The Indian Pharmaceutical Industry Commerce Essay

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The proposed thesis aims to analyse the scope and issues associated with Trade Related Aspects of Intellectual Property Agreement of WTO in Indian pharmaceutical sector .The research will further narrow down to examine the impacts of Product Patents on Research and Development (R&D), Foreign Direct Investment(FDI), and Technology Transfer. This study will also critically evaluate some of the important provisions within the TRIPS agreement that are favourable for Indian pharmaceutical sector. To carry out this endeavor, pertinent previous studies will be examined to develop conceptual framework for the research. Relevant research questions have been identified that are compatible with the predetermined objectives of this research. In addition, some of the efforts will be devoted to highlight the initiatives taken by the Indian Government in adopting the product patents system and making their Patent Act compatible with the WTO TRIPS Agreement. And finally, the study will present the future scenario of the pharmaceutical industry in India and conclusions will be drawn in the light of conducted analysis.

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The selected research objectives and questions have been enumerated in the following paragraphs.

Research Objectives

The objectives of the research are:

To analyse the issues and prospects related to the TRIPS agreement in Indian pharmaceutical industry

To identify the likely impact of product patent regime on Indian pharmaceutical sector

To assess the effectiveness of existing patent and drug laws in India

To identify the impact of product patents on Research and Development

To assess the likely effects of patent regime on foreign direct investment

Research Questions

After careful study of preliminary literature review we are able to develop the following research questions:

What are the prospects of TRIPS in Indian pharmaceutical industry?

What is the likely impact of product patent regime on Indian pharmaceutical sector?

What are the issues related the prices of patented products and their accessibility?

How does a product patent affect Research and development (R&D) activities and technology transfer especially in pharmaceutical industry?

Literature Review

The TRIPS agreement does not impose any restrictions as to whether the patent is for the product or processes; neither has it discriminated as to place of invention as long as the applicant meets the minimum standards defined in the section27 of the agreement. [1] In addition, the agreement allows patents to be granted in all domains of technology provided that they are unique, consists of innovative methodology and are capable of industrial application. [2] The granted patents would normally cease to expire in the next 20 years after its grant. It is expected by the innovators of the agreement [3] that after its successful implementation especially by the developing member countries, that will reinforce a stronger and consistent system of protection of the intellectual property rights all across the member nations of the WTO.

Some of the implications of TRIPS for the pharmaceutical sector in the member countries include the alignment of the respective patents laws with the TRIPS. For instance the Indian Patent Act 1970 used to grant patents for only seven years but now it has been made compatible with the TRIPS by increasing the duration of a patent up to 20 years. Patents will be granted irrespective of the fact whether the drugs were produced locally or imported from another country. Nevertheless, the agreements does not allow grant of the patent for unauthorized use, sale or manufacture of the patented item provided that the provision clauses discuss such variation., Moreover ,in case of infringement of the rights of the owner the responsibility to prove that a process other than the one used in the patented product has actually been used in the disputed product lies with the accused rather than with the patent holder which was not the case in the 1970 Act, the responsibility is with the patent holder. It seems that the developing countries especially India has many challenges ahead under the WTO that will determine the future of its pharmaceutical industry.

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As far as the degree of acceptance of stronger patent regime among Indian masses and lawmakers is concerned, the issue is virtually divided in to two groups. One believes that the stronger patents on the pharmaceutical industry will not only curb the driving force of the Indian economy but also create complexities in the already deteriorated health conditions of the inhabitants. The latter group is of the view that stronger patent protection in India will attract more foreign investment in the pharmaceutical sector that will eventually create more jobs and prosperity as well as overcome the health issues. Experts suggest that India needs to recollect its previous history with the product patents and combine it with the experiences of other member countries who have effectively implemented the system in order come with an efficient and effective way of dealing with this issue at hand. Lalitha argues that there are number of social as well as economic factors correlated with a country's level of Intellectual Property Rights (IPR).These social and economic variables may range from common peoples access to medicine to the functioning of the domestic industry, investment in R&D, technology etc. [4] Therefore when the developed countries heavily vested in their individual interest brought the TRIPS on the table, Brazil, Argentina, and India were among the most vocal opponents of this system and especially India showed much resistance in the earlier phase. However, after a long round of negotiations and due to little bit influence from the coinciding force of the EU and the US, all of them have embraced the TRIPS agreement. India is expected to be allowed a grace period for the effective enforceability in to its Patent Act 1970 which would definitely have positive impact on its masses, industry and the economy as a whole.

The common rationale for granting patents is that firms incur substantially large amounts of capital in R&D and therefore their survival is possible only if their inventions are protected through universal patent regimes. Studies suggest that "patents are fundamentally essential for chemicals in general and for pharmaceuticals in particular because of the huge R&D costs incurred by the firms." [5] 

India as a process patent regime has made possible for the local producers to adapt the technology initially developed in some other parts of the world by spending a fraction of the original amount spent by its originator company. This was the case with Pfizer when it launched its Viagra after three decades of spending on R&D the Indian companies were able to produce it locally within weeks because of process patent regime. Twenty six out of thirty ingredients used in making Viagra are available locally in India at a comparatively low cost. Indian companies cleverly used the patent information available from the US patent data base and were able to launch their locally made Viagra within a short span after Pfizer marketed its product. However, this is not the case with the products which were patented after 1995 because of the inability reversed engineering. Some claim that the developed countries do not prefer to invest in those countries which have weaker patent protection regimes such as India. That is one of the reasons of low foreign investment in Indian pharmaceutical sector especially from the UK, Germany and the US investors. [6] The local industry did not realize at first that the weaker protection will eventually create problems for them too in the future.

Stronger and effective implementation of Intellectual Property Rights (IPR) is one of the factors that result in Foreign Direct Investment (FDI) in different areas ranging from Research and Development (R&D), manufacturing processes or joint ventures. IPR is not alone responsible for bringing foreign investment in a country. There are number of factors that contribute in attracting FDI which include availability of required expertise, level of technology, R&D capacity, enterprise level competence and institutional and other supporting technological infrastructure. [7] However, the researchers are unable to figure out a correlation between stronger patents regime and the level of foreign direct investment in a country. In one study where a sample of countries with low IPR protection was taken and its impact on the level of FDI was analysed. The results obtained showed that some of the countries with weaker IPR laws still have high levels of FDI which suggested that FDI flows are not significantly correlated with the degree of IPR protection. [8] The level of FDIs in some of the developing economies which already have strict protection towards patents have not shown significant positive rise in foreign direct investment. In Brazil where the abrogation of patent protection system literally resulted in more flow of FDIs and the major contributing sector was pharmaceutical industry.

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As thing seem quite easy theoretically but are really complex practically. One of them is also the legal transfer of technology. There are number of factors which actually create hurdles in the process of technology transformation. Some of them include the rampant costs of development and the rapid likelihood of depreciation in the value of the technology in near future or in other words the obsolescence of useful life cycle of that technology. These hurdles sometimes compel the potential patent holders to opt for "direct exploitation or import of products than transferring the technology or know-how."

It has been observed that large sums of money which is paid in the form of royalties have adverse effects on Research and Development. In addition, firms are also discouraged regarding the transfer of technology when there is cut throat competition in the industry. Mehrotra reported that in India in the past especially before the 1970 the concept of the transfer of technological knowhow was very rare but since in early 1980s India is becoming a hub for the small and medium size companies to transfer their expertise that have already been utilized in the west and getting outdated there. [9] Above all, Indian government is really providing amicable business environment for the successful transfer of technology. Despite the governments support there is some conflicts of interest when it comes to the transfer of technology by the foreign companies because of their demand in the major ownership in the host company. For instance "in the case of HFC 134 which is an excellent substitute for chlorofluorocarbon, Indian companies are still unable to acquire it because of demand of significant stake in the ownership by the companies who have that technology." [10] 

Research Methodology

This section aims to highlight the research methods used to answer the questions set out after studying preliminary literature review pertinent to the core objective of this thesis. For this research, a case study approach will be adopted. A case study approach allows the development of detailed knowledge and insights into a small number of cases, and is also a valuable tool in exploring existing theory (Saunders et al, 2000). It then evaluates the research approach and strategy that will be used, and considers the reliability, validity, and ethical issues of the information it contains. Any limitations will be analyzed in this section. For this study the methodology will follow this structure.

The concept of an onion refers to the different layers of the 'onion' that should be considered in the methodology, two of the most important ones are:

• Research strategy

• Sources and Methods of Data collection

Research strategy

The research strategy sets aims about how the researcher will go answering the pre-determined research questions. It includes clear objectives, states the sources of data collection, and considers the inevitable constraints. There are a number of categorized research strategies, but it is felt that this study uses both a 'survey' strategy, and a 'case study' strategy, and its purpose is classified as an 'exploratory' study. This follows a multi-method approach, once again leading to 'triangulation,' as "often allocating strategies to just one tradition or the other is unduly simplistic," Saunders et al. (2003, p.91). The key factors that the research strategy seeks to address, these are:

• Identifying the research question

• Clear objectives from the research question

• Sources of data collection

• Constraints

Sources and methods of data collection

All the data will be used in this research are secondary including both quantitative and qualitative extracted from online data bases. Using secondary data as a form of analysis during this study will help in defining the research problem and developing an approach to tackle it. Secondary data is defined as "data that has already been collected for purposes other than the problem at hand," Malhotra and Birks (2000, p.98). All the data will be obtained from published articles, books, analytical reports, annual reports of pharmaceuticals as well as online data bases such as WIPO database, Indiastat.com, EPO, Indian Patent office, pharmabiz.com, etc..

In addition, there are other sources such as the WTO website which provides tremendous amount of updated information relating to TRIPS and its impact on its member nations. Moreover, Indian ministry of health and finance also issue their annual publications on the performance of different sectors including Indian Pharmaceutical industry. This will also help in obtaining critical information relating to the topic of this thesis. These sources have been chosen because of their consistency and reliability with regard to keep complete track of record pertinent to their members and also due to the fact that the topic of the research more or less revolves around them. Data relevant to selected companies from1998 to 2010 will be randomly selected for the analysis. "Robson (2002) defines case study as 'a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence," Saunders et al. (2003, p.93). This relates to the inductive approach of this study, which is the basis for qualitative data. Using this strategy will provide us a clear understanding of the topic. This strategy is perfect to answer the necessary 'why?' 'What?' and 'how's?'

Sampling Method

Convenient sampling method has been adopted for the selection of the pharmaceutical companies. Data from 1998 to 2010 will be collected from the following pharmaceutical firms operating in India.

Sun Pharma. Inds. Ltd

Dr.Reddy's

Wockhardt

Glenmark Pharma. Ltd

Ranbaxy

Torrent Pharma. Ltd

Cadilla healthcare

Aurobindo

The selected variables for which the data will be obtained are;

ANDA and DMF Filings

R&D Expenditure

Net Sales

Net Profits

Factor analysis technique will be used to analyse the selected factors on SPSS.

This research puts more focus on the theoretical approach to study the scope and issues related to TRIPS Agreement in Indian Pharmaceutical Industry because of the nature of the topic where the collection of primary data is a quite cumbersome task and will definitely outweigh cost more than the benefits of the study.

In terms of constraints, firstly, the fact that much of the data will be secondary in nature therefore may have some measurement error. Therefore results obtained may not have that much significance in the availability of primary data. As the completion of comprehensive literature review may possibly yield some useful ways to such constrain in the future. Another constraint is the availability of limited time in terms of planning of the research.

Reflective Diary