The Indian pharmaceutical industry will be entering a critical phase of its growth from January 2005. It is going to be a phase of many new challenges and a few opportunities. The new year is expected to set in motion some drastic changes in the regulatory environment in which this industry has been operating for several years. Two of these major changes will be in the areas of patent law and drug manufacturing standards. The preparatory work for implementation of these rules are almost complete. Both these regulatory changes are considered inevitable for the Indian pharmaceutical industry if it has to step into the next stage of development. But there are certain issues yet to be addressed by the government to make their enforcement trouble free. While the objection to implementation of GMP, by way of an amendment to Schedule M, is limited to some sections of small pharma units, introduction of the new patent law is being strongly opposed by the Indian sector of the pharmaceutical industry and the general public.

Opposition to the patent law changes is already very loud as the present draft could directly hit Indian pharmaceutical companies and the public with possible creation of monopolies in many new drugs in the new patent era. As per the WTO agreement signed in 1995, India is under obligation to allow product patents in the pharmaceutical industry from January 2005. Introduction of a product patent regime will mean the end of an era in which Indian pharmaceutical companies used to do reverse engineering and make all new patented drugs of MNCs at a very low costs and sell in India. The domestic pharmaceutical industry has been producing and marketing almost all the drugs required for the population at substantially lower costs than the prices of MNCs. This was possible only because of the Patent Act 1970 which freely allowed process patents in Pharmaceutical industry. One of the important factors that contributed to the growth of Indian pharmaceutical industry during the last 25 years was the Patent Act and the government's drug policies since 1978. Now after becoming a member of WTO in 1995, Indian pharmaceutical industry did realize that such protective environment cannot go on indefinitely as the government is under obligation to introduce product patent as per TRIPS agreement. Thus, the work to amend the Patent Act has been on from 1999 with drafting of two amendments. Now the third and final draft amendment of the Act is with the Group of Ministers and was expected to be placed in the parliament during the current winter session. Sensing the political opposition to some of the clauses in the Bill, it is very unlikely that the Patent Bill will be brought into the Parliament.

The issue here is that the government is not taking advantage of the flexibilities entitled to countries like India under the TRIPS agreement for incorporation in their national patent legislations. Consequent to the debate in Council for TRIPS and further discussions at the Ministerial Conference in Doha in November 2001,a Declaration on TRIPS agreement and Public Health was adopted on November 14, 2001.This Declaration is considered to be an important landmark for the developing and least developed countries as the seriousness of public health issues was recognized especially those resulting from AIDS,TB, malaria and other epidemics. This Declaration has clarified that TRIPS agreement did not and should not prevent member countries from taking measures to protect public health. The Declaration also reaffirmed the right of the members to use to the full provision in the TRIPS agreement which provides flexibilities for the purpose. It further states that the members were free to determine the grounds upon which compulsory licenses could be granted.

As granting of a product patent will mean a total monopoly in marketing a drug, awarding such an exclusive marketing right has to be with extreme caution. Two key provisions namely definition of patentability criteria and pre grant opposition apart from the compulsory licensing clause, therefore, have to be clearly incorporated in the new Act. Unfortunately, the Patent Bill is vague on all these matters despite repeated industry representations to the government. It is important that product patents are granted only for new molecules and process patents for genuinely invented technology processes. The 4000 odd new patent applications already lying in the mail box for drugs and pharmaceuticals, collected during the last ten years are, therefore, causing serious concern. New inventions in global pharmaceutical industry cannot be more than 250. If it is so, majority of the patent applications in the mail box are bound to be frivlous or bogus.

Now as the government is in an unreasonable hurry in meeting the obligation under WTO agreement by January 2005, a presidential ordinance should only be expected now to implement the new patent law. As some of the critical issues are not suitably addressed by the government in the Patent Bill, prices of several essential and life saving drugs could go up from the coming months in India. MNCs have the potential to import or manufacture several molecules under patent and sell at exorbitant prices in the country from next January. As most of these new drugs are going to be prescription based, patients have little choice but to buy them. Instances of charging very high prices by MNCs for low cost drugs are already prevalent in India today.

Take the case of clopidogrel, a drug used for prevention of blood clotting by heart patients. Sanofi Aventis is currently importing and selling its brand, Plavix, at a price of Rs.1570 for 14 tablets. Many patients are unaware of the fact that this patented drug is being sold by the Indian companies like Blue Cross, Unichem, Sun Pharma and USV in the price range of Rs.3 to Rs.10 per tablet. There will be hundreds of such instances of overcharging by mainly MNCs in the new patent regime as patients cannot decide to buy a cheaper product even if it is available in the market.

If safeguards and flexibilities, provided in the TRIPS agreement, are effectively utilized by the government, many such unethical practices and scary situations could be still avoided. Indian pharmaceutical companies, particularly the top ones, are bound to be in serious trouble if the government does not act now. Firstly, they will not be able to introduce copies of new molecules at low prices in the market henceforth. A good share of the pharmaceutical market in the country could be lost to them with that. Secondly Indian companies may have to withdraw molecules which are already being marketed in the country but are under patent. A situation like this will not only hit the viability of Indian pharma companies but also cause severe hardship to a large number of patients in the country. Another absurdity in the Patent Bill is about the granting compulsory licenses. As per the section 84 of the Patent Act, application for the grant of compulsory license can be made to the Patent Controller only after three years of the patent expiry. The section also demands that person making application to state the nature of interest and provide an opportunity to patent holder to oppose the application. These requirements virtually defeat the very objective of granting compulsory license as the whole process may get unduly delayed in emergency situations.

Implementation of GMP as per the amended Schedule M of the Drugs and Cosmetics Act is a measure intended to raise the drug manufacturing practices of Indian pharmaceutical industry to a minimum standard. With increasing focus on export markets, it is important for this industry to maintain a basic minimum standard in their manufacturing premises. The drug authorities have been pressing for this reform as a large number of small drug units in the country are operating their plants in highly deplorable facilities with no concern for hygiene and sterile conditions. Associations of small drug units are opposing the implementation GMP throughout the country as it involves some capital expenditure.

The government had thus extended the deadline for implementation two times since 2002 and all the units were to comply with the norms by December, 2004. Now with the recent extension by another six months, the new deadline now is July 1, 2005.

The pharma units are also raising the alarm of large scale closure of units and resultant unemployment. It is true that the capital expenses required for Schedule M compliance will run into a few lakhs of rupees and a good number of these tiny units may find it difficult to raise funds. But if the government has to ensure availability of safe and qua-lity drugs for the public, entrepreneurs engaged in this business of drug manufacturing have to comply with certain minimum standards. Some dilution of GMP norms relating to specified area of operations could be considered by the authorities but asking for a drastic revision of GMP norms is not in the overall interest of the Indian pharmaceutical industry.

A silver lining in the tough times ahead for the domestic pharma industry, however, is the opportunities unfolding in the areas of contract research and contract manufacturing. Indian pharmaceutical industry started seriously looking at these options with companies like Ranbaxy, Dr.Reddy's, Biocon, Suven Pharma, Chemech Laboratories,etc. already commencing their contract research business. Pfizer is one of the first pharmaceutical companies to establish a dedicated clinical research division in India. The company's clinical research division has grown to over 46 employees from a mere 4, since its establishment nearly a decade ago, in 1995. It is by far the largest group within the Medical & Research Division which work across various Pfizer projects. Apart from the pharma companies, full fledged CROs like Simbec Research, RCC Ltd, Lotus Labs, Lambda Therapeutic Research, Vimta Labs and Sipra Labs have also established themselves as reputed CROs in a short span of last five years.

There are several advantages for global companies to outsource research services from India like a world class infrastructure, a large patient pool and low cost investigators. In fact, India possesses significant potential to become a preferred location for research and development for the global biotechnology and pharmaceutical sector. The country is already seeing an inflow of funds into research and development, both from local investors and multinational organizations. The Boston Consulting Group estimated that the contract manufacturing market for global companies in India will touch $900 mn by 2010. Furthermore, the outsourced clinical research market in India will increase to $500 mn by 2010.

Like CR jobs, contract manufacturing is ano-ther major business opportunity increasingly available to many large, medium and small drug units in India today. Some of the companies like Dishman Pharma, Divis Labs and Matrix Labs have come up only with contract jobs they have been undertaking for MNCs in the US and Europe. Even Shasun Chemicals, Strides Arcolabs, Jubilant Organosys, Orchid Pharmaceuticals and many other large Indian companies started taking up contract manufacturing of APIs as part of their additional revenue stream. Top MNCs like Pfizer, Merck, GSK, Sanofi Aventis, Novartis, Teva, etc. are largely depending on Indian companies for many of their APIs and intermediates. Exploding generics market in the US is throwing up yet another area of business to quality formulation manufacturers in India. Here also, advantage of lower manufacturing costs of generics are driving the US generic companies to source the products from India. Even to get contract jobs, Indian pharma companies should have the manufacturing facilities and standards dictated by the MNCs. Therefore, adoption of better manufacturing facilities and standards by small drug firms will probably be more essential under the new patent regime.

And a bitter truth will remain in the post 2005 era. The cream of Indian pharmaceutical business may gradually shift to MNCs and domestic companies will have only a fraction of the lucrative business of MNCs.