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Multinationals, Patents & Monopolies

Pharmaceutical Industry In India


A Managerial Economics Report

Submitted to: Prof. Saina Baby

Submitted By:
Group No. 11

NAME Anant Maheshwari Sandeep Kumar Agrahari Raunak Vasandani Nakul Mallikarjun

PRN NO. 12020841119 12020841095 12020841071 12020841083

What is a monopoly?
A situation in which a single company controls all or nearly all the supply of a given type of product or service in the market. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition (for example, vast economies of scale, Patents, or governmental regulation).

Types of Monopolies:
1. Perfect Monopoly Also referred to as Absolute Monopoly, there is only a single seller of product having no close substitute not even remote one in this case. There is absolutely zero level of competition. Such monopoly is practically very rare. 2. Imperfect Monopoly Also, called Relative Monopoly or Limited monopoly, it refers to a single-seller market having no close substitute. It means in this market, a product may have a remote substitute. So, there is fear of competition to some extent. E.g. Telecom Industry (e.g. Vodafone) is having competition from fixed landline phone service industry (e.g. BSNL). 3. Private Monopoly When production is owned, controlled and managed by the individual, or private body or private organization, it is called private monopoly. E.g. Tata, Reliance, Bajaj, etc. groups in India. Such type of monopoly is profit-oriented. 4. Public Monopoly When production is owned, controlled and managed by government, it is called public monopoly. It is welfare- and service-oriented. So, it is also called as 'Welfare Monopoly'. E.g. Railways, Defence, etc. 5. Simple Monopoly Simple monopoly firm charges a uniform price or single price to all the customers. He operates in a single market.

6. Discriminating Monopoly Such a monopoly firm charges different price to different customers for the same product. It prevails in more than one market. 7. Legal Monopoly When monopoly exists on account of trademarks, patents, copy rights, statutory regulation of government etc., it is called legal monopoly. Music industry is an example of legal monopoly. 8. Natural Monopoly It emerges as a result of natural advantages like good location, abundant mineral resources, etc. E.g. Gulf countries have a monopoly in crude oil exploration activities because of plenty of natural oil resources. 9. Technological Monopoly It emerges as a result of economies of large scale production, use of capital goods, new production methods, etc. E.g. Engineering goods industry, Automobile industry, Software industry, etc. 10. Joint Monopoly A number of business firms acquire monopoly position through amalgamation, cartels, syndicates, etc, it becomes joint monopoly. E.g. Actually, pizza making firm and burger making firm are competitors of each other in fast food industry. But when they combine their business, which leads to reduction in competition. So they can enjoy monopoly power in market.

Pharmaceutical Industry in India

The Pharmaceutical Industry in India is the world's third-largest in terms of volume and stands 14th in terms of value. The number of purely Indian pharma companies is fairly low. Cheap labour and expertise in reverse-engineering new processes The Indian Pharmaceutical Industry is mainly operated as well as controlled by dominant foreign companies having subsidiaries in India due to availability of cheap labour in India at lowest cost. Our expertise in reverse-engineering new processes for manufacturing drugs at low costs also plays its part in this regard. Share in Global Market + Offerings In terms of the global market, India currently holds a modest 1-2% share, but it has been growing at approximately 10% per year. India gained its foothold on the global scene with its innovatively engineered generic drugs and active pharmaceutical ingredients (API). It is now seeking to become a major player in outsourced clinical research as well as contract manufacturing and research. Whats noteworthy is that there are 74 U.S. FDA approved manufacturing facilities in India, more than in any other country outside the U.S.

Major pharma players in India: Following are some examples of both, major Indian players and Multinational ones who are functioning in India: Indian: Abbott India ltd, Ranbaxy, Dr. Reddy's Laboratories, Sun Pharmaceutical, Cadila Healthcare etc. Multinational: Pfizer, GlaxoSmithKline, Sanofi Aventis, Merck, Johnson and Johnson etc. Government Involvement The government started to encourage the growth of drug manufacturing by Indian companies with the Patents Act in 1970. In fact, the Indian Pharma Industry got a further impetus with policy changes and liberalisation that was brought about by P.V. Narasimha Rao and Manmohan Singh enabled the industry to become what it is today.

TRIPS Agreement:

The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement administered by the World Trade Organization (WTO) that sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994. TRIPS contains requirements that nations' laws must meet for copyright rights, including the rights of performers, producers of sound recordings and broadcasting organizations; geographical indications, including appellations of origin; industrial designs; integrated circuit layout-designs; patents; monopolies for the developers of new plant varieties; trademarks; trade dress; and undisclosed or confidential information. TRIPS also specifies enforcement procedures, remedies, and dispute resolution procedures. Trade-Related Aspects of Intellectual Property Rights (TRIPS) is expected to have the greatest impact on the pharmaceutical sector and access to medicines.

The most detailed and comprehensive multilateral agreement on intellectual property yet negotiated, TRIPS Agreement lays down norms and standards for the following types of intellectual property: Copyright and related rights Trademarks Geographical indications Industrial Design Patents Undisclosed information Lay out design of integrated circuits. Control of Anti-Competitive Practices in contractual Licences.

MARKET STRUCTUE BEFORE TRIPS: Indian pharmaceutical industry is considered to be one of the largest and fast growing industries among the developing countries of this century. The industry is now much advanced from its initial stage and is currently the fourth largest producer of pharmaceuticals and thirteenth largest in terms of domestic consumption globally.

The industry has earned tremendous achievements in the complicated field of drug manufacturing and technology. Almost all types of drugs are manufactured now in India. During 1947 Indian drug market was utilized by the multinational companies basically importing drugs manufactured in their country. This has been done mainly due to the Patent and Designs Act of 1911. Under these circumstances they began to import finished formulations of drugs into the local Indian markets After independence in 1948, India promulgated her first industrial policy resolution including pharmaceutical industry as an essential industry in the country thereby bringing it under the central regulations. Moreover, the inadequacy of indigenous technology hindered the production of modern drugs locally. Therefore, the government invited FDI to enhance production. This created a situation where in several major foreign subsidiaries were instituted in India within a short time span. Nevertheless, these foreign entities did not bring major investments to the country to enhance productivity instead, they started importing bulk drugs processing it to formulations. A major portion of the pharmaceutical patents in the country was vested with MNCs outside India. They were distinctly benefited by the patent law, technology, financial resources and their brand names which helped them to clearly establish their monopoly in Indian markets resulting in a situation where drug prices were so high in India when compared to the rest of the world. It was in 1954 that the government established Hindustan Antibiotic Ltd. which is the first public sector drug manufacturing company in India. Later, government established Indian Drugs and Pharmaceutical Limited. These ventures did help to increase drug production and improve manpower, but the size of the national sector continued to remain very small. 1970-1985 Due to some very important strategies initiated by the government the pharmaceutical industry had undergone drastic changes during this time. Furthermore, the introduction of Drug Price Control Order of 1970 was a major step to slow down the multinational control over the industry and helped to boost a selfreliant traditional market. In addition, the Drug Policy of 1978 enhanced the availability of drugs at a relatively reasonable price. Under these circumstances researches were done resulting in the development of new processes for numerous drugs and many manufacturing companies were

established in India during that period. Besides, the DPCO limited the cost on drugs and was able to ensure that the lifesaving drugs were readily available in Indian market at affordable prices. During the 1980s due to the introduction of some important industrial and trade policies by the government, India had become a major pharmaceutical producer meeting the country's domestic needs. Thereafter the domestic sector in the country had taken control of a considerable portion of the local market. India signed the general agreement on tariffs and trade on 1994 and became a party to the agreement on TRIPs joining the WTO.

MARKET STRUCTURE AFTER TRIPS: One of the basic apprehensions of the re-introduction of product patent protection in pharmaceuticals in India has been that product monopolies will lead to very high prices. 180 new drugs have been introduced in the Indian market between 1995 and 2010 MNCs involved have monopolies for 33 drugs. What has attracted widespread attention is Indias success as a pharmaceutical exporter. What is less noticed is that imports of finished formulations have been rising sharply. For matured generics, the MNCs are entering into alliances with Indian companies for manufacturing. But for patented drugs, MNCs are importing these from their home countries Switzerland USA, France etc rather than manufacturing these in thecountry. With the taking over of some Indian companies, the aggregate market share of the MNCs in India has dramatically increased from less than 20% to 28% in 2010. The MNCs are on the way to dominating the industry again. he days of product monopolies and high prices are back in India. The MNCs have started marketing new patented drugs at exorbitant prices particularly for life threatening diseases such as cancer. Imports of high priced finished formulations are expanding rapidly with manufacturing investments lagging behind. The aggregate market share of the MNCs in the formulations market has gone up dramatically with the taking over of some Indian companies by the MNCs.

The Patent Act, 1970


Provisions of the 1970 Act, which helped the National Pharma industry to grow at a double digit pace have already been discussed and debated widely. Special amended provisions for

pharmaceuticals, deleting product patenting (retaining process patenting), introducing Licences of Right, liberal Compulsory Licensing provisions, reduction of patent protection period from 14 years to 7 years (from date of application) and 5 years (from date of sealing) in the Patent Act, 1970, virtually kept pharma patents out of protection and open for commercialization for anyone at will. Consequently, there was no interest for international applicants to file pharma patent applications in India. While being active in "reverse engineering", with a weak patent system, the Indian Pharma Industry was not at all keen on innovative research and patenting.

Compulsory licensing
A limitation/compulsory license with respect to the exclusive right of reproduction is valid only if it is limited to: Certain special cases Provided that such reproduction does not conflict with the normal exploitation of the work of the author Does not unreasonably prejudice the legitimate interests of the author A flexible interpretation of this provision can make the C.L. under this provision more useful Certain special cases that are worth mentioning: Policy objectives of national legislator have to be taken into account WTO panel decision is not acceptable. No conflict with normal exploitation. Not all exploitation, but normal exploitation there is a conflict only when there is substantial market impairment. Markets that are neither developed, nor licensed to develop, will then fall beyond the scope of this Do not unreasonably prejudice with the legitimate exploitation. Kingpin balancing public and individual interests.

Evergreening of Patents
Evergreening is the practice of pharmaceutical companies to obtain patents on frivolous or minor changes to known drugs and thereby establish or extend their monopoly over a drug. Evergreening can be described as the situation where shortly before a patent expires, one reapplies a slightly different version of the invention to restart another 20 years of protection for what in fact is the same subject matter. Whereas the case described here below is a typical post-grant issue, this one is rather borderline. The evergreening of

patents mainly roots in a failure to prevent too small amendments to existing inventions to be (re-)granted a patent.

Gleevec (Novartis)- Case


In 1997, Novartis AG, a pharmaceutical company based in Switzerland, filed a patent application in the Chennai (Madras) Patent Controllers office for the beta-crystalline of imatinib mesylate, brand name Glivec(Gleevec) on the ground that it invented the beta crystalline salt form (imatinib mesylate) of the free base, imatinib. Novartis patent application was kept in the mail-box and not opened until 2005 as the TRIPS Agreement permitted developing countries such as India that did not provide product patent protection to pharmaceuticals and agrochemicals to introduce such product patent protection from 1 January 2005. In the meantime, Novartis had obtained Exclusive Marketing Rights (EMR) for marketing Gleevec in India. On the basis of this, it obtained orders preventing some of the generic manufacturers from manufacturing and selling generic versions of the medicine. At that time, Novartis was selling Gleevec at USD 2666 per patient per month. Generic companies were selling their generic versions at USD 177 to 266 per patient per month. In 2005, India amended its patent law to comply with its obligations under the TRIPS Agreement to provide process and product patent protection in all fields of technology, including pharmaceuticals and agrochemicals. Cognisant of patenting practices, Parliament introduced a significant and important provision to prevent evergreening and granting of frivolous patents section 3(d). After the 2005 amendment to the patent law, CPAA and other generic companies filed pre-grant oppositions against Novartis patent application for imatinib mesylate, claiming, among other things, that Novartis alleged invention lacked novelty, was obvious to a person skilled in the art, and that it was merely a new form of a known substance that did not enhance the substances efficacy, and was thus not patentable under section 3(d). These arguments were based on the fact that Novartis had already been granted a patent in 1993 in the United States and other jurisdictions for the active molecule, imatinib, and that the present application only concerned a specific crystalline form of the salt form of that compound. In 1997, Novartis AG filed a patent application for the beta-crystalline of imatinib mesylate, brand name Glivec. the petition was kept in a mail box till 2005 as per the TRIPS agreement . In the meantime, Novartis had obtained Exclusive Marketing Rights (EMR) for marketing Gleevec in India

On the basis of this, it obtained orders preventing some of the generic manufacturers from manufacturing and selling generic versions of the medicine. At that time, Novartis was selling Gleevec at USD 2666 per patient per month. Generic companies were selling their generic versions at USD 177 to 266 per patient per month

Amendment in Law and its effect:


In 2005, India amended the law and allowed process patent. Parliament introduced an important provision to prevent evergreening of patents section3(d) CPAA(Cancer Patients Aid Association) and other generic companies filed pre-grant oppositions against Novartis patent application for Gleevec argued that different crystalline forms of imatinib mesylate did not differ in properties with respect to efficacy, and thus the various forms of imatinib mesylate must be considered the same substance under section 3(d)

Rejection of patent
In June 2006, Patent Controller refused the patent saying that this application lack novelty. The patent rejection meant that generic companies could manufacture and market their generic versions of the drug, both in India and abroad Filed petition against Government of India, CPAA, and four Indian generic manufacturers For the constitutional validity of sec 3(d) Against Patent Controller to refuse to grant Novartis a patent In April 2007, the Government of India notified the IPAB (The Independent Payment Advisory Board) to hear appeals relating to this patent

Constitutional validity of section 3(d) upheld by Madras High Court [August 2007]
Novartis primary contention in its challenge to the constitutional validity of section 3(d) was that the use of the term efficacy in section 3(d) is vague and ambiguous because there was no clarity as to what constituted enhancement of efficacy and significant enhancement of efficacy The Government of India, CPAA and generic companies argued that section 3(d) is not in violation of the equality provision of the Indian Constitution as the concept of efficacy is well-known to persons in the pharmaceutical industry and it is impossible to lay down a one size fits all standard to determine what constitutes a significant enhancement of efficacy. Madras High Court Verdict We have borne in mind the object which the Amending Act wanted to achieve namely, to prevent evergreening; to provide easy access to the citizens of this

country to life saving drugs and to discharge their Constitutional obligation of providing good health care to its citizens IPAB discussion and verdict the IPAB overturned the Patent Controllers findings on novelty and inventive step and held that the beta-crystalline form of imatinib mesylate was new and involved an inventive step. However, the IPAB held that Novartis alleged invention did not satisfy the test of section 3(d) in as much as Novartis did not provide data to show that the betacrystalline form of imatinib mesylate exhibited significantly enhanced therapeutic efficacy over imatinib mesylate, the known substance And the court rejected the petition.

Nexavar:- Case
Nexavar is the name under which Sorafenib is marketed. It has been co-developed and is co-marketed by Bayer and Onyx Pharmaceuticals. Its used for the treatment of Advanced Renal Cell Carcinoma (primary kidney cancer) and Hepatocellular Carcinoma (advanced primary liver cancer). Bayer had obtained a patent (IN215758) for Nexavar in India during 2008.

Compulsory Licensing in India:


The first-ever compulsory license in India was given by the Indian Patent Controller P. H. Kurian on March 9, 2012, to Natco Pharma, to manufacture a generic version of Bayer's anticancer drug Nexavar (Sorafenib Tosylate). Bayer, of course, challenged that verdict and in the ruling that came out recently, on the 6 th of September 2012, the Intellectual Property Appellate Board (IPAB) in Chennai, issued its first ever compulsory licence to Natco, a local generic drug manufacturer, effectively ending the German drugmaker's monopoly in India on the drug for treating kidney and liver cancer. So, basically, Natco won the right to make the drug under a provision of the Indian Patents Act allowing a compulsory licence on drugs that are not available at affordable prices. Why everyones making such a big deal about this entire issue, you may ask. The answer to that is precisely this Prior to the compulsory licensing, patients needed to spend $5,500 (approximately Rs. 280,000) per month for obtaining Nexavar. The compulsory license reduced the price of Sorefanib Tosylate by 97 percent in the Indian market from over to $175 per month.

Topic of Debate:
The issue of compulsory licensing is highly debatable. On one hand some believe that it will open up the field for the generic industry to provide more affordable drugs and build on its reputation as the 'pharmacy of the world'. Then, there are others who feel that it will affect innovation and that Indias position in the world pharmacy market will get undermined by such a stringent interpretation of intellectual property rights. In fact, at Alchemy 2012, the Management Conclave of SIBMBangalore, in the Indovation category of discussion, we had a speaker from Merck Pharmaceuticals who shared the same view and said this wasnt a step in the right direction.

Global Pharma Leaders


Pfizer New York City, New York. Johnson & Johnson New Brunswick, New Jersey. F. Hoffmann La Roche Basel, Switzerland. GlaxoSmithKline plc London, UK. Novartis International AG Basel, Switzerland. Sanofi S.A Paris, France. AstraZeneca plc London, UK. Abbott Laboratories Abbott Park, North Chicago, Illinois. Merck & Co. Whitehouse Station, New Jersey. Bayer AG Leverkusen, Germany.

Global Pharma Market (2009)

Indian Pharma Leaders


Ranbaxy Dr. Reddys Laboratories Cipla Sun Pharma Industries Lupin Labs Aurobindo Pharma Cadila Healthcare GlaxoSmithKline plc. Aventis Pharma

Indian Pharma Market


Company
Total Pharma Market Cipla Ranbaxy Glaxo Smithkline

Size ($ Billions)
6.9 .36 .34 .29

Market Share (%)


100 5.3 5.0 4.3

Growth Rate (%)


9.9 13.4 11.5 -1.2

Piramal Healthcare Zydus Cadila

.27 .24

3.9 3.6

11.7 6.8

Indias Pharma Sectors Current Scenario


Spends $ 23 billion on R&D. 160,348 Researchers. 1,234 Patents. Affordable drugs. Domestic Market at $ 19.22 billion. Local & Foreign Players. Stiff Competition. The Indian pharmaceutical industry continues to witness 12-14% growth year-onyear driven by increasing expenditure of healthcare; changing disease profile and rising disposable income levels. New product introductions contribute to around 6-8% of the total growth. The industry structure remains highly fragmented, with top ten pharmaceutical companies accounting for only 35% of total pharmaceutical sales. However, the leading players continue to retain their market share owing to their strong distribution reach, strong field force and new product launches.

References:
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