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.

Why Would a Focus Group Facilitator Be Necessary?

When a business decides to launch a new product, it must invest millions of dollars in order to bring the product to the market. These dollars are spent primarily on research and development (R&D) and there is no guarantee that these dollars will ever be recouped. If the product is a complete flop, it will lose millions of dollars and cripple the company’s finances. For this reason, many companies use focus groups to determine how consumers feel about a specific product before producing and releasing it. Companies that bring together a group must hire a facilitator to lead the group’s discussion. This article takes a look at how group think works and what role a group facilitator plays.

A focus group is a form of qualitative research in which a set of consumers who match the target demographic are asked their opinions and attitudes to a specific idea, product, or service. The group facilitator asks participants a wide range of questions and participants are able to interact with other group members. Ideally a focus group will sustain a conversation and all participants will feel that they can speak freely. This free exchange of ideas allows the company to get the most honest reaction to a proposed product, service, or marketing campaign.

There are three phases of focus group planning that a group facilitator will have to complete. He or she will complete work before, during, and after the focus group. This professional will actually start working right after the company decides it is time to hire a facilitator. The group leader will help plan the event by identifying objectives for the discussion, determining a location and group of participants based on the objectives and the target market, and finally he or she will develop a script. This script will include an opening section that explains how the event will work, a section with open-ended questions that spur conversation, and a closing section that thanks the participants.

Once planning is completed, the group facilitator will conduct the focus group. He or she should record the session either with a voice recording or a video, with participants made aware that they will be recorded. The facilitator will follow his or her script during the session, but an experienced professional will know when to ask spontaneous questions. He or she will also focus on getting full answers, keeping the discussion on-track at all times, and making sure that every participant is given the chance to speak. The group facilitator will also keep an eye on time so that all questions are addressed.

When a business decides to hire a facilitator, it will also have help dealing with the results of the focus group. The group facilitator will use his or her notes and the recording of the session to create a written summary. This summary can then be analyzed to determine whether a product or service is ready for the market, or if a marketing campaign needs to be retooled before the product or service is released.

Companies that hire a facilitator to lead their focus groups will minimize the occurrence of costly product or service flops.

Group Facilitation: What Factors Are Controlled to Nurture Efficiency?

A team of employees brought together to achieve a goal, resolve conflicts, or make important decisions is group facilitation. Facilitators are in charge of ensuring the productive flow of a meeting. They make certain the meeting flows, has an agenda, and keep the group on track and disrupt arguments by interjecting when necessary. This individual manages the discussion while remaining neutral to assist the participants in reaching an understandable and well-researched decision. A group facilitator is not the same as a team leader or company executive because their experience is given strictly in an objective manner to aid in the progress of the discussion. A facilitator is in charge of:

  • Keeping Everyone Focused
  • Unlocking Creativity or Expertise
  • Making Certain Items are Discussed Thoroughly
  • Helping the Participants Reach Better Decisions
  • Resolving Issues or Accomplishing Objectives

Facilitators have precise techniques that are designed to promote participation and positivity during the meeting. Telling individuals assigned to a group that they must do something does not automatically provide good results. Personalities have to be balanced in order to create an environment where ideas are pondered rather than rejected. Facilitators are trained to maintain the environment necessary to reach a productive outcome.

How Does a Group Facilitator Maintain the Right Atmosphere?

A group facilitator focuses on what can be done to help participants work together and reach a common goal. They guide the team through each agenda and monitor what goes on to put everyone’s skills to the best use. This addition allows a team to be highly successful and supplies improved results at a much faster pace. An effective organizer will have these qualities:

  • Flexibility
  • Adaptability
  • Proactive Nature
  • Responsiveness
  • Resilience

Group facilitation requires an individual to be capable of modifying activities prior to and during a session. They should be able to change activities based on the observed characteristics of participants. Experts remain neutral while taking steps to prevent extreme tensions or frustrations from affecting productivity.

Six tensions typically arise during a team-based meeting and can drastically affect progress if they are not handled correctly. The following tensions enhance a meeting when managed efficiently by a group facilitator:

  • Structure
  • Pace
  • Interaction
  • Focus
  • Concern
  • Control

The structure of a meeting can range from tight to loose in regards to how the rules are laid out. An extremely tight structure involves defining rules before the process starts whereas rules are defined as the discussion progresses in a loose meeting. Group facilitation experts manage the interaction between participants ranging from cooperative to competitive environments. Focus can be process driven, result driven, or remain neutral with concern ranging from a more individual approach to the group as a whole. A facilitator will take an unobtrusive role if a team must decide on what actions or objectives offer the most value. They sometimes take a neutral, consulting, leadership, or background role based on the objectives that need to be met. Professionals must be capable of balancing every tension to create the most productive atmosphere and guarantee positive results.

Common Habits of Effective Product Designers

Creating new products can be incredibly difficult even for experienced product designers. There are several steps that goes into the process, which also makes failure inevitable at various facets of product development. However, there is a certain set of habits that differentiate good designers from effective ones.

If you want to become part of the latter group, below are the traits and practices that you need to uphold when you design product for the market.

Stick to the mundane.

Products are designed and created for a specific function. Some designers might be compelled to produce something novel, but you need to stay rooted on mundane concepts before attempting to innovate. It starts with an understanding of what the market needs. Put usefulness before innovation when designing a new product.

A lot of designers commit the mistake of focusing on novelty above function in an effort to make quick profit. As a result, they forgo important elements in product design, such as sustainability and longevity. Make sure to avoid taking this path.

Give value to the product’s function.

A good product is something that can serve the function it was intended for. You can incorporate additional features into the product; however, it must not intervene with the primary function of the product itself. Unless a product can perform efficiently, it is deprived of the ability to compete in the marketplace.

Think about the user.

Excellent designers are sensitive to the needs of its user. There is a very fine line standing between necessary and superfluous features in a product. You must therefore exercise great caution when planning a product’s design before you proceed into the creation process.

Strive for sustainability.

Several products released in the market today are being scrutinized for its contribution to more environmental damage. Hence, you must think about how the materials used and packaging of the product can facilitate more sustainability. Embrace the challenge of protecting the environment when you design product.

Is your product recyclable? How can your product facilitate in natural preservation? Ask yourself these questions and use them as your personal guide.

Reinforce the brand.

A brand is an important component for any business organization. Thus, it should be incorporated into the process of designing new products. However, do not limit yourself with logo, colors, and other emblems of the company. Focus on the mission, vision, and objectives of the organization as a whole and think about how this product can help in achieving them.

Prioritize product merit over clever marketing.

A good product can stand on its own. It does not need clever marketing for consumers to appreciate its value. The market today is saturated with useless products that offer little to no value. Effective designers must overcome the wave of product novelty and focus on competency in the market. If you have a good product, it will be easier to market them without spending thousands of dollars on advertising.

Understand the context of the product’s use.

Before you design product, make sure to perform a thorough market research. Use this as an opportunity to gather information on the behavioral patterns of its intended user. This will provide you with useful insights into what are the necessary features and what features you can forgo.

Leave your legacy behind.

The best product designers are ones that focus on meaningful design solutions. All of their products are designed to create an impact on users and improve their quality of life, thus leaving a lasting impression on the consumers.