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| February 12, 2007 | Monday | Muharram 23, 1428 |
Drug prices and healthcare
THE Patent Act, 2005, which was approved by the Indian Parliament, has been a contentious piece of legislation, opposed by many activists, who have accused the government of giving in to the international pharmaceuticals lobby.
The act ensures that India meets its World Trade Organisation (WTO) obligations under the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The act provides patent protection for the actual product — the pharmaceutical composition — rather than for the process of making it.
Before the Act came into force, India’s generic-drug makers had ensured the supply of low-cost alternatives to expensive branded drugs, to patients not just in India, but in several developing — and increasingly, even the developed — countries.
Indian firms supply almost 85 per cent of the AIDS drugs that the international health NGO, Medecins Sans Frontieres (MSN, in French, or Doctors Without Borders) uses to treat 60,000 HIV patients in about 30 countries.
Interestingly, the Indian Patent Act has now come under the assault of an international drug major, Novartis, which has filed an appeal in the Madras High Court, challenging the rejection of its patent application for the leukemia drug Gleevec (imatinib mesylate) by the patent office in the southern Indian city.
The patent office in Chennai has rejected the application on the grounds that it was a new form of a known substance; the act says that a patent can be granted only for a truly innovative advance, and not for ‘evergreening,’ which is basically an attempt to patent minor or frivolous improvements in a drug.
Novartis has asked the high court to strike down the specific section as inconsistent with WTO’s TRIPS agreement.
The Swiss multinational’s bid to challenge the section questioning ‘evergreening’ or ‘frivolous patents’ has evoked anger among international healthcare activists, who claim that if Novartis’ appeal is upheld, Indian generic firms may be prohibited from producing cheaper versions of the drug.
Patients have to spend about $2,500 for a month’s course of Gleevec, whereas Indian generic makers sell the drug at one-tenth the price, the activists argue. MSN had urged the European Parliament to investigate the matter, and some members of the European Parliament (MEPs) have called on the parliament’s health committee to seek “civil society action against Novartis.”
The Swiss multinational is also being sued by Mumbai-based Cancer Patient Aids Association, which has demanded damages from the company, following an article written by its chief executive, accusing generic companies of possibly funding opposition by patient groups in India.
Novartis, which has not faced opposition elsewhere in the world, has assured South African Aids activists that its move to challenge the Indian Patent Act will not affect their access to cheap generic drugs from India.
INDIA’S generics-drug makers have been in the news for all of 2006 following their aggressive acquisition of firms in Europe and North America. The country’s largest drug-maker, Ranbaxy Laboratories, bought eight foreign companies, including Romania’s Terapia, for which it paid $324 million.
Ranbaxy is now in the race to acquire the generics business of Germany’s Merck, which has been valued at around $5 billion. The Indian firm will achieve a turnover of $5 billion in only about five years, but is making huge acquisitions abroad. Two other top Indian pharmaceutical companies – Cipla and Dr Reddy’s Laboratory (DRL) – are also interested in acquiring Merck’s generics business.
DRL has also been picking up a lot of European firms of late. The Hyderabad-based company paid $570 million for Germany’s fourth largest generics company, Betapharm. It also paid nearly $60 million for the Mexican active pharmaceutical ingredients (API) business of Roche, a Swiss multinational.
According to Dr Anji Reddy, chairman, DRL, all these are part of its strategic initiative to emerge as a mid-sized global pharmaceutical company. Nicholas Piramal India Ltd (NPIL), a Mumbai drugs major, bought a unit of Pfizer’s based in the UK, a few months ago.
NPIL’s chairman, Ajay Piramal, says the company is now planning to acquire firms in the US, and is willing to invest up to $200 million for a unit. The company is now among the top-10 pharmaceutical outsourcing companies in the world, and in about two years, custom manufacturing will add up to about half of its revenues.
Sun Pharmaceuticals, another mid-sized Indian drugs company, is also eyeing the US market, and has kept apart half a billion dollars for overseas acquisitions. The company, which has seen 30 per cent growth, hopes to sell about $100 million worth of drugs in the US every year.
Another Indian company, Unichem Laboratories, is investing about $25 million in a Brazilian pharma firm, and also plans to acquire companies in Europe. Bangalore-based Kemwell, recently bought a Pfizer plant based in Sweden. Subhash Bagaria, chairman and managing director, Kemwell, notes that the company will widen its pharmaceutical business by making strategic global acquisitions.
Indian pharmaceutical companies are expanding their custom manufacturing business, as the sector is experiencing phenomenal growth. Industry analysts estimate that contract manufacturing and research services is likely to expand into a $170 billion business in just two years, and Indian and Chinese companies could account for about 40 per cent of the outsourced market for APIs, finished dosage formulations and intermediates.
The pharmaceutical sector in India accounted for the bulk of both inbound and outbound mergers and acquisitions (M&A), worth about $2.2 billion. The largest was the $736 million acquisition of Indian firm Matrix Laboratories, by Mylan Labs of the US.
INTERNATIONALLY, the pharmaceutical industry is facing many problems. The cost of bringing out a new drug has become prohibitive. It ranges from $500 million to $2 billion. Blockbuster drugs – ones that fetch over a billion dollars in revenue every year – are also becoming difficult to churn out.
The big drug multinationals are facing a lot of flak from activists and even governments. Many countries are facing a crisis on the healthcare front, as their costs are soaring. Margins in the industry are facing a huge squeeze, as governments, insurance companies and consumers are refusing to pay more.
Consequently, many international firms are going in for contract research and manufacturing (CRAM), outsourcing tasks to contract research organisations (CROs). Indian CRAM and CRO units are reaping a rich harvest, as they take up assignments on behalf of international drug makers.
The Indian pharmaceutical industry has been growing at a compound annual growth rate (CAGR) of 13.6 per cent. Revenues by 2010 will add up to $12 billion, and exports will account for half of it.
Indian drug companies are aggressively expanding in the US and other markets. About 100 pharmaceutical plants in India have been granted approval by the US Food and Drugs Administration (FDA), the largest number for any country.
Indian companies have also filed the largest number of Drug Master Filings with the FDA, adding up to almost 30 per cent. They also account for the largest number of patents approved by the FDA for marketing of drugs in the US.
India’s pharmaceutical industry is strong in generics, and this is one of the fastest growing segments in the drug sector. Generics account for a fifth of the $300 billion international drug business. With nearly 35 top branded prescription drugs likely to go off patent over the next couple of years, the generics business is expected to double.
But Indian companies are also focussed on research and development, and R&D budgets are soaring. About $250 million is being invested in research, and the figure is expected to cross the $1 billion-mark in just around eight years.
International majors are also outsourcing research activities to Indian firms, as the costs here are significantly lower. Frost & Sullivan, an international consultancy, estimates that about $1.2 billion worth of outsourcing of drug discovery to India is taking place currently.
An additional $1.6 billion is being outsourced for clinical development in India, which includes clinical research, clinical trial management, and statistical analysis.
Another growth sector for the Indian industry is the emergence of bio-generics, and many of the top biotech firms have started acquiring rivals in the US and Europe. Last week, Reliance Life Sciences — part of the Mukesh Ambani controlled Reliance group — announced the acquisition of GeneMedix of the UK for $63 million.
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