TRIPs is a treaty administered by WTO which sets down minimum standards for intellectual property regulations. India being a member of WTO tried to make its patent legislation TRIPS compliant by bringing into force the patents (amendment) act 2005.
Article 27 of the TRIPS Agreement clearly states that the patents are granted for any invention, whether product or process, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. Patent rights are enjoyable without discrimination of the place of invention, the field of technology and whether products are imported or are produced locally.
Certain compensatory measures and schemes are given by TRIPS to avoid the negative impact of monopolization of product patents especially in health and pharmaceutical sectors. Such measures are:-
â€¢ Compulsory LicensingÂ
â€¢ Public, non-commercial use of patentsÂ
â€¢ Parallel importsÂ
â€¢ Exceptions to patent rightsÂ
â€¢ Exceptions from patentability andÂ
â€¢ Limits on data protection 
Salient features of the Patents (Amendment) Act 2005 related to product patents:
a) Extension of product patent protection to products in sectors of drugs, foods and chemical.Â
b) Term for protection of product patent shall be for 20 years.Â
c) Introduction of a provision for enabling grant of compulsory license for export of medicines to countries which have insufficient or no manufacturing capacity; provided such importing country has either granted a compulsory license for import or by notification or otherwise allowed importation of the patented pharmaceutical products from India (in accordance with the Doha Declaration on TRIPS and Public Health).
Â d) A new provision has been introduced that provides that the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the 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 unless such known process results in a new product or employs at least one new reactant, shall not be patentable.
The intention of these amendments is to make Indian Pharma industry competitive with the multinational companies. The generic drug industry will face limitations whereas MNCs are going to enjoy the monopolistic rights. However it also attracts the contract R&D and the joint ventures with MNCs.
Initially when the regulatory system was focused only on process patents, a strong and highly competitive domestic pharmaceutical industry was established with a rigid price control framework. It helped the industry to become world supplier of bulk drugs and medicines which are at affordable prices in India and in the developing world. The Process patent and the reverse-engineering made the Indian Pharma industry world-class generic industry. Product patent regime will bring end of this golden era and will favor the players with built-in scientific and technical resources. The new regulations will not deter the Indian Pharma majors who are already doing roaring business in countries with strict patent laws.
In product patent era Research & Development act as the "survival kit" for Indian pharmaceutical industry. To support this, the Government of India extended 10 year tax holiday to Pharma sector and the planning commission has earmarked $34 million for the drug industry R&D promotion fund.
(a)Â Product Patents and Prices of Medicines:-
With product patent the price of drugs are definitely going to increase. In poor countries, drug prices are closely connected to exclusive marketing rights (EMRs), product patents, or cheap imports that put drugs beyond the reach of the common people. For example, Flucanazole, an ARV (antiretroviral)which wasn't patented in Thailand. Was being sold by Pfizer for US $6.2 while the local Thai manufacturer was selling it for US$ 0.3, which is 207 times cheaper than Pfizer. Also, the same drug was sold at US$ 21.4in South Africa because no generics were available.
The prices of drugs are much higher in other countries where product patent is in force as compared to India. Ranitidine sold by Glaxo at Rs. 7.20in India, while the same product sold in Pakistan at Rs. 65 and in the U.S.A. at Rs. 545.
To overcome this and keeping in mind the low purchasing power of Indian people, the Government of India should bring certain essential drugs under the price control and protect consumer against high price. Drug price control is applicable on patented drugs also.
(b)Â Product Patents and Research and DevelopmentÂ
Because of the high cost incurred in the R&D and the high financial risk and failure rates acts as barrier to the entry of new firms in R&D sector. In developing countries, only a few firms have sophisticated R&D facilities while the others are benefited mainly from the spillovers of the resultant R&D. Studies showed that 1 out of 5000 compounds synthesized during the applied research eventually reaches the market, out of 100 drugs that enter the phase I, about 70 completes it, and out of that only 33 complete phase II, and just 25-30 clear phase III. And only two-thirds of the drugs that enter phase III ultimately reaches the market.
Initially the investment done by small local Pharma companies in R&D in India was for inventing new processes or technology, basically reverse engineering processes and not the new drug discovery. Now, with transition in the new regime many Indian companies are mobilizing their resources both human and financial to increase in their R&D processes and making them better and advance so as to be in competition with MNCs. Government of India has allocated funds to promote and encourage Indian Pharma firms to enter in the R&D sector.
R&D Expenditure of the leading Pharmaceutical Firms (Rs in Crores) 
It can be seen in this table that the R&D investment /expenditure of leading pharmaceutical firms has been increased over the years. Maximum investment is done by Ranbaxy.
R&D should be the main focus in the product patent era.
(c)Â Product Patents and Foreign Direct Investment
One of the expected result of strengthening the Intellectual Property Rights is the increase in foreign direct investment (FDI) in R&D, direct manufacturing, outsourcing, in-licensing, out-licensing or joint ventures. The flows of FDI depend on the available skills, present technology, R&D capacity, the competence and institutional and other supporting technology and the infrastructure .it has been observed that the flow of FDI in some developing countries is not much even with strong intellectual property regulations while in others it is increased after the implementation of patent regulations. It shows that patent regulations don't have significant impact on the trade benefits, the investments and the flow of FDI.
(d)Â Product Patents and Technology Transfer
The high cost of development and rapid obsolescence may prevent the transfer of technology and the patent holder may prefer direct exploitation or import of products than transferring the technology or know-how. Fear of competition also dissuades the transfer of technology or demands a high royalty for the transfer, but huge royalties may have a negative impact on the expenditure on R&D. In the case of India, though in the pre'70s era, the technology transfer by the big TNCs did not support the indigenous technological abilities, yet in the post '70s, a large number of small and medium size firms have also been transferring their drug technologies to India, thus encouraging an atmosphere of competition in technology transfer. But India has encountered difficulties in getting access to technology for a component known as HFC 134 A, which is considered the best available replacement for certain chlorofluorocarbons. Patents and trade secrets cover this technology, and the companies that possess them are unwilling to transfer it without majority control over the ownership of the Indian company. 
During The period of the 1995 to 2008, the strong performance of the Indian pharmaceutical industry can be seen. The various factors that contribute to the performance are:-the improved production performance .the foreign exchange earner during this period. India emerged as a power house of API production. R& D Expenses have increased at a higher rate during this period. It has been shown in the table above also that Ranbaxy has always spent higher expenditure as compared to other Pharma companies in research & development. Also, India's share in drug master filing with the USFDA has increased to 50 percent in 2007 from that of 14 percent in 2000.
Access to drugs is the primary and major concern of the public in any poor or developing country like India, which has introduced product patent regimen. The generic drug industry of India will be affected by the Patent Amendment Act 2005. As The Act has failed to protect the interest, of the generic producers who were producing and marketing drugs would have to pay "reasonable royalty" for manufacturing drugs for which the patent applications made in "mailbox".The term reasonable royalty is not properly defined in the act which leaves the choice to the patentee to decide it without any fixed standards. For this Canada has fixed it at 2 percent and left no scope for any confusion/problem.
In the product patent era for easy access to medication few points are to be considered, these are:-
Use of TRIPS flexibilities including compulsory licensing, without surrendering to MNCs' pressures and to guarantee drug production by generics at low cost.
Develop India's rich traditional knowledge on Ayurvedic and other alternatives to encourage collection of ancient literary works to protect the same from being patented by other countries.
Introduce drug price control mechanism.
Encouraging new invention by proper R&D activities.
The change in regimen or the new laws should not come in way or affect the economic progress of the country and also should not violate the constitutional right to health and life to people. Therefore, proper measures should be taken by the government/law to protect the interest of the public which is the eventual objective of the Patent.
The Indian Pharma market is the leading generic market whose strength is in reverse-engineering. Indian Pharma sector comprises of 250-300 companies which account for 70 percent of the total Pharma market. Also, the 75 percent India's demand for medicine is been served by the local manufacturers. Initially in the pre Patent era the India's patent act follow process patent which benefitted the Indian Pharma companies and resulted in the boom of generic market. These generic drugs are priced affordable to common man. Not only this, the growth of Indian Pharma sector is been recognized in this period only. But this golden era will now come to end because of new regimen. This new regimen will attract MNCs to enter Indian market and sell their products; this will promote the concept of joint venture, outsourcing, also mergers and acquisitions. Research and development will act as survival kit as a result there is increase in R&D expenditure by the Indian firms, also government of India is also raising funds to promote and encourage R&D in country.
The issues which have to be taken care of during the post patent era is the increased price of drugs-
India being a developing country and majority of its population is below poverty line who can't afford the drugs or for whom medication/treatment is generally out of their reach, the price of drugs should be kept in control. The social responsibilities should not be neglected, as for success and progress of country both the socio and economic factors are to be taken care of and should be balanced. Therefore, the government should continue the price control regulations on branded products also. Basic drugs needed should be included in the essential drug list.
The patent era will encourage the Indian Pharma industry to focus and invest in R&D, also will bring more collaboration, joint ventures, partnerships with MNCs, as MNCs are attracted by low R&D cost in India, innovative scientific manpower, low cost of production etc. This will bring profits, FDI flow as multinational companies will outsource set up their research and development centres in India.
But the government should also keep an eye to that MNCs don't enjoy the monopolistic in the way which harm the society or take control over local firms.
The promising factors which can contribute to success and development of Indian Pharma industry/market are:-
Low R&D cost
The increase in R&D investment
Increase in patent filing
Increase in number of FDA approved facilities
Well educated -trained & innovative workforce
Improved and advance technology
Excellent and world-class national laboratories.
Patent regulations and
All shows the Indian Pharma industry will keep growing and expending and will compete with other MNCs. increased mergers and acquisitions will strength the R&D in new product development. The R&D and manufacturing facilities set up which meet the international standards will be approached by multinationals for conducting research and undertaking manufacturing on their behalf. This all will prove beneficial for Indian Pharma market.