With 100% FDI in pharma, medicines may soon cost more

The controversy kicked up by the proposed Foreign Direct Investment (FDI) in retail, may have pushed it to the back burner for the time being, but another FDI in pharmaceutical sector quietly cleared by the UPA government, may hit the common man’s pocket sooner than later.

Patents are the rights that are granted by the state under the assumption that the inventor has spent resources for doing innovative research.

Rights are then granted for a certain period of time and during the given period, the patent owner alone is the sole manufacturer of the drug; thus determining and fixing the price of it. There are patent laws that are enacted by the government and amended as and when necessary.

India changed its Patent Act in 1970 and before that we had a Patent Act that was crafted by the British to make profit for its country. In 2005, India made one major amendment in its Patent Act by changing the duration of patent period to twenty years, which earlier was for seven years. In addition, India made another important amendment apart among several others.

It changed from ‘process patent’ to ‘product patent’. In the process patent, another process can be used to manufacture the same drug but not in product patent. Both these changes along with a host of others were done at the behest of the WTO (World Trade Organisation).

The period of 35 years from 1970 to 2005, equipped with shorter patent period (seven years) and the process patent, Indian drug companies have achieved a phenomenal global success.

 Just before 1970, India depended for much of its drug needs on the multinational drug companies, which are mostly based in Europe and America. According to the ministry of commerce and industry, Government of India, report of the task force of December 12, 2008 “The Indian pharmaceutical sector is emerging as one of the major contributors to Indian exports with export earnings rising from a negligible amount in early 1990s to Rs 29,139.57 crore (US$7.24bn) by 2007-08.”

The exports of drugs, pharmaceuticals and fine chemicals of India have grown at a compounded annual growth rate (CAGR) of 17.8 per cent during the five-year period 2003-04 to 2007-08. The Indian domestic pharmaceutical market size is estimated at US$10.76 billion in the year 2008 and was expected to grow at a high CAGR of 9.9 per cent till 2010 and thereafter at a CAGR of 9.5 per cent till 2015.”This huge success in manufacturing capacity of medicines has been an unique achievement of India, as many other developing countries which came out of the colonial rule failed to change the Patent Act as India did during 1970.

Largest and most developed
Currently, the Indian pharmaceutical industry is one of the world’s largest and most developed, ranking 4th in volume terms and 13th in value terms. The country accounted for 8 per cent of global production and 2 per cent of world markets in pharmaceuticals. Most of the domestic pharmaceutical drug requirements are met by the domestic industry. India has the largest number of US FDA inspected plants (119 plants), outside the USA.

With these changes many Indian domestic drug companies made strident leaps and achieved global success. Many of these drug companies supply medicines to around 200 developing countries all over the world at affordable price.

Hence India was aptly named as the ‘pharmacy of the developing countries’. The Indian health ministers were prone to crow about this  accomplishment with great degree of jubilation at both national and global meets for a number of years.

But then came the policy of Foreign Direct Investment (FDI) of ministry, which allowed 100 per cent foreign investment in the field of pharmaceuticals. This particular policy of the government has put in jeopardy and is likely to upset all the successes that have been achieved since 1970 by the Indian domestic drug companies.

Ever since the policy was implemented by the UPA government in 2006, many of the Indian domestic companies have been taken over by multinational drug companies.
Between the years 2006 to 2010, six major Indian companies have been gobbled up, including Matrix Lab by Mylan, USA, DaburPharma by Fresenius Kabi of Germany, Ranbaxy Labs by Dailchi Sankyo of Japan, Shanta Biotech by Sanofi Aventis of France, Orchid Chemicals by Hospira of USA and Piramal Healthcare by Abbott of USA.

All these companies had large capacities to manufacture medicines and vaccines at affordable price that are much needed. The top ten domestic companies capture 30 per cent of market and thus they are the major players. With many of these major players now at the dictates of the MNCs, it is obvious that their focus will shift in the long run that is likely to impact what they have been doing in their own countries.

With more such takeovers in the pipeline, it may lead to a situation that existed before 1970, when India depended for much of its drug requirement on MNCs.

Charkravarthy Raghavan in his book titled ‘Recolonisation’ aptly explains, that “the clock is not simply being put back. It is to be remade to move only backwards.” With Indian companies having lost the capacity to manufacture drugs by ‘process patent’ and having in addition lost major domestic manufacturing companies to MNCs the prediction of Raghavan seems to be really coming true.

But the health ministry has woken up at last and has written to other organs of the government complaining that there is a grave threat to the domestic drug manufacturing industry, which, in turn, will jeopardise access to medicines at affordable price to millions not only in India but all over the world. A high-level committee has been constituted by the government to take a fresh look at the FDI policy.

(The writer heads the Karnataka chapter of Drug Action Forum)