The Indian Pharmaceutical Industry in Post-TRIPS and Post-Product Patent Regime: A Group-Wise Analysis of Relative Efficiency Using Nonparametric Approach

By Mohammad, Aas; Kamaiah, Bandi | IUP Journal of Applied Economics, January 2014 | Go to article overview

The Indian Pharmaceutical Industry in Post-TRIPS and Post-Product Patent Regime: A Group-Wise Analysis of Relative Efficiency Using Nonparametric Approach


Mohammad, Aas, Kamaiah, Bandi, IUP Journal of Applied Economics


Introduction

The pharmaceutical industry of India, at the time of independence in 1947, was dominated by Western MNCs that controlled 80-90% of the market primarily through importation. Most of the pharmaceutical products under patent in India at the time were held by foreign companies and th e dru g prices were among the high est in the world. The In dian pharmaceutical market remained import-dependent through the 1960s until the government initiated policies stressing self-reliance through local production. The MNCs were importing bulk drugs (the active pharmaceutical ingredients) from their parent companies abroad and were selling the formulations (the end products) in India at unaffordable prices. This led to a revision of Government of India (GOI)'s policy stand towards the industry in 1972 with the introduction of a New Patent Act which recognized only process patent not product patent, allowing Indian firms to reverse-engineer the patented drugs and produce them using a different process that was not under patent. The entry of MNCs was also discouraged by restricting foreign equity to 40% and the licensing policy was also biased towards the indigenous firms. In addition, along with industrial policy measures as such, the Drug Price Control Orders (DPCO) was established in 1970 in order to enhance people's access to quality drugs at affordable prices in the country. With the introduction of this Act, along with price control under DPCO, there was very little incentive for the MNCs to introduce new products in India. All these measures taken by the GOI laid the foundations to a strong manufacturing base for bulk drugs as well as formulations, and accelerated the growth of the industry. As a result, the Indian pharmaceutical industry not only met the domestic requirement but also became a prominent provider of pharmaceutical products to the world.

The year 1995 recorded another milestone for the Indian pharmaceutical sector when the World Trade Organization (WTO) came into being. India being a founder member of WTO automatically became a signatory to the Trade-Related Intellectual Property Rights (TRIPS) agreement which opened up the prospects of re-introduction of product patent in its member countries. However, developing countries like India were given 10 years of transition period to introduce the product patent to make their patent policies TRIPS- compliant. During this period, the tariff and non-tariff measures affecting the world trade came down, which worked in favor of Indian pharmaceutical industry to undertake activities such as clinical research and new drug development. In the year 2005, a new scenario emerged in the Indian pharmaceutical sector. The 35-year-old process patent regime was replaced with a more rigorous product patent regime. The Amendment of 2005 extended full TRIPS coverage to food, drugs and medicines. It required patents to be provided to products as well, and the term of a patent protection was extended to 20 years as compared to the seven years which was provided by the Act of 1972. Thus, post-2005, the importance of Research and Development (R&D) activities in the Indian pharmaceutical industry went up, with a number of firms setting up their own R&D units (Jha, 2007) and collaborating with research laboratories (FICCI, 2005). The focus of pharmaceutical firms has come to be governed by the size of their operations, with large firms emphasizing on discovery and development of new drugs, medium firms stressing on producing generics, and small firms opting for contract manufacturing (Rao, 2008).

The size of pharmaceutical industry in 2005 reached the level of 10,000 units, of which around 300 units were in the large and the medium sectors. Not only the number of units increased, the profitability of the sector also showed a steady rise which acted as an incentive for increasing the investment in R&D activities. The indigenous firms dominated the Indian market with more than 70% of the market size. …

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