People's Democracy(Weekly Organ of the Communist Party of India (Marxist) |
Vol. XXXIV
No.
42 October 17, 2010 |
MNCs
Poised
to Take Over
Indian
Drug
Industry
Amit
Sen
Gupta
WHEN
the Indian parliament was discussing amendments
to the Indian Patents Act in 2005, demonstrations were organised all
over the
world demanding that India law makers take into consideration the fact
that
Indian medicines are the lifeline for poor patients residing in most
poor
countries in the world. The Indian pharmaceutical sector can take pride
from
the fact that
THE
SUCCESS
STORY OF
This
is a cause for concern and raises questions
regarding the trajectory that the Indian drug industry has chosen to
traverse.
We can take credit for the first major initiative in a developing
country to
attempt to achieve self reliance in the medicines manufacture. It is
possible
to identify three major reasons why this was made possible.
The
first relates to the Indian Patents Act of 1970.
The Act superseded the colonial Act of 1911 and allowed Indian
companies to
produce drugs in
The
second relates to initiation of manufacture of
drugs from the basic stage by Indian public sector companies. Hindustan
Antibiotics Limited (HAL) and Indian Drugs and Pharmaceuticals Limited
(IDPL)
were responsible for starting drug production in
The
third reason was the implementation of the
recommendations of the parliamentary committee on drugs and
pharmaceuticals (known
as the Hathi committee), through the Drug Policy of 1978. The 1978 Drug
Policy imposed
several restrictions on the operations of foreign companies and
provided
preferential treatment to Indian companies – both in the public sector
and the
private sector. The policy also imposed price control on 374 medicines,
accounting for over 85 per cent of all medicines in the market. The
result of
these measures was dramatic – the share of the Indian market enjoyed by
Multinational Corporations fell from over 75 per cent to less than 25
per cent
within a span of a decade.
REVERSALS
IN
PUBLIC
POLICY
Unfortunately,
all these three initiatives have been
reversed in the last two decades. HAL and IDPL were systematically
undermined
as a result of inept management and withdrawal of preferential
treatment. As a
consequence, the public sector in the medicines sector has all but been
wound
up. The 1978 policy’s major thrusts were diluted and reversed in
successive
policies in 1986, 1994 and 2002. Price control on medicines has been
reduced so
that less than 20 per cent of the medicines in the market are under
price
control. The entire range of protection that was provided to Indian
companies,
vis-à-vis multinational companies has been withdrawn. And finally, the
1970
Patent Act was amended in 2005, because of
The
effects of these
reversals in public policy are clearly visible today. While
Table:
Pattern of Per Capita
Monthly Out of Pocket Expenses on Medicine and Health Care in 1999-2000
|
Health
Exp. (Rs) |
Exp.
on Medicine (Rs) |
Medicine
% Health |
|||
Quintiles |
Rural |
Urban |
Rural |
Urban |
Rural |
Urban |
First
(Lowest) |
7.72 |
11.71 |
6.68 |
9.91 |
86.47 |
84.60 |
Second |
13.79 |
21.66 |
11.71 |
17.49 |
84.89 |
80.71 |
Third |
19.61 |
29.73 |
16.46 |
22.72 |
83.94 |
76.44 |
Fourth |
29.98 |
47.00 |
24.44 |
34.34 |
81.53 |
73.05 |
Fifth |
77.47 |
105.67 |
55.46 |
65.90 |
71.59 |
62.36 |
Total |
29.58 |
43.27 |
22.85 |
30.14 |
77.24 |
69.66 |
Source:
Computed
from NSS Report 461, 55th Round
Another
consequence
of liberalisation in the drug industry has been a distortion in the
pattern of drug production. In the absence of a clear cut policy to
ensure and
channelise production of essential drugs, a major share of the
production is
being diverted into non essential areas. This has led to a huge rise in
production of irrational and useless medicines (estimated to be at
least 50 per cent of the total drug
consumption in the country) – supported by unethical promotion by drug
companies and an unholy nexus between a section of the medical
professionals,
chemists and drug manufacturers.
DE-INDUTRIALISATION
IN
THE INDUSTRY
Possibly
the
most disturbing trend in the drug industry is that de-industrialisation
has
increased at a frightening pace and many companies are dependant on
imported
bulk drugs. Over the years many large companies have cut down Bulk Drug
production (ie, drugs produced from the basic stage) and are
increasingly
acting as mere traders. In many therapeutic groups, major production is
accounted for by the small scale sector. In many cases the latter
depends
heavily on imported bulk drugs, ie, they function as suppliers of
imported bulk
drugs to large companies. This tendency has been fuelled by
liberalisation in
the Industry – making imports easier. It has also been helped along by
the
scrapping of ‘ratio parameters’ which had made it mandatory that a
certain
percent of a company’s turnover be made up of by drug production from
the basic
stage. The shift in interest of large
companies, from manufacturing to trading, has also been a consequence
of the
massive decontrol of drug prices. Price decontrol has led to a
spiraling rise
in the prices of finished products (also called formulations) and has
reduced
the incentive to produce bulk drugs (that is the raw materials for
finished
products that are manufactured from the basic stage).
The unraveling of the
Indian industry in the post
liberalisation phase is now being played out. Many large Indian private
sector companies,
having embraced the notion of a strong patent regime, see their future
in
tie-ups with MNCs. The ball was set rolling by the Ranbaxy – Glaxo
Smith Kline tie
up. This was subsequently followed by the takeover of Ranbaxy (then the
largest
Indian company) by a Japanese company – Dacha.
Increasingly, domestic
companies are looking for such tie-ups
where domestic facilities will be used for outsourcing of both R&D
and
manufacture. Indian companies seek to leverage upon the advantages of
cheap
manufacturing and R&D costs to build such linkages with MNCs. In
return,
they would expect accelerated entry into the large Northern markets.
The catch
here is, that they would function as “junior partners” and would be
subservient
to the interests of big pharma (in other words – if you cannot beat
them, join
them!) The thrust then is not of Indian generics reaching underserved
markets
but of Indian generics making a place for themselves in the lucrative
Northern
markets.
ACQUISITION OF
INDIAN COMPANIES
Recently the DIPP
(Department of Industrial Policy and
Promotion) has circulated a paper that highlights many of these trends
and
concerns. The paper reports that turnover in the drug industry has increased from Rs 14,200 crore in 1994-95 to Rs
75,500 crore in 2008-09. What is of note is that this growth has been
accompanied by a more than proportionate growth in exports. Exports
have risen
from Rs 2512 crore in 1994-95 to Rs 39,538 crore in 2008-09 (Table
below).
Table:
Growth in Drug Industry in India
Rs. crore
Indicator |
2003-04 |
2004-05 |
2005-06 |
2006-07 |
2007-08 |
2008-09 |
Exports Value |
15213.2 |
17857.8 |
22115.7 |
26895.2 |
30759.6 |
39537.7 |
Imports Value |
2958 |
3169.3 |
4550.9 |
5851.6 |
6712.9 |
8617.6 |
Sales Value |
40800 |
42500 |
49500 |
61000 |
70000 |
75500 |
Market Size (Value) |
43758 |
45669.3 |
54050.9 |
66851.6 |
76712.9 |
84117.6 |
Domestic Consumption (Value) |
28544.8 |
27811.5 |
31935.1 |
39956.5 |
45953.3 |
44579.9 |
Domestic
Consumption Growth |
|
-3% |
15% |
25% |
15% |
-3% |
Source:
CMIE data Base
The
DIPP paper also notes that the emphasis on
exports has resulted in a significantly lower growth of domestic
consumption
when compared to exports. In fact, during 2008-09, domestic consumption
in
value terms fell from Rs 45,953 crore to Rs 44,579 crore – possibly the
first
time in recent memory. In other words, while 68 crore Indians do not
have
access to all drugs they need, drug consumption in the country is
actually
going down!
The
DIPP paper also notes that there is a move towards acquisition
of major Indian companies by foreign multinationals (Table below). Six
such acquisitions
have taken place in the last four years and more are on the anvil.
Further,
there have been several other tie-ups between MNCs and domestic
companies – viz,
GSK with Dr Reddys; Pfizer with three companies - Aurobindo, Strides
Arcolab
and Claris Life Sciences; Abbot with Cadilla Health Care and Astra Zeneca
with Torrent .
Table:
Acquisition of Indian Drug Companies
Year
|
Indian
Co taken over |
Foreign Company which took over |
Country
of Origin |
Take
over amount US$ in million |
August
2006 |
Matrix
Lab |
Mylan
Inc |
USA |
736 |
April
2008 |
Dabur
Pharma |
Fresenius
Kabi |
Singapore
|
219 |
June
2008 |
Ranbaxy
Laboratories |
Daiichi
Sankyo |
Japan
|
4600 |
July
2008 |
Shanta
Biotech |
Sanofi
Aventis |
France
|
783 |
Dec
2009 |
Orchid
Chemicals |
Hospira
|
US
|
400 |
May
2010 |
Piramal
Health Care |
Abbot
Laboratories |
US
|
3720 |
Source:
Press Reports.
The
DIPP paper further argues that: “There is a concern that
their takeover by multinationals will further
orient them away from the Indian market, thus reducing domestic
availability of
the drugs being produced by them. This
may
weaken competition leading to headroom for increase in domestic drug
prices. Data Base from the Centre for monitoring Indian Economy
indicates that
while the rate of growth of sales of the pharmaceutical companies
declined
during 2001-2009 (14.2 per cent annual) compared to their growth during
1988-2000 (19.5 per cent annual), their ratio of profit after tax to
total
income increased to 9.7 per cent (average of 2001-2009) from 4.9 per
cent
(average of 1988-2000). This may point to the worsening in both the
availability and affordability of pharmaceutical products”.
The
reversal
of production trends in the drug market is also pointed out in the DIPP
paper.
It reports that of the 10 largest drug companies in India in 1998-99,
only one (Glaxo
Smith Kline) was a foreign company. Today three of the top ten
companies are
foreign owned (Ranbaxy, Glaxo Smith Kline and Piramal).
Clearly,
there
is compelling evidence that we stand to fritter away all the gains of
the
1970s and 1980s. The Indian drug industry, built by diligent
application of
public policy that sought to achieve self reliance in the
pharmaceutical
sector, is poised to be handed over to foreign multinational
corporations. The government
of the day, in pursuit of neoliberal reforms at any cost, is a willing
accomplice. The Indian industry is faced with the twin danger of a
resurgent foreign
sector poised to strike, armed with a strong patent regime, and an
Indian sector
that is increasingly dependant on imported bulk drugs. A possible
safeguard
against such threats – the public sector
– has all but been wound up. The
implications
for self reliance and health security are obvious.