Impact of Product Patent on FDI in Indian Pharmaceutical Industry

An Ordinance on Patents (Third) Amendment was promulgated by the Government on December 26, 2004 to make the Indian patents law WTO compliant and to fulfill India’s commitment under TRIPS to introduce product patent protection for Drugs, Food and Chemicals with effect from January 1, 2005.

An overview of Indian pharmaceutical industry

The Indian pharmaceutical industry, with US$4 billion in domestic sales and over US$3
billion in exports, is showing satisfactory progress in terms of infrastructure development, technology base and product use. The industry now produces bulk drugs belonging to all major therapeutic groups requiring complicated manufacturing processes and has also developed excellent ‘good manufacturing practices’ (GMP) compliant facilities for the production of different dosage forms. The strength of the industry is in developing cost-effective technologies in the shortest possible time for drug intermediates and bulk actives without compromising on quality. This is realized through the country’s strengths in organic synthesis and process engineering.
The focus under the R&D effort is to encourage development of new molecules. A provision of Rs. 150 crore has been made under the Pharmaceutical Research & Development Support Fund. A Drug Development Promotion Board under the Department of Science & Technology has also been set up for the utilisation of this fund. Feasibility of setting up a Mega Chemical Industrial Estate in the country with world class infrastructure facilities is also being studied. For the first time in many years, the international pharmaceutical industry is finding great opportunities in India. The process of consolidation, which has become a generalised phenomenon in the world pharmaceutical industry, has started taking place in India.

The pharmaceutical industry, with its rich scientific talent and research capabilities, supported by Intellectual Property Protection regime, is well set to take a great leap forward. As regards product patents for
drugs, an amendment to the Indian Patents Act has been carried out through the Patent (Amendments) Ordinance, 2004 on December 26, 2004. The Ordinance amends the Indian Patents Act, 1970 for the third time with a view to introducing product patents for drugs, food and chemicals. Apart from manufacture of drugs, the product patent regime will help the pharmaceutical industry to tap outsourcing of clinical research. By participating in the international system of IPR protection, India, with its vast pool of scientific and technical personnel, and well-established expertise in medical treatment and health care, has unlocked vast opportunities in both exports and outsourcing and has the potential to become a global hub in the area of R&D based clinical research. The Patent Ordinance also provides adequate safeguards to protect the interest of the domestic industry, and the citizen from any increase in prices of drugs.

Impact of product patent on Indian Pharma industry

With a regulatory system focused only on process patents, helped to establish the foundation of a strong and highly competitive domestic pharmaceutical industry which in the grip of a rigid price control framework transformed into a world supplier of bulk drugs and medicines at affordable prices to common man in India and the developing world. Introduction of product patents will, however, mark the end of a golden age for IPI (Indian Pharmaceutical Industry). The new regulations will reshape the landscape of IPI forcing significant changes and divide within the industry.

A look into organization of pharmaceutical producers of India (OPPI) directory shows only 300 units out of 10,000 registered companies are in the organized sector. While process patent helped to flourish IPI into a world-class generics industry, product patent regime will filter the best from the pack and would be favorable to players with built-in scientific and technical resources. The impact of the new regulations will not deter the Indian pharma majors as they are already doing roaring business in the very countries where these patent laws are strictly in force.

Export markets increasingly drive IPI: in a turnover of US$5 billion, exports constitute $3.2 billion and the industry is poised to grow to $25 billion by 2010. The share of IPI in world pharmaceutical market is 1.0% (ranks 13th) in value and 8% (ranks 4th) in volume terms. The global market for generic drugs is estimated at $27 billion (2001) and the expiry of patents on drugs will be worth $80 billion (2005) offers a huge opportunity to IPI. India today has the largest number of US Food & Drug Administration (FDA) approved drug manufacturing facilities outside the US. In addition, Drug Master Files (DMFs) filed by Indian companies with the FDA is 126 higher than Spain, Italy, China and Israel put together. DMF has to be approved by FDA for a drug to enter the US market.
Research & Development (R&D) is a key to the strength of pharmaceutical industry especially in the product patent period. The global pharmaceutical industry spent $30.4 billion (2001) on R&D. The R&D expenditure (as a percentage of turnover) by the IPI is low (1.9%) when compared global giants (1016%). With transition into the new regime many Indian companies are mobilizing their resources war chest with an increase in their R&D budget. Government of India (GOI) encouraged the R&D in pharmaceutical companies by extending 10 year tax holiday to this sector. Besides, planning commission has earmarked $34 million towards drug industry R&D promotion fund for the tenth plan.

FDI in India was low in prior Product Patent era. Why?

Bringing a new drug into the market costs a company an average of about $800 to $900 million. Some estimates show that patient recruitment and medical personnel account for nearly 70 per cent of the clinical costs that are required to bring a drug to market. The less expensive means to raise research productivity is outsourcing research to low cost havens such as India and China. The global pharmaceutical outsourcing market stands at $10 billion (2004). Pharma multinationals have maintained a low-key presence in Indian market due to absence of product patents and rigid price controls. Pharmaceutical industry did not receive significant foreign direct investment (FDI). From August 1991 to December 1998 this industry accounted for a meager 0.44% of the total FDI. Introduction of product patents will see multinationals strengthening their presence in the country. The second largest population in the world, a growing economy and rising income levels makes Indian market difficult to ignore. Global companies would be reluctant to invest in a country where there is no IPR protection. Eli Lilly (world’s 7th Largest Pharma Firm) has its clinical research focus in the country and had spent considerable amounts over the last 2-3 years. But we would be only maintaining the quantum and will not expand even though there is huge potential. Global companies face the same frustration.

So the main activity of the company in the country would be to introduce products from the parent pipeline.mIn the domestic market, the share of Indian companies has steadily increased from around 20 per cent in 1970 to 70 percent now. Ranbaxy Laboratories is the market leader in terms of revenues followed by Cipla and Dr Reddys Laboratories. Glaxo is the only multinational to figure among the top ten pharma companies in India. In India, 97 per cent of drugs are off patent and are manufactured by a vast number of companies. The key therapeutic segments include anti-infectives, cardio vascular and central nervous system drugs. Anti-infective comprise the largest therapeutic segment in India, accounting for about 26 per cent of the market.

Globally, pharmaceutical industry grew at a compounded annual growth rate of 9.1 per cent in the last 23 years to $491 billion propelled by a string of innovative blockbusters. Multinationals were reshaped by mergers and acquisitions as a way of fattening their research pipelines. This at best represents a short-term solution. With a slew of brand name drugs losing patent protection in the next few years and the pressure building for pharmaceuticals to cut price, these giants find themselves under immense strain to find new drugs and reduce price.

So, from the above discussion it’s very evident that before any proper IPR regime specially in the absence of “Product patent” in India it was not a judicious decision for the international Pharma companies to invest here in India. FDI cap was raised from 74% to 100% in 2001 only but we didn’t find any change in the pattern of FDI in Pharma Sector.

Impact after 2005?

India a signatory to the WTO resolution on TRIPS Agreement India was thus committed to recognising product patents by amending The Indian Patents Act 1970. As per the minimum standards mentioned in the TRIPS agreement, patent shall be granted for any inventions, whether products or processes, in all fields of technology provided they are new, involve an inventive step and are capable of industrial application without any discrimination to the place of invention or to the fact that products are locally produced or imported. Accordingly, now patents will have to be granted in all areas including pharmaceuticals and the effective period of protection is for twenty years from the date of filing the application. With the implementation of TRIPS agreement by most of the developing countries by 2005, a stronger patent regime or product patents will be uniformly applicable on the pharmaceutical innovations among the member countries of the World Trade Organisation.

The implications of TRIPS for the pharmaceutical sector are that: patents will be granted both for products and processes for all the inventions in all fields of technology; the patent term will be twenty years from the date of the application (compared to the seven years under the 1970 Act), which is applicable to all the member countries and thus rules out all the differences in the protection terms prevailed in different countries; patents will be granted irrespective of the fact whether the drugs were produced locally or imported from another country; though the grant of the patent excludes unauthorized use, sale or manufacture of the patented item, yet there are clauses which provide manufacturing or other such rights of the patented item to a person other than the patent holder. In the case of a dispute on infringement the responsibility (to prove that a process other than the one used in the patented product has actually been used in the disputed product) lies with the accused rather than with the patent holder (in the 1970 Act, the responsibility is with the patent holder). This is the broad framework, which will guide the pharmaceutical industry of India in the WTO regime ( i.e. post 2005 period).

In order to increase the global prospects of the pharmaceutical industry in the post 2005 period, the Central Government has fixed the deadline of December 2003, to comply with the Good Manufacturing Practices set by World Health Organisation. Since this is mandatory for all the units, it means incurring expenditures that could range from Rs. 15 lakhs to 1 crore per unit. In some cases, it would involve shifting to new premises altogether. A few units might exit from business because of this. As contract manufacturers it is essential that both the parent unit and the loan licensee meet these requirements in cases where the production is meant for exports. While these standards improve the quality on par with international standards, it will also act as potential entry barriers for new firms to enter.

The strength of the Indian pharmaceutical industry is in reverse engineering. Such units by utilising the provisions under compulsory licensing, exceptions to exclusive rights and the Bolar exception should aim at producing the generic version of the patented product and those that are nearing patent expiry. Such firms should also be engaged in research leading to new drug delivery mechanisms and in identifying new uses of existing drugs. In this context, it is also essential to protect the innovations that have been introduced by the technology spillovers. It is suggested that in order to develop domestic innovations, developing countries require utility models or petty patents. These petty patents can be available for a shorter period of time for process innovations made over an existing product. The TRIPS agreement leaves members to introduce such legislation, as there are no specific rules on this subject. Such patents will encourage the small firms.

One of the concerns regarding product patents is the access to patented products. Some of the provisions within the TRIPS agreement clearly indicate that price controls could be imposed on the patented products. However, exemptions from price controls has been suggested by the government for the products that are produced domestically using the domestic R&D and resources and are patented in India. Such exemptions will keep the prices high and make access to the drugs difficult. It appears that `who patents the product’ matters more for the government than what is patented. In the recently concluded Doha meeting, a separate declaration on the TRIPS agreement has clarified that members have the right to grant compulsory licence in the area of pharmaceuticals and that they have the freedom to determine the ground upon which such licenses are granted, which can have a considerable impact on the availability as well as on their prices. However, the amendments made by the Government of India, make the procedures very cumbersome which needs to be revised in the third amendment to the Patents Act. While parallel trade in pharmaceutical may facilitate access to medicine, yet compulsory licence will be the only course of option to facilitate flow of technology and R&D. Scherer and Watal (2001) suggest that tax concessions should be provided to the pharmaceutical manufacturers to encourage them to donate the high technology drugs to the less developed and developing countries which is a viable option.

A majority of the population does not have access to the essential medicines (most of which are off patent) either in the government or private health care systems because they are not within their capacity to reach. Now that the percentage of drugs under price control has been reduced drastically it is essential to keep the prices of the essential drugs under check, especially those concerning the common diseases.

Currently only a handful of pharmaceutical firms in India invest in R&D which needs to be improved. The Pharmaceutical Research and Development Committee (1999) has suggested that a mandatory collection and contribution of 1 per cent of MRP of all formulations sold within the country to a fund called pharmaceutical R&D support fund for attracting R&D towards high cost-low-return areas and be administered by the Drug Development Promotion Foundation. The domestic universities and other academic institutions can play the role of research boutiques or contract research organisations (CRO), which can supply the technical know-how and manpower. Units that already have such facilities can also function as a CRO for other firms.

In the post TRIPS era, the government will have to probe in to factors that contribute to the widening gap between the proposed FDI and the actual FDI and rectify these bottlenecks. Similarly the difference between the number of patents filed and the patents granted calls for a detailed analysis to figure out where the Indian firms are lacking.

Governments at various levels should take active part in disseminating knowledge about the IPRs and the possible strategies that can be adopted by the industry. This will remove some of the impediments. Lessons should be drawn from the Chinese experiences where systematic efforts were taken to educate the bureaucrats, policy makers and the industry about the WTO and product patents in the pharmaceutical industry. India will have to strengthen the patent examination process and speed up the processing procedures. This will help in checking the products that may enter the country utilising the import monopoly route provided by the EMR. Besides a strong institutional and judicial framework will have to be set up for monitoring the prices, to prevent infringement and trade dress cases of patented products respectively.

As far as India’s pharmaceutical industry is concerned, various options are possible in the WTO regime. These are to: (a) manufacture off patented generic drugs, (b) produce patented drugs under compulsory licensing or cross licensing, (c) invest in R&D to engage in new product development, (d) produce patented and other drugs on contract basis, (e) explore the possibilities of new drug delivery mechanisms and alternative use of existing drugs, and (f) collaborate with multinationals to engage in R&D, clinical trials, product development or marketing the patented product on a contract basis and so on. Besides these strategies, India’s strength lies in process development skills. This expertise utilised within the WTO framework with emphasis on quality standards will provide India a competitive advantage over other Asian countries.

To conclude we can anticipate more FDI nature of investment in India in the field of Pharma Sector?

It’s a question which requires more time to be answered, but we can draw inferences from the facts & data discussed above. As from the above discussion it is obvious that Pharma industry is high investment seeking industry, & the other most important fact about it is that it require enormous R&D. The new Patent regime brings both opportunities and challenges to the domestic pharma industry. Even larger Indian companies lack the financial muscle to be major international player in basic R&D, that involves discovery of new chemical entities (NCEs). They would be helped by the government’s decision not to restrict patenting to NCEs. The Patent Ordinance issued recently defines the term patentability as per the TRIPS guidelines but does not exclude patenting of incremental inventions like new drug delivery systems, polymorphs etc, brightening the chances of Indian companies to benefit from the patent regime, but it may act as a disincentive for the international Pharma firms to invest in India.

Again if we look at the patent amendment act there are certain provisions of this Act which are discouraging the FDI in Pharma sector like

1. Deletion of the provisions relating to Exclusive Marketing Rights (EMRs) (which would now become redundant), and introduction of a transitional provision for safeguarding EMRs already granted.

2. a) Conditional grant of patent (Section 47) : Empowers the Government to import, make or use any patent for its own purpose. For drugs, it also empowers import for public health distribution.

3. Revocation of patent in public interest (Section 66): Empowers the Government to revoke a patent where it is found to be mischievous to the State or prejudicial to the public.

4. Grant of compulsory licence (Sections 82 to 94): Chapter XVI deals with the general principles and circumstances for grant of compulsory licences in order to protect public interest particularly public health and nutrition. These provisions check the abuse of patent rights. They can be invoked if the reasonable requirements of the public with respect to patented inventions have not been satisfied, and the patented invention is not available for public at a reasonably affordable price, and if the patented invention is not worked in the territory of India. Section 92 of this law provides for action in case of national emergency, extreme urgency and public non-commercial use, and can be invoked without the grace period of 3 years from grant of patent.

5. Use of invention for the purpose of Government [Sections 100 & 101]: Compliments Section 47.

6. Acquisition of invention and patent for public purpose [Section 102]: Empowers the Government to acquire a patent to meet national requirements.

7. Bolar provision [Section 107 (A) (a)]: Facilitates production and marketing of patented products immediately after expiry of the term of patent protection by permitting preparatory action by non patentees during the life of the patent.

8. Parallel import [Section 107 (A) (b)]: Provides for import so that patented product can become available at the lowest international price.

These provisions are basically public interest provisions but these are anti FDI in nature because in a sector of high investment & high uncertainty every investing firm need complete protection & patronage but here it is not guaranteed.

So we can anticipate that product patent is going to have a very little impact on the FDI scenario in a country like India.

Sell Products Online – Get The Most Out Of ClickBank’s Subscription Option

The option to sell products online that require a subscription is definitely most advantageous for digital entrepreneurs. Aside from the possibility of offering competitively priced products, adopting a subscription-based approach would also allow one to achieve greater flexibility in terms of providing special offers. While many immediately assume that a subscription-based approach is cumbersome to maintain, it must be pointed out that ClickBank features a fully automated subscription payment system and a convenient means of categorizing products that require recurring payments. However, when opting to sell products online using a subscription model, one needs to use a few simple tricks.

Those who aim to sell products online, taking advantage of a subscription-based approach, should be completely aware of the prices of competing products. To explain, a subscription-based offer is generally assumed to be a cheaper option than full-priced offers. One should never make the mistake of selling a subscription-based product that has a premium price tag. Likewise, finding information about the prices of similar subscription-based products is necessary in gaining a competitive edge. Aiming to offer the lowest price is not necessary though, one only needs to establish a price that justifies the product’s strengths and weaknesses when compared to similar alternatives.

In order to successfully sell products online using ClickBank’s subscription option, using psychological tricks is vital. For example, offering a trial option may be regarded as a means of drawing commitment from potential clients. From a psychological perspective, commitment, or the curiosity-fueled action accomplished by the consumer, is an essential element in laying the foundations for subsequent favorable actions. When an individual opts to try the product regardless of time or feature limitations, a commitment occurs. Interest builds up as the person continues to use the product, thus eventually leading to the ultimate commitment: purchase.

Another way to take advantage of human psychology in one’s aim to sell products online, is to provide free perks. As one may offer different subscription options based on either functionality or duration, it would be ideal to give freebies to consumers depending on their choices. Regardless of the actual value of such freebies, consumers would often perceive additional items as a kind gesture. By nature, people repay kindness so as not to feel indebted. Hence, the result of giving out free items is quite straightforward: consumers feel obliged to maintain the subscription.

Of course, there are other ways to make subscription-based products enticing. Those who cannot come up with fresh ideas to sell products online though, would still gain considerable benefits in opting to use any of the approaches discussed. No matter how often such methods are employed by other digital entrepreneurs, one should never hesitate to follow suit. Adopting the aforementioned approaches still requires careful thinking however, as modifications may be necessary depending on the product that one offers. In essence though, when aiming to sell products online through a subscription-based approach, one needs to thoroughly understand how competitors act and how consumers think in order to make proper marketing decisions.

How to Sell Products Online

How To Sell A Product Online. 3 Steps To Get Started.

Online businesses continue to grow. Every day, new merchant start-ups are added to the World Wide Web and successful businesses expand. The internet has literally changed the face of doing business. If you’re interested in joining the ranks of individuals who are making money online, here are the three basic steps you’ll need to take to get started.

Step. 1. Choose your product. In the world of online sales, there are a number of options for you to choose from.

Sell a product. If you’ve ever been interested in retail but are not interested in opening up a brick and mortar type store this business is for you! You actually have two ways to go when you sell products you can sell products that you’ve made like candles, jewelry, Santa letters, costumes, pet treats etc., you can find companies that dropship, or you can become a direct sales consultant.

Direct sales consultants are essentially independent sales people for other companies. They’re self employed and generally market their business online and via home based parties. Common direct sales companies include Avon, Shacklee, and Discovery Toys. These are only a few of the hundreds of direct sales opportunities available

Dropshipping means the manufacturer or wholesaler will ship the product directly to your customers upon ordering. Again, the sky is the limit here, you can find just about any type of product you’re passionate about and start selling. For example, are you crazy about cooking, there are certainly wholesale companies that cater to the culinary industry.

Selling information. Information marketing is growing by leaps and bounds. It encompasses selling books, online courses, audio books or courses – anything that can be downloaded online can be sold. You can build an information marketing empire around your specific and unique knowledge or a topic that you are interested in. If the idea of creating your own information products is not to your liking, consider purchasing resale rights to books that other people have written or find a ghostwriter to have your products written for you.

Information website. The last type of business that you can open is an information based website. You can develop an entire website devoted to your specialized knowledge or area of interest. Information websites make money selling advertising space and promoting affiliate products. . You can also make good money as an affiliate marketer. This means that if your passion is helping people cope with food allergies and you have favorite food products, cookbooks, and information on the subject you can partner with the manufacturers of these companies to make a commission from any sales you send their way.

Step 2. Build your website. Building your website is a very important step. In fact it is critical. The good news is that it isn’t irreversible. If you choose a keyword that doesn’t sell, you can change your keywords. The first thing you will want to do, once you’ve determined what type of online business you’re going to open is determine your target audience. Here are a few questions to ask.

How old are they?

How much do they make?

Male or female?

Do they have children?

Are they married or single?

What are their problems as they relate to your product? For example if you’re selling patio furniture, what solutions are you providing?

How do they normally shop?

Where do they live?

The next step to building your website is to build a focused site. Using the patio furniture example above, a website could be devoted to patio furniture, teak patio furniture, wrought iron patio furniture, patio furniture care, patio furniture cushions, patio furniture accessories etc…The more focused your website, the easier it is to meet your customer’s needs and to make a profit. If you instead try to meet everyone’s needs then you’ll spread yourself too thin and not meet anyone’s needs. This is particularly important because the more you specialize and focus your site, the more you’ll be seen as an expert and the results will be profits.

The key to any successful website is to fill it with useful content. Content achieves many things including:

Driving traffic

Encouraging return traffic

Improving your search engine rankings

Offering benefits to your visitors

Selling your product

Establishing your credibility

Generating press

Marketing

The types of content you can create for your website is virtually boundless. You can create articles, reviews, blog postings, ebooks, videos, audios, tutorials, guidebooks, workbooks, online courses, case studies, reports, ezines, etc…

The key to your content and to driving traffic to your website is to optimize your pages. Optimization will include adding title tags and description tags to your web pages. It will also include incorporating your keywords into your online content. Search engine spiders search for this information. As they find it, they use it to establish where you rank when a person searches for your keywords, products, or services.

Step 3. Traffic. The best way to drive the profits of an online business is to drive traffic to your website. Driving traffic in web-speak means getting visitors to visit your website. Here are just a few of the ways you can drive traffic and build your business:

Content. Content as stated in step 2, is a critical element of your copy. One of the hurdles many business owners face is dealing with the time it takes to create copy. This can be overcome by hiring a writer to handle the task. However, it is generally beneficial to include your personal touch to your business and writing some, or all, of your own copy is an excellent way to accomplish this. Back to traffic…how does content increase your traffic? The simplest answer is that the search engines really like to see content on your sites and the more frequently you update your site and add content, the better your search engine ranking will be. As your search engine ranking increases, so too will your visibility and the number of visitors. If you offer quality content, new visitors will become loyal visitors and customers.

Advertising. Pay per click campaigns are a good way to drive targeted traffic to your website. However, online you can also advertise in ezines, blogs, and other people’s websites. Offline you can advertise in your yellow pages, flyers, chamber of commerce and more.

SEO. Search engine optimization has three basic elements: optimizing your web pages for keywords or keyword phrases, optimizing your content for keywords and keyword phrases and generating incoming links. There are of course several methods for each of these three elements. The main ingredients for all three are your keywords. Spend time generating, and testing, quality keywords and the rest will fall into place.

Networking, offline and online. Networking is worth its weight in gold. Meet and connect with the right person and your company’s profits could sky rocket. Networking can be accomplished online with networking groups, mastermind groups, forums, chat rooms and blogs. Offline, networking with your local business organizations and associations that are relevant to your business will prove invaluable.

Email and direct marketing campaigns. Marketing campaigns can be excellent tools to not only promote a product but to also promote awareness of your company’s products and drive traffic to your website.

There are many important steps along the way to selling products online and when you understand the steps involved, your job becomes a lot easier and your profits are only a few steps away.