Academic journal article Journal of Marketing and Management

Indian Pharmaceutical Industry in the Product Patent Regime: An Analysis of Growth Determinants and Constraints

Academic journal article Journal of Marketing and Management

Indian Pharmaceutical Industry in the Product Patent Regime: An Analysis of Growth Determinants and Constraints

Article excerpt

Introduction

In the global pharmaceutical business, the Indian Pharmaceutical Industry (IPI) accounts for 10 per cent of the world's production by volume and 1.5 per cent in terms of value. Globally, this industry ranked third in terms of volume and fourteenth in terms of value in 2008-09 (Government of India (GOI), 2009). Amongst Asian countries, excluding Japan, sales in the Indian pharmaceutical market in 2006 was the third largest at 12.7 per cent, after China (46.1 per cent) and Korea (17.6 per cent) (Perlitz, 2008). Within 35 years, from 1970 to 2005, IPI traversed a long way from an importer of drugs to a net exporter of pharmaceuticals.

The Indian Patents Act (IPA), 1970, had established a process patent regime, enabling Indian firms to manufacture drugs, using processes which were unpatented and less expensive than those developed by the innovators. The advocacy of process patents till 2005 gave a distinct boost to the domestic pharmaceutical industry in India and the production of IPI recorded an increasing trend. In 2005, Patents (Amendments) Act, 2005, was enacted to comply with the provisions of World Trade Organisation's Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The introduction of product patents implied that the ambit of coverage of patents was extended to almost all fields of technology. The patents were now on the products and they were valid for 20 years. In this backdrop, the specific objective of this paper is to examine the determinants and constraints of growth of the IPI in the product patent regime. The research questions this paper seeks to address are:

· What are the determinants of growth of firms of IPI?

· What are the constraints of growth of firms of IPI?

· What are the steps the government needs to take to facilitate the growth of IPI in the new patent regime?

· What are the likely future growth strategies of firms of IPI in the new patent regime?

Review of Literature

IPI has been the subject of interest for many researchers due to its rapid transformation from an importer of bulk drugs into an exporter of bulk drugs and formulations within a short span of time. IPA, 1970, provided the enabling environment in which Indian companies could produce the same molecules that were under product patents in other countries, by altering the manufacturing process for a fraction of the original research costs. In contrast, the product patent regime does not allow for reverse engineering of drugs that are patented after 1995. The new regime implies that two types of generic products are available, viz. firstly, generic copies of products which are already off-patents; and secondly, generic versions of products patented before 1995. The literature review carried out broadly focuses on the impact of changes in the patent regime on IPI.

The study by Lanjouw (1998), based on primary data collected from IPI firms and Multi-National Companies (MNCs), suggested that the impact of the product patent regime was likely to be felt only on patented products. Therefore, there was no reason to expect that the new patent regime would affect the amount of pharmaceutical production of off-patent drugs for the domestic market or for exports to the world generics market. Once the stipulated time period of the patent is over, the product becomes off-patented. If IPI firms are able to tap around 15 per cent of US$ 123 billion worth of pharmaceutical products whose patents would expire by 2012, their sales would go up by US$ 18.5 billion (GOI, 2008).

The literature review suggests that the impact of the change in the patent regime would be felt largely on a firm's R&D behaviour (Lanjouw, 1998; Sampath, 2006; Hassan, et al., 2010). The studies on the impact of product patents on R&D have broadly explored three issues:

i. Investment in research on projects aimed at a global market - Export demand is pivotal in shaping innovation strategies of Indian firms (Sampath, 2006). …

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