The Indian pharma industry is currently worth $6 billion and is growing at 10 per cent, compared to $550 billion global market, which is growing at a rate of 7 per cent annually, according to a study by KPMG. Also, the country's pharma sector is the fourth largest one in the global scenario, representing 8 per cent of the total global industry by volume and 13 per cent in terms of value. The country's drug exports have been growing at 30 per cent annually.

The 'organized' sector of India's pharmaceutical industry consists of 250 to 300 companies. This organised sector account for 70 per cent of products in the market, with the top 10 firms representing 30 per cent. However, the total sector is estimated at nearly 20,000 businesses, some of which are extremely small. Approximately 75 per cent of the country's demand for medicines is met by local manufacturing.

According to the German Chemicals Association, in 2005, India's top 10 pharmaceutical companies were Ranbaxy, Cipla, Dr. Reddy's Laboratories, Lupin, Nicolas Piramal, Aurobindo Pharma, Cadila Pharmaceuticals, Sun Pharma, Wockhardt Ltd. and Aventis Pharma. Indian-owned firms currently account for 70 per cent of the domestic market, up from less than 20 per cent in 1970. In 2005, nine of the top 10 companies in India were domestically owned, compared with just four in 1994.

A report launched by KPMG said that India's potential to further boost its already leading role in global generics production, as well as an offshore location of choice for multinational drug manufacturers seeking to curb the increasing costs of manufacturing, R&D and other support services, presents an opportunity worth an estimated $48 billion in 2007.

India is set to become the region's hub for R& D, manufacturing and exporting, says the report.

Over-the-counter medicines
The Indian market for over-the-counter medicines (OTCs) is worth about $940 million and is growing 20 per cent a year, or double the rate for prescription medicines. The government is keen to widen the availability of OTCs to outlets other than pharmacies, and the Organisation of Pharmaceutical Producers of India (OPPI) has called for selling OTCs in post offices.

Developing an innovative new drug, from discovery to worldwide marketing, now involves investments of around $1 billion, and the global industry's profitability is under constant attack as costs continue to rise and prices come under pressure. Pharmaceutical production costs are almost 50 per cent lower in India than in Western nations, while overall R&D costs are about one-eighth and clinical trial expenses around one-tenth of Western levels.

India's long-established manufacturing base also offers a large, well-educated, English-speaking workforce with 700,000 scientists and engineers graduating every year, including 122,000 chemists and chemical engineers, with 1,500 PhDs. The industry provides the highest intellectual capital per dollar worldwide, says OPPI.

The industry's exports were worth more than $3.75 billion in 2004-05 and they have been growing at a compound annual rate of 22.7 per cent over the last few years, according to the government's draft National Pharmaceuticals Policy for 2006, published in January 2006. The Policy estimates that, by the year 2010, the industry has the potential to achieve $22.40 billion in formulations, with bulk drug production going up to 5.60 billion from $1.79 billion. "India's rich human capital is believed to be the strongest asset for this knowledge-led industry. Various studies show that the scientific talent pool of 4 million Indians is the second-largest English-speaking group worldwide, after USA."

VAT
In April 2005, the government introduced value-added tax for the first time and abolished all other taxes derived from sales of goods. So far, 22 states have implemented VAT, which is set at 4 per cent for medicines. This led to pharmaceutical wholesalers and retailers cutting their stocks dramatically, which severely affected drug manufacturers' sales for several months.

Generics
Prescription drugs worth $40 billion in the US and $25 billion in Europe are due to lose patent protection by 2007-08. Indian firms will likely take around 30 per cent of the increasing global generics market, the Associated Chambers of Commerce and Industry of India (Assocham) forecast. Currently, the Indian industry is estimated to account for 22 per cent of the generics world market. Low production costs give India an edge over other generics-producing nations, especially China and Israel, says Assocham's president Mahendra Sanghi. He suggests that it will be easier for Indian firms to win larger generics market shares overseas than at home, particularly in US and Europe.

Indian drug manufacturers currently export their products to more than 65 countries worldwide. Their largest customer is US, the world's biggest pharmaceutical market. The use of generic drugs is growing quickly in US due to cost pressure by players and introduction of Medicare Part D prescription benefit, giving seniors and people with disabilities prescription drug coverage for the first time, on January 01, 2007. With 74 facilities, India has the largest number of US Food and Drug Administration (FDA)- approved drug manufacturing facilities outside US. Indian firms now account for 35 percent of Drug Master File applications and one in four of all US Abbreviated New Drug Application (ANDA) filings submitted to the FDA. Analysts at Credit Lyonnais Securities Asia say they expect the number of generic drug launches by Indian companies in US to increase to over 250 by 2008 from 93 in 2003.

In January 2006, the Indian exporters' representative body, the Pharma Export Promotion Council (Pharmexcil) said it planned to raise a number of concerns with the US government over what it sees as barriers to trade with them. One is a US regulation that disqualifies Indian firms from bidding for government contracts, and another is the requirement asking Indian drug manufacturers to submit separate applications for each US state (there is no US-wide regulatory requirement), even when the firms have FDA-approved products and facilities.

However, India's traditional lucrative export markets may be becoming a little less secure, for a number of reasons. For example, generic prices have not been rising in the US. The seniors' advocacy group AARP (formerly the American Association of Retired Persons) says that, of the 75 generic drugs widely used by older people that it monitors on a quarterly basis, none had had a change in manufacturer list price during third quarter 2005 and only three had had increases in list price at any time during January to September 2005. Also, new competitive threats have arrived, such as authorized generics produced by major drug producers, new mid-sized players, Chinese and Eastern Europe manufacturers and fully integrated generics firms, which are less reliant on Indian 'back-end' businesses, the report stated.

The US continues to be an attractive market for Indian firms, despite the challenges of price erosion and launch of authorized generics by innovator companies, says Ranjit Shahani, vice chairman and managing director, Novartis India Ltd, and President of the Organisation of Pharmaceutical Producers of India. He does not see any increase in non-tariff barriers there, and in fact feels that trade between India and US is set to rev up following President George W. Bush's visit to India on March 1, 2006, with both countries going all out to liberalize market access. The major concern of US FDA appears to be the entry of counterfeit drugs, he says, but he does not believe this to be an obstacle for reputable Indian manufacturers. Moreover, while the World Trade Organization (WTO) Doha Trade-Related Aspects of Intellectual Property Rights (TRIPS) national emergency/compulsory license agreement presents an exporting opportunity for Indian firms, Shahani stresses that the firms must have anti-diversion measures in place in order to protect their reputation.

"The European generics market," he says, pointing to Dr Reddy's recent acquisition of Betapharm of Germany for $570 million, "holds more promise." Indian companies have acquired over $1 billion worth of pharmaceutical companies overseas in the past year and a half and should increasingly look more aggressively at countries like Brazil, Russia, Commonwealth of Independent States and Japan, where the markets are mature and remunerative, despite some regulatory hurdles, he notes.

Biogenerics
Firms based in India and China could be among the first to bring biogenerics (generic versions of biological products) to the regulated markets faster than expected. The first biogeneric product was approved by the European Medicines Agency (EMEA), which refers to these products as 'biosimilars' in April 2006.

IMS estimates that biotechnology products accounted for 10 per cent of global pharmaceutical sales in 2004, or about $55 billion in worldwide sales for the year. By 2003, US accounted for 62 per cent of the global biotech drugs market, while Japan's share of the total had fallen to 7 per cent from 28 per cent in 1994. Patents on the first generation of blockbuster biopharmaceuticals are beginning to expire and the high cost of these products means the generic versions will find large markets among hard-pressed governments and other payers. Sales of biogenerics are flourishing in the unregulated markets. The only regulated-market approvals so far are in Australia, granted in October 2004 for the recombinant DNA growth hormone omnitrope, manufactured by Sandoz, as well as in the EU, granted in April 2006.

No US approvals are likely until 2009, says market research company Datamonitor. The company has identified six key product classes - insulin, human growth factor, epoetin, colony stimulating factors (CSFs), interferon alpha and interferon beta - as being at risk from biogeneric versions of these products and estimates that global sales of the latter should total over $2 billion by 2010, a report by KPMG International has said.

An early beneficiary when the regulated markets finally establish frameworks for biogenerics is likely to be Wockhardt. This pharmaceutical and biotechnology company was one of the first Indian drug manufacturers to enter European market through a series of acquisitions. The company has three subsidiaries in Europe. It had acquired UK-based Wallis Laboratory and CP Pharmaceuticals in 1997 and 2003, respectively, apart from Esparma of Germany in 2004.

Biopharmaceuticals are central to Workhardt's growth strategy. As of December 31, 2005, the company reported more than 55 registrations for biopharmaceuticals pending, and 26 approvals in 18 countries. According to analysts at SSKI India, Wockhardt is one of the few players in India and even globally to have the requisite capabilities in biogenerics production. Export Import Bank Chairman TC Venkat Subramanian believes the patent expiries on 11 major drugs this year could help bring a 'biotechnology revolution' in India. He forecasts that biotechnology could potentially generate revenues of $5 billion and create one million jobs by 2010, through products and services.

Biotechnology
In 2003-04, biopharmaceuticals accounted for 60 per cent of India's total biotechnology market, which was worth an estimated $709 million, up 39 per cent over the previous period. Investment in the sector was up 26 per cent to $137 million and exports accounted for 56 per cent of industry revenues. The domestic biopharmaceuticals sector grew 38.5 per cent and had the largest local market share, at 76 per cent, followed by bioagriculture at 8.4 per cent, bioservices at 7.7 per cent, industrial products at 5.5 per cent and bio-informatics at 2.5 per cent.

With 200 biotech companies and total revenues of $500 million annually, India's biotechnology sector is still in the relatively early stages of development. However, it is growing fast, with an initial emphasis on vaccines and bioservices. The industry has an enviable presence in Karnataka, although there are operations in Andhra Pradesh, Hyderabad, Kerala, Maharashtra and West Bengal. The top 10 players in terms of revenues in 2004 were Biocon, Serum Institute of India, Panacea Biotec, Nicholas Piramal, Novo Nordisk, Venkateshwara Hatcheries, Wockhardt, GSK, Bharat Serums & Vaccines and Eli Lilly & Co, according to Burrill & Co, the US-based life sciences merchant bank. As is generally the case worldwide, most biotech companies in India have developed along the contract or collaborative research models.

Discussing the development of the domestic biotechnology market, Ranjit Shahani of Novartis India points out that, globally, most small and medium-sized biotech enterprises are acquired by MNCs as the quickest route into this market. And India is no exception. Government incentives are important, particularly in terms of regulatory reforms, tax incentives for R&D, the development of biotechnology parks and Special Economic Zones etc. While India's 2005 Biotech Policy should spur investment, US-style industry-academia partnerships and cluster models are worth emulating.

In a report published last September, the Organisation for Economic Cooperation and Development (OECD) pointed to a lack of focus on biotechnology in India, due in part to a lack of consensus on a definition and also that the large number of government agencies that deal with biotechnology have led to a duplication of research funding and poor coordination. This needs to be addressed urgently, said the report, which also called for initiatives to attract India's best scientists back to the country and more support for small and medium-sized enterprises to face competition from the MNCs.

Observers also warn that India's nascent biotechnology sector could face particularly strong competition from China, the only developing country to participate in the international Human Genome Project. Also, massive levels of state investment mean Chinese firms are now producing hepatitis vaccines, recombinant insulin, interferon and other generic therapeutic biologics. As is the case throughout the industry, India is regarded as having the edge over China in terms of qualified, English-speaking employees, intellectual property rights and judicial and quality standards. However, if China does emerge as the dominant biotechnology player, this could have very serious implications for India.

IT outsourcing
India's status as an information technology superpower, with access to specialist skills and 24/7 work hours, is a huge advantage as it strengthens its position as the destination of choice for contract research, including drug discovery. 82 per cent of US companies overall rank India as their first-choice IT outsourcing destination, says leading international clinical research organization Chiltern International. The firm added that IT and IT enabled services (ITES) companies have been expanding their activities in India to new business segments such as bioinformatics and life sciences. Those doing so are planning to include Accenture, Intel, Satyam, Cognizant, IBM, Oracle and TCS. Wipro Spectramind, India's largest third-party offshore business process outsourcing provider is conducting bioinformatics work for global pharmaceutical companies.

"India is considered a highly promising outsourcing IT and clinical data management destination because of its rich talent pool, technological innovation, creditable quality, operational flexibility, cost effectiveness, time-to-market and competitive advantage," says Dr Umakanta Sahoo, general manager of CRO Chiltern International in India. While India previously relied on cost-effectiveness to attract customers, quality and fast response are now dominating the business processes, adds Dr Sahoo.

MNCs that have already entered into off shoring contracts include Pfizer India, which has signed a preferred provider contract for its biometrics division with Cognizant Technologies India and is also working with SIRO Clinpharm; Wyeth, working with Accenture in clinical trial data management; GSK, whose biomedical data sciences and clinical data management centre in Bangalore supports studies for the group worldwide; and Novartis, which has a software development centre for specialized drug development programs.

Contract Manufacturing
The global pharmaceutical market is estimated to represent a $48 billion opportunity for India by 2007, in terms of manufacturing outsourcing-supply of active pharmaceutical ingredients (APIs) and intermediates, development outsourcing-conducting preclinical and clinical trials and customized chemistry services-contract research services for compounds pre-launch.

Worldwide revenues for pharmaceutical industry contract manufacturing and research services (CRAMS) totalled $100 billion in 2004 and will grow at an average annual rate of 10.8 percent to reach $168 billion by 2009, said analysts at Frost & Sullivan. Within this total, the global market for contract manufacturing of prescription drugs is estimated to increase from a value of $26.2 billion to $43.9 billion, although the over-the-counter medicines and nutritional products sector will show the fastest growth.

The Asian region has recently been challenging North America and Europe's traditional domination of the global pharmaceutical contract manufacturing market: India and China could potentially account for 35 per cent to 40 per cent of the outsourced market share for active pharmaceutical ingredients, finished dosage formulations and intermediates.

According to the KPMG report, two major developments suggest that Indian drug manufacturers are set to benefit from an outsourcing boom. First, such an upsurge in business always occurs when a number of top-selling drugs come off-patent, as is about to happen. Second, the arrival of India's product patent regime has increased international companies' confidence in India's outsourcing industry. At the same time, those Indian firms that will not have the ability to invest in R&D will be able to exploit the strengths they have developed as the world's leading suppliers of affordable essential drugs.

Indian successes in this area have already created some significant international developments. For example, last year, Jubilant Organosys, which has the largest CRAMS business in India, acquired Target Research Associates plus 64 percent of Trinity Laboratories and its wholly owned subsidiary Trigen Labs, all US-based firms. Another large Indian firm, Bilcare Ltd, acquired its first manufacturing facility in the US last year, with the purchase of Philadelphia-based proClinical Inc.

Contract Research
Ajay Piramal, chairman and managing director of Nicholas Piramal, expects to see significant growth in India's custom manufacturing business, as a result of high and rising costs to innovative manufacturers in Europe and the US, and also forecasts that there will be a growing number of collaborations between Indian and foreign firms in the domestic market, especially involving the biotechnology sector, in a wide variety of areas such as collaborative R&D (including drug discovery and clinical trials), co-marketing and manufacturing.

India and China's drug outsourcing discovery markets combined are currently worth around $7.3 billion and, driven by government initiatives to diversify the drug discovery portfolio and develop infrastructure, are set to reach $19.8 billion in 2011, said analysts at Frost & Sullivan.

In September 2004, a global innovation survey by the Economist Intelligence Unit identified India as an R&D "hotspot," defined as a place where (1) companies are able to tap into existing scientific and technical expertise networks, (2) there are good links to academic research facilities, (3) the environment supports innovation and (4) it is easy to commercialize. Costs of pharmaceutical innovation in India are estimated as low as one-seventh of their levels in Europe, and the country's clinical research industry is currently worth $100 million and growing around 40 to 50 percent annually, although some forecasts say it could be worth as much as $1 billion to Indian firms in 2008.

Costs of clinical trials in India are around one-tenth of their levels in the US, and it is estimated that they could be worth $300 million to India by 2010. Major drug producers that are already conducting trials in India include Pfizer, estimated to have some 20 ongoing clinical trials there; GSK, with seven trials; Eli Lilly, with 17 trials; plus AstraZeneca and Novartis. As well as Chiltern, leading contract research organizations (CROs) such as Quintiles, SFBC International and ICON Clinical Research have extensive operations in India, the report said.

Challenges
"The three strategic drivers for accelerating growth of the pharmaceutical industry in India are intellectual property rights-its implementation in letter and spirit; liberal drug pricing policies; and regulatory (as well as labor) law reforms," said, Ranjit Shahani, Novartis India.

Patents and Intellectual Property Rights
India's new product patent regime is the result of the WTO's Doha Round of negotiations in 2001. Final agreement was reached on TRIPS ground rules for patent protection among WTO member countries, stating that both processes and products should be protected. Subsequently, on March 22, 2005, India's parliament approved the Patents (Amendment) Act 2005, bringing in a system of product patents backdated to January 1, 2005. The new regime protects only products arriving on the market after January 1, 1995, abolishing the previous process patent system established by the 1970 Patent Act.

Since the introduction of product patents the MNCs have largely returned, the most recent being Merck & Co, which inaugurated its wholly owned subsidiary MSD India Pvt Ltd in July 2005 after being absent for approximately 20 years. "With passing of the patent regime in India, we thought the atmosphere was conducive for business, and we are looking at bringing our products here soon," said, the subsidiary's Managing Director, Leonard Taro. While the firm did not plan to set up manufacturing facilities in India within the near future, it was looking at R&D prospects in the country, beginning with clinical trials, he added.

Assocham believes the new patent regime will enable the development of innovative new drugs, which will increase profitability for MNCs. It will also force domestic players to focus on R&D, which, for those who can afford to do so, will have long-term beneficial effects, it said. The draft National Pharmaceuticals Policy 2006 states that the government is committed to making India's laws and policies relating to IPR, including data protection, fully compliant with TRIPS provisions. Also, new rules are being framed under the Patents Act 1970 amendments introduced from April 1, 2005, for product patents, and these will be brought into law soon. "Under these rules, it would be the endeavour of the government to simplify procedures and shorten the timelines of various approvals," said the draft Policy.

Kewal Handa, managing director, Pfizer India, applauds the introduction of India's product patent regime at the start of last year as a very positive move by the government in honouring its TRIPS commitments, but adds that a number of big issues remain to be addressed.

Of crucial importance is the issue of patentability, he said. The industry is keenly awaiting the publication of the Technical Expert Group, which has been set up under the chairmanship of RA Macular, Director General of the Council for Scientific and Industrial Research, to examine issues such as whether it would be TRIPS-compatible for the patent regime to limit the granting of patents to New Chemical Entities or New Medical Entities involving one or more inventive steps.

The industry is also waiting to see whether the government will follow international guidelines governing compulsory licensing, the process by which the TRIPS agreement permits governments, in special cases, to waive the patent on a particular medicine. Elsewhere in the world, the trade treaty allows compulsory licenses to be issued in response to a national emergency, but in India they may currently be invoked due to factors such as the reasonability of a product's price, and its potential for export and local manufacturing, among other issues. Government policy in this area needs to be more clearly defined, said, Handa.

Pfizer is one of the longest-established MNCs in India and was the first to set up R&D facilities there, but he believes that, for R&D activities to expand as the government wishes, the industry must have high levels of confidence in the country's regulatory framework. A major drawback is that India offers no data protection (although it is provided by China, which also has a good patents protection regime and a bigger domestic market than India). A further disincentive is that drug prices on the Indian domestic market are the lowest in the world. All of this means that "people are talking about India but investing in China," added Handa.

Ranjit Shahani, Novartis India still sees some areas of concern with respect to IPR, despite the arrival of the new product patent regime. Areas of concern include narrowing the definition of patentability only to NCEs (New Chemical Entities); broadening the scope of compulsory licensing to include affordability; and the lack of data protection. He calls for an early resolution of these issues by the various committees now considering them, in order to help increase domestic as well as foreign direct investments. He also welcomes the Policy's proposal for a centralized National Drug Authority, rather than state-by-state FDA control; this will help uniform implementation of the law throughout the country, he said.

Pricing Issues
The prices of 74 bulk drugs and their formulations, which account for around 40 per cent of the retail pharmaceutical market, are controlled by the Drug Price Control Order (DPCO) of 1995. The government's 2002 Pharmaceutical Policy would have reduced the numbers of price-controlled drugs still further, but this proposal is currently under judicial review in the Supreme Court. If it is approved, the number of price-controlled drugs is expected to drop to 25, said the KPMG report.

A new DPCO is expected to be introduced by the end of 2006, which will take account of two recent major reports-one on drug pricing, produced in November 2004 by a government panel headed by GS Sandhu, joint secretary, Department of Chemicals and Fertilizers, and the September 2005 report of the Prime Minister's Task Force on Drug Affordability, headed by Pranob Sen, Chief Adviser to the Planning Commission.

Looking to the future of the domestic market, as envisioned by the provisions of the government's newly proposed National Pharmaceuticals Policy for 2006, Kewal Handa, Pfizer India said that the market will be defined by the manner in which the prices of patented products are controlled and, therefore, it is critical that the government gets this right.

Having provided product patent protection, the government must now look at the holistic picture and decide where value is to be created-through controlling prices or encouraging manufacturing and research, he said.

As the government's draft National Pharmaceuticals Policy, published in January 2006, is under discussion with all, the industry hopes the last several years' trend of reducing the number of price-controlled drugs will continue, said, Ranjit Shahani, Novartis India, and he calls for a move away from micro-managing price controls to price monitoring. The Indian market is highly competitive and its prices are now the lowest in the world, at almost 10 percent of USprices.

Zydus Cadila Chairman and Managing Director Pankaj Patel describes the draft National Pharmaceuticals Policy as confusing, noting that it emphasizes R&D but also price controls and keeping drugs cheap. Implementation of the latter will keep the industry from moving forward, he added.

"It's tough to move ahead by looking into the rearview mirror, and that's exactly what's happening," he said by adding, "On one hand, there is emphasis on R&D in the Policy, which is futuristic, but at the same time it does not address the issue of price controls, which will tie the industry down and not allow it to accelerate the pace of growth and move forward." Discussing the issue of compulsory licensing in India, Pankaj Patel noted that, globally, it has always been a practice to approve new drugs on the basis of safety, efficacy and, lately, the economic value of drugs. India is also looking at economic criteria as well as national importance for to the reasons why it could permit compulsory licensing. But it is important, he added, that India's government has in fact never invoked these criteria, not even in the case of Roche's anti-flu drug Tamiflu, which it could have done while still remaining TRIPS-compliant. "The provision is, therefore, more of a safeguard to ensure optimal pricing for Indian patients, taking into account the heavy disease burden and purchasing power of people in India," he said.

Regulatory Reforms
While he felt it is premature to discuss the proposals contained within the government's draft National Pharmaceuticals Policy, Ajay Piramal, Nicholas Piramal stressed that the government must take steps to make the domestic industry more robust and create an environment that is conducive to research. The pressure to reduce prices must end, he says. Instead, the government needs to provide incentives and allow companies to make additional profits that they can plough back into research.

Tax incentives are also necessary to attract more foreign investment into the country, as they have proved successful in regions such as Singapore, Puerto Rico and Ireland, he said.

The government is now starting to develop an infrastructure for clinical trials in India, with amendments made recently to Schedule Y of the Drugs and Cosmetics Rules of 1945 to allow for multicenter concurrent clinical trials in India and address the protection of trial participants, and the integration and quality of data. Among other developments, Good Clinical Practice guidelines have been published and made mandatory.

"The success of government moves to encourage further outsourcing activities will depend on both the new Policy and improvements to the regulatory framework, said, Kewal Handa, Pfizer India. In terms of TRIPS compliancy, he urges the government to take a pragmatic view and create a truly level playing field so that all companies can operate on an equal footing.

The government must also focus more on health care spending and devise ways to give people access to the drugs they need. These improvements can be achieved through partnerships between the government and industry rather than subsidizing through price controls. "However," he added, "currently there is no infrastructure in place to facilitate such developments."

R&D Spending
Satish Reddy, managing director and chief operating officer, Dr Reddy´s Laboratories Ltd, calls on the government to provide a strategy for R&D in India, with specific incentives. 'Tax breaks are simply not enough," he says. "R&D grants need to be provided in some form, and with a proper framework."

Indian manufacturers cannot fulfill their ambitions to become players on the world stage unless they make significant increases to their R&D expenditures; at 2 per cent of sales, these are currently far below the global level of 10 to 20 per cent. In fiscal 2005, the leading five Indian companies increased their R&D spending 47 percent overall to a total of $192.3 million from $131 million in fiscal 2004. Within that total, individual companies' spending rose as much as 90 per cent, with Dr Reddy's amounting to 14.7 percent of its net sales. However, Nicholas Piramal and Cipla still spend less than 5 percent of their net sales on research, and the combined R&D expenditures of the five is still less than 3 per cent of Pfizer, the world's leading research-based drug manufacturer. Moreover, the average for the leading Indian firms represented just 5.7 percent of their net sales in fiscal 2004, compared to 14.5 per cent for Merck & Co. and 15.6 per cent at Sanofi-Aventis, the report stated.

Also in 2004, the number of patent applications filed from India rose from 295 in 2001 to 784 in 2004, while the largest users from India of the Patent Cooperation Treaty were Ranbaxy, with 121, up from 66 in 2003, and the Council of Scientific and Industrial Research, with 124 applications in 2003 and 69 in 2004. Other Indian PCT filings during the year came from Cipa (32), Jubilant Oraganosys (16), Vaman Technologis (R&D) (12), Matrix Labs (12), Hetero (10) and Wockhardt (10).

India's new patents regime is already producing changes in terms of greater commitment to discovery research within the industry, although a major shift for Indian firms away from reverse engineering will not be seen for three to four years, said, Ajay Piramal, Nicholas Piramal.

Generally, however, he expects that the effects of the new patent regime on the market in India will be as limited as those that followed similar changes made in Poland and Brazil around 10 years ago. Apart from some innovative therapies developed for use in niche areas, most innovator drugs provide only marginal improvements over existing products, yet they carry very high prices. Therefore, as drug prices in India are among the lowest in the world, these products will have only a very limited market available to them in the country, he said.

In what was regarded as the start of a significant new trend, in September 2004, the Indian firm Glenmark out licensed GRC-3886, a PDE4 inhibitor in development for the treatment of asthma and chronic obstructive pulmonary disease to Forest Labs of the U.S., for $190 million in staggered milestone payments and 15 percent of sales in royalties.

Courtsey: The Indian Pharmaceutical Industry: Collaboration for Growth; KPMG Report 2006