Set to grow at a rate of almost 15% yearly in the years 2015-2020, the Indian pharmaceutical industry has come a long way from being virtually non-existent after independence, to being valued at an astonishing $20 billion in the domestic market.
The industry is currently third in the world in terms of volume and thirteenth in terms of value. It is also one of the largest producers of generic medicines in the world, and is known as “the pharmacy of the third world.”
But how did this transformation take place? At the time of independence, India’s pharmaceutical market was largely dominated by MNCs, and drug prices in the country were amongst the highest in the world. It remained like this until the 1960’s, when the Indian government introduced policies stressing self-reliance. To facilitate this, five state owned pharmaceutical companies were founded. The government also abolished product patents and adopted process patents, allowing Indian companies to make generic versions of foreign made drugs. Additionally, the prices of bulk drugs were also regulated under the Drug Price Control Order.
Slowly, the share of MNCs in the market dropped to less than 20% and Indian companies flourished. By 1990, India became self-sufficient in the production of formulations (finished medicines) and nearly self-sufficient in the production of bulk drugs, which are the main molecules that give medicines their therapeutic effect. The patent laws stayed this way for 35 years, giving the Indian pharmaceuticals ample time to perfect their manufacturing and research facilities. Currently, Indian companies such as Cipla, Sun Pharmaceuticals, and Lupin etc. are some of the top producers of generic medicines in the world.
Drug pricing has been a fiercely debated issue for a long time, with large MNCs and rich pharmaceutical lobbies rallying for stricter patent laws, which in turn would lead to greater profits. But amongst all this, Indian drug companies continue to make reverse engineered versions of the foreign drugs, and sell them at an extremely low cost.
This is how they managed to do so:
1. The domestic demand for medicines in India is huge, and even after selling the drugs at low costs, companies can turn over a decent profit.
2. There is a huge pool of skilled chemists in India. Overall, cost of production is 35-40% of that in the US as the cost of manufacturing and installation is low.
3. Court rulings in India have generally been in favour of low cost drugs.
For example, the recent Supreme Court ruling of 2013 ensured the production of generic version of the drug gleevec (used for treating leukaemia), which can cost as low as $2500 a year, while the original cost is $70,000 a year.
4. India also follows the process of compulsory licensing, which allows Indian companies to use intellectual property of patent holders by paying a fee.
This allows production of affordable generics that can then be exported to third world countries, especially Africa, which do not have the capacity to produce these medicines.
5. The Indian government also regulates the prices of more than 600 essential medicines, thereby reducing their cost.
6. Indian companies also make a large amount of revenue by exporting bulk drugs and some APIs (active pharmaceutical ingredients). These exports are also set to grow at an average rate of 12-14%, at least until 2018-19.
– Varun Jadia