Limiting FDI in Pharma is a protectionist cry: Does not benefit the common man.

“Protectionism is harmful” very aptly commented by Mr. Pranab Mukherjee, the Finance Minister of India, just the other day. This was in context of “recent US moves to hike visa fees and clamp down on outsourcing”.
While almost at the same time, both Indian and the foreign media reports indicate that being concerned by the recent acquisitions of the home grown relatively large pharmaceutical and biotech companies, the Department of Pharmaceuticals (DoP) and the Department of Industrial Policy and promotion (DIPP) of the Government of India are mulling a proposal to do away with the current practice of allowing 100% Foreign Direct Investments (FDI), as applicable to the pharmaceutical industry in India.

Even the Health Minister of India has been expressing this concern since ‘Abbott – Piramal deal’ was inked last year. He expressed the same apprehension, as he read out from his written speech, in an industry function in Mumbai held on January 7, 2011.

Thus the moot question is, will limiting FDI in pharmaceuticals be not considered by the world as a protective measure, just as ‘hiking visa fees and clamping down outsourcing’ from India by other countries?
Is it a mere speculation?
I would reckon so, as at this stage India cannot afford to take any retrograde anti-reformist measure in its endeavor to further accelerate the economic progress of the nation. The Finance Minister of India has also expressed so publicly, in the same context, quite recently.
Still the speculation is quite rife that a new cap of 49% FDI for pharmaceuticals would be able to keep the multinational companies (MNCs) away from having controlling stakes in the Indian companies, which will not jeopardize access to quality medicines at an affordable price to a vast majority of the population.
The key apprehensions:
The Department of Industrial Policy and Promotion (DIPP) of the Ministry of Commerce and Industries in its ‘Discussion Paper’ dated August 24, 2010, which was primarily on Compulsory Licensing (CL), also expressed some of the following key apprehensions towards foreign acquisitions of the Indian pharmaceutical companies by the MNCs:
1. Such takeovers could lead to an ‘oligopolistic market’ where a few companies will decide the prices of essential medicines, adversely impacting the ‘Public Health Interest (PHI)’.
2. If large Indian companies having the wherewithal to replicate any patented molecule are taken over by the MNCs, the ‘oligopolistic’ situation thus created and being strengthened by the exclusivity of products through product patent rights, will severely limit the power of the government to face the challenge of PHI by granting CLs.
3. In such a situation MNCs could well decide to sell only the high priced patented and branded generic drugs rather than the cheaper essential drugs, pushing up the drug prices and causing inconvenience to patients.
Addressing the key apprehensions:
Let me now try to address these apprehensions impartially and with as much data as possible.
1. Can Indian Pharmaceutical Market (IPM) be ever oligopolistic? Dictionary defines ‘Oligopolistic market’ as ‘a market condition in which sellers are so few that the actions of any one of them will materially affect price and have a measurable impact on competitors’.
IPM has over 23,000 players and around 60,000 brands (source: IMS 2010). Even after, all the recent acquisition, the top ranked pharmaceutical company of India – Abbott, enjoys a market share of just 6.1% (source: AIOCD/AWACS , November 2010). Even the Top 10 groups of companies (each belonging to the same promoter group though different and not the individual companies) contribute just around 40% of the IPM.
Thus, IPM is highly fragmented. No company or group of companies enjoys any clear market domination. In a scenario like this, the apprehension of an ‘oligopolistic market’ being created through acquisitions by the MNCs is indeed unfounded.
2. The idea of creating a legal barrier in terms of limiting the FDIs to prevent the domestic pharma players from selling their respective companies at a price, which they would consider lucrative, just from the CL point of you, as mentioned in the ‘discussion paper’ of DIPP, sounds bizarre.
3. The market competition is also extremely fierce in India with each branded generic/generic drug (constituting over 99% of the IPM) having not less than 50 to 60 competitors within the same chemical compound. Moreover, 100% of the IPM is price regulated by the government, 20% under cost based price control and the balance 80% is under stringent price monitoring mechanism. In an environment like this, the very thought of any threat to ‘public health interest’ due irresponsible pricing, may be taken as an insult to the government’s own price regulators, who have contributed in making the medicine prices in India cheapest in the world, cheaper than even our next door neighbors like, Bangladesh, Pakistan and Sri Lanka.
Hard facts tell us a different story:
The apprehension that acquisition of Indian drug companies by MNCs will hurt the consumer interest is not based on hard facts. MNCs constitute 19% of the total share of the Indian pharmaceutical market in value terms. Of the 455 companies listed in IMS ORG, 38 are foreign owned (only 8.4%). The fragmented nature of the industry ensures high level of competition that has led to the lowest prices of essential medicines in India.

Ranbaxy was the first major Indian drug company to be acquired by the Japanese MNC Daiichi Sankyo in June 2008. Two years later, the prices of medicines of Ranbaxy have remained stable, some in fact even declined. As per IMS MAT June data, prices of Ranbaxy products grew only by 0.6% in 2009 and actually fell by 1% in 2010.
Access to world class science and technology:
Even the acquisition of Shantha Biotechnique by Sanofi-aventis has enabled the domestic bio-tech company to get world class R&D support and international exposure in partnership with the one of the world’s largest vaccines development company – Sanofi-Pasteur. It is worth noting that none of the prices of locally produced vaccines by Shantha Biotechnique has gone up after this acquisition.
Data also shows that the number of products under price control is now much higher for MNCs in general than the domestic drug companies.
Other positive fall outs of acquisitions/collaborations:
All these acquisitions were absolutely voluntary in every way and brought in for the country large amount of foreign investments as can be seen in the Piramal Healthcare buyout amounting to US $3.72 billion and earlier the Ranbaxy buyout of US $4.2 billion. Such acquisitions also help in shifting investment and R&D focus of the MNCs into India, which offers good science and technology base with a significant cost arbitrage.
In my opinion, through partnering with MNCs, local drug companies have begun to gain access to international expertise, resources and good manufacturing practices. A number of local companies have already entered into alliances with MNCs to leverage these opportunities.
Thus limiting FDI in the pharmaceutical industry at this stage, when the government in fact is debating to open up the retail and the insurance sectors to foreign investments will indeed be a retrograde step for the country.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Does China provide a more robust IPR environment than India?

Soon after the Product Patent Act was reintroduced in India effective January 1, 2005, a raging global debate commenced focusing on the robustness of the Indian Patent system. Quite often, many participants in the debate continue to compare the adequacies of the Chinese patent system with the inadequacies of the same in India.

‘The Pharma Letter’ dated October 26, 2010 published an Article captioned, “Intellectual property concerns and domestic bias hold back R&D in Asia-Pacific.”

Asia-Pacific still lags behind in terms of global R&D investments:

Unlike the common perception in India that China is attracting a significant part of the global investments towards R&D, latest data of MedTRACK revealed that only 15% of all drugs development are taking place in Asia-Pacific despite the largest growth potential of the region in the world. The Pharma Letter also reported, “In December 2009, China unveiled that it would give domestic companies making innovative products an advantage in qualifying for government purchases. This measure is likely to further limit foreign investment in product development in China, and negatively affect growth of foreign brands.”

Such type of domestic bias and protectionist’s measures are yet to be witnessed in India.

Since US is a pioneering country in the field of global R&D and its commercial interest related to such initiatives spans across the globe, let me try to analyze this subject, in this article, quoting only from official US publications.

IPR environment in China – the US perspective:

So far as the current IPR environment in China is concerned, US Embassy based in that country has commented as follows:

“Despite stronger statutory protection, China continues to be a haven for counterfeiters and pirates. According to one copyright industry association, the piracy rate remains one of the highest in the world (over 90 percent) and U.S. companies lose over one billion dollars in legitimate business each year to piracy. On average, 20 percent of all consumer products in the Chinese market are counterfeit. If a product sells, it is likely to be illegally duplicated. U.S. companies are not alone, as pirates and counterfeiters target both foreign and domestic companies”.

In the same context the following remarks of Mr. Shaun Donnelly, Senior Director, International Business policy, National Association of Manufacturers (NAM) , USA, made at the Intenational Trade Commission on June 15, 2010 on IPR environment in China, is also quite interesting:

“Unfortunately China remains Ground Zero for international product counterfeiting and Piracy. Despite considerable efforts over many years by US Government agencies and other international partners as well as Chinese Government the Progress has been minimal…. China continued to be the number one source country for pirated goods seized in the US borders accounting for 79% of the total seizures…The top sectors of IPR infringing products seized included footwear, consumer electronics, apparel, computer hardware, pharmaceuticals…”

Patent enforcement in China – the US perspective:

Regarding product patent enforcement is concerned the US Embassy in China comments:

“Though we have observed commitment on the part of many central government officials to tackle the problem, enforcement measures taken to date have not been sufficient to deter massive IPR infringements effectively. There are several factors that undermine enforcement measures, including China’s reliance on administrative instead of criminal measures to combat IPR infringements, corruption and local protectionism, limited resources and training available to enforcement officials, and lack of public education regarding the economic and social impact of counterfeiting and piracy”.

“Notwithstanding the increased number of applications, many patent owners (both foreign and domestic) continue to experience problems with infringement in China. Counterfeiting and other infringing activities are rampant, and critics frequently complain of lax enforcement of intellectual property laws. As a result, any party considering introducing a patented (or patentable) technology into China – especially one that could be easily reverse engineered or duplicated – would be well advised to proceed with extreme caution, seek legal advice from the outset, and plan fastidiously”.

Regulatory Data Protection (RDP) in India:

Regulatory Data Protection (RDP) for Pharmaceutical Products is still not in place in India, as the Government of India has already articulated that RDP is a ‘TRIPS Plus’ requirement and is non-binding to the country. The Government further reiterated that if any or more interested parties will feel that it is not so, they can certainly go to the WTO forum for the redressal of their grievances in this matter.

RDP in China – the US perspective:

However, on this subject the US feels that though RDP for a 5 year period is now in place in China, ‘inadequacies in their current regulatory environment allow for unfair commercial use of safety and efficacy data generated by the global innovator companies.”

In such a scenario the sanctity of RDP gets significantly diluted and may prove to be a virtually meaningless exercise.


R. Fernando and D. Purkayastha of ICMR Center for Management Research in their article titled, “Pfizer’s Intellectual Property Rights Battles in China for Viagra” had commented as follows:

“Though the foreign research-based pharmaceutical companies were not happy with the lax IPR regime, the booming Chinese pharmaceutical market provided enough incentive for these companies to stay put and fight it out with the local firms for a share in this emerging market”.

Under these circumstances, while recommending for a world class robust patent regime in India to foster innovation in the country, if anybody wants to draw examples from China on the subject, it would indeed be foolhardy.

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Does the Indian Patents Act conform to Article 27 (Patentable Subject Matter) of TRIPS on the issue of ‘local working of patents’?

India is one of the signatories of TRIPS and has a national commitment on adherence to this important international agreement. It is, therefore, widely believed that the amended Indian Patents Act will be TRIPS compliant.

A recent circular from CGPTD:

Recently, the Controller General of Patents, Trademarks and Designs (CGPTD) of India through a circular dated December 24, 2009, directed all Patentees and Licensees to furnish information in ‘Form No.27’ on ‘Local Working of Patents’ as prescribed under Section 146 of the Patents Act., Although this directive is again a statutory requirement, nevertheless it has given rise to many speculations in several quarters as to whether ‘importation’ of products patented in India, will be considered as ‘local working of patents’ or not.

The Last date for filing the information is March 31, 2010. Only history will tell us about the possible future impact of this notification.

What does Article 27.1 say in this regard?

The Article 27.1 of TRIPS, for which India is a signatory, indicates as follows on ‘local working of patents’:

1. Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.”

Thus as per Article 27.1 of TRIPS, if commercialization of a product patented in India, is done in India whether through imports or local manufacturing, will be considered as ‘local working of patents’.

Does Section 83 B of the Indian Patents Act conform to Article 27.1 of TRIPS?
One observes, despite Article 27.1 of TRIPS agreement, section 83 (General principles applicable to working of patented inventions) of the Indian patents Act says the following:

“(b) that they (patents) are not granted merely to enable patentees to enjoy monopoly for the importation of the patented article.”

Thus the questions that will need to be answered now are as follows:
i. Does Section 83.b conform to TRIPS 27.1?

ii. If yes, how?

iii. If not, does it merit an amendment?

iv. If the issue goes for litigation, what could the Indian High Courts likely to interpret as ‘local working of patents’?

Could it give rise to any possibility to trigger ‘Compulsory Licensing (CL)’?

For ‘Compulsory Licensing’, Section 84 of the Indian Patents Act indicates the following:

“At any time after expiration of three years from the date of the grant of patent, any person interested may make an application to the Controller for grant of compulsory license on patent on ANY of the following grounds namely:

(a) that the reasonable requirements of the public with respect to the patented invention has not been satisfied, or

(b) that the patented invention is not available to the public at a reasonable affordable price, or

(c) that the patented invention is not worked in the territory of India”

Once again, the answer to yet another question that all concerned will be interested to know is as follows:

i. What could possibly be the determinants for the India Patent Office (IPO) or High Courts to interpret, “available to the public at a reasonable affordable price?”


If these two sets of questions could find conclusive answers, much of the speculations, which are now floating around on what could the information provided through ‘Form 27’ be used or misused by the interested parties, to revoke a patent on the grounds of ‘local working’ or trigger a CL under Section 84.

In my personal view establishing either of these two grounds to the IPO to derive sheer commercial benefits, could indeed be a daunting task for any interested party.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

For greater transparency in the relationship between physicians and the pharmaceutical companies, does India need an Act like, proposed ‘The Physician Payment Sunshine Act’ of the USA?

As we discussed earlier, to make the pharmaceutical companies disclose and report various types of payments made to the physicians, two Senators of the United States of America, Chuck Grassley and Herb Kohl introduced a bill called ‘The Physician Payment Sunshine Act’ in January, 2009.If this bill is passed in 2010, the government will make available to the public by 2011 all types of payments made to the physicians by the pharmaceutical companies over a cumulative value of US $ 100.Items of disclosure:

Among various other heads, the following items related to the “payment made to the physicians’’ will require to be reported:

• Consulting Fees

• Compensation for services other than consulting

• Honoraria

• Gifts

• Entertainment

• Food

• Travel

• Education

• Research

• Charitable Contributions

• Royalties or licenses

• Current or prospective ownership or investment interests

• Compensation for serving as a faculty member or as a speaker for a continuing medical education program

• Grant

• Reporting will be required for compensation towards serving as faculty, or as a speaker for a CME program, and grants.

• Any other nature of the payment or other transfer of value as defined by the government

Research payments:

Pharmaceutical companies will also require reporting aggregate amounts of research payments in a specified manner.

Items exempt from disclosure:

There will be items, as mentioned below, which will be exempted from such reporting:

• Product samples

• Payments in the aggregate of less than $100

• The loan of a device for less than 90 days

• Patient education materials

• Warranty replacements (devices)

• Items for use as a patient

• Discounts and rebates

• In-kind items used in charity care

• Dividends from a publicly-traded company

Penalties for default from disclosure:

Proposed penalties have been categorized as follows:

• For unintentional failure to report: fines from US $1,000 – US $10,000 for each payment not reported with a cap of US $150,000/year

• For intentional failure to report: fines from US $10,000 – US $100,000 for each payment not reported with a cap of US $1 million/year.

World Medical Association (WMA) Statement Concerning the Relationship Between Physicians and Commercial Enterprises:

Meanwhile, WMA is also trying to address this vexing issue and coming closer to some sort of voluntary disclosure at their end, as well.

Such type of statement was first adopted by the WMA in its General Assembly at Tokyo, Japan in October 2004. Recently in its General Assembly held at New Delhi in October 2009, the statement was further amended coming closer to the disclosure of payments.
The preamble of the amended statement articulates the following:

“In the treatment of their patients, physicians use drugs, instruments, diagnostic tools, equipment and materials developed and produced by commercial enterprises. Industry possesses resources to finance expensive research and development programmes, for which the knowledge and experience of physicians are essential. Moreover, industry support enables the furtherance of medical research, scientific conferences and continuing medical education that can be of benefit to patients and the entire health care system. The combination of financial resources and product knowledge contributed by industry and the medical knowledge possessed by physicians enables the development of new diagnostic procedures, drugs, therapies, and treatments and can lead to great advances in medicine.

However, conflicts of interest between commercial enterprises and physicians occur that can affect the care of patients and the reputation of the medical profession. The duty of the physician is to objectively evaluate what is best for the patient, while commercial enterprises are expected to bring profit to owners by selling their own products and competing for customers. Commercial considerations can affect the physician’s objectivity, especially if the physician is in any way dependent on the enterprise.

Rather than forbidding any relationships between physicians and industry, it is preferable to establish guidelines for such relationships. These guidelines must incorporate the key principles of disclosure, avoidance of obvious conflicts of interest and the physician’s clinical autonomy to act in the best interests of patients.
These guidelines should serve as the basis for the review of existing guidelines and the development of any future guidelines.”

This new statement of the WMA, having a remarkable similarity with the ‘Codes of marketing Practices’ of the pharmaceutical industry associations in India, like Organization of pharmaceutical Producers of India (OPPI) and Indian Drug Manufacturers’ Association (IDMA) is indeed a welcome step in the right direction.


Along with the self regulation initiatives by both the industry and WMA, this bill, if passed, will surely and significantly improve the transparency related to the transaction between the pharmaceutical companies and the physicians to the public at large in the US to start with. However, bringing research within the ambit of this bill could possibly be a contentious issue.

Be that as it may, in India a large section of the civil society still feels that it is now high time for the Government of India to decide whether the nation needs an Act like the proposed ‘Physician Payment Sunshine Act’ of the US to bring in greater transparency in the process of various financial transactions between the pharmaceutical industry in India and the physicians, along with the continuing initiatives of self-regulations by both the industry and the physicians.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.