People's Democracy

 

      

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 India supplies affordable medicines to so many countries in the world. In volume, India is the fourth largest producer of drugs in the world and exports medicines to over 200 countries. This situation, however, is in sharp contrast to the situation as regards access to medicines within the country. The World Health Organisation (WHO) reports that the largest number of people without access to the medicines that they require, live in India. An estimated 68 crore people, ie, 65 per cent of the Indian people are not able to access the medicines that they need.

 

THE SUCCESS STORY OF

INDIA’S DRUG INDUSTRY

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 The Act superseded the colonial Act of 1911 and allowed Indian companies to produce drugs in India that were patented by foreign companies. In a decade the effects were clearly visible and India came to be known as the “pharmacy of the South”. Indian companies were able to produce patented medicines, within 2-3 years of their being introduced into the global market, and that too at one-tenth to one-hundredth of the price at which the patented drugs were being marketed. Thus a huge dent could be made in the monopoly enjoyed by European and American pharmaceutical companies.

 

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 India in the late 1950s and early 1960s. It was the pioneering effort by Indian scientists and technologists in these two companies that forced foreign companies to also start production in India and paved the way for a slew of private Indian companies to follow suit.

 

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 India’s annexation to the World Trade Organisation (WTO) in 1995 which compelled it to sign the Agreements on Trade Related Intellectual Property Rights (TRIPS). As a result, Indian companies do no have the right to produce medicines whose patents are held by foreign multinationals.

 

The effects of these reversals in public policy are clearly visible today. While India continues to be a major producer of medicines, many emerging trends are a cause for extreme concern. The first and critical challenge to universal access to medicines in India is the price of medicines. With almost complete decontrol of medicine prices, access is severely compromised for people who are economically deprived. A World Bank Study suggests that out-of-pocket medical costs alone may push 2.2 per cent of the population below the poverty line in one year (India - Raising the Sights: Better Health Systems for India’s Poor, World Bank, May, 2001). The situation is compounded by the fact that the proportion of private expenditure, of the total expenditure on health is one of the highest in the world – 84 per cent as compared to just 16 per cent public expenditure. Today, medicines costs is the key reason for the huge burden of health care costs that people face in the country. Between 70-80 per cent of all health care costs that are borne by patients are accounted for by medicines. Further, it is the poorest among whom the proportion of medicines costs to total health care costs is the highest (see Table below).

 

Table: Pattern of Per Capita Monthly Out of Pocket Expenses on Medicine and Health Care in 1999-2000

 

Source: Computed from NSS Report 461, 55^th 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

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.