High Road for Indian Pharma Industry

The pharmaceutical industry in India was hampered by governmental regulations in the decades following independence in 1947. These policies were inspired by the socialist belief that government needed to tightly regulate the direction of economic growth, and they led to a burdensome bureaucracy.

During this time, population growth provided domestic market expansion and opportunities for free enterprise even as currency regulations and trade restrictions limited international growth for Indian companies. In 1970, the Indian Patents Act began to regulate process patents but not product patents. For example, pharmaceutical “new chemical entities” are developed through a particular process; under Indian law, it was legal to develop an alternate, and often cheaper, process for the identical final product molecule, which allowed the manufacture of pharmaceutical ingredients to be very cost-effective. European pharmaceuticals with marketing operations in India found they could source drug molecules from India at manufacturing costs that were substantially lower than they could obtain in the developed world, and contracting out the manufacture of active and ancillary ingredients to Indian companies became sound business practice. New domestic pharmaceutical companies had to compete with long-established multinational companies.

By the 1990s, when economic liberalization was formally initiated through policy changes, Indian companies were prepared with the tools and know-how to trade globally. Businesses could make international transactions on a larger scale than was previously permitted. Soon, India became the second-largest source of active pharmaceutical ingredients worldwide (China remains the largest in volume and value).

Economic liberalization created increased opportunities for trade in the global marketplace, but it also required that Indian trade policies be aligned with those of the international community. Regulations that restricted currency exchange and the onerous permit process for new enterprises have been restructured in favor of increased transparency, efficiency, and user-friendliness. The most significant policy change affecting the pharmaceutical industry was the 1994 TRIPs (trade-related intellectual property rights) agreement, by which India finally started to recognize product patents issued after 1995. Indian pharmaceutical companies have lost the use of process improvements to provide less-costly versions of branded pharmaceuticals drugs, but they gain legal protection for new molecular entity (NME)drugs that they develop.

The new protective legal environment makes India an attractive site for preclinical research activities and clinical trials, because discoveries made in India can now be protected by patents globally. Several business models are being followed: contract research organizations (CROs) offer discovery research, perform clinical trials, and provide manufacturing facilities for small molecule, small biologic molecule, and antibody production; biotechnology companies are developing recombinant proteins for domestic use; vertically integrated domestic pharmaceutical companies are investing in NME development; and European pharmaceutical companies are setting up research operations in India.

Of the companies that exist solely to produce active pharmaceutical ingredients at lower prices, not all will survive, and some will exit the market. Some of these surviving companies will shift toward processes for biogeneric drugs, while others will invest in research for new drug development.

In the next few years, there will be an increasing number of new drugs developed in India, both by domestic and foreign companies. The loss of volume in low-end products will be more than compensated by an increase in higher-value products and services as the industry renews itself toward new drug development. PA